Faroe Petroleum : Response to DNO's announcement and intention to publish an Independent Expert's asset valuation
Notes the announcement made today by DNO ASA ("DNO") in relation to its unsolicited offer for the entire issued and to be issued share capital of Faroe not already owned by DNO at 152p per share in cash (the "Offer").
The Board believes that there is nothing substantially new in DNO's announcement and notes that DNO continues to seek to justify its Offer based on a premium referenced to Faroe's share price on 3 April 2018, which fails to recognise the significant achievements Faroe has delivered since then, including the Iris/Hades and Agar discoveries, and the recently announced Equinor asset swap. The reality is that the DNO Offer represents a premium of only:
• 1% to the undisturbed three month volume weighted average share price (VWAP)¹
• 21% to the closing share price prior to the Offer announcement - about half the average premium paid on all UK takeovers over the last 10 years²
The Board notes DNO's statement that if DNO does not receive sufficient acceptances by 1 pm London time on 2 January 2019 for its Offer to be unconditional, DNO has the choice either to lapse the Offer or to extend it. This choice is DNO's alone, as was the timing for the announcement of its unsolicited Offer.
For the sake of clarity, the Board makes the following observations in relation to the Offer timetable, as established by the UK Takeover Code (the "Code"):
· DNO has until 10 February 2019 to achieve sufficient acceptances for its offer to become unconditional
· The Board of Faroe has until 20 January 2019 to announce material new information in relation to the Offer
· DNO has until 27 January 2019 to improve or otherwise change its Offer, should it wish to do so
· If the Offer at any time becomes or is declared unconditional, DNO must keep it open for acceptance for at least another 14 days
The Board of Faroe has engaged Gaffney, Cline & Associates ("GCA") to prepare an independent valuation of Faroe's assets in accordance with Rule 29 of the Code. For Code purposes, GCA's independent valuation report needs be a "current" valuation of the assets and therefore must reflect the latest available information on Faroe's assets as at the report date which will therefore include the latest Brasse East drilling results subject to completion of drilling operations. As noted above, under the Code timetable Faroe has until 20 January 2019 to announce material new information in relation to the Offer and the Board intends to publish GCA's independent valuation report ahead of this date.
The Board notes DNO's focus on recent uncertain oil and equities markets as a reason to justify its Offer. Faroe remains fully funded to pursue its near to medium term production growth target of 35,000boepd and its largest ever drilling campaign, while the additional financial flexibility created by the recent Equinor asset swap - adding £96 million³ of incremental cash flow in the next two years - would allow Faroe to exploit suitable opportunities that might arise from any short term weakness in the oil price.
The Board reaffirms its previous statements that the Offer is opportunistic and substantially undervalues Faroe, and encourages all shareholders to take no action.
The Board believes that there is nothing substantially new in DNO's announcement and notes that DNO continues to seek to justify its Offer based on a premium referenced to Faroe's share price on 3 April 2018, which fails to recognise the significant achievements Faroe has delivered since then, including the Iris/Hades and Agar discoveries, and the recently announced Equinor asset swap. The reality is that the DNO Offer represents a premium of only:
• 1% to the undisturbed three month volume weighted average share price (VWAP)¹
• 21% to the closing share price prior to the Offer announcement - about half the average premium paid on all UK takeovers over the last 10 years²
The Board notes DNO's statement that if DNO does not receive sufficient acceptances by 1 pm London time on 2 January 2019 for its Offer to be unconditional, DNO has the choice either to lapse the Offer or to extend it. This choice is DNO's alone, as was the timing for the announcement of its unsolicited Offer.
For the sake of clarity, the Board makes the following observations in relation to the Offer timetable, as established by the UK Takeover Code (the "Code"):
· DNO has until 10 February 2019 to achieve sufficient acceptances for its offer to become unconditional
· The Board of Faroe has until 20 January 2019 to announce material new information in relation to the Offer
· DNO has until 27 January 2019 to improve or otherwise change its Offer, should it wish to do so
· If the Offer at any time becomes or is declared unconditional, DNO must keep it open for acceptance for at least another 14 days
The Board of Faroe has engaged Gaffney, Cline & Associates ("GCA") to prepare an independent valuation of Faroe's assets in accordance with Rule 29 of the Code. For Code purposes, GCA's independent valuation report needs be a "current" valuation of the assets and therefore must reflect the latest available information on Faroe's assets as at the report date which will therefore include the latest Brasse East drilling results subject to completion of drilling operations. As noted above, under the Code timetable Faroe has until 20 January 2019 to announce material new information in relation to the Offer and the Board intends to publish GCA's independent valuation report ahead of this date.
The Board notes DNO's focus on recent uncertain oil and equities markets as a reason to justify its Offer. Faroe remains fully funded to pursue its near to medium term production growth target of 35,000boepd and its largest ever drilling campaign, while the additional financial flexibility created by the recent Equinor asset swap - adding £96 million³ of incremental cash flow in the next two years - would allow Faroe to exploit suitable opportunities that might arise from any short term weakness in the oil price.
The Board reaffirms its previous statements that the Offer is opportunistic and substantially undervalues Faroe, and encourages all shareholders to take no action.