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Faroe Petroleum upgraded by Barclays as it questions whether DNO will up its bid

It raises the question of whether DNO can be convinced to offer a bit more to acquire the business, Barclays' analysts said
oil and gas operations
DNO pitched its takeover offer at 152p

Barclays has upgraded its view on Faroe Petroleum PLC (LON:FPM) after the takeover target struck an asset swap deal with Equinor.

Faroe exchanged longer timeline field developments in exchange for already producing assets.

READ: Takeover target Faroe Petroleum trades away development for producing assets

The deal, announced on Wednesday, is expected to deliver between 7,000 and 8,000 barrels of oil equivalent production per day for 2019, and, as such, sets Faroe up to achieve its medium-term targets.

It comes as major shareholder and potential acquirer DNO, which last month offered to buy the 72% of the company that it doesn’t already own, for £608mln or 152p per share.

Today, in a note, Barclays moved the stock to ‘equal weight’ from ‘underweight’ and lifted its price target price to 185p, up from 160p.

“Although Faroe Petroleum's asset swap with Equinor is not a direct response to DNO's 152p per share cash offer, we believe it demonstrated management's ability to deliver accretive transactions that accelerate the strategy of self-funded production growth and continued impactful exploration,” Barclays' analysts said in a note.

“The transaction itself is accretive to our core and tangible NAVs, which rise by 23% and 16%, respectively, and also raises the question of whether DNO can be convinced to offer a bit more to acquire the business that it has been pursuing for the last six months.”

The investment bank added: “The deal sees Faroe trade medium-term production growth within the Njord Future Project for an immediate uplift in production of 7-8kboe/d across four fields in 2019E.

“Although these are declining assets, our initial evaluation of them indicates that Faroe has the better side of the deal, boosted by the quicker utilization of tax losses that higher 2019-20E production enables.”

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Faroe Petroleum plc Timeline

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