London, UK, 1 October 2018

Edison issues initiation on Faroe Petroleum (FPM)

Faroe has successfully established a 98mmboe reserve base through an exploration-led organic growth strategy. Norwegian exploration tax incentives, combined with recent success at Iris/Hades, underpin finding costs of c $1/boe (post-tax) and have delivered a portfolio of development projects with point-forward IRRs ranging from 21% to 41% at $70/bbl. With a RENAV of 185.2p/share, we believe that the market is not fully valuing the risked value of Faroe's upcoming seven-well E&A programme that targets net un-risked prospective resource of 144mmboe, or is not fully taking into consideration the positive cash flow impact of tax depreciation carry-forwards/consolidation in Norway. Based on current debt availability, we believe Faroe is fully funded for current development commitments at an oil price down to $40/bbl.

Our RENAV of 185.2p/share is based on a long-term oil price of $70/bbl and 10% WACC, which rises to 215.0p/share assuming an 8% WACC. Key investment risks include service cost inflation, potential for underestimation of decommissioning liabilities and asset integrity.

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Sanjeev Bahl, +44 (0)20 3077 5700
Carlos Gomes, +44 (0)20 3077 5700
Elaine Reynolds, +44 (0)20 3077 5713
oilandgas@edisongroup.com

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