OSLO (Reuters) - Britain's Faroe Petroleum (L:FPM) has struck a deal to swap Norwegian oil and gas assets with Equinor (OL:EQNR), in a move that could allow it to return cash to shareholders at a time when it faces a hostile bid from Norway's DNO (OL:DNO).
Faroe Petroleum Chief Executive Graham Stewart said the deal had been in the works before DNO's offer, however, adding it could lead to the introduction of a sustainable dividend policy, and was not designed to stop the bid.
The binding, non-cash deal will boost Faroe's output by 7,000-8,000 barrels of oil equivalent per day in 2019 while state-controlled Norwegian energy firm Equinor will secure stakes in fields located in the less mature Norwegian Sea.
"The increased cash flow, reduction in capital expenditure and reduction in unit operating cost resulting from the transaction will further strengthen our already robust balance sheet," Stewart said in a statement.
"This will enable us to give careful consideration to a potential return of capital to our shareholders, as an additional element in our capital deployment mix," he said.
Faroe on Nov. 26 rejected a 608 million pound bid from DNO, which it said significantly undervalued the Aberdeen-based firm.
RBC Capital said in a note that the deal was "in line with Faroe's previous strategy of minimising capex, accelerating cash flow (shoring up the balance sheet), and should not surprise investors, including DNO."
DNO, which is seeking to add British and Norwegian assets to its portfolio of Middle East oilfields, was not immediately available for comment.
The deal increases Equinor's stakes in the Njord field, a redevelopment project with extensive investment commitments in the next several years, and in the nearby Bauge and Hyme licenses, the company said.
In return, Faroe will take Equinor's stakes in the Vilje and Ringhorne East fields, and parts of the state-owned firm's ownership in the Marulk and Alve fields.
"The net effect of our agreement with Faroe is to upgrade Equinor's portfolio in line with our updated roadmap for the NCS (Norwegian Continental Shelf)," Equinor said.
"We are strengthening our operated position in the prolific Njord area, which we believe continues to have considerable upside potential ... we are reducing our exposure to non-core and partner-operated assets," it added.
The effective date of the transaction is Jan 1 2019, subject to Norwegian government approval.