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Faroe Petroleum: UK Halibut Horst Blocks 14/21a and 14/22a


5 January 2006

Faroe Petroleum, the AIM quoted oil and gas company focusing on exploration, appraisal and undeveloped field opportunities in the Atlantic margin and the North Sea is pleased to announce that it has entered into a farm-in agreement with Oilexco on its Halibut Horst Blocks 14/21a and 14/22a on Licence P984.

Oilexco, which has the semi-submersible drilling rig Sedco 712 under long-term contract, has committed to drill an exploration well on the licence. The well is likely to be drilled in 2006, but in any event no later than April 2007. Under the agreement, Oilexco will operate the well, incurring 80% of the costs associated with the work programme, including drilling, well-testing and evaluation work in return for the right to an equity interest of 55% on satisfying the well obligation. Faroe Petroleum will retain 45% equity in the licence, paying a net 20% of the work programme costs. Oilexco will have the option on equivalent farm-in terms to drill up to three additional legs from the same wellbore.

The acreage extends over 217 square kilometres and is located in 140 metres of water on the Halibut Horst, equidistant from the producing Claymore and Blake oil fields. This is a highly prospective, yet un-drilled area known for hydrocarbon seeps, at the edge of the Witch Ground Graben, which contains several billion barrels of reserves currently on production, including the giant Piper and Claymore oil fields. The acreage benefits from its close proximity to significant nearby infrastructure options for export. Faroe Petroleum was recently awarded adjacent blocks 13/25 and 14/23 in the 23rd UK Licence Round.

Graham Stewart, chief executive of Faroe Petroleum said:

"This agreement is excellent news for the Company and its shareholders. We have secured both finance and a rig to drill an exciting new prospect in one of our core areas. This transaction illustrates the benefits of our strategy of taking large equity stakes in our now 15 licences in order to create value for our shareholders through drilling farm-out.

"We very much look forward to working with the Oilexco team as we prepare to drill this prospective acreage."

Stellar acted as advisors to Faroe Petroleum (U.K.) Limited