Premier Oil provides trading and operations update
Friday, Jul 14, 2017
Premier provides an update on recent operational activities and guidance in respect of its half year financials to 30 June 2017. The Group’s Half-Yearly Results will be published on Thursday 24 August 2017.

Highlights

  • World class oil discovery made with the Zama-1 well offshore Mexico, as announced yesterday
  • Strong production ahead of guidance at 82.1 kboepd, up 34.5% on prior corresponding period; full year guidance of 75 kboepd maintained; will be reviewed on completion of the summer maintenance period
  • $14.7/boe operating cost, 11% down on the prior period; full year capex guidance reduced from $350 million to $325 million
  • Catcher on schedule for 2017 first oil; FPSO mechanically complete and final commissioning is well advanced prior to sailaway to the North Sea
  • FEED for the Tolmount project is ongoing; discussions with an infrastructure partner to fund Premier’s share of the development are at an advanced stage
  • Refinancing is expected to become effective 28 July; all shareholder and lender approvals have been received and a final Court Scheme sanction hearing is scheduled for 18 July
  • Positive cash flow in 1H, in line with guidance, reducing net debt to $2.7 billion; deleveraging will accelerate as Catcher completes and proceeds are generated from our disposal programme
Tony Durrant, Chief Executive, commented:

“The very exciting exploration success in Mexico comes on top of another strong operating performance for Premier in the first half. Our producing assets are outperforming and our cash costs are below budget. Catcher will provide another step up in production and cashflow, accelerating debt reduction. Our substantial undeveloped resource base, now enhanced by the Mexican discovery, provides Premier with significant growth opportunities.”

Production operations

Production averaged 82.1 kboepd for the first six months of the year, with all business units performing ahead of the 2017 budget.  Full year production guidance of 75 kboepd (excluding any contribution from Catcher) is maintained and Premier will provide updated guidance once the summer maintenance programmes have been completed. Pakistan production is included in the Group’s full year production guidance as completion of the sale of the Pakistan business is forecast for year end.

During the first six months of the year, production from Indonesia averaged 14.3 kboepd, up 4 per cent on the prior period. This was achieved via strong gas sales from Premier’s operated Natuna Sea Block A into Singapore which increased market share within the principal gas contract GSA1 to 49 per cent year to date, against a contractual share of 47 per cent. In Vietnam, Premier’s operated Chim Sao field averaged 15.5 kboepd, underpinned by high operating efficiency, strong reservoir performance and a successful well intervention programme mitigating natural decline from the field. During the period, the Chim Sao field passed 50 million barrels of production already in excess of the original volumes at project sanction. A two well infill drilling programme is scheduled to commence in August and this will help maximise future production from the asset.

UK production was strong over the period, averaging 45.5 kboepd, up 105 per cent on the prior corresponding period, principally as a result of a full contribution from the former E.ON assets and the Solan field.  Production from the former E.ON assets continues to exceed targets, averaging 19.4 kboepd in the first half.  The Huntington field was the highest net producer in the portfolio averaging 15.6 kboepd, 36 per cent above budget. This strong performance from increased well flow rates was brought about by improved reservoir management and aided by high operating efficiency. Discussions with Teekay, the owner of the FPSO, to extend the firm charter period for the Huntington field beyond April 2018 are ongoing.

Production from the non-operated Elgin Franklin field was also above budget, averaging 6.5 kboepd. A successful well intervention programme at the Babbage field meant that production was ahead of plan at 3.2 kboepd. Operating costs were also reduced at the field following the transition of the offshore facility to NPAI (a Not Permanently Attended Installation) in April.

Production from the Premier operated Solan field averaged 7.3 kboepd, lower than anticipated, as a result of the first production well (P1) being shut in for a period in February following the failure of the existing electric submersible pump (ESP). P1 is currently producing strongly on free flow without the need for workover operations. A number of options to improve production levels and recovery at Solan continue to be studied, including increasing water injection rates into the reservoir and a possible further drilling campaign in 2019. Production from the rest of Premier’s UK portfolio was broadly in line with expectations.  

Production from Pakistan and Mauritania averaged 6.8 kboepd in line with expectations.  The decrease on the prior year reflects expected natural decline.

Development and pre-development projects

In the UK, the Premier-operated Catcher project remains on track for first oil later this year. Topsides and turret commissioning work on the FPSO is now well advanced and the construction scope in the hull, along with habitation of the living quarters, is now complete.  Commissioning of the marine systems is gaining pace and the Catcher Safety Case has been approved by the Offshore Health & Safety Executive. As much commissioning work as possible will be completed in Singapore prior to sailaway to the UK which is now anticipated during August. The planning for the anchorage commissioning in Singapore and the subsequent transit preparation is progressing well. Out in the field itself, 11 wells (eight producers and three injectors) have been drilled to date and a short subsea campaign to tie in the four recently completed Varadero wells is complete.  The recent Burgman production well was delivered ahead of time and budget, and continues the trend of wells being delivered on, or better than, prognosis. Total capex forecast remains at $1.6 billion, 29 per cent lower than the sanctioned estimate.

Elsewhere in the UK, offshore and onshore FEED on the Premier-operated Tolmount field in the Southern Gas Basin is ongoing. Following FEED and tendering of the major project scopes which will commence shortly, development sanction is planned for the first half of 2018. Alongside the FEED process, Premier continues to seek ways of enhancing returns and reducing upfront capex on the project and is engaged with an infrastructure partner regarding the possible funding of the development. Subsurface studies on Tolmount East and Tolmount Far East continue ahead of any future appraisal drilling.

In Indonesia, recompletion of the Anoa development well (WL-5X) first drilled in 2012, is underway. The original well discovered productive gas in the Lama Formation but the higher pressure observed required platform modifications to allow gas production through the existing facilities. These have been completed and the well is expected to be brought on production in early August. A successful long-term production test from this well will help to prove up the potential of the Lama Formation and provide Premier with further gas supply from the Anoa field area.

In the Falklands Islands, good progress has been made on negotiating funding packages for the project and discussions are ongoing with both potential providers of export credit finance and with service contractors. In parallel, commercial and regulatory approvals are being discussed with the Falkland Islands Government with the aim of being in a position to sanction the development in 2018.

Exploration and appraisal

As announced yesterday, The Zama-1 exploration well in Block 7 Sureste Basin off shore Mexico which spudded on the 21 May 2017 has discovered significant quantities of oil in its primary reservoir target. The well will now drill ahead in the primary target before testing the Zama deep target.

In the UK, operations and data acquisition at the Ravenspurn North Deep well (Premier carried 5 per cent interest), which is testing the potential of a deep Carboniferous age horizon underlying the Ravenspurn North field, are ongoing with the drilling of the planned lateral side-track for production testing, after successful completion of the vertical pilot hole.  Elsewhere in the Southern Gas Basin, planning for the 2018 Cobra appraisal well, which is adjacent to the Premier-operated Babbage producing field, is underway.

Final processed broadband seismic data across Premier’s three blocks in the Ceara Basin in Brazil was received in April 2017.  A number of prospects are being matured and well locations will be selected from this data during 2017 in advance of a potential drilling campaign in 2019. Premier continues to lead efforts with other operators in the region to obtain well cost reduction synergies.

Portfolio management

Premier has an active programme of asset disposals whereby the Company seeks to streamline its portfolio, retaining only core assets. The sale of its interest in the Austen discovery recently completed. Current disposal processes include the sale of its 30 per cent interest in the Esmond Transportation System (ETS) and its interest in the Arran field in the Central North Sea, both of which are expected to conclude in the second half of 2017.

In April, Premier announced the sale of its Pakistan business to Al-Haj Group for $65.6 million.  To date, Al-Haj has paid non-refundable deposits of US$20 million with a further tranche of $5 million due in August. Completion of the transaction is expected by year end.

Post the period end, Premier announced that it had acquired an additional 3.71 per cent of the Wytch Farm field for a consideration of £11.7m (less final completion adjustments), taking its overall interest to 33.8 per cent. The acquisition is expected to complete by the end of August.

Finance

Total revenues for the first six months of the year will be in the order of $560 million (2016: $393.8 million).  The estimated average oil price realised for the first half of 2017 was $50.2/bbl (2016 1H: $48.6/bbl) (post hedge) compared with an average spot Brent crude price of $51.7/bbl. Estimated average gas prices (post-hedge) realised from our Indonesia and Pakistan assets for the period were $8.6/mscf (2016 1H: $5.8/mscf) and $2.8/mscf (2016 1H: $3.1/mscf) respectively. Estimated average gas price (post hedge) realised from our southern North Sea gas assets was 47 pence/therm (2016 1H: 41 pence/therm).

Operating costs are estimated at c. $220 million for the first half (2016: $183.7 million), equating to $14.7/boe across the group, an 11 per cent reduction on the prior period.  The increase in absolute operating costs reflects a full contribution from the former E.ON assets and the Solan field. Ongoing cost reduction initiatives, successful contract renegotiations and strict management of discretionary spend continue to deliver low and stable operating costs. Gross G&A costs are below budget for the first half.

Premier’s development, exploration and abandonment expenditure for the period is approximately $140 million. 2017 full year guidance is reduced to $325 million from $350 million.  

Net debt has reduced to $2.74 billion (2016 FY: $2.77 billion) with positive free cash flows for the period being offset by translation differences on non-dollar denominated debt.  As at 30 June, Premier retains significant cash and undrawn facilities. For the full year, as previously stated, Premier expects to be cash flow positive after capex and planned disposals at oil prices above $50/bbl, driving net debt reduction. As capex commitments (including the completion of the development phase of the Catcher field) reduce, debt reduction will accelerate.

Refinancing update

As previously announced, approvals for the terms of the proposed refinancing have been received from Premier’s shareholders, Scheme Creditors and convertible bondholders.  The Scheme sanction hearing at the Court of Session in Scotland is scheduled to take place on 18 July following which the refinancing is expected to become effective on or around 28 July.

For more information, please visit: http://www.premier-oil.com
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