Premier today provides the following trading update for the period 1 January to 31 October 2015.

Highlights

  • Production averaged 57.5 kboepd year to date; ahead of full year guidance of 55 kboepd
  • Solan on track for first oil before the year end, subject to weather
  • The Catcher project remains on schedule and on budget; successful 2015 subsea programme completed; initial development drilling results encouraging
  • Pre-FEED work on Sea Lion complete, world class preferred contractors selected
  • Cost reductions of over 25% delivered for 2015 in operating costs and G&A spend; further cuts forecast for 2016
  • Significant liquidity with cash and undrawn bank facilities of $1.2 billion; year-end covenant headroom forecast to be in excess of $700 million

Tony Durrant, Chief Executive, commented:

‘Premier continues to benefit from stable production and valuable hedging contracts. Commissioning on the Solan project progressed well during good autumn weather and the field remains on track for first oil by year-end. The Catcher project is on schedule and on budget. Looking ahead, we see reduced capital expenditure and significant cost reductions for both our current and future projects to mitigate the current oil price environment.’

Production operations

Production for the ten month period to 31 October averaged 57.5 kboepd (2014: 64.0 kboepd) in line with expectations. High operating efficiency continued across the portfolio and with the summer maintenance activities successfully completed, the group remains on track to deliver full year production ahead of its current guidance of 55 kboepd.

The Premier-operated Chim Sáo field in Vietnam outperformed, with high uptime and better than predicted reservoir performance. Following an extended shutdown to repair the firewater swivel on the FPSO, production returned to expected levels from the end of August. In the UK, all fields are producing broadly in line with expectations, with the high production efficiency achieved since the resumption of unconstrained production earlier in the year continuing at Huntington. In Indonesia, production from the Premier-operated Natuna Sea Block A remains stable with higher gas demand for GSA 1 and GSA 2 from the Anoa and Pelikan fields, offset in part by lower production from the non-operated Kakap field.

Kboepd 1 January – 31 October 2015 1 January – 31 October 2014
Indonesia 13.8 14.5
Pakistan & Mauritania 10.3 13.1
UK 16.4 20.0*
Vietnam 17.0 16.4
Total 57.5 64.0

*includes production from Scott field disposed of in December 2014

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More information and prices

For 2016, group production will reflect some natural decline in our existing production portfolio, offset by new production from the Solan field. Further guidance will be provided in our January Trading and Operations Update.

Development projects

Premier continues to anticipate first oil from Solan before the end of the year, as previously guided. Good offshore productivity and high uptime has been achieved with the Regalia flotel during September and October. Commissioning of the offshore installation systems required for first oil is progressing as planned. Timing of completion of this activity is dependent on weather conditions. A number of the critical path platform systems have now been successfully commissioned including the firewater deluge system and other safety-related systems. As a result, all material construction work for first oil is now complete; the subsea infrastructure is now commissioned; and all the utilities including power, fuel supply and air are ready for first oil. Tanker trials work started on the 10 November and the Superior flotel is contracted to arrive on the 20 November to replace the current Regalia flotel. Full habitation of the platform accommodation is expected when the Superior flotel arrives.

The first pair of producer-injector wells required for first oil have been successfully tied in. Drilling of the second producer well commenced in July completing over 1000 feet of the reservoir section. However, during drilling of the remaining reservoir section technical difficulties were encountered and the well has been suspended. The Ocean Valiant rig is currently drilling the second injector well. It is anticipated that the second producing well will now be side-tracked in Q2 2016. This will have no impact on first oil from the Solan field and expected plateau production remains 20-25 kboepd when both pairs of wells are on-stream. Cash spend to 31 October on the Solan project stood at $1.76 billion.

On the Catcher project, the subsea installation work planned for 2015 is complete with the successful installation of the pipeline end manifold and two templates at Catcher and Burgman. In addition, the 60 kilometre gas export pipeline was successfully laid during July with minimal weather downtime. Fabrication of the subsea flowline bundles and associate towheads, the buoy and the mid water arches (riser buoyancy aids) is on schedule; these will be installed in the summer of 2016.

Drilling activities which started in July using the Ensco 100 rig are progressing well. Two wells have been drilled to date, both of which were ahead of schedule and under budget. Operations on the first Catcher water injection well (CTI1) were completed with good operational performance and reservoir results. The second water injector on Catcher (CCI2) has been drilled to total depth and is now in the final phase of completion.

Fabrication of the FPSO hull and topsides is on-going in Asia. The mitigating actions put in place to address the scheduling issues associated with the construction of the hull by the FPSO contractor BW Offshore are being delivered, and so helping to safeguard the sail-away date of the FPSO. Topsides module construction is progressing well in Batam and Singapore. The project remains on schedule for first oil in 2017.

In the Falkland Islands, Premier continues to mature the development plan for the Sea Lion Phase 1a and pre-FEED work is now complete. The designs of both the FPSO and the Subsea System have evolved, tendering exercises have been completed and a set of world class preferred contractors has been selected for the provision of these facilities. Premier will work with these contractors during FEED to finalise the fabrication plans for the facilities, and will also select the drilling and well service contractors. Premier is currently in discussions with its joint venture partner and the Falkland Islands Government to decide upon the start date and duration of the FEED programme. Development financing arrangements will be progressed during FEED, and this work will include a farm down process to bring in an additional upstream partner. Premier expects to provide a full update on progress of its Sea Lion project in Q1 2016, after completion of the exploration programme.

In Norway, on the Premier-operated Vette project, extensive project rework and market engagement has generated very competitive offers of commercial terms from the supply chain. Two alternative development concepts have been validated and final selection of the preferred host facility for the Vette field development will be made before year-end 2015, in preparation for project sanction decision in 1H 2016.

In Indonesia FEED has been completed on the next generation of developments for Natuna Sea Block A: Bison, Iguana and Gajah Puteri. These projects will backfill our existing Singapore and domestic market contracts and an investment decision will be made in Q4 2016.

Exploration and appraisal

Premier’s four-well North Falklands Basin campaign had a strong start earlier in the year with two discoveries from the first two wells: Zebedee, which added 50 mmbbls of resource to a potential Phase 2 development of Sea Lion, and Isobel Deep which was the first test of the Isobel/Elaine fan complex in the previously unexplored southern part of PL004. The Eirik Raude rig is in the process of completing operations in the South Falklands basin and is expected to be on hire shortly. Following discussions with our partners and the Falkland Island Government, Premier now intends to re-drill the Isobel/Elaine complex (unrisked mean resource 400mmbbls), replacing drilling of the Jayne East prospect in PL004, with results expected early next year. Premier will then drill the Chatham exploration target in PL032 as planned, which will also appraise the expected gas cap in the west of the Sea Lion field.

Looking ahead, Premier’s exploration team continues to focus on maximising opportunities around existing operations taking advantage of low rig rates, and to focus on under-explored but proven hydrocarbon basins that have the potential to develop into new business units in 2018 and beyond. In Brazil, the Ceara Basin 3D seismic survey acquisition is 50 per cent complete. In Mexico, Blocks 2 and 7 were signed in September and the Joint Venture is now moving forward with the detailed technical evaluation of the licences.

Premier’s 2015/16 exploration & appraisal programme
Country Well name Timing Licence
interest (%)
Gross unrisked prospective
resource (mmboe)
Risk
Falklands Isobel Deep redrill/ Elaine* Q4 2015 36.00 55-243-933 Moderate
Falklands Chatham Q1 2016 60.00 12-34-97 High
UK Bagpuss Q1 2016 37.50 16-72-309 High
UK Laverda/Slough Q2 2016 54.00 2-11-83 Moderate

* Volumes quoted relate to the whole Elaine/Isobel complex.

Portfolio Management

The formal sales process for the Pakistan business, initiated after an unsolicited approach, is ongoing and Premier hopes to provide an update on progress early in 2016.

Following the default by Noreco’s UK subsidiary, Noreco Oil (UK), on the Huntington licence in the North Sea, Premier, along with the remaining partners in the field, expects to exercise forfeiture rights in respect of Noreco Oil UK’s 20 per cent interest in the field. As a result Premier’s equity position in Huntington will increase on a pro-rata basis to a 50 per cent non-operated position.

Finance

Premier continues to employ a rolling 12-18 month hedging programme in order to plan and protect its cash flows. For 2015, 5.6 mmbbls of dated Brent and 120,000 mt of high sulphur fuel oil has been sold forward at an average price of $97.6/bbl and $532.6/mt, respectively. A portion of 2016 production has been hedged with 3.7 mmbbls of dated Brent and 72,000 mt of high sulphur fuel oil sold forward at an average price of $68.3/bbl and $400/mt, respectively. Premier will continue to add to this position as market conditions allow.

As a result of significant cost saving initiatives, Premier continues to expect 2015 full year operating expenses of c$16/boe, a reduction of over $100 million year-on-year. Though the 2016 budget process is still ongoing, it is anticipated that further savings in underlying operating costs of 5-10 per cent can be achieved. Gross G&A costs estimated at c$230 million for 2015 (a reduction of over $75 million year-on-year) are expected to be a further 10 per cent lower in 2016.

Development capital expenditure for the full year 2015 is now expected to be c$850 million, lower than previous guidance of $900 million as certain costs are phased into 2016. In addition, exploration spend is now expected to be c$200 million (below previous guidance of $240 million) as completion of the Falklands drilling campaign moves into 2016. Planned capital expenditure is anticipated to be substantially lower in 2016, reflecting the completion of the Solan development and limited committed development expenditure beyond the ongoing Catcher project. Total development and exploration expenditure in 2016 (including deferrals from 2015) is expected to be c $650 million, but remains subject to ongoing budget discussions.

The Group retains significant cash and undrawn facilities of $1.2 billion as at 31 October with net debt of c$2.3 billion. Following the successful renegotiation of the financial covenants announced previously, Premier’s covenant headroom is forecast to be in excess of $700 million at year end.

Since the Half Year results were announced, Premier has entered into swap arrangements to fix the interest rate payable on $800 million of the Company’s outstanding drawn debt. As a result, 60 per cent of the Company’s current drawn debt is now under fixed interest terms.

Future announcements

The next Premier Trading and Operations Update will be provided on 14 January 2016. Premier’s Full Year Results for 2015 will be announced on 25 February 2016.



This article is for information and discussion purposes only and does not form a recommendation
to invest or otherwise. The value of an investment may fall. The investments referred to in this
article may not be suitable for all investors, and if in doubt, an investor should seek advice from
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