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LONDON (Alliance News) - Premier Oil PLC Thursday said production for the first ten months of the year has increased and said levels should remain flat throughout next year as the planned disposal of some of its assets will be offset by increased production from the Solan field in the North Sea.
For the ten months ended October 31, the company's production increased 12.6% to 64,036 barrels of oil equivalent per day compared to 56,882 barrels of oil equivalent per day. Premier says it is on track 63,000 barrels of oil equivalent per day for the full year, which is the higher end of its previous guidance.
Premier Oil saw its largest production increase in the UK, which rose to 19,963 barrels of oil equivalent per day during the first ten months of the year from 13,753 barrels of oil equivalent per day a year earlier. Production in Vietnam and Indonesia also saw increases, whilst production from Pakistan and Mauritania declined.
In 2015, the company expects production levels to remain fairly flat. Premier said the disposal of the Scott area in the North Sea and natural decline of its portfolio will impact production levels, but said this would be offset by new production from the Solan field which is expected to reach a rate between 12,000 and 15,000 barrels of oil per day attributable to Premier over the next year, it said in a statement.
Premier says it is protected from weaker oil prices by a 12 to 18 month hedging programme. For the fourth quarter, 1.4 million barrels of Brent oil has been hedged at a forward sales price of USD102.90 per barrel alongside the company forward selling 4.8 million barrels for 2015 at a price of USD101.10 per barrel.
"Despite external market volatility, 2014 has seen strong operational performance from Premier as we continue to deliver on the key targets communicated to investors earlier in the year," said Chief Executive Tony Durrant.
For the full year, Premier expects capital expenditure to total around USD1.20 billion, in line with its expectations but stated capital expenditure next year will be significantly lower due to the expected completion of the Solan project.
At the end of the period, the company reported a cash balance of USD230 million with a further USD2.00 billion in undrawn facilities. Net debt stood at USD2.10 billion.
Premier has spent USD1.30 billion on the Solan project at the end of October, and has extended a loan to its partner Chrysaor to ensure the project is funded through to first oil. In return, Premier will now receive 100% of the project's cashflow until the loan and interest has been repaid. It is also discussing the possibility of refinancing or selling the Chrysaor loan.
The Catcher project, also in the North Sea, is on track and drilling is expected to begin in the middle of 2015 and the company said the project remains economically robust in reaction to weaker oil prices.
The Bream development project in Norway is expected to get an investment decision around the end of the year, said Premier.
The Sea Lion project in the North Sea, a joint venture with Rockhopper Exploration PLC, has been reviewed following weaker oil prices, with both companies releasing statements saying they will take a phased, low cost development approach to the project. Both companies have said that capital expenditure on the project will be reduced until first cashflow is generated from the field.
Premier and Rockhopper both said in statements that choosing to only develop the north-east part of the project with a reduced well count could be delivered for less than USD2.00 billion of capital expenditure before first oil, similar to Premier's Catcher project.
Under the reduced cost scheme, the project is expected to recover 160 million barrels of oil over a 15 year period, at a rate of 50,000 to 60,000 barrels of oil per day, said Premier in a statement.
"We have worked closely with Premier Oil on a lower cost initial development scheme that allows us to move together towards project sanction that is not contingent on the involvement of a third party," said Rockhopper Chief Executive Sam Moody.
Premier Oil said it will continue to seek a partner for the Sea Lion project, but reiterated it is no longer a pre-requisite to be able to sanction the project, which is expected to happen during the first half of next year, with production expected to commence in 2019.
"In 2015, net cash flows will benefit from lower development capital expenditure and a programme of cost reductions," said Premier Chief Executive Tony Durrant.
Premier said new projects will only be approved if they will be "robust" at an oil price of USD85 per barrel, the company's long-term price.
Premier shares were down 0.2% to 247.80 pence per share on Thursday morning. Rockhopper shares were up 5.9% to 74.67 pence per share.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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