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LONDON (Alliance News) - Premier Oil PLC Thursday said its full year production will be ahead of its guidance and said it has slashed a further USD90.0 million in capital expenditure in 2015, with further cost cutting expected in 2016.
The FTSE 250-listed oil and gas producer said production has averaged 57,500 barrels of oil equivalent per day in the nine month period ended October 31, running ahead of its full year guidance of 55,000 barrels of oil per day.
The company did not adjust its full year guidance but reiterated that it remains on track to deliver full year production "ahead of its current guidance". Current production is still less than the average production of 64,000 barrels of oil equivalent per day produced in the first nine months of 2014.
More importantly, Premier Oil said it is expecting production from its existing operations to decline further in 2016 as they age, but the development of the Solan field will offset those falls. Further guidance for 2016 will be released in January, it said.
The company's two big development projects in the UK North Sea, Solan and Catcher, remain on track and on budget. Premier Oil said the Solan field will produce its first oil before the end of 2015, subject to weather conditions.
"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," said Chief Executive Tony Durrant.
At its Sea Lion joint venture offshore the Falkland Islands with AIM-listed Falkland Oil and Gas PLC and Rockhopper Exploration PLC, Premier said the pre-front end engineering and design work has been completed and contractors have been appointed.
"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," said the company.
Premier said it will provide an update on Sea Lion in the first quarter of 2016 once the current exploration programme has been completed.
The company has been focused on cost cutting, like many of its peers, and said full year development capital expenditure will be lower than originally expected, totalling around USD850.0 million compared to its USD900.0 million forecast. That is mainly due to some costs being pushed into 2016.
In addition, exploration spend is expected to be around USD200.0 million for the full year, less than its original USD240.0 million forecast.
"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," it said.
Total development and exploration expenditure in 2016 is expected to total around USD650.0 million, representing another large reduction.
Premier Oil said it has reduced its operating, general and administrative costs by a quarter in 2015 and said it plans to make further spending cuts in 2016.
Premier said, as a result of its cost reductions, it expects its full year operating expenses to equal around USD16 per barrel of oil, which will yield a USD100.0 million year-on-year fall, it said.
Gross general and administrative costs for the full year are expected to fall to around USD230.0 million, which would be down from around USD305.0 million a year earlier. Those costs are expected to fall by another 10% in 2016, it said.
"Though the 2016 budget process is still ongoing, it is anticipated that further savings in underlying operating costs of 5% to 10% can be achieved," said Premier.
It also said it has "significant liquidity" with undrawn bank facilities of USD1.20 billion. Premier Oil said it expects to have covenant headroom at the end of 2015 to be in excess of USD700.0 million.
The company continues to benefit from its substantial hedging programme, with 5.6 million barrels hedged in 2015 at USD97.6 per barrel, significantly above current spot prices which were trading at under USD46 per barrel on Thursday morning.
It has also hedged 3.7 million barrels in 2016 at USD68.3 per barrel and said it will continue to add to this as market conditions allow. The company also has large amounts of sulphur fuel oil hedged in 2015 and 2016.
Premier Oil shares were down 2.5% to 70.28 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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