* To develop operated projects carbon neutrally
* Remaining emissions to be covered by offsets
* No plans for Scope 3 emissions target
* Could trigger arbitration in Mexico from next week
* Shares down by over 6%
(Adds comment, shares)
By Shadia Nasralla
VIENNA, March 5 (Reuters) - British North Sea-focused oil
and gas producer Premier Oil has committed to carbon
neutral operations at its fields by 2030, reporting a record
free cash flow of $327 million last year, up around 30% and
boosted by its flagship Catcher field.
It said on Thursday it would develop its operated projects
on a carbon neutral basis in respect of Scope 1 and Scope 2
emissions, referring to emissions from its direct operations and
from the power supply it uses.
Premier shares were down around 6.4% by 0950 GMT, their
lowest since October 2019, compared with a 0.9% loss for the
broader European energy index.
"Today's results appear to be another step in the right
direction for Premier Oil. Debt reduction has been the company's
main focus over the past few years, which has been reduced to
$1.99 billion, and free cash flow is at healthy levels" said
Stuart Lamont, investment manager at Brewin Dolphin.
The spread of the coronavirus is likely to continue casting
a shadow over energy stocks, Lamont said, after Premier's share
price dropped by one third so far this year.
Chief Executive Tony Durrant said greenhouse gas emissions
that Premier could not eliminate from its operations through
engineering would be covered by offset programmes such as
planting trees near the oil and gas fields.
Engineering solutions might include powering its Tolmount
projects through nearby windfarms, which Durrant said was
possible from around 2023.
Premier is awaiting a court decision on its plan, approved
by a majority of its shareholders, for a capital raise of $500
million for new North Sea acquisitions between March 17 and 20
and postponing its debt maturities.
Debt holder ARCM, a hedge fund with a large short position
in Premier's stock, vehemently opposed the plans.
Premier's climate targets follow similar commitments by
other pure oil and gas exploration and production companies,
such as Energean and Kosmos Energy, which will
make use of emission offset programmes.
While Kosmos said it would, in the long term, develop a
target to reduce so-called Scope 3 emissions from the end-use of
its oil and gas, for example in vehicles, Durrant said this was
difficult because Premier had no direct link with consumers.
European oil and gas majors with refineries and petrol
stations, such as BP or Eni, have set themselves
reduction targets for Scope 3 emissions, which typically vastly
outstrip operational emissions.
Premier put a stake in its Zama discovery off Mexico on the
market last year and Durrant said "multiple" bidders were still
in the process, which depends on the outcome of talks with
Mexico's Pemex to determine access to reserves and operatorship.
The process might have to go to arbitration, which can be
triggered from next week and would take a maximum of 125 days,
Durrant said.
Premier plans to produce between 70,000 and 75,000 barrels
of oil equivalent this year, excluding its planned acquisitions.
Premier hedged 3.4 million barrels in the first half at an
average price of $64 a barrel and 1.3 million barrels in the
second half at $63 a barrel.
(Reporting by Shadia Nasralla and Ron Bousso;
Editing by Alexander Smith and David Evans)
BP (BP.)