10 Apr 2017 16:55
Premier Oil plc (the "Company")
2016 Annual Report and Financial Statementsand Notice of Annual General Meeting 2017
10 April 2017
Further to the release of the Company's Annual Results on 9 March 2017, the Company announces that it has today published its Annual Report and Financial Statements for the financial year ended 31 December 2016 (the "2016 Annual Report") and its 2016 Corporate Responsibility Report. In addition, the Company has today posted to shareholders the Notice of Annual General Meeting ("AGM") 2017. The AGM will be held at No.11 Cavendish Square, London, W1G 0AN, at 11.00am on Wednesday 17 May 2017.
In accordance with Listing Rule 9.6.1., copies of the 2016 Annual Report, the Notice of AGM and related form of proxy have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism at www.morningstar.co.uk/uk/nsm. The documents (except for the form of proxy) are also available to view on the Company's website at www.premier-oil.com
A condensed set of financial statements and information on important events that have occurred during the year ended 31 December 2016 and their impact on the financial statements were included in the Company's 2016 Annual Results announcement on 9 March 2017. That information together with the information set out below in Appendix 1, which is extracted from the 2016 Annual Report, fulfil the requirements of DTR 6.3.5. This announcement is not a substitute for reading the full 2016 Annual Report. Page and note references in the text in Appendix 1 are made in reference to the 2016 Annual Report. To view the 2016 Annual Results announcement, visit the Company website: www.premier-oil.com/premieroil/investors
Further enquiries:
Company Secretariat:Daniel Rose Tel: +44 (0)20 7730 1111
Investor Relations:Elizabeth Brooks Tel: +44 (0)20 7730 1111
Disclaimer
This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Group believes the expectations reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to factors beyond the Group's control or otherwise within the Group's control but where, for example, the Group decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.
APPENDIX 1
Company Risk Factors (required under DTR 4.1.8)
Principal risk factor | Risk detail | How is it managed? | Key steps to mitigate in 2016/17 |
Commodity price volatility | Oil and gas prices are affected by global supply and demand and price can be subject to significant fluctuations.Factors that influence these include operational issues, natural disasters, weather, long-term impact of climate change, political and security instability, conflicts, economic conditions or actions by major oil-exporting countries.Price fluctuations can affect our business assumptions and can affect our ability to deliver on our strategy.Specific risks for 2017: inability to execute a satisfactory hedging programme due to low forward oil prices; lack of credit lines for hedging. | Oil and gas price hedging programmes to underpin our financial strength and protect our capacity to fund our future developments and operations.Premier investment guidelines are to ensure that our development programmes are robust to downside sensitivity price scenarios. | Hedging programme continued with fixed price term sales and options to provide some protection during an extended period of low oil prices.Economics of development programmes re-worked to reflect low oil price environment.Discretionary spend curtailed.Contingency planning for accelerated decommissioning of identified production assets. |
Financial discipline and governance | Risk of covenant breach and that sufficient funds are not available to finance the business.Risk of financial fraud. Breach of delegated authority.Specific risks in 2017: reduced flexibility to manage the business due to tighter controls agreed with lenders post refinancing, including reduced ability to deliver M&A; ability to comply with reset covenants. | Strong financial discipline. Premier has an established financial management system to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to manage the level of assessed risk associated with the financial instruments. The management system includes policies and a delegation of authority manual to reasonably protect against risk of financial fraud in the Group.Premier maintains access to capital markets through the cycle through proactive engagement with banks and lenders as evidenced by completion of refinancing.An insurance programme is put in place to reduce the potential impact of the physical risks associated with exploration and production activities. In addition, business interruption cover is purchased for a proportion of the cash flow from producing fields. Cash balances are invested in short-term deposits with minimum A credit rating banks, AAA managed liquidity funds and A1/P1 commercial paper, subject to Board approved limits. | Ongoing proactive dialogue with lenders.Economics of investment decisions and development projects re-worked to reflect low oil price environment.Deferral of discretionary spend.Unsanctioned development projects deferred and re-shaped.Ongoing reduction of contractor spend.Contingency planning for right-sizing and re-structuring of Group to deliver business goals.Enhancement of Business Control Review process.Continued non-core disposals. |
Production and development delivery and decommissioning execution | Uncertain geology and reservoir performance leading to lower production and reserves recovery.Availability of services including FPSOs and rigs, availability of technology and engineering capacity, availability of skilled resources, maintaining project schedules and costs as well as fiscal, regulatory, political and other conditions leading to operational problems and production loss or development delay.Consequences may include lower production, lower recovery of reserves, production delays, cost overruns and/or failure to fulfil contractual commitments.Immaturity of decommissioning in the North Sea and low oil prices, leading to aggressive cost and timing estimates for decommissioning of assets.Specific risks in 2017: continued underperformance of Solan field; timing of first oil from Catcher development; offtake demand from Singapore. | Geoscience and reservoir engineering management systems, including rigorous production forecasting and independent reserves auditing processes.Effective contracting strategy, operations, development and project execution management systems and cost controls together with capable project teams.Long-term development planning to ensure timely access to FPSOs, rigs and other essential services.Preference for operatorship, as evidenced by 2016 acquisition of operatorship of Huntington field.Specialist decommissioning team in place and continued reduction in asset operating costs to defer abandonment liabilities. | Improved production forecasting, enhanced reporting and monitoring through further refinement of near-real-time production analytics platform.Improved project planning and delivery through better coordination and execution of cross-functional review prior to decision gates.Continued ExCo, business unit and project engagement on contractor selection/management.Escrow account for Asian development to fund future decommissioning liabilities.Expanded decommissioning resources for 2017/2018.Engagement with UK government on decommissioning. |
Joint venture partner alignment and supply chain delivery | Global operations in the oil and gas industry are conducted in a joint venture environment.There is a risk that joint venture partners are not aligned in their objectives and drivers and this may lead to inefficiencies and/or delays. Several of our major projects are operated by our joint venture partners and our ability to influence our partners is sometimes limited due to our small interest in such ventures.We are heavily dependent on supply chain providers to deliver services and products to time, cost and quality criteria. Heightened risk during periods of downturn in the upstream services sector.Specific risks in 2017: financial viability of key suppliers, causing delays or cost over-runs on projects or operations; joint venture partner misalignment on decommissioning in UKCS. | Due diligence and regular engagement with partners in joint ventures in both operated and non-operated projects. Premier pursues strategic acquisition opportunities where appropriate to gain a greater degree of influence and control.Non-operated ventures management system.Enhance financial due diligence of supply chain providers. Monitor contractual performance and delivery. | Heightened engagement with joint venture partners and supply chain counterparties with regard to their ability to fulfil commitments.Various portfolio management options under review in 2017. |
Organisational capability | Risk that the capability of the organisation is not adequate to deliver plans for strategic growth. The capability of the organisation is a function of both the strength of its human resources and its business management systems. Inadequate systems or lack of compliance may lead to loss of value and failure to achieve growth targets. Loss of personnel to competitors, inability to attract and retain quality human resources and competency gaps could affect our operational performance and delivery of growth strategy. | Premier has created a competitive remuneration and retention package including bonus and long-term incentive plans to incentivise loyalty and good performance from the existing, highly skilled workforce.Premier continues to strengthen its organisational capability to achieve strategic objectives. This includes resource planning, competency development, training and development programmes, succession planning including leadership development.Continuous strengthening of business management systems and controls as appropriate to the size and market position of the Company. | Continuous improvement of human resources management systems and controls.New reward programme implemented during 2016.Succession planning reviewed.Improved Business Management System platform delivered in 2016. |
Exploration success and reserves addition | Failure to identify and capture acreage and resource opportunities to provide a portfolio of drillable exploration prospects and future development projects. Specific exploration programmes may fail to add reserves and hence value.Failure to negotiate access rights or close transactions could slow growth of reserves and production and lead to loss of competitive advantage.Lender controls reduce ability to capture and execute exploration programme. | Strong portfolio management and alignment with strategic growth targets.Appropriate balance between growth by exploration and acquisition.Exploration management systems including comprehensive peer review with focus on geologies in core areas we know well and in which we can build a competitive advantage.M&A effort focusing on geographical and technical areas aligned with our strategy. Diligence in acquisition process and post-acquisition integration to ensure targeted returns. | Continued focusing of exploration portfolio.Deepened equity interest in Mexico and plans to develop prepared.Mature portfolio acquired from E.ON in 2016.Continued exiting of non-core areas.Proactive engagement with lenders on exploration strategies. |
Health, safety, environment and security ('HSES') | Major process safety incident or operational accident, natural disasters, pandemics, social unrest, civil war.Consequences may include accidents resulting in loss of life, injury and/or significant pollution of the local environment, destruction of facilities and disruption to business activities. | Comprehensive HSES and operations management systems including emergency and oil spill response capability and asset integrity.Active security monitoring and management and regular testing of business continuity plans.Learning from Company and third-party incidents. | Further embedded electronic incident-recording and action-tracking system, implemented HSES self-audit system.Further embedded implementation of asset integrity scorecard methodology (covering people, plant and process lead indicators) at all operated production assets. |
Host government: political and fiscal risks | Premier operates in some countries where political, economic and social transition is taking place or there are current sovereignty disputes. Developments in politics, laws and regulations can affect our operations and earnings.Consequences may include forced divestment of assets; limits on production or cost recovery; import and export restrictions; changes in legislation due to climate change; international conflicts, including war, civil unrest and local security concerns that threaten the safe operation of Company facilities; price controls, tax increases and other retroactive tax claims; expropriation of property; cancellation of contract rights; and increase in regulatory burden. It is difficult to predict the timing or severity of these occurrences or their potential impact. | Premier's portfolio includes operations in both low and higher risk environments. Premier actively monitors the local situation and has business continuity plans in each area which can be activated depending on pre-defined levels of alert.Premier strives to be a good corporate citizen globally, and fosters reputation by strong and positive relationships with government and communities where we do business. Premier engages in respectful industry-wide lobbying and sustainable corporate responsibility and community investment programmes. Rigorous adherence to Premier's business ethics policy and code of conduct.Continuous monitoring of the external environment for emerging risks to the business.Proactive engagement with regulatory authorities. | Improved provision of politico-economic /security/societal risk assessment informing investment decisions.Strengthened Corporate Responsibility ('CR') management system and ongoing improvements to CR reporting.Ongoing cost/benefit assessment of political risk insurance on case-by-case basis.Engagement with Falkland Islands and UK governments on fiscal terms. |
Key Performance Indicators (required under DTR 4.1.9)
Working interest production (kboepd)
ObjectivePremier aims to maximise production from its existing asset base and, over time, to deliver production growth. Production growth is measured using average daily production and the number of development projects being brought through to sanction. The ability to commercialise and bring those projects on-stream is key to the Company's success.
2016 ProgressAverage daily production in 2016 was 71.4 kboepd, a record for Premier and in line with previously increased market guidance. The increase in production on the prior year was driven by new production from the E.ON assets, a new contribution from the Solan field which was brought on-stream during 2016 and high operating efficiency across the Group's existing production portfolio. Premier sanctioned the development of the Bison, Iguana, Gajah Puteri gas fields post period end which will support our long-term contracts under which we deliver gas into Singapore. We have also progressed Tolmount which is likely to provide the next phase of growth beyond Catcher.
2017 ExpectationsWith a full-year contribution from the E.ON assets and also from the Solan field. Premier expects a further step up in production in 2017 from its existing producing assets. Premier also expects to bring on-stream the Catcher project in the second half of the year which, once at plateau rates, will add at least a further 25 kboepd to the Group's production.
Reserves and resources (mmboe)
ObjectivePremier aims to grow its reserves and resources base through a combination of successful exploration and selective acquisitions.
2016 ProgressProven and Probable ('2P') reserves at the end of 2016 were 353 mmboe (2015: 332 mmboe). The increase reflects 38 mmboe added as a result of the acquisition of the E.ON assets. In addition, Premier also revised upwards its estimates of Chim Sáo's reserves by 13 mmboe as a result of an extended field life facilitated by a lower FPSO lease rate and better than expected reservoir performance. These additions more than offset the impact of 2016 production and a downward revision in reserves at Solan as a result of poorer than anticipated reservoir performance. Premier also added 54 mmboe of resources in respect of the Tolmount project which we acquired as part of the E.ON acquisition.
2017 ExpectationsPremier will look to progress and commercialise its predevelopment projects, which account for a significant proportion of its reserves and resource base, over the course of 2017. Offsetting this will be production and the potential sale of our Pakistan business which accounted for 2 per cent of our 2P reserves as at the end of 2016. Premier also plans to drill its first well on its Mexico acreage in 2017 which will target the Zama structure and has the potential to increase significantly the Group's resource base.
HSES Index
ObjectivePremier is committed to managing its operations in a safe, reliable and environmentally responsible manner to prevent major accidents and to provide a high level of protection to its employees, contractors and the environment. Premier measures Health, Safety, Environment and Security ('HSES') performance using a blended, weighted score covering a range of key HSES metrics.
2016 ProgressOverall performance was at or just above expectation. We incurred more recordable injuries than in 2015, and although we had a similar number of high potential events, none of these were in the highest category from a safety perspective. We saw very strong process safety performance, with no significant process safety loss of primary containment ('LOPC') and strong process safety and asset integrity audit results from our operated assets. Greenhouse gas intensity also improved when compared to the previous year. We also set targets for the first time for our senior management to visit our operated facilities to visibly demonstrate their commitment to our HSES values to our workforce.
2017 ExpectationsPremier will continue to set a base target of delivering a better HSES performance than the median HSES performance of our peers in the International Oil & Gas Producers index with the aim of driving continuous improvement year on year. In 2017 we will introduce corporate targets for hydrocarbon spills and routinely report performance alongside our other existing KPIs. We will also focus our HSES resources in seeking to improve our hazard recognition and the quality of our incident investigations and HSES auditing.
Liquidity (US$ million)
ObjectivePremier seeks to have sufficient liquidity to underpin the Group's capital investment programme and to access new opportunities for future growth. The Group is committed to maintaining a disciplined approach to spending each year and where necessary will seek farm-in partners for drilling programmes and development projects to maintain this discipline.
2016 ProgressDuring 2016, Premier remained focused on reducing its operating cost base and capital commitments from existing operations. This, together with a record production performance and continued access to our undrawn bank facilities, enabled us to deliver our capital investment programme and to fund the acquisition of the E.ON assets despite oil prices reaching a historic low. Premier also entered into discussions with its lending groups to amend the terms of its financing agreements, including extending maturities out to 2021 and resetting its financial covenants.
2017 ExpectationsPremier will continue to take appropriate steps in 2017 to ensure it maintains sufficient liquidity to deliver its operated Catcher project. We expect to complete a comprehensive refinancing of all our debt facilities by mid 2017 and will remain focused on maximising our production while managing our operating costs and our capital expenditure. Our cash flows will be prioritised toward reducing our absolute debt levels and, when market conditions allow, investing in our new projects for future growth while maintaining sufficient liquidity such that we are well-placed to withstand another downturn in the commodity price cycle.
Operating cash flow (US$ million)
ObjectivePremier aims to maximise cash flow from operations in order to maintain financial strength, ensuring we can meet our debt obligations, invest in the future of the business and deliver long-term returns to shareholders. Premier's cash flows are protected by a rolling forward hedging programme.
2016 ProgressPremier's operating cash flow for 2016 of US$431.4 million (2015: US$809.5 million) was impacted significantly by the external macro environment which saw the oil price average US$43.7/bbl (2015: US$52.4/bbl). Consequently, Premier realised an average price for the year post hedge of US$52.2/bbl. This was only partially mitigated by a strong production performance, tight cost control and a hedging programme.
2017 ExpectationsFuture production growth together with Premier's low cost base will underpin 2017 operating cash flow. In particular, Premier anticipates a full year of tax-advantaged production from the E.ON portfolio and the Solan field. In addition, new production from the Catcher field will contribute materially to the Group's operating cash flow from the second half of 2017. Premier will continue to look to hedge to protect its future cash flows and our investment programme. We have hedged 37 per cent of 2017 oil production at US$51/bbl and 41 per cent of our UK gas production at 50 pence/therm.
Operating costs (US$/boe)
ObjectivePremier aims to minimise costs from operations without compromising on health, safety or asset integrity. Operating costs per barrel of oil equivalent is a function of industry costs, inflation, the efficiency and effectiveness of Premier's people, technology, and production output. Operating costs are monitored closely to ensure that they are maintained within pre-set annual targets.
2016 ProgressOperating costs remained low at US$15.8/boe in 2016 (2015: US$15.5/boe), 10 per cent below budget. This was driven by high operating efficiencies across our producing portfolio, a weaker sterling exchange rate as well as continued cost savings across the business.
2017 ExpectationsPremier expects operating costs in 2017 to stay flat at c. US$16/ boe, despite more of the Group's production coming from the relatively higher cost UK North Sea. This will be underpinned by continued focus on maximising operating efficiencies and controlling operating costs. Premier anticipates that further significant reductions will originate from collaboration and efficiency savings.
Net debt (US$ billion)
ObjectivePremier aims to control the absolute levels of its net debt such that it remains in compliance with its financial covenants. Reducing our net debt is also critical in order to address the imbalance of our capital structure and to provide the Company with future financial flexibility. Premier anticipates reducing its net debt by using cash flow generated from its producing assets and disposals while maintaining tight cost controls.
2016 ProgressNet debt at year end was US$2.8 billion, and while below our own internal forecasts this was up on the year-end 2015 position. This was as a result of our significant capital expenditure programme of US$678.1 million (driven by our sanctioned UK North Sea projects and the completion of the Falkland Islands drilling programme) as well as the continued depressed commodity prices.
2017 ExpectationsPremier plans to be cash flow positive in 2017 at oil prices above US$50/bbl (including planned disposals) enabling debt reduction. With forecast low operating costs, a significantly reduced capital expenditure of US$390 million and higher production, driven by our UK tax advantaged assets, Premier is well placed to deliver on this target.
Directors' responsibility statements (required under DTR 4.1.12)
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Group financial statements
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU') and Article 4 of the International Accounting Standards ('IAS') Regulation and have also chosen to prepare the parent company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the parent company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1 - 'Presentation of Financial Statements' - requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
• make an assessment of the Company's and Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.premier-oil.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' responsibility statement
We confirm to the best of our knowledge:
1. the Group financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
2. the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
3. the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 8 March 2017 and is signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director