PMO.L Regulatory News (PMO)

Principal risk factor

Risk detail

How is it managed?

Production and

development delivery

and decommissioning

execution

Uncertain geology, reservoir and well performance.

Availability of oilfield services including FPSOs and drilling rigs, technology and engineering capacity, and skilled resources.

Availability of transportation infrastructure to transport produced oil and gas to market.

Adverse fiscal, regulatory, political, economic, social, security (including cyber) and weather conditions.

Immaturity of decommissioning in the UK resulting in uncertain cost and timing estimates for decommissioning of assets, including potential acceleration of decommissioning due to low oil price environment.

Travel restrictions and quarantines due to COVID-19 disrupts production operations and development delivery.

Potential consequences include reduced or deferred production, loss of reserves, cost overruns and failure to fulfil contractual commitments.

Effective management systems in place governing geoscience, reservoir and well engineering, and production operations activities. These include rigorous production forecasting and reporting, field and well performance monitoring and independent reserves auditing.

Effective management systems in place governing project execution, including contracting strategy, cost controls, project team competency and functional oversight.

Long-term development planning to ensure timely and cost-effective access to FPSOs, rigs and other essential services.

Preference for operatorship.

COVID-19 response plan and business continuity plan.

Specialist decommissioning team in place coupled with continued focus on delivering asset value to defer abandonment liabilities.

Joint venture partner alignment and supply

chain delivery

Major operations and projects in the oil and gas industry are conducted as joint ventures. The joint venture partners may not be aligned in either their tactical or strategic objectives and this may lead to decision-making inefficiency that impacts significantly on operational performance of the asset. Several of our major operations are operated by our joint venture partners and our ability to influence is sometimes limited due to either the scale and position of the operator or occasionally based on our minority holdings in such ventures.

Premier is heavily dependent on contracts and contractors to deliver products and services to time, cost and quality criteria and to conduct its business in a safe and ethical manner. In particular COVID-19 impacts have and will continue to disrupt supply chain capacity and efficient execution capability across international boundaries.

Due diligence and regular engagement with partners in joint ventures in both operated and non-operated operations and projects.

Defined management system for management of non-operated ventures.

Assure contracted duty holders comply with local statutory requirements (e.g. UK Safety Case Regulations 2015).

Pursue strategic acquisition opportunities, where appropriate, to gain a greater degree of influence and control.

Due diligence of contractors, including diligence of financial solvency, anti-bribery and corruption controls, and controls to prevent facilitation of tax evasion both prior to the execution of contracts and throughout the term of the contract.

Contract performance management and relationship management programmes are being implemented for our most significant contracts to manage contractual performance and delivery, including periodic audit of the effectiveness of their management systems.

Longer-term development planning alongside access to key market intelligence sources to ensure timely and cost-effective access to key oilfield services capacity.

Organisational

capability

The capability of the organisation may be inadequate for Premier to deliver its strategic objectives.

The capability of the organisation is a function of its structure and the deployment and strength of its personnel.

Premier may be unable to attract, engage or retain personnel with the right skills and competencies or to deliver suitable succession plans for senior roles.

The Business Management System may not be fit for purpose or sufficiently complied with to be effective.

Premier has created a competitive reward package including bonus and long-term incentive plans to incentivise loyalty and performance from the existing skilled workforce.

Continue to strengthen organisational capability to achieve strategic objectives. This includes resource and succession planning, competency and leadership development.

Continuous improvement and simplification of the Business

Management System and related controls appropriate to the size and market position of the Company.

Continued deployment of contingent labour through a mature cost-effective Managed Service Provider ('MSP') model to rapidly respond to the peaks and troughs of labour demand in a volatile environment.

Staff forums providing a mutual communication forum between staff, management and the Board to address employee matters.

Continued focus on diversity and inclusion across the Group.

Embedded talent management and succession planning process.

Complete implementation of recommendations emerging from externally facilitated organisation health check conducted end 2018.

Organisational capability and risk oversight further enhanced by global functional review under new operating charter.

Exploration success and reserves addition

Premier may fail to identify and capture new acreage and resource opportunities to provide a portfolio of drillable exploration prospects and future development projects.

Specific exploration programmes may fail to add expected resource and hence value.

Lender controls may reduce ability to capture and execute the exploration programme.

Focus on proven petroleum systems underpinned by world-class source rocks and identify technical or political discontinuities that we can exploit using our preferred evaluation workflows to create a competitive advantage.

Continuous improvement in exploration management system with strong functional oversight.

Manage exploration portfolio to maintain alignment with strategic growth and spend targets.

Maintain new ventures activity and appropriate resourcing.

Commodity price volatility

Oil and gas prices are affected by global supply and demand and can be subject to significant fluctuations.

Supply factors that influence these include the pace of new oil and gas developments, operational issues, natural disasters, adverse weather, political and security instability, conflicts and actions by major oil-exporting countries.

Demand factors that influence these include economic conditions, climate change regulations and the pace of transition to a low carbon economy.

COVID-19 reduces global oil and gas demand and disrupts supply.

Price fluctuations can affect our business assumptions, our ability to deliver on our strategy and our access to capital.

Oil and gas price hedging programmes to underpin our financial strength and protect our capacity to fund future developments and operations.

Company investment guidelines that ensure our investment opportunities are robust to downside price scenarios.

Merger completion and integration

Completion

Completion of the proposed merger with Chrysaor and associated debt restructuring is conditional upon satisfying certain conditions which, if not satisfied (or waived if applicable), may result in failure to implement the proposed merger and debt restructuring on their current terms or possibly at all.

If the merger and the debt restructuring do not proceed, the ability of members of the Group to continue trading will depend on ongoing support from the Group's creditors.

Integration

Failure to combine the Chrysaor and Premier businesses effectively in order to realise planned synergies.

The Group and, following completion of the merger, the Combined Group may be subject to unforeseen liabilities and risks arising from the merger.

Completion

Secure remaining necessary approvals including creditor court proceedings.

As a contingency in case the debt restructuring has not completed by 31 May 2021, the Group's creditors have undertaken, subject to certain conditions being satisfied or waived, to implement an interim maturity extension which, once effective, would extend the maturity date of Premier's existing debt facilities from 31 May 2021 to 31 March 2022.

Integration

Develop, resource and manage robust transition and integration plan with Chrysaor.

Seek to retain key employees, establish clear organisation structure and implement agile information sharing and decision making structure between parties to enable effective integration planning.

Establish collaborative working model with sensitivity to bringing cultures together.

Access to capital

Failure to complete the proposed merger and associated debt restructuring will adversely affect the Group's ability to access sufficient funds to continue trading.

Sufficient funds may not be available to finance the business and fund existing operations and planned growth projects.

There may be a breach of delegated authority.

The Company may be subject to financial fraud.

Management of risks to merger completion.

Strong financial discipline through an established finance management system that ensures the Company 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 a defined delegation of authority to reasonably protect against risk of financial fraud in the Group.

Proactive engagement with equity markets, banks and lenders to maintain access to capital markets through the cycle.

An insurance programme to reduce the potential impact of the physical risks associated with exploration and production activities. This includes business interruption cover 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.

Economics of investment decisions are tested against downside project scenarios.

Discretionary spend is actively managed.

Health, safety,

environment

and security

('HSES')

Significant asset integrity, process safety or wells incident on operated asset.

Significant incident arising from natural disaster, pandemic, social unrest or other external cause.

Consequences of accidents at operated facilities may include injury, loss of life, environmental damage and disruption to business activities.

Comprehensive HSES management systems in place including:

- HSES auditing and reporting with a focus on the identification and management of major accident hazards.

- Valid Safety Cases on all operated assets.

- Robust crisis management and emergency response processes in place and tested against.

- Senior management visits to operated facilities to

demonstrate commitment to HSES values.

- Learning from internal and third-party incidents.

- Insurance against business interruption.

- Pandemic response including regularly tested response plans, and application of government advice.

- Maintaining up to date business continuity plans.

Host government:

political and fiscal risks

Premier operates or maintains interests in some countries where political, economic and social transition is taking place or there are current sovereignty disputes. Developments in politics, security, laws and regulations can affect our operations and earnings.

Changes to the fiscal, monetary and regulatory landscape in the UK following the UK's withdrawal from the European Union.

Consequences may include expropriation of property; cancellation of contract rights; limits on production or cost recovery; import and export restrictions; price controls, tax increases and other retroactive tax claims; and increases in regulatory burden or changes in local laws and regulations.

Consequences may also include threats to the safe operation of Company facilities.

Premier strives to be a good corporate citizen globally, and seeks to forge strong and positive relationships with governments, regulatory authorities and the communities where we do business. Premier engages in respectful industry-wide lobbying and sustainable corporate responsibility and community investment programmes.

Premier maintains a portfolio of interests which includes operations in both lower and higher risk environments.

Rigorous adherence to Premier's Sustainability Policy and Global Code of Conduct.

Monitoring and adherence to local laws and regulations.

Active monitoring of the political, economic and social situation in areas where we do business, including business continuity plans tailored to pre-defined levels of alert.

Climate Change

Adverse investor and stakeholder sentiment towards oil and gas sector impacting investability.

Cost to comply with climate change-related operational regulations and disclosure requirements.

Longer-term disruption to Premier's projects and operations as a result of changing weather patterns and more frequent extreme weather events.

Longer-term reduction in demand for oil and gas products due to the pace of commercial deployment of alternative energy technologies and shifts in consumer preference for lower greenhouse gas emission products.

Premier is proactively taking steps to address the impact on society of its operations.

We set time-bound climate change objectives consistent with Paris Agreement targets and also demonstrate how we meet those objectives over time, specifically:

- Board-owned Climate Change Policy with strategy implementation monitored by an Executive Climate Change Committee.

- Setting of corporate goals and annual targets within Group corporate scorecard and business unit KPIs.

- Physical and transitional climate change risks associated with our activities are identified and actively managed.

- We are committed to ensuring that all new projects sanctioned by us will deliver Net Zero emissions, through our 'Low Carbon by Design' initiative, supplemented where necessary by investments to offset emissions using carbon credits.

- Comprehensive asset-by-asset review during 2020 identifying projects to reduce carbon emissions within our operations and throughout our supply chain.

- Carbon pricing and scenario analysis is integrated into investment decision-making.

- Climate change performance and supporting processes with stakeholders are communicated in a transparent manner.

- Dialogue with shareholders and lenders on climate change actions.

- Collaboration with industry and other associations on climate change adaptation and mitigation, including a framework by which the industry works towards a target of Net Zero greenhouse gas emissions.

- Promote investability though positive recognition