PMO.L Regulatory News (PMO)

PREMIER OIL plc

("Premier" or "the Company")

Interim Management Statement

13 November 2014

Premier today provides its Interim Management Statement for the period 1 January to 31 October 2014.

Highlights

§ Year to date production averaged 64.0 kboepd, up 12.6% on prior corresponding period

§ Good progress with development projects: Dua on-stream; first gas from Naga; Solan commissioning underway; Catcher FPSO construction to commence shortly

§ Following a project review, Sea Lion will now progress initially as a smaller development in the north east of the field with an estimated capex of less than $2 billion

§ Upcoming material exploration wells in 2015 include Badada (Kenya), Myrhauk (Norway) and Zebedee and Isobel Deep (Falkland Islands)

§ Cash flows protected by forward hedges: c. 43% of liquids sold at an average of $101.5/bbl for 15 months out to year-end 2015

§ Strong funding position retained, with cash and undrawn facilities of $2.2 billion

Tony Durrant, Chief Executive, commented:

"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. Looking forward, new projects will be sanctioned if they are robust at our long term oil price which is currently $85/bbl. This includes a phased, lower capex solution for Sea Lion. In 2015, net cash flows will benefit from lower development capital expenditure and a programme of cost reductions."

Enquiries

Premier Oil plc Tel: 020 7730 1111

Tony Durrant

Richard Rose

Bell Pottinger Tel: 0203 772 2500

Gavin Davis

Henry Lerwill

Production operations

Production averaged 64.0 kboepd for the first 10 months of the year, up 12.6% on the corresponding period (2013: 56.9 kboepd). The Group remains on track to deliver full year production at the upper end of its current guidance range of 58-63 kboepd.

Strong production from Indonesia was driven by the Anoa field on the Premier-operated Natuna Sea Block A capturing 45.4% of GSA1 deliveries (against a contractual share of 39.4%) and recent strong Singapore demand. Elsewhere on Natuna Sea Block A, new gas sales into the Indonesian domestic market from the Gajah Baru field commenced in July. In addition, first gas was achieved from the Naga field in November providing Premier with additional capacity with which to backfill its contracts into Singapore and the potential to increase further gas supply into the Indonesian domestic market. The drilling rig has now moved to the Pelikan field where first gas is planned for Q1 2015.

Production from the Premier-operated Block 12W in Vietnam averaged 16.4 kboepd (net to Premier) over the first 10 months of the year, up 16.2% on the prior corresponding period. A sustained maintenance and asset integrity improvement programme has delivered a significant improvement in operating efficiency at the Chim Sáo field while development drilling at the Dua field has been completed and the field was brought on-stream successfully in July. 

In the UK, production from the Premier-operated Balmoral area continues to exceed expectations. The annual summer maintenance programme was completed in September and operating efficiency is now significantly above that achieved in 2013. Production from Wytch Farm also remains strong while the Kyle field, which was brought on-stream in July, is currently benefitting from early flush production. Elsewhere in the UK, the non-operated Huntington field averaged 6.7 kboepd (net to Premier) over the first 10 months of the year. Operating efficiency at Huntington has been lower than expected and there has been some downtime in the CATS pipeline system. The field is currently shut in while planned annual maintenance work is undertaken on the CATS platform riser system and is expected to resume production in the first week of December. Production from the Scott, Telford and Rochelle fields has averaged 3.1 kboepd (net to Premier) year to date. The previously announced sale of these assets to MOL is expected to complete shortly.

For 2015, group production will be impacted by the disposal of the Scott area assets and some natural decline in our portfolio. This will be offset by new production from the Solan field which is expected to ramp up over the year to reach an exit rate of 12-15 kbopd (net to Premier). Full year production for the group is expected to be of a similar level to that of 2014. Further guidance will be provided in our January Trading and Operations Update.

Development projects

Following successful installation of the Solan facilities West of Shetlands in September, the subsea hook up was completed to schedule and commissioning work commenced earlier this month with the arrival of the Safe Scandinavia flotel. Precise timing of first oil remains dependent upon the progress of the on-going commissioning programme and impact of the weather over the winter period.

Cash spend to 31 October on the Solan project stood at $1.3 billion and Premier has agreed to extend its loan to Chrysaor to ensure the project remains fully funded to first oil. In return, Premier will now take 100% of the project's cash flow (after certain deductions) until the loan and interest has been repaid. Premier also continues to work with Chrysaor and potential providers of debt finance over the sale or refinancing of the Chrysaor loan.

The Premier-operated Catcher project, which achieved government sanction in June, is progressing with construction of the FPSO hull targeted to commence early next year. Fabrication of the subsea equipment and well planning is also underway with development drilling on track to commence mid-2015. The project economics remain robust at lower than current oil prices since the development benefits from a low cash breakeven and the Group's significant UK tax loss and allowance position.

In Norway, FEED engineering work for the Premier-operated Bream development is nearing completion and the project is on track for an investment decision around year end.

Progress has also been made on the Sea Lion project, Premier's other operated pre-sanction development. FEED for the TLP has advanced significantly since the award of the contract in July. However, the new lower oil price environment and our commitment to maintaining a strong financial position has caused Premier to re-examine the scheme with a view to reducing the capex incurred prior to first cash flows from the field.

Premier believes that a smaller initial development of just the north east part of the field, utilising a reduced well count, could be delivered for less than $2 billion of pre-first oil capex (and would be similar in scale to Premier's existing Catcher field development). Initial indications suggest that such a scheme would recover c. 160 mmbbls in 15 years with a plateau rate of 50-60 kbopd. The results of the FEED work done to date, along with results from the 2015 exploration programme, will be incorporated into plans for subsequent phases of development.

Premier, along with the other stakeholders in Sea Lion, are now progressing an initial development of this type. Terms have been agreed with Rockhopper, subject to completion of legal documentation, to split the remaining development carry equally between the initial development and the next phase ($337 million to each). A project of this size can be funded from existing facilities and cash flows. Although it is no longer a pre-requisite to be able to sanction the project, Premier will continue to seek a partner for the Sea Lion development.

Exploration and appraisal

During the period we made a 100mmboe discovery at Kuda/Singa Laut on Tuna Block in Indonesia and planning for the appraisal of the discovery is well advanced. Premier has 65% equity in the block and will be assessing the right working interest as appraisal advances. 

Looking ahead, Premier's exploration team continues to selectively focus its activities on high impact opportunities which have the potential to transform the resource base of the company within a strict capital discipline framework. Premier expects to to drill 10 firm exploration and appraisal wells, targeting in excess of 200 mmboe of net unrisked resource, over the next 12 months. The first high impact well of this programme will target the Badada prospect onshore Kenya in the Anza basin and is expected to spud in either December or January and will target Tertiary aged sands within a robust closure.

The drilling rig for the four well North Falkland Basin campaign is scheduled to arrive on location in February with the Zebedee well expected to spud in March followed by the Isobel Deep well in the south of PL004a. Results of these wells are expected to be known by mid-May. Two further wells will be drilled in the third quarter of 2015.

In Norway, the Myrhauk well, which will be Premier's first test of the emerging Mandal High play, is now expected to spud mid-2015. 

In Brazil, acquisition of 3D seismic data across Block 90 in the Foz do Amazonas basin where Premier has a non-operated 30% interest was completed. The new data, acquired as part of a multi-client programme, is expected to be available for interpretation next year. Seismic acquisition across Premier's operated Blocks 717 and 665 in the Ceará basin is expected to commence in Q3 2015 and will also be acquired as part of a multi-client survey.

Portfolio management

During 2014 Premier has announced sales of $190 million of non-core assets, including the sale of Luno II in Norway, Block A Aceh in Indonesia and the Scott area in the UK. These disposals remain on track for completion by year-end. As described above, Premier is also in negotiations with Chrysaor over the sale or refinancing of the loan to Chrysaor which is recorded as a receivable on Premier's balance sheet and, as at 31 October, stood at US$496 million. 

Premier is committed to actively managing its exploration portfolio and is in talks regarding the potential farm-down and/or sale of a number of its non-core licences.

Finance

Premier plans and manages its business at a long term oil price of $85/bbl and is protected by a rolling 12-18 month hedging programme. For Q4 2014, 1.4 mmbbls of Dated Brent oil and 75,000 metric tonnes (mt) of high sulphur fuel oil has been hedged through forward sales at an average price of $102.9/bbl and $611.2/mt, respectively. Premier has also sold forward 4.8 mmbbls of 2015 Dated Brent and 84,000 mt of 2015 high sulphur fuel oil at an average price of $101.1/bbl and $614.4/mt respectively.

As at 31 October, Premier had acquired 14.5 million shares at a volume weighted average price of 319 pence since starting the share buyback programme on 13 March. The programme will be kept under review by the Board.

Capital expenditure for the full-year 2014, excluding the loan to Chrysaor, is expected to be around US$1.2 billion, in line with previous guidance. This includes exploration expenditure. While Premier is still going through its budget process, it is anticipated that capex will be substantially lower in 2015 reflecting completion of the Solan development and deferral of some discretionary spend.

The Group retains significant cash and undrawn facilities. As at 31 October, these stood at $230 million and $2.0 billion respectively while net debt was $2.1 billion.

The Group continues to benefit from its substantial UK corporation tax loss and allowance position with estimated losses and allowances of $2.8 billion carried forward at 31 October 2014 prior to completion of disposal activities.

Future announcements

The next Premier Trading and Operations Update will be provided on 14 January 2015. Premier's Preliminary Results for 2014 will be announced on 26 February 2014.

Table 1: Exploration and appraisal drilling programme

*Prospect size only