PMO.L Regulatory News (PMO)

PREMIER OIL PLC

("Premier" or "the Company")

Trading and Operations Update

11 May 2016

Premier today provides the following trading update for the period 1 January to 30 April 2016. This update is issued in advance of the Company's Annual General Meeting which is being held today at 11 Cavendish Square, London at 11.00 am.

Highlights

Tony Durrant, Chief Executive, commented:

"Strong production performance from our existing assets, together with the contribution from the E.ON assets and the Solan field means that we now expect production for the year to be better than we originally anticipated. This, along with continued cost savings, positions us well to maximise our current cash flow as we remain focused on managing our balance sheet in the current oil price environment."

Production operations

Premier delivered a robust production performance of 57.3 kboepd in the period, driven by further improvements in operating efficiency across the portfolio and strong gas sales into Singapore. The reduction from the prior corresponding period reflects some natural decline in Pakistan and Vietnam, although the Chim Sáo field in Vietnam continues to deliver ahead of expectations, with high uptime and good reservoir performance.

In the UK, excellent operating efficiency and lower than anticipated decline levels at the Huntington field more than offset the later than expected start-up of the Solan field and an unplanned shut down on B block earlier in the period. In Indonesia, production from the Premier-operated Natuna Sea Block A is ahead of expectations due to continued strong gas demand from Singapore and high market share of GSA1 of 44 per cent.

The UK assets acquired from E.ON performed well over the period, delivering 17 kboepd which will be consolidated from completion. This, combined with the robust production performance of the existing portfolio and new production from the Solan field, means that Premier now expects to be at or above the upper end of its 2016 production guidance of 65-70 kboepd for the full year.

Development projects

First oil from the Solan P1 production well was achieved on 12 April. The well achieved rates of 8 kbopd on natural flow before rising to 14 kbopd following the successful commissioning of the down hole pump ("ESP"). As planned, production was subsequently shut down to complete the additional works required for second oil: the tie-in of the second water injector was completed with final commissioning of the water injection system underway, while the ESP completion for P2 is being installed with tie in of the well planned for early June. Resumption of production is scheduled shortly after, with the Solan field expected to reach production rates of 20-25 kbopd in the third quarter when both pairs of producer-injector wells will be on stream.

The Premier-operated Catcher project is progressing under budget and is scheduled to deliver first oil in the second half of 2017. Forecast gross capex to first oil is now anticipated to be c. $1.35bn, a reduction of c. 15 per cent below that original sanctioned. Cost savings secured include reductions negotiated on contracts, the release of contingencies as work programmes are completed, and the re-phasing of some contractor payments and work scopes, given the good progress made to date in the subsea installation campaign and the drilling results.

The 2016 subsea installation campaign is progressing well. The four remaining drilling templates are now in place while installation of the flowline bundles, towheads and mid water arches is in progress. The dynamic risers and umbilicals are on track for delivery in June. Premier is targeting completion of subsea work in 2016 ahead of schedule. Meanwhile, the Buoy is transiting to North East Scotland and, together with the mooring system, is on track for installation this summer. Drilling on the first Catcher template has been completed and all four wells have met or exceeded pre-drill expectations. Drilling on the Burgman template is expected to commence shortly, following the completion of drilling at the Laverda/Slough exploration prospects.

Delivery of the FPSO hull to Singapore is expected by July and progress in manufacturing of the topside units has been good. Following integration and commissioning, the sail-away date of the FPSO from Singapore for a 2017 field start up remains on track.

On the Sea Lion Phase 1 project in the Falkland Islands, the 18 month FEED programme, which commenced in January, is ongoing. The draft Field Development Plan has been submitted to the Falkland Islands Government and detailed discussions are progressing well. Premier still intends to bring in an additional partner and further cost savings are targeted - especially in light of the downturn in the markets for production facilities, well construction and offtake services - to further reduce the break-even oil price for the project. The timing of the final investment decision remains dependent on the evolution of project economics and the oil price outlook.

Exploration and appraisal

The Ensco 100 rig spudded the Laverda/Slough prospect, near the Catcher area in the UK North Sea, in April. The commitment well encountered 13 feet of net oil bearing Tay sands at Laverda, in line with pre-drill expectations, but did not encounter any indications of hydrocarbons in the deeper, high risk Slough prospect. The well is now being plugged and abandoned ahead of the rig continuing development drilling at the Catcher area.

Premier plans to drill the Bagpuss heavy oil exploration prospect in the Moray Firth in the UK North Sea in June, using the Ocean Valiant rig, which is currently operating at Solan.

Premier will continue to high grade and rationalise its UK North Sea exploration portfolio including those licences acquired as part of the acquisition of E.ON's UK North Sea assets.

In Brazil, interpretation of the recently acquired 3D seismic survey covering our licences in the Ceara Basin is ongoing while in Mexico Premier is undertaking a detailed technical evaluation of its Blocks 2 and 7 acreage, ahead of the first well on Block 7 expected next year. 

Portfolio Management

Premier completed the acquisition of E.ON's UK North Sea assets on 28 April. The integration process has commenced which will see the transition of the assets into Premier's existing UK business unit. In addition, the formal sales process for the Pakistan business, initiated after an unsolicited approach, is ongoing. A number of bids have been received which continue to be progressed. In the exploration portfolio, Premier has now exited its licence positions in the Saharawi Arab Democratic Republic.

Finance

In order to plan and protect future cash flows Premier continues with its hedging programme. At 30 April the Company's hedge position to the end of 2017 was as follows:

For 2016, Premier has hedged 72,000 metric tonnes (mt) of high sulphur fuel oil through forward sales at an average price of $400/mt. In addition, 64.0 million therms of the E.ON assets 2016 gas production and 36.6 million therms of the 2017 gas production has been sold forward at 63 pence per therm and 57 pence per therm, respectively.

Operating costs continue to fall and are tracking 10-20 per cent under budget, year-to-date. Operating cost per barrel for 2016 after taking these cost savings into account together with the operating costs associated with the acquired E.ON UK assets and the Solan field, are expected to be around $17/boe. Gross G&A costs are also under budget and are on track to deliver previous guidance of a 10 per cent reduction on 2015 excluding the impact of the E.ON acquisition.

Capital expenditure for development and exploration for 2016 is now expected to be c. $730 million, reflecting capex associated with E.ON's UK assets.

Premier retains significant cash and undrawn facilities of c. $750 million as at 30 April with net debt of $2.68 billion. Premier does not have any significant debt maturity until late 2017 and the nature of its corporate unsecured facility means that it is not subject to any reserve base redeterminations. However, due to the weak oil prices experienced year-to-date, it is possible that a relaxation of our main financial covenants may be required in respect of the testing periods ending 30 June 2016 and 31 December 2016. Premier continues to explore mitigating actions that can improve its forecast financial covenant position and, in addition, has entered into discussions with its lending group with a view to agreeing amendments to its financial covenants.