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Premier Oil plc

("Premier" or "the Group" or "the Company")

Trading and Operations Update

16 May 2019

Premier today provides the following Trading and Operations Update. This is issued ahead of the Company's Annual General Meeting which is being held today at 11.00 at 11 Cavendish Square, London.

Highlights

· Year to date production of 85.1 kboepd, up 14 per cent on prior year corresponding period

· 2019 full year production guidance increased to 75-80 kboepd

· Guidance unchanged for 2019 opex ($13/boe, excluding lease costs) and capex ($340m)

· Tolmount, Premier's next UK growth project, progressing to schedule and on budget

· Tolmount East appraisal well to spud in July; Greater Tolmount Area 3D seismic survey completed

· Positive results from Block 7 Zama (Mexico) appraisal campaign, on track to complete in June

· Net debt reduced to $2.25bn; forecast 2019 net debt reduction at upper end of $250m to $350m guidance, at current oil prices

· Forecast year end covenant leverage ratio of less than 2.3x, at current oil prices

Tony Durrant, Chief Executive, commented:

"We continue to deliver ahead of plan. Production and free cash flow are ahead of forecast for 2019 and, consequently, we are reducing our debt faster than anticipated. At the same time, we are making good progress on our growth projects. We look forward to concluding the Zama appraisal campaign and to spudding Tolmount East, which has the potential to deliver a step change in value to the already high return Tolmount Main project." 

Group Production

Production has averaged 85.1 kboepd year to date, significantly ahead of expectations. This is due to very high Group operating efficiency of 97 per cent and includes an unbudgeted 3.4 kboepd contribution from the Pakistan assets which were sold at the end of March. 

As a result of this strong performance, Premier has increased its 2019 full year production guidance from 75 kboepd to 75-80 kboepd (including an annualised 1.3 kboepd contribution from Pakistan).

Production

UK production averaged 57.4 kboepd, up 47 per cent on the corresponding period in 2018. This was driven by an increased contribution from the Premier-operated Catcher Area partially offset by the sale of the Babbage Area in December 2018. 

The Catcher Area has averaged 34.4 kboepd (net, Premier 50 per cent) year to date, achieving 99 per cent operating efficiency. Production from the Total-operated Elgin Franklin and Premier-operated Huntington fields has been strong at 6.8 kboepd (net, Premier 5.2 per cent) and 6.5 kboepd (Premier 100 per cent), respectively. Elgin Franklin production continues to benefit from on-going infill drilling and well intervention programmes.

The Premier-operated Solan field has averaged 4.1 kbopd (Premier 100 per cent) year to date. During the first quarter, Premier sanctioned the drilling of a new producer (P3) in 2020 targeted at increasing production from the central northern part of the Solan field.

In May, Premier reinstated the Balmoral B-29 production well which is currently producing 500-600 bopd (net, Premier 78.1 per cent).

In Vietnam, the Premier-operated Chim Sao field averaged 12.5 kboepd (net, Premier 53.1 per cent), ahead of forecast and supported by a successful well intervention programme during the first quarter. A second well intervention programme is planned for June. In Indonesia, Premier's operated Natuna Sea Block A has captured a 52 per cent market share of its principal gas contract year to date against a contractual share of 51.2 per cent. Production was above take or pay levels but lower on the prior corresponding period due to Singapore customers substituting cheaper LNG for Natuna Sea pipeline gas. Lower Indonesia production against the prior corresponding period also reflects the sale of the Group's interest in the Kakap PSC in April 2018.

A full breakdown of production year to date is provided at the end of this release.

Development activity

Premier continues to expect first gas from the Bison, Iguana and Gajah-Puteri fields in Indonesia at the end of this year with the first of the three development wells spudded at Bison earlier this month by the Hakuryu-11 rig.

Formal project sanction of two Catcher satellite fields, Catcher North and Laverda, is targeted for later this quarter. Ensco has been contracted to provide the rig which will drill the development wells immediately after completing the Varadero infill well (V5) which is scheduled to spud in the second quarter of 2020.

Construction of the minimal facilities platform for Premier's operated Tolmount development continues apace. Fabrication of the primary structural steels and nodes is well progressed while erection of the cellar deck and pre-assembly of the main deck has now commenced. Preparatory work at the Easington terminal is also well underway. The Ensco 123 drilling rig has been contracted to spud the first well in the second quarter of 2020 ahead of first gas in the fourth quarter of that year. 

In the North Falkland Basin, technical definition and cost optimisation of the Sea Lion project is nearing completion. Preparation of the Preliminary Information Memorandum and the related independent expert reports designed to secure senior debt funding for the project is also well advanced.

Exploration and appraisal

The Tolmount East appraisal well is scheduled to spud in July and is targeting 220 to 300 Bcf (P50 to P10) of gross unrisked resource. A 3D seismic survey across the Greater Tolmount Area was completed in April and the data is now being processed to further define prospectivity in the area.

In Mexico, the results from the first two Talos Energy-operated Block 7 (Premier, 25 per cent) appraisal wells (Zama-2 and Zama-2ST) provided further evidence of the excellent quality and well connected sands of the Zama reservoir and support a peak production rate of up to 175 kboepd (gross). The third and final Block 7 appraisal well, Zama-3, was re-entered late April and results are expected in June. The data acquired from the appraisal campaign is being integrated into the early engineering work ahead of a decision on the optimal field development plan.

Elsewhere in Mexico, 3D seismic acquisition across Block 30 (Premier, 30 per cent non-operated), which contains the high impact Wahoo and Cabrilla prospects, will commence later this month. The survey is expected to complete by the end of June.

In Indonesia, the 3D seismic acquisition programme in the Andaman Sea is on track to complete later this month. The data will be used to mature the prospects identified on 2D data on Premier's operated Andaman II licence (Premier, 40 per cent operated).

Finance

Premier has taken advantage of the strengthening of the oil price to increase its hedging position to protect future free cash flow. Premier has hedged 42 per cent of its remaining 2019 oil volumes at $69/bbl and 10 per cent of its 2020 oil volumes at $66/bbl. Premier has also hedged a significant proportion of its remaining 2019 and 2020 Indonesian gas volumes. Premier's complete hedging schedule is set out at the end of this release.

Operating costs and leases costs to the end of April averaged $10/boe and $6/boe, respectively, reflecting strong production (including an unbudgeted contribution from the low cost Pakistan assets) and continued tight cost control across the Group. Full year guidance of $13/boe operating costs and $7/boe lease costs is maintained. Guidance for 2019 full year development, exploration and abandonment spend remains unchanged at $340 million.

Net debt reduced from $2.33 billion at the end of 2018 to $2.25 billion at the end of April. This was driven by free cash flow generation of c. $80 million, ahead of forecast due to strong production and higher oil prices. Premier's 2019 free cash flow generation is weighted towards the remainder of the year due to phasing of capex and interest payments. Premier's leverage ratio (covenant net debt/EBITDA) at the end of March was 2.7x. At current oil prices, Premier is forecasting full year net debt reduction at the upper end of the $250m to $350m guidance with a forecast year end 2019 covenant leverage ratio of less than 2.3x.

Board update

As announced on 7 March, the Board of Directors have proposed the election of Barbara Jeremiah to the Board as an independent non-executive director at the Company's AGM today. It is the directors' intention that Barbara will succeed Jane Hinkley as Chair of the Company's remuneration committee following a short transition period.

Group production breakdown

1 sold at 28 March 2019

Hedging schedules

Oil

Indonesia gas

UK gas