Premier Oil announces trading, operations and refinancing update
Monday, May 15, 2017
Premier today provides the following trading update for the period 1 January to 30 April 2017. This update is issued in advance of the Company’s Annual General Meeting which is being held on 17 May at 11 Cavendish Square, London at 11.00 am.

Highlights

  • Production averaged 82.6 kboepd, up 44% on prior corresponding period
  • Full year guidance of 75 kboepd (excluding any contribution from Catcher) maintained; updated production guidance to be provided once the summer maintenance period has been completed
  • $13.7/boe operating cost, 11% below budget; full year capex guidance reduced from $390 million to $350 million
  • Catcher on schedule for 2017 first oil; improved production profiles are now anticipated and a review of the FPSO capacity is underway
  • All FEED contracts for the Tolmount project now awarded; sanction expected 2018 1H
  • High impact Zama exploration prospect in Mexico expected to spud by the end of May
  • Refinancing implementation underway, requisite lock-ups achieved; Court Schemes of Arrangement to formally commence today
  • Net debt of $2.8 billion; marginally positive free cash flow for the period
Tony Durrant, Chief Executive, commented:

“Premier’s strong operational performance continued into 2017. Production is above budget, the E.ON transaction has already reached payback, costs continue to be managed downwards and Catcher is on track for first oil later this year.  We plan to be cash flow positive in 2017 with more significant debt reduction in 2018.  We look forward to the spudding of the Zama prospect in Mexico, a potentially transformational well for Premier.  Our refinancing, shortly to be completed, incorporates a plan for net debt reduction and, over time, selective investment in new projects. We are ahead of plan.”

Production operations

Production averaged 82.6 kboepd, with all business units tracking ahead of 2017 budget.  While full year guidance of 75 kboepd (excluding any contribution from Catcher) is currently maintained, Premier will provide updated production guidance once the summer maintenance period has been completed. Pakistan production is included in the Group’s full year production guidance as completion of the sale of the Pakistan business is expected at year end.

UK production averaged 45.7 kboepd, up 160 per cent on the prior corresponding period as a result of a full contribution from the former E.ON assets and the Solan field.  The former E.ON assets continue to exceed expectations, averaging 19.4 kboepd for the period.  The Huntington field averaged 15.2 kboepd, 30 per cent above budget, driven by high operating efficiency and continued optimisation of reservoir management, which has increased the well flow rates. The Babbage field, which successfully moved to NPAI (Not Permanently Attended Installation) on 5 April, was also above budget, averaging 3.2 kboepd, reflecting high operating efficiency and a successful well intervention programme.  The purchase of the E.ON portfolio, which cost $120 million, reached payback in April 2017, earlier than anticipated as a result of stronger production and higher commodity prices.

Production from the Premier operated Solan field averaged 7.3 kboepd, lower than anticipated as a result of the first production well (P1) being shut in for the first half of February due to the failure of the existing ESP. P1 was subsequently reinstated on free flow with the intention of carrying out a summer well workover to install two ESPs into the well.  However, as a result of better performance from P1 while on free flow, this has been deferred.  Production from the rest of Premier’s UK portfolio was broadly in line with expectations for the period.

In Asia, Premier’s operated Chim Sao field averaged 15.7 kboepd, underpinned by high operating efficiency and strong reservoir performance mitigating natural decline from the field.  The two well infill drilling programme, which is on track to commence in August, will help maximise production from the asset.  Across the border in Indonesia, Premier’s operated Natuna Sea Block A increased its market share within its principal gas contract GSA1 to 49 per cent year to date against a contractual share of 47 per cent.

Production from Pakistan and Mauritania averaged 6.9 kboepd.  The decrease on the prior year reflects expected natural decline.

Development and pre-development projects

In the UK, the Premier-operated Catcher project continues to target first oil later this year. Total capex forecast remains at $1.6 billion, 29 per cent lower than the sanctioned estimate.  Good progress is being made on the FPSO with the construction work for the installation and integration of the topsides complete while the construction scope in the hull is nearing completion.  Commissioning is underway and this will continue up until sailaway. 10 wells (seven producers and three injectors) have been drilled to date and a short subsea campaign is scheduled to commence in June to tie in the four recently completed Varadero wells.  As a result of the positive drilling results, Premier is optimistic that a higher plateau production rate can be achieved and a review is underway to understand the potential additional production capacity available from the FPSO.

Elsewhere in the UK, FEED contracts for the Premier-operated Tolmount field in the Southern Gas Basin have been awarded to Wood Group for the offshore FEED, Land & Marine for the beach crossing and Costain for the onshore FEED.  A commercial heads of terms has also been signed with the operator of the Dimlington terminal to process the Tolmount fluids and to undertake terminal modification works.  Following FEED and tendering of the major project scopes, development sanction is targeted for 2018 1H. Subsurface studies continue to make good progress on Tolmount East and Tolmount Far East ahead of any future appraisal drilling.

In Indonesia, long lead items have been purchased for the sanctioned Bison, Iguana and Gajah Puteri fields.  These fields are targeted to come on-stream in 2019 and will support Premier’s long term gas contracts.

In the Falklands, the focus remains on negotiating funding packages for the project and engagement with the Falkland Islands government around commercial and regulatory approvals with a view to being in a position to sanction the development in 2018.

Exploration and appraisal

Premier plans to spud its first exploration well offshore Mexico before the end of May with the Ensco 8503 rig now on route to the Zama well location.  The large Zama structure is estimated to have a P90-P10 gross unrisked resource range of 100-500 mmbbls and is classified as low risk due to a well-defined flat spot on seismic, an indicator for the presence of potential hydrocarbons. It is anticipated that the well will take up to 90 days to drill both Zama and the secondary target, Zama Deep.

In the UK, operations and data acquisition at the Ravenspurn North Deep well (Premier carried 5 per cent interest), which is testing the potential of a deep Carboniferous age horizon underlying the Ravenspurn North field, are ongoing.  Elsewhere in the Southern Gas Basin, planning for the 2018 Cobra appraisal well, which is adjacent to the Premier-operated Babbage producing field, has commenced and, in parallel, Premier will look to farm down from its 50 per cent interest.

Final processed broadband seismic data across Premier’s three blocks in the Ceara Basin in Brazil was received in April 2017.  Well locations will be selected from this data during 2017 in advance of a potential drilling campaign in 2019. Premier has initiated a planned farm down process to reduce its operated interests in the Ceara Basin and continues to lead efforts with other operators in the region to obtain well cost reduction synergies.

Portfolio management

Premier has a continuing programme of asset disposals, including certain assets from the E.ON portfolio where sales processes are ongoing.  Agreement has been reached for the sale of Premier’s interest in the Austen discovery in the Central North Sea.

Premier announced the sale of its Pakistan business to Al-Haj Group for $65.6 million in April.  Al-Haj has paid a deposit of US$15 million with a further interim deposit of US$10 million due shortly. Premier’s reported production numbers will include Pakistan production up to the completion date of the transaction, which is expected by year end.

Post period end, Premier received $10 million in relation to a milestone payment associated with its disposal of Block 07/03 in Vietnam in 2013.

Over the period, operating costs averaged $13.7/boe, 11 per cent ahead of budget. Gross G&A costs are also below budget for the period.

2017 development, exploration and abandonment spend is expected to be $350 million, reduced from $390 million, as a result of the deferral of the Solan P1 workover.

Net debt is stable at $2.8 billion with small positive free cash flows for the period being offset by translation differences on non-dollar denominated debt.  As at 30 April, cash (including joint venture balances) and undrawn facilities stood at around $585 million. Premier continues to expect to be cash flow positive after capex and planned disposals in 2017 at oil prices above $50/bbl, driving net debt reduction.

Refinancing update

The Pre-Scheme Letter is being issued today to Scheme Creditors today thereby commencing the Scottish Court Schemes of Arrangement via which the amendments to the terms of the RCF, the term loan, the USPP and the retail bonds will be effected.  As previously announced, the requisite majority by value of the Scheme Creditors has already been obtained via the lock up agreements, committing the locked up parties to vote in favour of the amended terms.

The Court Scheme convening meeting is scheduled for 30 May with the posting of the scheme and convertible bond documentation, shareholder circular, notice of shareholder meeting and the retail bond prospectus, immediately thereafter. The Scheme meeting at which the Scheme Creditors vote is expected to be on 26 June, being approximately 3 weeks from the Court convening meeting. The Court’s final sanction hearing will follow the Scheme Creditors vote.

In parallel to the Schemes of Arrangement processes, the amendments to the terms of the convertible bonds will be approved.  As already announced, holders representing more than 75% by value of the $245 million convertible bonds have entered into lock up agreements committing them to vote in favour of the proposed refinancing.

Approval from Premier’s shareholders will be sought in respect of the potential issue of the warrant shares and shares that could be issued as a result of the amendment to the convertible bond conversion price.  The shareholder meeting will be called with 14 days’ notice at the same time that the documentation is posted under the Schemes of Arrangement and therefore is expected to be convened on 15 June.

The above processes are inter-conditional and will complete simultaneously. It is anticipated that the Schemes sanction hearings will be the last of the processes to complete shortly after which the refinancing will become effective.  The amendments to the terms of the Schuldschein will be implemented contractually as part of this completion process.

For more information, please visit: http://www.premier-oil.com

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