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4-Traders Homepage  >  Equities  >  London Stock Exchange  >  Premier Oil    PMO   GB00B43G0577

PREMIER OIL (PMO)
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Premier Oil : Trading and Operations Update

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07/12/2018 | 08:14am CEST

('Premier' or 'the Group')

Trading and Operations Update

12 July 2018

Premier provides an update on recent operational activities and guidance in respect of its half year financials to 30 June 2018.

Highlights

· Production averaged 76.1 kboepd during 1H with recent run rates over 90 kboepd; full year guidance of 80-85 kboepd is unchanged

· Catcher plateau production rates of 60 kbopd (gross) consistently achieved following commencement of gas export and water injectivity in May

· Tolmount project Board approved; formal partner approval expected Q3

· Zama discovery: pre-unitisation agreement notice submitted; appraisal programme to commence Q4

· New, attractive exploration licences offshore Mexico and Indonesia signed; seismic work to start later this year

· Sale of ETS (UK) and Kakap (Indonesia) completed; Babbage Area (UK) and Pakistan transactions awaiting government approvals

· Forecast 2018 operating costs of $17-$18/boe; forecast development, exploration and abandonment expenditure of $380 million, in line with previous guidance

· Net debt reduced to $2.65 billion over period; full year net debt reduction estimated at between $300 million and $400 million at current oil prices with covenant leverage ratio forecast to fall to 2.5x EBITDA by end Q1 2019

Tony Durrant, Chief Executive, commented:

'Catcher delivering stable plateau production is an important milestone for Premier. This, coupled with the ongoing strong performance from our underlying portfolio and our continued focus on cost control, will result in significant free cash flow generation and material debt reduction in the second half. We can also look forward to the formal sanction of our high value Tolmount project and the appraisal of our world class Zama discovery, both of which have the potential to deliver significant future growth.'

Enquiries

Premier Oil plc

Tel: 020 7730 1111

Tony Durrant, Chief Executive

Richard Rose, Finance Director

Camarco

Tel: 020 3757 4980

Billy Clegg

Georgia Edmonds

Production and development operations

Production averaged 76.1 kboepd for the first six months of the year, a reduction from the prior corresponding period due to asset sales and natural field decline. First half production was also impacted by planned shutdowns at the Huntington and Solan fields and lower Singapore gas demand due to end-buyer maintenance. This was offset by the ramp up of Catcher production and outperformance from the Chim Sáo field.

With Catcher consistently producing over 60 kboepd (gross), recent Group production run rates have been over 90 kboepd. Full year group production guidance of 80-85 kboepd is maintained, subject to the completion timetable of announced disposals.

kboepd

Estimated 2018 1H

2017 1H

Indonesia

13.5

14.3

Pakistan

5.3

6.81

UK

41.1

45.5

Vietnam

16.2

15.5

Total

76.1

82.1

1Includes 335 boepd from the Chinguetti field in Mauritania which ceased production in December 2017

UK

In the UK, Premier's operated Catcher Area averaged 13.3 kboepd (net) for the first half, reflecting constrained production as commissioning of gas processing systems and the water injection plant was completed. Plateau production rates of over 60 kbopd (gross) were reached in May following the start-up of gas export into the SEGAL gas pipeline.

The Catcher Area averaged over 50 kboepd (gross) during June with plant availability continuing to increase as commissioning of the secondary systems is being completed ahead of final acceptance of the FPSO. Until then, Premier benefits from a reduced day rate for the FPSO when plateau production is not achieved.

Production data from the three Catcher Area fields (Catcher, Varadero and Burgman) continues to indicate delivery from the available wells remains significantly in excess of the FPSO design capacity. To date, 10 cargoes have been successfully offloaded with over 5 mmbbls (gross) produced.

The DSV Falcon is currently in field completing tie-ins of the four Phase 2 development wells, which are anticipated to be available to flow later this month, further increasing deliverability from the Catcher Area. The remaining two wells, which are on the Burgman template, are currently being drilled with the programme on track for completion later this quarter.

Huntington averaged 7.2 kboepd during the period, reflecting natural decline in line with expectations and two shut downs during the period. Conversion of a former production well into a water injector will be undertaken later this month providing additional reserves and pressure support to the remaining production wells. This, together with the underlying reservoir performance of the field, has resulted in Premier agreeing with Teekay a further year's extension of the FPSO's lease to mid-April 2020.

Elsewhere in the UK, the field life of Kyle has been extended by 12 months following an agreement between CNR and Teekay to extend the lease of the Banff FPSO, which handles Kyle's production, to August 2019.

Premier's other UK assets have performed broadly in line with expectations.

Asia

Production from Premier's Asian assets averaged 29.7 kboepd during the first six months of the year. Premier's operated Chim Sáo field in Vietnam was the highest net producer in the portfolio averaging 16.2 kboepd, up on the prior corresponding period and above budget. This strong performance was as a result of successful infill drilling in 2017 which completed in December and recent well intervention programmes which have brought on-stream new reservoir zones within existing wells. Operating efficiency has also been high at 94 per cent. Additional well intervention programmes are planned for the second half of the year to further support production.

In Indonesia, production for the period averaged 13.5 kboepd, down on the prior corresponding period reflecting both the sale of Premier's interest in the Kakap field which completed during the period and lower Singapore gas demand due to re-phasing of end-buyer maintenance into the first half of the year from the second half. Premier's operated Natuna Sea Block A again increased its market share within its principal gas contract GSA1 to 53.3 per cent, against a contractual share of 51.7 per cent. Also on Natuna Sea Block A, construction of the BIG-P development deck extensions has been completed in the Batam fabrication yard and will be delivered offshore shortly. BIG-P remains on track for first gas in 2019 and will help backfill the Group's contracts into Singapore and maintain production from Natuna Sea Block A.

Pre-developments

On the Premier-operated Tolmount gas project, letters of interim agreement have been signed with the platform and pipeline contractors and the terminal for onshore gas processing selected. Premier's Board approved the Tolmount project in June and formal sanction by partners is scheduled for the third quarter. Premier continues to target first gas in the fourth quarter of 2020.

In the North Falklands Basin, a pathfinder bank has been appointed to assist with the development of the senior financing structure for the Sea Lion project. Premier is also continuing to put in place letters of intent with selected contractors for the provision of key services and vendor funding. Premier's focus remains on securing funding for the project ahead of a final investment decision.

Exploration and appraisal

In Mexico, the Block 7 joint venture partnership and PEMEX have agreed and submitted a notice of pre-unitisation agreement for the Zama discovery to SENER, the Mexican Ministry of Energy, for approval. In addition, the Block 7 joint venture partnership has selected the Ensco 8503 rig to undertake the Zama appraisal programme with the first well scheduled to spud in the fourth quarter. Approval of the appraisal programme by the CNH, the Mexican hydrocarbons regulator, is anticipated during the third quarter.

On 27 June, Premier signed the PSCs for its three new Mexico licences - Block 30 in the Sureste Basin and Blocks 11 and 13 in the Burgos Basin. Work will now start on maturing the prospectivity of these blocks with the Wahoo prospect on Block 30, which exhibits DHIs analogous to those on Zama, being the priority for early drilling.

As previously announced, Premier was awarded the Andaman II licence in the North Sumatra basin offshore Aceh, Indonesia in January 2018. Premier is in discussions with seismic contractors with a view to initiating the acquisition of 2,000 square kilometres of 3D seismic across the licence later this year.

Portfolio management

Premier continued its non-core disposal programme during the first six months of the year with the announcement of the sale of its interests in the Babbage Area assets for a total consideration of $88 million which will result in net cash proceeds of $64 million (before working capital adjustments). Completion of the transaction with Verus Petroleum is expected in the second half of 2018.

During the period, Premier completed the previously announced sales of its interests in the Kakap field and its 30 per cent non-operated interest in the Esmond Transportation System (ETS) for total cash proceeds of $22.9 million (after working capital adjustments).

Completion of the sale of Premier's Pakistan business to Al-Haj Group remains subject to final approvals from the Pakistan authorities. In the meantime, Premier continues to collect the positive cashflows generated from these assets.

Finance

Premier continues to take advantage of the improved oil price environment to increase its hedging position in 2019 to protect future free cashflows and covenant compliance. The company's current hedge position to the end of 2019 is as follows:

Oil swaps/forwards

2018 2H

2019 1H

2019 2H

Volume (mmbbls)

4.0

2.6

1.2

Average price

$60/bbl

$66/bbl

$68/bbl

Premier has also hedged 28 million therms of its remaining 2018 UK gas volumes at an average price of 45 pence/therm. In addition, Premier has hedged part of its Indonesian gas production through the sale of 120,000 MT of HSFO Sing 180 in 2019 at an average price of $394/MT.

Over the first six months of the year operating costs averaged $17.3/boe, 5 per cent below budget. Full year guidance for operating cost per barrel of oil equivalent of $17-$18 is maintained. Guidance for 2018 full year development, exploration and abandonment spend remains unchanged at $380 million.

Net debt reduced from $2.72 billion at the end of 2017 to $2.65 billion at period end. As previously guided, net debt reduction during the period was impacted by the Catcher ramp up profile, early exchange of the convertible bond, the movement in joint venture balances and the signature bonus for the Mexico Round 3.1 award of Block 30. Full Year debt reduction is estimated at between $300 million and $400 million at current oil prices and covenant leverage ratio (calculated as accounting net debt plus letters of credit over EBITDA) is forecast to fall to 3x EBITDA by year end 2018 and 2.5x EBITDA by end of March 2019.

During the first half there was an accounting net debt reduction of $154 million arising from the early exchange of the convertible bond. In the close period ahead of its half year results, Premier has committed to issuing a mandatory conversion notice in respect of its remaining $29 million convertible bonds provided that the relevant conditions are satisfied

Disclaimer

Premier Oil plc published this content on 12 July 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 12 July 2018 06:13:09 UTC

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Financials ($)
Sales 2018 1 574 M
EBIT 2018 494 M
Net income 2018 157 M
Debt 2018 2 253 M
Yield 2018 -
P/E ratio 2018 13,77
P/E ratio 2019 4,98
EV / Sales 2018 2,31x
EV / Sales 2019 1,91x
Capitalization 1 381 M
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Mean consensus OUTPERFORM
Number of Analysts 13
Average target price 1,83 $
Spread / Average Target 2,3%
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Managers
NameTitle
Anthony Richard Charles Durrant Chief Executive Officer & Executive Director
Roy Alexander Franklin Non-Executive Chairman
Paul Williams Group Development & Operations Manager
Richard Andrew Rose Finance Director & Executive Director
Robin A. Allan Executive Director & Director-North Sea
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