Company Announcements

Premier Oil plc

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

Trading and Operations update

13 May 2020

Premier today provides the following Trading and Operations update for the period 1 January to 30 April 2020.  As previously announced, the Group's AGM has been deferred to 25 June 2020 in light of the Government's public health instructions and stay at home measures regarding COVID-19.

Financial highlights

·    Forecast broadly free cash flow neutral for full year 2020 at current forward curve

o  30% of 2020 volumes hedged at $60/boe including c.50% of Q2 oil production at $64/bbl

o  Estimated $240 million of capex and opex savings and deferrals secured

·    Liquidity retained with c.$160 million of unrestricted cash and $330m of undrawn facilities; addressing covenants and drawing profiles with creditors

·    Court approved creditor schemes of arrangement; re-engaging with stakeholders around proposed transactions and 2021 credit maturities

·    Net debt reduced to $1.91 billion as at end of April (31 December 2019: $1.99 billion)

Operational highlights

·    Production averaged 70.1 kboepd to end of April, impacted by a recent unplanned Catcher outage (now restored) and cessation of Huntington production; 2020 guidance revised to 65-70 kboepd

·    Tolmount schedule impacted by COVID-19 with first gas now expected in Q2 2021; Tolmount East (Premier-operated) on track for sanction decision by year-end 2020

·    Zama unitisation and sales process ongoing; Mexican regulator expected to instruct unitisation in the coming weeks

·    Operated growth projects on hold, optionality preserved:

o  Sea Lion project suspended with farm-in documentation agreed

o  Tuna appraisal to be fully funded, subject to final approvals

o  Highly prospective exploration acreage retained with deferred drilling commitments

Tony Durrant, Chief Executive, commented:

"We are proactively managing the business in these challenging times and remain focused on the welfare, health and safety of our people.  We continued to generate free cash flow during the period and, based on the current forward curve, expect to be broadly free cash flow neutral for the full year, benefitting from our hedging programme and action taken to reduce our expenditure."

Production operations

Premier remains extremely vigilant and focussed on the welfare, health and safety of all of its staff and contractors. To date, production operations have not been materially impacted by COVID-19.  Pre-flight screening measures and additional passenger protocols have been implemented, including dedicated flights for workers who develop COVID-19 symptoms offshore and for those with whom the suspected cases have been in close contact.  Premier has also reduced manning levels on all of its installations to ensure continued safe operations and has significantly reduced the scope of its planned shut downs to include critical maintenance and committed project work only.  

Group production averaged 70.1 kboepd to the end of April, impacted by a recent unplanned shut down at Catcher and the cessation of Huntington production in early April.  Together with the delay to Tolmount first gas, this has resulted in the Group revising its full year production guidance to 65-70 kboepd (from 70-75 kboepd).  

Premier's UK assets produced 47.1 kboepd over the period.  This was underpinned by 28.7 kboepd (net, Premier 50 per cent interest) from the Group's operated Catcher Area fields which continue to benefit from strong reservoir performance. Catcher operating efficiency was impacted by an unplanned gas plant outage at the end of April. Production resumed on 10 May.  The Varadero infill well (VP1) spudded on 11 May and, once on-stream, will help maintain Catcher plateau rates.  Development drilling at Catcher North and Laverda along with the 4D seismic survey originally planned for this year have been deferred as part of the measures taken to minimise 2020 capex spend.

The Elgin-Franklin Area produced 7.3 kboepd (net, Premier 5.2 per cent interest), ahead of budget.  Production was supported by high operating efficiency and the completion of the FIC infill well in January.  Huntington production averaged 2.3 kboepd (Premier 100 per cent interest) with the last cargo lifted from the field in early April.  Flushing of the flowlines and topsides is now underway ahead of a planned mid-year FPSO sailaway.  West of Shetlands, Premier's operated Solan field delivered 2.2 kboepd (Premier 100 per cent interest) over the period. The Solan P3 vertical pilot well was successfully completed with results in line with expectations. The well will now be side-tracked horizontally and, once completed, is expected to boost field production to in excess of 10 kbopd during the fourth quarter of the year.

In Vietnam, Premier's operated Chim Sáo field averaged 9.2 kboepd (net, Premier 53.13 per cent interest), in line with budget.  Demand for Chim Sáo crude remains strong with cargoes sold during the first half realising an average premium to Brent of over $5/bbl.  Production from Premier's operated Natuna Sea Block A (NSBA) fields in Indonesia averaged 13.8 kboepd (net, Premier 28.67 per cent interest).  This was driven by very high Singapore offtake under the Group's principal gas sales agreement (GSA1) and NSBA capturing a 59 per cent market share of GSA1 deliveries, higher than its 53 per cent contractual share.    

Development activities

Tolmount is Premier's only sanctioned development project and will add 20-25 kboepd (net, Premier 50 per cent interest) to Group production once on plateau.  In March, the Rosetti yard where the platform is being built entered lockdown.  Work resumed earlier this month with appropriate COVID-19 restrictions in place and a revised installation period is now being planned for late summer. The drilling rig will be mobilised thereafter to assist with final commissioning of the Tolmount platform and to drill the four development wells. Meanwhile terminal works are progressing and the pipeline lay is on track for this summer.  First gas is now forecast for the second quarter of 2021.

Premier continues to progress Tolmount East so that a final investment decision can be made by year-end with the development concept agreed earlier this year. Once on-stream Tolmount East (and potentially Mongour which could also be developed as a subsea tieback to the Tolmount infrastructure) will help extend plateau production from the Tolmount area.

In Mexico, the unitisation of the Zama field and the sales process for Premier's 25 per cent interest in Block 7 has been impacted by COVID-19.  Earlier this month, the National Hydrocarbon Commission (CNH) declared Zama a shared reservoir and the Mexican Ministry of Energy (SENER) is expected to issue the instruction to unitise the Zama field in the coming weeks. This will trigger a defined period of negotiations with Pemex to finalise the Unit Agreement for the Zama field. Meanwhile FEED on the selected development concept continues ahead of submission of the FDP for government approval.

In the Falkland Islands, Premier has taken the decision to suspend Sea Lion Phase 1 to minimise ongoing spend in light of the current market conditions. Sea Lion Phase 1 is complete from a technical aspect and all of the work which has been done to date is being fully documented, such that the project can be reactivated once the macroeconomic outlook improves. A reduced team will continue to progress government, commercial and financing matters including the transaction documentation with Navitas who remain committed to farming in for a 30 per cent interest in the Sea Lion licences.

Exploration and appraisal

In April, Premier drilled the Charlie-1 well in Area A on the Alaska North Slope.  As previously announced, the well encountered non-commercial gas condensate rather than the targeted light oil.  As a result, Premier plans to exit the licence as soon as regulatory approvals have been received.

Premier has taken action to defer activity across its exploration portfolio to reduce expenditure, given the current market conditions. This includes the deferral of drilling on Block 717 in the Ceará basin offshore Brazil (originally scheduled for July this year) while drilling on Block 30 (Mexico) and the Group's Andaman Sea acreage (Indonesia) is now likely to take place in 2022.  New datasets across the Group's Andaman Sea acreage, Block 30 and the Greater Tolmount Area were received in April and Premier's exploration teams will now mature the prospectivity of these licences to firm up well locations ahead of future drilling.

Execution of a fully termed farm down agreement with Zarubezhneft for a 50 per cent interest in the Premier-operated Tuna discoveries offshore Indonesia is being progressed.  Under the farm down agreement, Zarubezhneft will carry Premier for its share of a two well appraisal campaign now expected to take place in 2021.

Finance

Premier has hedged c.30 per cent of its full year 2020 oil and gas entitlement volumes at an average equivalent price of $60/boe, including almost 50 per cent of the Group's oil entitlement production for the second quarter of the year at $64/bbl. 

Premier has continued to take action to reduce its 2020 expenditure to lower its free cash flow breakeven oil price.  As a result, the Group now expects to be broadly free cash flow neutral (after interest) for the full year based on the current forward curve.

Full year operating costs (including lease costs) are currently forecast to be c.$100m under budget resulting in unit costs of $18/boe ($12/boe field opex and $6/boe FPSO lease costs) compared to the original budget of $21/boe.  This reflects cessation of high cost Huntington production as well as savings and deferrals realised in ongoing operations across the Group. 

Forecast 2020 total capex including abex now stands at $330 million, reflecting total capex savings and deferrals of $140 million compared to original guidance of $470 million. 

The Group currently retains adequate liquidity. As at the end of April, Premier had unrestricted cash of $160 million and undrawn facilities of c.$330 million.  Net debt stood at $1.91 billion, reduced from $1.99 billion at year-end 2019.  In light of the ongoing weak oil price environment, Premier has entered discussions with its lending group to address its covenant profile with a view to securing any necessary waivers.

Status of proposed acquisitions and related funding arrangements

In April, the Court of Session in Edinburgh approved the creditor schemes of arrangement required to implement the proposed UK North Sea Acquisitions, related funding arrangements and the extension of the Group's credit facilities.  Since then, the single dissenting party has lodged an appeal against the Court's judgment and, as a result, the Schemes will not become effective until that appeal process has concluded.  

While Premier remains confident in the strength of its legal case and expects the Court to dismiss the appeal, the Board believes it prudent to re-engage with its stakeholders regarding the proposed transactions and extension to its May 2021 credit maturities in light of current market conditions.

Appendix

Group production breakdown

¹ sold at 26 March 2019

The information contained within this announcement is deemed by Premier to constitute inside information as stipulated under the Market Abuse Regulation. By the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain. The person responsible for arranging for the release of this announcement on behalf of Premier is Andy Gibb (Group General Counsel).