PREMIER Oil has highlighted its faith in the potential of the North Sea as it prepares to start pumping oil from the giant Catcher field east of Aberdeen next month on schedule and under budget.
Welcoming the excellent progress achieved on Catcher, London-based Premier said the start of production from the field will help the company to generate significant amounts of cash next year.
Chief executive Tony Durrant noted the output from Catcher combined with the recovery in the oil price in recent months, to around $62 per barrel, will allow Premier to speed up reduction of its hefty debts.
Directors are pleased enough with the expected return on the investment in Catcher that they are already preparing to give the green light to another big North Sea development.
Engineering studies on the Tolmount gas project have gone so well that directors expect to sanction the development in the first half of next year.
Premier is still facing problems with the flagship Solan field off Shetland, which is producing much less oil than expected.
However, the news of the progress achieved by the company in the North Sea will be welcomed in the area. The fall in the oil price since 2014 has taken a heavy toll on activity off the UK.
Premier hit the headlines in July when it made a massive find off Mexico and has extensive acreage in Asia, meaning the company’s North Sea portfolio faces competition for funding.
In an update on trading in the ten months to 31 October, Mr Durrant singled out the progress achieved on Catcher as one of the highlights of the period.
“The excellent progress on the Catcher project, combined with the recovering oil price, will accelerate debt reduction through 2018,” he said.
The drilling work completed on Catcher in recent months has increased directors’ confidence in the quality of a field that Premier expects will be capable of producing 60,000 up to barrels a day.
The results of all 13 wells have met or exceeded expectations.
Premier noted the expected cost of developing the field, with Edinburgh-based Cairn Energy, has fallen by around $650 million (£490m) to $1.6bn since it was sanctioned in 2014.
The company has benefited from the sharp fall in the cost of support services in the North Sea amid the downturn triggered by the oil price drop since that year.
Premier noted its operating costs are expected to average just $16 per barrel this year.
The company has started getting tenders for development work on the Tolmount gas field off eastern England. It has submitted a draft development plan to the Oil and Gas Authority.
Premier produced an average 6,200 barrels oil daily in the first ten months from Solan, on which it has faced big challenges.
When Premier started production from Solan in April last year, the company expected to be producing 20,000 to 25,000 boed from the field by the end of 2016.
In August Premier said it may drill more wells on the Solan field off Shetland to boost disappointing production rates.
Solan came onstream in April last year, around 18 months later than planned. Premier has noted the impact of bad weather and low productivity on the development.
Premier believes it is well placed for growth after agreeing a refinancing deal in July after months of talks. It had $2.8bn net debt at 30 September.
The company expects to secure $200m funding next month from the sale of its interest in the Wytch farm field in Dorset to Perenco.
It is in talks regarding the potential sale of non-core assets, mainly from the North Sea portfolio it bought from German utility E.ON in 2016.
The $120m portfolio included producing interests and the acreage containing Tolmount.
Premier produced an average 76,600 barrels oil equivalent in the first ten months, up from 68,200 last time. Full year guidance is for output to average 75,000 boed to 80,000 boed.
UK production increased to 41,000 boed from 30,100 boed.
Oil and gas analysts at the Jefferies brokerage wrote: "Premier Oil is well set for 2018 with production growth from Catcher, material deleverage and appraisal of the world-class Zama discovery (off Mexico)."
Shares in Premier closed down 0.25p at 70p. The company has a market capitalisation of around £360m.
Premier expects to complete the the $65.6m sale of its Pakistan business to Al-Haj Group by the end of the financial year.
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