NORTH Sea heavyweight Premier Oil has highlighted the scale of the profits it expects to make on developments in the area where it has plans for ‘significant’ activity this year.
Premier Oil grew profits after tax to $164 million (£125m) in 2019, up from $133m in the preceding year as it reaped rewards for making the hefty investment required to bring the Catcher field east of Aberdeen into production.
In its annual results announcement, Premier noted that the slump in the crude price this year triggered by the spread of the COVID-19 coronavirus has posed challenges for oil firms.
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Chief executive Tony Durrant said the volatile macro environment had underlined the importance of the firm being able to generate cash from its operations, which it expects to be carbon neutral by 2030.
Some firms may decide to curb investment in response to the recent crude price fall.
However, Mr Durrant made clear that Premier expects to maintain its drive for growth in the North Sea in the expectation that it will be able to achieve good cash returns on the investments it makes.
He underlined that London-based Premier is still excited about the potential of the portfolio of mature North Sea assets that it agreed in January to acquire from BP for $625m (£480m). This includes stakes in the Andrew and Shearwater fields.
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Hedge fund Asia Research and Capital Management, which is Premier Oil’s biggest creditor, has said the deal does not make financial sense. But Mr Durrant said the purchase would allow Premier to add material cash-generative production from assets with growth potential.
Premier has made a series of acquisitions in the North Sea amid the fallout from the sharp drop in the oil price from 2014 to 2016, which prompted some giants to cut their exposure to the area.
Premier’s directors decided the resulting downturn created opportunities to buy assets at attractive prices. It led to a sharp fall in the cost of support services.
The company also highlighted the appeal of investing in boosting production from newer fields, including Catcher.
“In the UK, a significant amount of activity is planned for 2020,” said Mr Durrant. He noted the related investments “have high returns and quick payback periods”.
The company achieved cash payback on the initial Catcher development in October, just 22 months after starting production from the field with Edinburgh’s Cairn Energy.
The 2020 work programme will feature three developments in the Catcher area.
It will also include the drilling of an additional production well on the bumper Solan field West of Shetland, on which Premier has faced big difficulties.
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Production from the Solan field averaged 3,500 barrels oil equivalent per day last year. When Solan was brought on stream in 2016 it was expected to produce 20,000 boepd or more.Premier has noted poorer than expected reservoir performance on Solan.
Premier cut the book valuation of Solan by around $10m last year, after making big provisions in respect of the field in previous years.
The company expects to start production this year from the giant Tolmount gas field in the Southern North Sea, on acreage acquired with the North Sea portfolio it bought from Germany’s E.ON for $120m in 2016. In January Premier agreed to buy an additional 25% interest in Tolmount from Korean-owned Dana Petroleum for up to $246m.
Premier said the increase in after tax profits reflected the benefit of a rise in revenue to $1.58 billion from $1.4bn and the tax losses it has amassed in the UK. Pre tax profits fell to $102.5m from $158.2m.
Premier expects production costs to average around $15 per barrel this year. Brent crude sold for around $51/bbl yesterday against $70/bbl late last year.
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The price previously fell from $115/bbl in June 2014 to less than $30/bbl early in 2016. Opec members and Russia subsequently agreed to curb production to support the market.
Premier Oil thinks it can achieve significant reduction in carbon emissions from its facilities by 2030, helped by the use of advanced technology on new developments. It will buy carbon offsets to make up the difference required to achieve the net zero target.
The company's UK production increased to 54,200 barrels oil equivalent per day (boepd) last year from 46,800 boepd.
Total production fell to 78,400 boepd, from 80,500 boepd, following the sale of Premier’s Pakistan operations last year.
Net debt fell to $1.99bn last year, from $2.33bn.
The company has producing assets in Vietnam and Indonesia. It made a big find off Mexico in 2017.
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