25th Feb 2016 13:06
LONDON (Alliance News) - Premier Oil PLC on Thursday reported a much wider loss in 2015 after the company booked more impairments and experienced a drop in revenue thanks to the fall in oil prices, but it is set to unleash a series of new producing assets in the UK North Sea this year.
The company is finalising a deal to acquire a string of assets from E.ON and is expecting oil production to begin at its delayed Solan project imminently, leading to a material boost to production in 2016 and allowing the company to rid itself of some burdensome capital expenditure commitments.
However, like the wider oil market, Premier has suffered from falling energy prices and a deteriorating environment as the company reported a pretax loss of USD829.6 million in 2015, widening from the USD362.5 million loss in 2014.
"Despite the significant reduction in oil and gas prices, reflected in our results today, 2015 was a year in which we exceeded production guidance, added to reserves, achieved notable exploration success and reached agreement on a value-adding acquisition," said Chief Executive Tony Durrant.
"We also reduced operating costs by over 25%, significantly cut back on current and future development spend and disposed of negative cash flow assets," he added. "Our forward plan includes further actions to reduce debt, positioning ourselves for a prolonged period of lower oil prices, whilst continuing to take actions to build longer-term value for a recovering commodity environment."
The wider loss was a result of revenue falling to USD1.06 billion from USD1.62 billion, with lower production levels in 2015 exacerbating the 41% fall in the price Premier achieved for its oil.
A rise in impairment charges to USD1.02 billion from USD784.4 million, alongside significantly higher exploration costs, also contributed to the wider loss in the year.
Production in 2015 averaged 57,600 barrels of oil equivalent a day, ahead of the company's guidance but still lower than the 63,600 barrels being produced per day last year.
However, production in 2016 is expected to rise to the region of 65,000 to 70,000 barrels a day thanks to the addition of the E.ON assets and the start of production from Solan. Importantly, Premier Oil has around 30% of the anticipated production in 2016 hedged at a price of USD73.4 per barrel, which is substantially above current spot prices of USD34 a barrel.
The four assets being acquired from E.ON, at an aggregate cost of around USD135.0 million, will contribute net production of around 15,000 barrels a day in 2016.
Premier disposed of its Norwegian business in the year for USD120.0 million and its onshore block in Indonesia for USD40.0 million, mitigating the cost of the E.On acquisition and allowing Premier to replace under-performing, non-core assets with ones closer to home.
Premier is also searching for a buyer for its assets in Pakistan.
The Solan field is expected to begin contributing between 20,000 to 25,000 barrels a day "later" in the first half of 2016. Shareholders will be relieved Solan is finally being delivered after lengthy delays caused by weather problems plagued the project and resulted in significantly higher costs than originally expected.
Premier conceded Solan has been "challenging" since the start, but said "lessons have been learnt" as its attention moves toward its other large development projects, which, for now, remain on track.
Premier's Sea Lion project offshore the Falkland Islands and the Catcher project in the UK North Sea both remain on schedule, and Premier said Catcher remains under budget and is expected to begin producing in 2017, whilst the economics at Sea Lion have been improved as the company and its partners work towards a field development plan and seek a new partner to help fund the project.
Capital expenditure in 2015 was slightly lower than a year ago, totalling USD1.07 billion from USD1.19 billion. However, with Solan behind it, capital expenditure will drop to only USD700.0 million this year, with the potential to lower this to only USD300.0 million in 2017 as the attention moves to Catcher.
Premier still has USD1.20 billion of available funding, giving it plenty of headroom. Premier said it is watching its covenants and said they are a "priority" in 2016, but said it has covenant headroom of around USD900.0 million.
Net debt at the end of the year rose to USD2.42 billion from USD2.12 billion at the end of 2014, with its cash balance also rising to USD401.3 million from USD291.8 million.
Premier Oil shares were down 5.1% to 39.16 pence per share on Thursday afternoon.
By Joshua Warner; [email protected]; @JoshAlliance
Copyright 2016 Alliance News Limited. All Rights Reserved.
Related Shares:
PMO.L