14th Jan 2015 08:48
LONDON (Alliance News) - Premier Oil PLC shares were hit on Wednesday after it warned it will be writing off USD300 million worth of value from a number of its assets in 2015 due to the low oil price, despite hedging over 40% of its production, which significantly increased during 2014.
Premier Oil shares fell 7.2% on the news to 126.81 pence per share on Wednesday morning.
The company said it will be making a material impairment charge in the second half of 2015 on some of its assets to reflect the low Brent crude oil spot price and forward curve price at the year end of 2014. The impairment charge is currently estimated to total USD300 million on a post-tax basis.
Production during 2014 averaged 63,600 barrels of oil equivalent per day, up 9.3% compared to the 58,200 barrels of oil equivalent produced per day in 2013. The company saw production increase in Indonesia, Vietnam and the UK, slightly offset by production declines from its assets in Pakistan and Mauritania.
Premier generated total revenue of USD1.6 billion in 2014, a rise from the USD1.5 billion a year earlier, with capital expenditure totalling USD1 billion plus a further USD160 million on exploration.
In 2015, Premier said its capital expenditure will be around USD600 million, representing a 40% reduction, with its exploration budget slightly increasing to USD220 million in 2015.
Premier said it has deferred all exploration expenditure it has not already committed to during 2015. The company plans to drill a total of eight exploration wells during the year. Drilling will be done in Kenya and the Falkland Islands, which will begin in March, alongside Premier's first test well offshore Norway, which will spud in the middle of the year.
The average oil price achieved by Premier during 2014 was USD98.2 per barrel before it hedged some of its production. After hedging production, the average price increased to USD101 per barrel. In Indonesia, Premier achieved an average gas price of USD15.6 per million cubic feet of gas and USD4.6 per million cubic feet of gas from production in Pakistan.
For the 2015 year, the company has hedged 5.4 million barrels of oil and 84 billion tonnes of high sulphur fuel oil at an average price of USD98.30 per barrel and USD614.40 per million tonnes respectively. This represents around 40% of the company's production from its existing producing assets.
Premier is expecting oil production from its existing producing assets during 2015 to average around 55,500 barrels of oil equivalent per day. The guidance has been lowered to take into account the impact from the sale of the high-cost producing Scott area in the North Sea and some natural decline in the company's portfolio.
The production guidance in 2015 does not include the Solan field, which is expected to begin producing in 2015. A more accurate forecast on total production will be made dependent on the timing of first oil from the Solan field.
As at December 31, Premier had spent a total of USD1.4 billion on the Solan project. Premier is funding its partner's share of capital expenditure in return for 100% of the field's cash flow once on-stream until it has repaid a loan to the partner, it said in a statement.
Premier is speaking to the partner, Chrysaor, about the partial refinancing or sale of the loan. At the end of 2014, the outstanding loan and interest stood at USD547 million.
The company is expecting to begin construction at the North Sea Catcher project in the second half of the year with the floating production facility being built in Japan. The project is on schedule and on budget, said Premier.
By Joshua Warner; [email protected]; @JoshAlliance
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