4th Apr 2016 17:41
Premier Oil plc (the "Company")
2015 Annual Report and Financial Statementsand Notice of Annual General Meeting 2016
4 April 2016
Further to the release of the Company's Annual Results on 25 February 2016, the Company announces that it has today published its Annual Report and Financial Statements for the financial year ended 31 December 2015 (the "2015 Annual Report"). In addition, the Company has today posted to shareholders the Notice of Annual General Meeting ("AGM") 2016. The AGM will be held at No.11 Cavendish Square, London, W1G 0AN, at 11.00am on Wednesday 11 May 2016.
In accordance with Listing Rule 9.6.1., copies of the 2015 Annual Report, the Notice of AGM and related form of proxy have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism at www.morningstar.co.uk/uk/nsm. The documents (except for the form of proxy) are also available to view on the Company's website at www.premier-oil.com
A condensed set of financial statements and information on important events that have occurred during the year ended 31 December 2015 and their impact on the financial statements were included in the Company's 2015 Annual Results announcement on 25 February 2016. That information together with the information set out below in Appendix 1, which is extracted from the 2015 Annual Report, fulfil the requirements of DTR 6.3.5. This announcement is not a substitute for reading the full 2015 Annual Report. Page and note references in the text in Appendix 1 are made in reference to the 2015 Annual Report. To view the 2015 Annual Results announcement, visit the Company website: www.premier-oil.com/premieroil/investors
Further enquiries:
Company Secretariat:Rachel Rickard Tel: +44 (0)20 7730 1111
Investor Relations:Natalie Fortescue Tel: +44 (0)20 7730 1111
Disclaimer
This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Group believes the expectations reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to factors beyond the Group's control or otherwise within the Group's control but where, for example, the Group decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.
APPENDIX 1
Company Risk Factors (required under DTR 4.1.8)
Principal risk factor | Risk detail | How is it managed? | Key steps to mitigate in 2015/16 |
Commodity pricevolatility
(Of particularsignificance during2015 and into 2016) | Oil and gas prices are affected by global supply and demand and price can be subject to significant fluctuations. Factors that influence these include operational issues, natural disasters, weather, political instability, or conflicts and economic conditions or actions by major oil-exporting countries. Price fluctuations can affect our business assumptions and can affect investment decisions and financial capability. Specific risks for 2016: inability to deliver satisfactory hedging programme due to low forward oil prices.
| Oil and gas price hedging programmes to underpin our financial strength and protect our capacity to fund our future developments and operations. Premier investment guidelines ensure that our development programmes are robust to downside sensitivity price scenarios.
| Seek acquisition opportunities which will improve the Company's hedging position. Hedging programme (continued into 2016) taking advantage of the limited protection from such activity during an extended period of low oil prices. Economics of development programmes re-worked to reflect low oil price environment. Discretionary spend curtailed. Contingency planning or accelerated decommissioning of identified production assets. |
Production anddevelopmentdelivery (Of particularsignificance during2015 - Solan -and into 2016) | Uncertain geology and reservoir performance leading to lower production and reserves recovery. Availability of services including FPSOs and rigs, availability of technology and engineering capacity, availability of skilled resources, maintaining project schedules and costs as well as fiscal, regulatory, political and other conditions leading to operational problems and production loss or development delay. Consequences may include lower production, lower recovery of reserves, production delays, cost overruns and/or failure to fulfil contractual commitments. Specific risks in 2016: delayed second producer well on Solan; Solan ramp-up to plateau production is delayed or budget exceeded; decline in Indonesian and Vietnamese production through operational issues. | Geoscience and reservoir engineering management systems, including rigorous production forecasting and independent reserves auditing processes. Effective contracting strategy, operations, development and project execution management systems and cost controls together with capable project teams. Long-term development planning to ensure timely access to FPSOs, rigs and other essential services. | Improved production forecasting, enhanced reporting and monitoring through further refinement of near-real-time production analytics platform. Improved project planning and delivery through better co-ordination and execution of cross-functional review prior to decision gates. Independent 'lessons learned' review of Solan project communicated to Group corporate and business unit teams. Continued ExCo, business unit and project engagement on contractor selection/management. |
Financial disciplineand governance
(Of particular significance during 2015 and through 2016)
| Risk of covenant breach and that sufficient funds are not available to finance the business. Risk of financial fraud. Breach of delegated authority. Specific risks in 2016: need to relax financial covenants; failure to deliver cost efficiencies; and reduced capex plans.
| Strong financial discipline. Premier has an established financial management system to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to manage the level of assessed risk associated with the financial instruments. Premier maintains access to capital markets through the cycle. The management system includes policies and a delegation of authority manual to reasonably protect against risk of financial fraud in the Group. An insurance programme is put in place to reduce the potential impact of the physical risks associated with exploration and production activities. In addition, business interruption cover is purchased for a proportion of the cash flow from producing fields. Cash balances are invested in short-term deposits with minimum A credit rating banks, AAA managed liquidity funds and A1/P1 commercial paper, subject to Board approved limits. | Careful management of covenant headroom on the Group's debt facilities and ongoing dialogue with lenders regarding the likely need to re-negotiate covenants. Economics of investment decisions and development projects re-worked to reflect low oil price environment. Deferred discretionary exploration spend. Unsanctioned development projects deferred and re-shaped. Ongoing reduction of contractor spend. Contingency planning for right-sizing and re-structuring of Group to deliver business goals. Enhancement of Business Control Review process. |
Health, safety,environmentand security('HSES')
| Major process safety incident or operational accident, natural disasters, pandemics, social unrest, civil war. Consequences may include accidents resulting in loss of life, injury and/or significant pollution of the local environment, destruction of facilities and disruption to business activities. | Comprehensive HSES and operations management systems including emergency and oil spill response capability and asset integrity. Active security monitoring and management and regular testing of business continuity plans. Learning from Company and third party incidents.
| Further embedded electronic incident-recording and action-tracking system, implemented HSEMS self-audit system. Further embedded implementation of asset integrity scorecard methodology (covering people, plant and process lead indicators) at all operated production assets. |
Joint venture partner alignment and supplychain delivery
(Of particular significance during an extended period of oil price weakness/volatility)
| Global operations in the oil and gas industry are conducted in a joint venture environment. There is a risk that joint venture partners are not aligned in their objectives and drivers and this may lead to inefficiencies and/or delays. Several of our major projects are operated by our joint venture partners and our ability to influence our partners is sometimes limited due to our small interest in such ventures. We are heavily dependent on supply chain providers to deliver services and products to time, cost and quality criteria. Heightened risk during period of downturn in the upstream services sector. Specific risks in 2016: failure of supply chain providers to deliver, causing delays/cost over-runs on Catcher project. | Due diligence and continuous and regular engagement with partners in joint ventures in both operated and non-operated projects. Premier takes strategic acquisition opportunities where appropriate to gain a greater degree of influence and control. Non-operated ventures management system. Active engagement with supply chain providers. Monitor performance and delivery.
| Heightened engagement with joint venture partners and supply chain counterparties with regard to their ability to fulfil commitments. Solan JV partner bought out. Various portfolio management options under review in 2015/16.
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Host government: political and fiscal risks | Premier operates in some countries where political, economic and social transition is taking place or there are current sovereignty disputes. Developments in politics, laws and regulations can affect our operations and earnings. Consequences may include forced divestment of assets; limits on production or cost recovery; import and export restrictions; international conflicts, including war, civil unrest and local security concerns that threaten the safe operation of Company facilities; price controls, tax increases and other retroactive tax claims; expropriation of property; cancellation of contract rights; and increase in regulatory burden. It is difficult to predict the timing or severity of these occurrences or their potential impact. | Premier's portfolio includes operations in both low and higher risk environments. Premier actively monitors the local situation and has business continuity plans in each area which can be activated depending on pre-defined levels of alert. Premier strives to be a good corporate citizen globally, and fosters reputation by strong and positive relationships with government and communities where we do business. Premier engages in respectful industry-wide lobbying and sustainable corporate responsibility and community investment programmes. Rigorous adherence to Premier's business ethics policy and code of conduct. Continuous monitoring of the external environment for emerging risks to the business. | Improved provision of politico-economic/security/societal risk assessment informing investment decisions. Strengthened Corporate Responsibility ('CR') management system and ongoing improvements to CR reporting. Ongoing cost/benefit assessment of political risk insurance on case-by-case basis |
Organisationalcapability | Risk that the capability of the organisation is not adequate to deliver plans for strategic growth. The capability of the organisation is a function of both the strength of its human resources and its business management systems. Inadequate systems or lack of compliance may lead to loss of value and failure to achieve growth targets. Loss of personnel to competitors, inability to attract and retain quality human resources and competency gaps could affect our operational performance and delivery of growth strategy. | Premier has created a competitive remuneration and retention package including bonus and long-term incentive plans to incentivise loyalty and good performance from the existing, highly skilled workforce. Premier continues to strengthen its organisational capability to achieve strategic objectives. This includes resource planning, competency development, training and development programmes, succession planning including leadership development. Continuous strengthening of business management systems and controls as appropriate to the size and market position of the Company. | Continuous improvement of human resources management systems and controls. New reward programme rolled out in the fourth quarter of 2015. Phased function roll-out of competency management system continued. Succession planning reviewed.
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Exploration successand reserves addition | Failure to identify and capture acreage and resource opportunities to provide a portfolio of drillable exploration prospects and sufficient development projects to achieve reserves addition targets. Specific exploration programmes may fail to add reserves and hence value. Failure to negotiate access rights or close transactions could slow growth of reserves and production and lead to loss of competitive advantage. | Strong portfolio management and alignment with strategicgrowth targets. Appropriate balance between growth by exploration and acquisition. Exploration management systems including comprehensive peer review with focus on geologies in core areas we know well and in which we can build a competitive advantage. M&A effort focusing on geographical and technical areas aligned with our strategy. Diligence in acquisition process and post-acquisition integration to ensure targeted returns. | Review and downsize exploration portfolio to high-grade prospectivity (in response to low oil price). Re-shape exploration team with revision of ExCo responsibility. Acquired Mexican offshore licence interests. Ongoing M&A options in progress into 2016.
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Key Performance Indicators (required under DTR 4.1.9)
Premier measures a range of operational, financial and non-financial metrics to help it manage its long-term performance and achieve the Company's business plans. Despite the challenging conditions faced by the sector in 2015, Premier continued to deliver on a number of its key metrics.
Working interest production (kboepd)
Objective
Premier aims to maximise production from its existing asset base and, over time, to deliver production growth. By delivering on our production targets it provides a source of funding in the form of significant high-margin annual cash flow. Production growth is measured using average daily production and the number of development projects being brought through to sanction. The ability to commercialise and bring these projects on-stream is key to the Company's success.
2015 Progress
Average daily production in 2015 was 57.6 koepd, in line with expectations and ahead of the 55 koepd market guidance. The reduction from the previous year principally reflects the disposal at the end of 2014 of the Scott area in the UK which contributed 3.8 kboepd in 2014. Progress was made on the next generation of development projects in the UK which will underpin the Company's future production growth.
Reserves and resources (mmboe)
Objective
Premier aims to provide a basis for future growth by growing the reserves and resources base through a combination of successful exploration and selective acquisitions. This ambition is measured by reserves replacement, risked prospective resources added and finding costs.
2015 Progress
Proven and probable (2P) reserves at the end of 2015 were 332 mmboe (2014: 243 mmboe). The increase reflects the booking of 136 mmboe in respect of the first phase of the Sea Lion field in the Falkland Islands following the completion of a draft field development plan, which more than offsets the impact of 2015 production and disposals from our reserve base. Disposals comprised the Black A Aceh disposal at the start of the year and the Vette field, sold as part of our Norwegian business in December.
Total recordable injury rate ('TRIR') (mmboe)
Objective
Premier is committed to managing its operations in a safe and reliable manner in order to prevent major accidents and to provide a high level of protection to its employees, contractors and the environment. Health and safety performance is measured using a number of metrics including total recordable injury rate ('TRIR') per million man hours. Safety performance data includes both Premier employees and contractors.
2015 Progress
In 2015, Premier completed the roll-out of a centralised, online Occupational Health and Safety incident reporting tool - Synergi Life - across the Company. This has centralised HSES incident reporting and action tracking into a single Company-wide platform, thereby improving the analysis of performance. Premier achieved a TRIR performance of 1.27 per million man hours (2014: 1.5), a 14 per cent decrease on 2014, continuing the improving trend from 2014 and ahead of our target for the year.
Operating cash flow (US$ million)
Objective
Premier aims to maximise cash flow from operations in order to maintain financial strength, ensuring it can invest in the future of the business and deliver long-term returns to shareholders. Premier's cash flows are protected by a rolling forward hedging programme and this metric is closely monitored.
2015 Progress
Despite the difficult macro environment and a low oil price throughout the year, Premier has registered a strong operating cash flow in 2015 of US$809.5 million (2014: US$924.3 million). This was achieved by strong production performance, extensive cost savings and the benefit of the hedging programme. Premier's portfolio of crudes was sold at an average of US$52.6/bbl (2014: US$98.2/bbl) (pre-hedge) and US$70.0/bbl (2014: US$101.0/bbl) (post hedge) compared with an average Brent crude price of US$52.4/bbl.
Operating costs (US$/boe)
Objective
Premier aims to minimise costs from operations without compromising on health and safety or asset integrity. Operating costs per barrel of oil equivalent is a function of industry costs, inflation, Premier's fixed cost base and production output. Operating costs are monitored closely to ensure that they are maintained within pre-set annual targets.
2015 Progress
Operating costs reduced to US$16.0/boe in 2015 (2014: US$18.8/boe), a reduction year-on-year of over US$100 million. This was the result of significant cost saving initiatives carried out across the Group, the sale of the high cost Scott area in the UK at the end of 2014 and high operating efficiencies delivered in 2015.
Covenant headroom (US$ million)
Objective
Premier aims to retain balance sheet strength by maintaining liquid reserves, including undrawn committed banking facilities, to meet planned funding commitments. The long-term, unsecured nature of our debt means that ongoing compliance with our covenants is the key metric to ensure the ongoing availability of our funding arrangements.
2015 Progress
At the end of 2015, Premier retains significant funding facilities with cash and undrawn facilities of US$1.2 billion. During the year, covenants were renegotiated with our banks and bondholders and these have been relaxed until mid-2017. Ongoing continued compliance with covenants is a priority for Premier, with covenant headroom in excess of US$900 million at year-end. However, if current low oil prices persist, then a further relaxation of our main financial covenants may be required, which we are taking pre-emptive action to address.
Directors' responsibility statements (required under DTR 4.1.12)
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Group financial statements
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU') and Article 4 of the International Accounting Standards ('IAS') Regulation and have also chosen to prepare the parent company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the parent company financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1 - 'Presentation of Financial Statements' - requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's and Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.premier-oil.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' responsibility statement
We confirm to the best of our knowledge:
1. the Group financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
2. the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
3. the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 24 February 2016 and is signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
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