15th Sep 2005 07:02
Premier Oil PLC15 September 2005 Premier Oil plc Interim Results for the period ended 30 June 2005 Highlights Operational achievements • Production ahead of expectation - 34,779 boepd (2004: 35,200 boepd) • Record gas exports from Premier's producing assets in Pakistan • Significant progress on Mauritanian and Indonesian oil and gas developments • Exploration and appraisal drilling successes in Mauritania and Egypt Financials • Profit after tax up 60 per cent to US$20.5 million (2004: US$12.8 million) • Operating cash flow US$54.2 million (2004: US$70.7 million) • Net debt at US$9.7 million (2004: net cash US$19.6 million) • Successful outcome of the £10.0 million share buyback programme • Completed a new US$275.0 million credit facility with improved terms Outlook • A further seven exploration wells planned in 2005 • Chinguetti development on track for first oil in early 2006 • Pre-qualified for forthcoming Norwegian licensing rounds Sir David John, Chairman, commented: "Premier has delivered share price growth, improved results and consolidated itsstrong financial position during the first half of 2005. The second halfexploration and appraisal activity exposes shareholders to further value growthas we pursue an active and exciting programme." Strategy • Re-focussed by new management team • Increased emphasis on developing asset base to extract growth • Build core businesses within North Sea, Far East, West Africa and South East Asia • Generate production of 50,000 boepd in the medium term • Strengthen key geographic businesses through high impact exploration and focussed acquisitions • Up to four high impact exploration wells per annum • Annual exploration spend of c. US$50.0 million Simon Lockett, Chief Executive Officer, commented: "Premier today has an exceptionally strong asset base spread across West Africa,the North Sea, the Far East and South East Asia. The challenges for Premier arethree fold; to generate organic growth from our existing assets, to achievematerial success with the drill bit and to build substantial businesses acrossour key geographic regions. By meeting these challenges we will createshareholder value for the long term. We have a solid platform from which toexecute this refocused strategy." 15 September 2005 There will be an analyst presentation on Thursday 15th September 2005 atPremier's office, 23 Lower Belgrave Street, London, SW1W 0NR, starting at10.00am. A copy of the presentation will be available on the company's website:www.premier-oil.com. Enquiries: Premier Oil plc Tel : 020 7730 1111 Simon LockettTony Durrant Pelham PR Tel: 020 7743 6673James HendersonGavin Davis CHAIRMAN'S STATEMENT With a quality asset base and a favourable oil price environment, Premier iswell positioned to pursue growth through exploration and expansion of ourexisting production. Premier has continued to make progress throughout the year, benefiting from notonly high oil prices but also the underlying strength of the overall business. Net profits have increased by 60 per cent with production exceedingexpectations. In addition, we have had early success with two positive wells drilled this yearand a further seven planned for the second half of 2005. We continue to see the benefit in our production driven exploration strategywith production continuing to provide the platform and cash flow to supportPremier's largest ever exploration programme. In the period to 14 September Premier's share price has also performed strongly,rising 42 per cent since 1 January 2005 and 248 per cent over the last threeyears. The continuing rise of the oil price, pressure on new growth opportunities andincreased cost pressure on services supplied to the sector presents Premier withchallenges which I am sure it will ably handle. Financial and operations performance Whilst production in the first half was above expectation at 34.8 thousandbarrels of oil equivalent per day (mboepd), it was relatively flat year on yearas incremental field developments and increased gas demand in Pakistan offsetunderlying field declines in the UK and Indonesia. The Chinguetti oilfield development, offshore Mauritania, is well advanced andis on target to start production in the first quarter of 2006. A number ofincremental development opportunities in the UK and Pakistan are beingimplemented or pursued. The West Lobe development project on the Anoa field inIndonesia is progressing well and commercial discussions on a second sale of gasfrom block A to Singapore continue. Strong operating performance and rising commodity prices have generatedoperating cash flow, of US$54.2 million. Net cash flow after capitalexpenditure, including spending on the Chinguetti development in Mauritania, wasan outflow of US$7.8 million (2004: US$10.3 million inflow). Consequently, thenet cash position at 31 December 2004 of US$19.6 million has become net debt ofUS$9.7 million at 30 June 2005. The company has continued to fund explorationand appraisal expenditure from operating cash flow. Net profit after tax for the period amounted to US$20.5 million (2004: US$12.8million). Six exploration wells and one appraisal well have been drilled to date in 2005.The Tiof-6 appraisal well successfully flow tested at 9,150 barrels of oil perday. In Egypt, the Al Amir-1 exploration well encountered a small reservoir ofoil close to existing infrastructure which flow tested at 750 barrels of oil perday. An appraisal of this discovery is planned for later this year or early in2006. Forward drilling programme The second half of the year and early 2006 will be a period of high explorationactivity. In offshore Mauritania, we continue our five well explorationprogramme. Elsewhere in West Africa we will be drilling in Guinea Bissau. InAsia, we have two wells in Indonesia and one, possibly two, in Vietnam. In theUK we have added a well by farming out an interest in the Palomino prospect. Board The previously announced Board changes are now complete; Simon Lockett took overfrom Charles Jamieson as Chief Executive Officer in March 2005, and Tony Durrantassumed the role of Finance Director from John van der Welle on 1 July 2005. Strategy Premier's strategy of adding value through exploration and selectiveacquisitions remains in place. We have growing high quality production businesses in South East Asia, SouthAsia and the UK. With the start of production from Mauritania we have anexpanding portfolio in Africa and have identified excellent upside productionpotential in our assets around the world. Organic growth from exploration will continue to be a fundamental part of ourbusiness and will be increasingly focused on ensuring we deliver successfulwells that have a material impact on the value of the business. Our acquisition activities will target opportunities in and around existingassets where we understand the technical and commercial potential. Over the next few years we are confident we will be significantly increasing ourefforts to realise our growth potential as we head towards 50,000 barrels of oilequivalent per day. With a new senior management team in place, the organisation is being realignedto meet these new challenges. Sir David John KCMG FINANCIAL REVIEW As announced on 25 August 2005, Premier is reporting its financial results inaccordance with International Financial Reporting Standards (IFRS), with effectfrom 1 January 2005. Comparative numbers for 2004 have been restated inaccordance with the group's new accounting policies. These policies include theadoption of the successful efforts method of accounting for oil and gas assets.The Board believes that the newly adopted accounting policies provide a moretransparent report of the performance of the group's producing assets andexploration activities. Income Statement Profit after tax in the period to 30 June 2005 was US$20.5 million, comparedwith a profit of US$12.8 million in the corresponding period last year. Therise reflects higher realised oil and gas prices, two successful wells resultingin a lower exploration write-off, offset by a small decline in production. Group production, on a working interest basis, was down one per cent at 34,779barrels of oil equivalent per day (2004: 35,200 boepd). The decrease reflectshigher production volumes in Pakistan, whilst production from the UK andIndonesia was slightly lower. Premier's realised average oil price, afterhedging, amounted to US$38.08 per barrel (2004: US$31.45/bbl). Realised gasprices increased 2 per cent to US$3.38 per thousand standard cubic feet. As a result of the improved realised sales prices, offset by a small decrease inthe comparative production levels, turnover net of hedge contract losses was 9per cent higher at US$149.3 million, an increase of US$12.0 million. Cost of sales increased in the period to US$73.7 million (2004: US$67.8 million)in line with higher turnover. Under IFRS the group's operations in its jointventure company Premier Kufpec Pakistan BV (PKP) are fully consolidated andreported on a line-by-line basis. The restated 2004 operating profit includesthe revenues and costs relating to the PKP joint venture. Taking this intoaccount the unit operating cost was US$6.4 per barrel of oil equivalent (boe) up18 per cent on the corresponding period last year. This increase is due todeclining UK production resulting in a higher unit per barrel cost. Under thenewly adopted accounting standards amortisation is now calculated on anindividual field basis rather than a geographical pool basis. The group's unitamortisation charge amounted to US$5.82 per boe, 4 per cent down from 2004 as agreater proportion of production was sourced from the lower cost business inPakistan. The change of accounting practice to an IFRS successful efforts based policyrequires that pre-licence costs, and unsuccessful exploration costs determinednot to have established the existence of commercial oil or gas reserves arewritten off in the period that they are incurred. In the first half of 2005,Premier has completed two exploration and appraisal wells, Al Amir in Egypt andTiof 6 in Mauritania. Both have been considered successful and furtherappraisal activity is now being planned for later this year or in 2006. Thecost associated with these wells is categorised as an exploration and evaluationasset, pending determination. The exploration write off amount of US$5.7million relates mostly to pre-licence costs and is down from US$22.7 million in2004, which included the write off of costs associated with the explorationwells; Sinapa 2 in Guinea Bissau and Criollo in the UKCS, in addition topre-licence expenditure. Net interest expense was slightly higher at US$2.6 million (2004: US$1.7million). Profits before tax for the period amounted to US$62.0 million anincrease from the corresponding period (2004: US$40.0 million) due mainly to thelow level of exploration write off. Taxation charges at US$41.5 million werehigher than the charges reported for the first half of 2004 (US$27.2 million)reflecting higher operating profits and the move into profit oil in Indonesia. Cash flow Cash flow from operating activities, which under IFRS now includes jointventures, amounted to US$54.2 million down from US$70.7 million in 2004, duemainly to a 2004 Indonesian tax liability paid in the first half 2005. Capitalexpenditure for the period was US$62.0 million (2004: US$60.4 million). Capitalexpenditure comprised US$33.5 million on fields/developments (2004: US$16.0million), US$28.1 million on exploration/appraisal (2004: US$34.0 million), withother expenditure of US$0.4 million (2004: US$10.4 million). The increase indevelopment expenditure in 2005 reflects the continued costs associated with thedevelopment of the Chinguetti field in Mauritania, offset by lower explorationspend in the first half of 2005 compared to the corresponding period. Net cash outflow, after capital expenditure but before movements relating tofinancing, amounted to US$7.8 million (2004: US$10.3 million inflow). Net debt Net debt at 30 June 2005, including joint venture balances, was US$9.7 million(31 December 2004: net cash US$19.6 million). The decrease relates mainly tothe funding required for the development activities in Mauritania and the sharebuyback programme in the first half. New corporate credit facility In September, the company entered into a new US$275.0 million credit facility onimproved terms with a syndicate of thirteen international lending banks led byBarclays Bank plc and Royal Bank of Scotland plc. Together with positive cashflow from existing assets, this new facility puts the company in a strongposition to fund its ongoing exploration and development programme and tofinance acquisitions. Hedging and risk management Hedging losses amounting to US$15.7 million (2004: US$6.9 million) were recordedin the first half of 2005 and relate to a prior year transaction, which maturedon 30 June 2005. No hedges have been put in place for the second half of theyear. Following a review, Premier undertook to continue its policy of using oil andgas hedging to protect operating cash flow where this could be achieved onattractive terms. Consequently, we have entered into collars covering ninemillion barrels of oil over the period January 2006 to December 2010 at anaverage floor price of US$37.42 per barrel and a ceiling price of US$100.00 perbarrel. The pre-tax cost of these transactions was US$3.63 million which willbe accounted for under IFRS accounting principles. The Board believes that these transactions provide a material protection againstweak oil prices to the cash flows of the group. OPERATIONS REVIEW Group production The group's production, on a working interest basis, amounted to 34.8 mboepd(2004: 35.2 mboepd), which was some 4 per cent ahead of expectation. The fullyear forecast is currently 2 per cent ahead of expectation. Higher delivered gasvolumes in Pakistan have been the primary driver of the improved performance. Exploration and appraisal In the first half of the year Premier participated in three wells, operating twoof them. The first two of these wells, Tiof-6 in Mauritania and Al Amir-1 inEgypt, have been successful, whilst the third well, Lakkhi-1in India, was stilloperating at the half-year. The Lakkhi-1 well has since been completed, havingencountered and tested oil and gas but at sub-commercial flow-rates.Additionally, two wells in Mauritania, one in Gabon and one in Pakistan havebeen completed and abandoned as dry holes in the period since 30 June 2005. Theexploration drilling programme is set to continue with up to seven further wellsto be drilled during the remainder of the year. Two of our most significantwells planned for 2005 in Guinea Bissau and Vietnam have slipped to 2006,however, these have been replaced by new wells in the UK and Indonesia.Pressure on budgets, largely from rising rig-rates and equipment costs, has beenmanaged by judicious equity farm outs in India, Pakistan and the UK. In thisperiod Premier has also acquired and re-processed 2D and 3D seismic surveys inGuinea Bissau, Gabon and Vietnam, laying the groundwork for exploration drillingin 2006 and beyond. UK & Norway Production in the UK was 11.2 mboepd (2004: 12.0 mboepd) representing 32 percent of group production. Continued infill drilling in Wytch Farm andredevelopment initiatives on Kyle are succeeding in mitigating the underlyingnatural decline in the fields so that production was only 8 per cent down onlast year's level. A key water injector was completed on Wytch Farm and began injection in June ataround 28,000 barrels of water per day. Two multilateral producers will come onstream in the second half of the year. Important first steps have been taken inthe rationalisation of facilities, which over the next few years should reducefield operating costs. Continued good performance from the Palaeocene formation well that was tied-backto Banff in 2004 has significantly increased Kyle production. Plans for furtherdevelopment of the Palaeocene are being considered. Cretaceous (Chalk) formationproduction, which is currently exported via Curlew, will be tied-back to Banffin mid September just prior to expiry of the Maersk Curlew FPSO contract. An allinclusive processing and transportation tariff has been agreed with the Banffgroup which will substantially reduce operating costs and allow extension offield life up to the end of 2015. On the Fife area fields, a new "Principles of Agreement" initiated with UisgeGorm FPSO owner in April is expected to result in increased production and maylead to extended field area life. Scott and Telford accounted for the majorityof the remainder of net production. In terms of exploration, there is an ongoing effort to explore in and around ourestablished exploration and development acreage in the UK. Following thesuccessful acquisition of 11 blocks in the 22nd UK licensing round, Premier andits partners have been defining prospects for future drilling. In P1048, following evaluation of the results gained from the Criollo-1 well,the Palomino prospect has been successfully farmed out. This well will bedrilled later in 2005 at no cost to Premier. Using its significant North Sea expertise, Premier has embarked on a major newexploration initiative in Norway and has qualified as a participant inexploration and production activities on the Norwegian continental shelf.Premier's immediate objective is to be a successful applicant in the 19th andAPA 2005 bidding rounds and has entered into a number of bidding agreements withNorwegian partners. In the longer term Premier aims to establish a materialbusiness in Norway. South Asia In Pakistan, the record production levels achieved in 2004 have continued in thefirst half of 2005 where production increased to 11.8 mboepd (2004: 10.1mboepd). The gas market in Pakistan has been strong and this is driving bothhigh offtakes and incremental developments across all fields. The government ofPakistan is encouraging further increases to domestic Pakistan gas production inorder to minimise reliance on imported oil. On Qadirpur, sustained higher gas sales were possible due to the enhancement ofplant capacity to 500 million standard cubic feet per day (mmscfd) which wascompleted in 2004. A horizontal well drilled in the first half of the yeardemonstrated that attractive rates could be achieved from a previouslyundeveloped reservoir. Planning is now underway to increase the plant capacityto 600 mmscfd and further increase gas sales. On Kadanwari, the K-14 well was tied back and it is planned to drill K15 in thelast quarter of 2005. Evaluation of 3D seismic is being carried out to evaluatenew targets in the field which could be drilled and commence production in 2006. Negotiations on the Gas Sales Agreement (GSA) for the second phase ofdevelopment of the Zamzama field were concluded and the project should besanctioned in the second half of the year. Agreement in principle has beenreached to enhance the capacity of the Bhit plant to allow acceleratedproduction from the Bhit field and production of Badhra reserves. First gas fromboth these incremental developments is expected in mid-2007. Having successfully farmed down to 18.75 per cent, the drilling of the Maliri-1well at Jhangara was completed in August. Although no hydrocarbons were found,new information has been gained about the reservoir distribution that will be ofmuch use in the future in this core producing area for Premier. The Indus Offshore E block, which lies south of Karachi in deep water, isoperated by Shell. Premier holds a 12.5 per cent working interest in the jointventure. A well is expected to be drilled on a high-risk prospect in this blockin 2006. In India, Premier is operator of the Ratna field off the west coast of Indiawhere production was suspended at a low recovery factor in 1994. Progress isbeing made on obtaining formal government approval of the Production SharingContract (PSC) prior to further work commencing. The primary exploration activity in the Premier operated Jaipur block (38 percent), Assam, has been the preparation and execution of the Lakkhi-1 well. Thewell was still operating at the half-year. The Lakkhi-1 well has since beencompleted, having encountered and tested oil and gas but at sub-commercialflow-rates. The well results will now be the subject of an intensive study todetermine the implications for the acreage. In the Cachar block, following successful farm-outs, Premier has reduced itsequity ahead of a well that is expected to be drilled in 2006. South East Asia During the first half of 2005, working interest production from Anoa and Kakapin Indonesia averaged 11.8 mboepd (2004: 13.1 mboepd). Production was reduceddue to a significant maintenance programme at the gas users facilities inSingapore, which took place in the first half of the year. However, underlyinggas demand remained strong despite the fact that the gas price, which isdirectly linked to the price of Heavy Sulphur Fuel Oil, continued to rise. The West Lobe development project on the Anoa field continues on schedule andwithin budget. By mid-year engineering was nearing completion, all major ordershad been placed and fabrication was underway. Negotiations have continued inthe period to sell additional discovered but undeveloped gas from block A intothe Singaporean market. The ongoing focus that Premier gives to environmental practices in itsoperations was highlighted by the Anoa operation which achieved ISO 14001certification in the first half of 2005. It is anticipated that this will befollowed by obtaining OHSAS 18001 certification as recognition of its practicesin health and safety management. In line with our policy of fully evaluating the exploration prospectivity closeto our producing facilities, we have been preparing for further explorationdrilling in block A. The 2005 programme is to drill two exploration wells,Macan Tutul-1 and Lembu Peteng-1 during the fourth quarter 2005. Both prospectsare targeting a stacked series of oil and gas reservoirs. Elsewhere in the Natuna Sea, a new 3D seismic survey has been acquired over theDua discovery offshore Vietnam. The initial evaluation and mapping based on thefast-track seismic processing looks promising and it is planned to appraise thefield in the first half of 2006. Elsewhere on the block (where Premier has a 75 per cent operated interest) anumber of exploration prospects have been mapped, including the Blackbirdprospect that will be drilled in early 2006. In the Ragay Gulf in the Philippines a 2D transition zone survey has commencedprior to making a decision to drill. Africa In the first half of 2005, progress continued with the offshore Chinguetti fieldproject in PSC area B, some 90km west of the Mauritanian capital Nouakchott.Currently the project is around 85 per cent complete, in line with the plan todeliver first oil early in 2006. The field has proven and probable reserves estimated at around 120 millionbarrels of oil and the capital investment expected to execute phase-1 iscurrently estimated at around US$700 million. Premier equity in the field is8.12 per cent and the initial production rate is expected to be about 75,000barrels of oil per day (6,100 bopd net to Premier). In drilling a gas disposal well, as part of the Chinguetti development project,the Banda field was successfully tested and flowed at 33 mmscfd. The 2005 exploration and appraisal campaign started with the Tiof-6 appraisalwell (Premier 9.23 per cent) which flowed at 9,500 bopd. Further appraisal anddevelopment options are under consideration by the joint venture. In August, the programme continued with the drilling of Sotto and Espadon,neither of which proved to be hydrocarbon bearing. The Stena Tay rig has nowmoved to the Tevet-2 well location as part of a three well programme designed totest different exploration plays in PSC A and PSC B, beginning with Tevet-2which has the double objective of appraising the 2004 Tevet discovery andexploring a deeper target. Offshore Gabon in the Iris block our first half activities have been focussed onaligning the partnership behind a plan to drill the Iboga-1 well which commencedin mid August 2005. The well was abandoned as a dry hole fulfilling Premier'swork commitment on the licence. On the Themis Marin licence, we have acquired additional 3D seismic data thatwill be used to work up prospects for drilling in the 1st-2nd quarter of 2006(Premier equity 18 per cent). In the Dussafu block (Premier equity 25 per cent) we plan to acquire a large 3Dseismic survey. In Guinea Bissau, following the 2004 Sinapa-2 well, Premier acquired a new 3Dseismic survey over the Eirozes diapir south west of Sinapa-2. Coupled withreprocessing of the existing 3D over the Espinafre (Premier operated 42 per centequity) prospect south east of Sinapa-2, this will provide two high qualityprospects for drilling on this acreage in early 2006. In the Premier operated (23.75 per cent) deep-water acreage held withOccidental, the receipt of 2D data acquired in 2004 has greatly increased ourunderstanding of this acreage and studies are now confirming the high riskpotential of this area. In Egypt, Premier drilled the Al Amir-1 well on the NW Gemsa block (Premierequity 37.5 per cent) onshore in the Gulf of Suez Basin. This was completed atthe end of March, with good oil shows encountered in the shallow South GharibFormation. This zone was successfully tested and oil flowed at 750 bopd. Theblock lies close to infrastructure onshore where development options arepotentially low cost. Studies continue on this find and it is planned toappraise this discovery early next year. In advance of that we plan to drill anexploration well, the Al Fagr-1, a high risk moderate reward oil prone prospectlying to the west of the concession. Working interest production by field (boepd) Six months to 30 June 2005 Full year 2004 Oil Gas Total Oil Gas TotalUK Wytch Farm 4,060 89 4,149 4,617 156 4,773Kyle 2,399 2,250 4,649 1,828 2,365 4,193Others 2,216 194 2,410 2,719 233 2,952Total UK 8,675 2,533 11,208 9,164 2,754 11,918IndonesiaNatuna A 840 7,316 8,156 880 7,759 8,639Kakap 1,402 2,208 3,610 1,558 2,347 3,905Total Indonesia 2,242 9,524 11,766 2,438 10,106 12,544Pakistan Bhit 18 2,864 2,882 17 2,722 2,739Zamzama 164 3,571 3,735 155 3,309 3,464Kadanwari 1,205 1,205 1,035 1,035Qadirpur 55 3,928 3,983 43 3,002 3,045Total Pakistan 237 11,568 11,805 215 10,068 10,283Total Group 11,154 23,625 34,779 11,817 22,928 34,745 Consolidated Income Statement Six months to Six months to Year to 31 30 June 2005 30 June 2004 December 2004 Notes $ million $ million $ millionSales and other operating revenues 1 149.3 137.3 251.8Cost of sales 2 (73.7) (67.8) (134.6)Exploration expense (5.7) (22.7) (40.9)General and administration costs (9.1) (6.6) (17.0)Operating profit 60.8 40.2 59.3Interest income and exchange gains 3.8 1.5 2.0Interest and other finance expense 3 (2.6) (1.7) (7.8)Profit before taxation 62.0 40.0 53.5Taxation (41.5) (27.2) (31.4)Profit after taxation 20.5 12.8 22.1Earnings per share (cents) Basic 24.9 15.5 26.8 Diluted 24.7 15.2 26.3 Statement of changes in shareholders' equity Six months to 30 June 2005 $ millionAt 31 December 2004 354.1Effect of adoption of IAS 39 (5.4)As restated at 1 January 2005 348.7Profit for the period 20.5Currency translation differences 0.7Issue of share capital for employee share schemes 0.7Purchase of shares for ESOP trust/share options (8.1)Share based payment provision 0.4Reversal of deferred hedge losses 5.4Repurchase of ordinary share capital (11.5)Shareholders' equity at 30 June 2005 356.8 Consolidated balance sheet At 30 At 30 At 31 June 2005 June 2004 December 2004 $ million $ million $ millionNon current assetsIntangible exploration and evaluation assets 63.9 33.2 41.4Property, plant and equipment 567.8 545.9 565.2Investment in associates 1.1 1.1 1.1 632.8 580.2 607.7Current assetsInventories 21.1 13.9 12.3Trade and other receivables 120.7 120.5 117.5Cash and cash equivalents 45.3 68.1 59.6 187.1 202.5 189.4Total assets 819.9 782.7 797.1Current liabilitiesTrade and other payables (109.5) (125.1) (107.9)Current tax payable (41.9) (23.3) (40.6) (151.4) (148.4) (148.5)Non current liabilitiesLong term debt (54.1) (38.6) (38.8)Deferred tax liabilities (206.9) (215.8) (203.6)Long term provisions (40.2) (22.8) (41.6)Long term employee benefit plan deficits (10.5) (8.2) (10.5) (311.7) (285.4) (294.5)Total liabilities (463.1) (433.8) (443.0)Net assets 356.8 348.9 354.1EquityShare capital 73.2 74.0 74.6Share premium account 7.6 6.1 7.0Retained earnings 276.0 268.8 272.5 356.8 348.9 354.1 Consolidated cash flow statement Six months to Six months Year to 31 30 June 2005 to December 2004 30 June 2004 $ million $ million $ millionOperating activitiesProfit before taxation 62.0 40.0 53.5Depreciation, depletion and amortisation 32.8 34.6 72.2Exploration expense 5.7 22.7 40.9Decrease/(increase) in inventories (8.8) (1.3) 0.4(Decrease)/increase in trade and other receivables 8.8 (3.8) (10.0)Increase/(decrease) in trade and other payables (4.4) 4.1Interest received 0.5 1.6 2.2Interest receivable (0.5) (1.5) (2.0)Interest paid (1.6) (1.3) (2.5)Interest payable 1.5 2.5 2.3Other finance (income)/expense (2.2) (2.1) 5.8Net operating charge for long term employee benefit plans less 1.5contributionsIncome taxes paid (39.6) (24.8) (54.9)Impairment and gain or loss on sale of investments/fixed assets 0.2Net cash provided by operating activities 54.2 70.7 109.6Investing activitiesCapital expenditure (62.0) (60.4) (104.5)Net cash used in investing activities (62.0) (60.4) (104.5)Financing activitiesIssue of ordinary shares 0.7 3.8 5.2Repurchase of ordinary shares (22.2) (3.3)Repayment of long term financing (61.2) (61.2)Proceeds from long term financing 15.0Net cash used in financing activities (6.5) (57.4) (59.3)Currency translation differences relating to cash and cash equivalents 1.2 (0.1)Decrease in cash and cash equivalents (14.3) (45.9) (54.3)Cash and cash equivalents at the beginning of period 59.6 113.9 113.9Cash and cash equivalents at the end of period 45.3 68.0 59.6 Notes to the accounts 1 Geographical segmental analysis Six months to Six months to Year to 31 30 June 2005 30 June 2004 December 2004 $ million $ million $ millionSales and other operating revenues by origin and destinationUK 64.8 53.2 95.6Indonesia - destination Singapore 50.7 57.3 100.4Pakistan 33.8 26.8 55.8 149.3 137.3 251.8 Operating profit/(loss) by originUK 9.9 (2.3) 0.7Far East 33.2 40.4 55.0South Asia (including Pakistan Joint Venture) 23.4 18.3 31.0West Africa (0.6) (11.1) (18.0)Other overseas (5.1) (5.1) (9.4) 60.8 40.2 59.3 2. Cost of sales Operating costs 37.1 30.4 56.3Royalties 3.8 2.9 6.1Depreciation, depletion and amortisation: Oil and gas properties 32.1 34.0 70.9 Other 0.7 0.5 1.3 73.7 67.8 134.6 3. Interest and other finance expense Bank loans and overdrafts (1.5) (1.5) (2.1)Unwinding of discount on provisions (0.8) (1.1) (2.0)Exchange differences 0.9 (3.0)Other (0.3) (0.7) (2.6) (1.7) (7.8) 4. Analysis of changes in the net cash/(debt) Six months to Six months to Year to 31 30 June 2005 30 June 2004 December 2004 $ million $ million $ milliona) Reconciliation of net cash flow to movement in net cash/(debt)Movement in cash and cash equivalents (14.3) (45.9) (54.3)Proceeds from long term loans (15.0)Repayment of long term loans 61.2 61.2(Decrease)/increase in net cash in the period (29.3) 15.3 6.9Opening net cash 19.6 12.7 12.7Closing net (debt)/cash (9.7) 28.0 19.6 At Cash flow At 1 January 30 June 2005 2005 $ million $ million $ millionb) Analysis of net cash/(debt)Cash and cash equivalents 59.6 (14.3) 45.3Long term debt (40.0) (15.0) (55.0)Total net cash/(debt) 19.6 (29.3) (9.7) 5. Other notes Basis of preparation The interim statement does not represent statutory accounts within the meaningof Section 240 of the Companies Act 1985. For all periods up to and including the year ended 31 December 2004, Premierprepared its financial statements in accordance with UK Generally AcceptedAccounting Practice (UK GAAP). The full accounts for the year ended 31 December2004, which received an unqualified report from the auditors, had been filedwith the Registrar of Companies. From 1 January 2005 Premier is required toprepare consolidated financial statements in accordance with InternationalFinancial Reporting Standards (IFRS) as endorsed by the European Commission('EC'). Financial information for the interim results of 2005 has also been prepared onthe basis of IFRS. The general principle that should be applied on first-timeadoption of IFRS is that standards in force at the first reporting date (forPremier that is 31 December 2005) should be applied retrospectively. However, IFRS 1 - 'First time Adoption of International Financial ReportingStandards' contains a number of exemptions which companies are permitted toapply. Premier has elected: • Not to present comparative information in accordance with IAS 32 - 'Financial Instruments: Disclosure and Presentation', and IAS 39 - 'Financial Instruments: Recognition and Measurement'. • Not to restate its financial information for acquisitions, disposals and restructuring occurring before 1 January 2004. • To deem cumulative translation differences to be zero at 1 January 2004. • To recognise all actuarial gains and losses on pensions and other post-retirement benefits directly in shareholders' equity at 1 January 2004. • To apply IFRS 2 'Share-based Payment' on share-based payments from 1 January 2004, only to options issued after 7 November 2002 but not vested by 1 January 2005. The six months information for 2005, the restated financial information for theyear ended 31 December 2004 and the interim results of 2004 have been preparedon the basis of all International Accounting Standards (IAS), InternationalFinancial Reporting Standards (IFRS) -with the exception of IAS 32 and IAS 39(as amended) for the 2004 information - and Standing Interpretations Committee(SIC) and International Financial Reporting Interpretations Committee (IFRIC)interpretations issued by the International Accounting Standards Board (IASB)expected to be in effect for the year ending 31 December 2005. It is possiblethat there will be changes to these standards and interpretations before the endof 2005, which might require further adjustments to this information before itis included in the 2005 Annual Report and Accounts. Premier used derivative financial instruments ('derivatives') to manage itsexposure to changes in oil price fluctuations. Under UK GAAP, all derivativesused for hedging purposes were recognised by applying either the accrual methodor the deferral method. Until 31 December 2004, gains and losses arising on oiland gas price derivatives were recognised in revenues from oil and gasproduction only when hedged volumes were sold and unrealised gains and losseswere not recognised. From 1 January 2005, under IFRS, all financial assets and financial liabilitieshave to be recognised initially at fair value. In subsequent periods themeasurement of these financial instruments depends on their classification intoone of the following measurement categories: i) Financial assets or financial liabilities at fair value through income statement (such as those used for trading purposes, and all derivatives which do not qualify for hedge accounting); ii) Loans and receivables; iii) Available-for-sale financial assets (including certain investments held for the long term); and iv) Other liabilities. The effect of adopting IAS 39 at 1 January 2005 related entirely to hedges andis shown as a US$5.4 million movement in Premier's shareholders' equity for2005. The effect reverses within six months to 30 June 2005 because all of thehedges in place at 1 January 2005 related to sales in the period. Premier has produced an 'IFRS Restatement' document setting out its accountingpolicies under IFRS, the major differences between UK GAAP and IFRS, andreconciliations of UK GAAP to IFRS for its 2004 interim and full year Income andCash Flow Statements and its Balance Sheets at 1 January 2004, 30 June 2004 and31 December 2004. This information can be found at www.premier-oil.com. Theseresults are prepared in accordance with the accounting policies contained in theIFRS Restatement document. The principal differences for the group between reporting on the basis of UKGAAP and IFRS are as follows: • Accounting for exploration and evaluation costs under the successful efforts method of accounting. • Accounting for all development and production assets on an asset by asset basis which necessitated fair valuation of certain properties in the North West Europe and Far East segment. • Reporting results of the Pakistan Joint Venture on a proportional consolidation basis. • Setting up deferred taxation on: - All fair value adjustments - Petroleum revenue tax • Recognising pension fund deficit on the balance sheet. • Recognising the impact of share based payments and related provisions. Dividends No interim dividend is proposed (30 June 2004: US$nil). Earnings per share The calculation of basic earnings per share is based on the profit after tax andon the weighted average number of ordinary shares in issue during the period.The diluted earnings per share allows for the full exercise of outstanding sharepurchase options and adjusted earnings. Basic and diluted earnings per share are calculated as follows: Profit after tax Weighted average Earnings per share number of shares 30 June 30 June 30 June 30 June 30 June 2005 30 June 2005 2004 2005 2004 2004 restated restated $ million $ million millions millions cents centsBasic 20.5 12.8 82.5 82.4 24.9 15.5Outstanding share options 0.1 0.1 0.8 2.1 * *Diluted 20.6 12.9 83.3 84.5 24.7 15.2 * The inclusion of the outstanding share options in the calculations produces a diluted earnings per share. Post balance sheet events The group announced well results for Lakkhi-1 (India), Maliri-1 (Pakistan),Iboga-1 (Gabon), Espadon (Mauritania) prior to announcement of its half yearresults. The results of these wells are described in the Operations Review. At30 June 2005 the combined related cost capitalised in the balance sheet inevaluation and exploration assets was US$12.5 million. INDEPENDENT REVIEW REPORT TO PREMIER OIL PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30th June 2005 which comprises the income statement, thebalance sheets, the cash flow statement, statement of changes in shareholdersequity and related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company for our review work, for this report, or for the conclusions we haveformed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. International Financial Reporting Standards As disclosed in note 5 the next annual financial statements of the group will beprepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. The accounting policies areconsistent with those that the directors intend to use in the annual financialstatements. There is, however, a possibility that the directors may determinethat some changes to these policies are necessary when preparing the full annualfinancial statements for the first time in accordance with IFRS's as adopted foruse in the EU. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing UK andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30th June 2005. Deloitte & Touche LLPChartered AccountantsLondon 14 September 2005 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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