Trading and Operations Update

PREMIER OIL PLC

("Premier")

Trading and Operations Update

19 January 2012

Premier today provides a trading and operations update ahead of its 2011 Preliminary Results which will be announced on Thursday 22 March 2012.

Simon Lockett, Chief Executive, commented:

"We are delighted to have met our year-end production target of 60,000 boepd following the successful start-up of our two major projects in Asia during the fourth quarter. We are also pleased to have successfully completed three North Sea acquisitions in recent weeks building on Premier's core assets in the region. We look forward to further significant strides in our development projects during 2012 and to the results of our extensive exploration and appraisal programme which will see around 20 wells drilled over the next 12 months."

Production Operations

Estimated average production for the full year 2011 was in line with guidance at 40.4 kboepd (2010: 42.8 kboepd). With the ramp-up of production from Chim Sáo in Vietnam and Gajah Baru in Indonesia during December, the group's total production exceeded 60 kboepd. We maintain our previous guidance for 2012 production of 60-65 kboepd (annual average) with an expected year-end exit rate of 75 kboepd.

Working interest production by region

*Includes Brenda, Nicol, Glamis and Stirling fields

Asia

In Indonesia, 2011 has seen continuing good production performance from the fields on Natuna Sea Block A coupled with strong demand for gas from Singapore.

Under the first Gas Sales Agreement (GSA1), out of a total Singapore demand of 364 BBtud (2010: 355 BBtud), Block A sales from the Anoa field for the year averaged 152 BBtud, a share of approximately 42 per cent of deliveries, against a contractual share of 36.9 per cent.

Under the second Gas Sales Agreement (GSA2), volumes at Gajah Baru are continuing to increase with current production rates averaging around 90 BBtud (gross). Performance tests have indicated plant capacity to produce in excess of 200 BBtud.

Good progress has been made on the Domestic Swap Agreement under which additional volumes of Gajah Baru gas supplied to Singapore will be swapped with existing supplies from Sumatra to Singapore. These Sumatra volumes will be re-directed to the Indonesian domestic gas market. The relevant agreements are expected to be completed shortly and physical supplies of up to 40 BBtud (gross) should commence in the first half of the year.

In Vietnam, first oil from the Chim Sáo field was achieved on 10 October 2011 with gas exports commencing on 10 December. Reservoir and well performance has exceeded expectations though some topside and marine system facility issues remain to be resolved. Current production is around 30 kbopd. Excellent pricing has been achieved for oil cargoes sold to date averaging in excess of $5.50/bbl over Brent prices.

North Sea

Production from the Balmoral area improved in the second half of 2011 as the immediate issues that affected our production performance in the first half of the year were resolved. However, due to exceptionally bad weather in December, the Banff FPSO - which handles Kyle production - lost its anchors and the risers were damaged severely. As a result, the Banff FPSO has been removed from location while repairs are assessed. It is currently unlikely that production from the Kyle field will re-commence in 2012. A claim for business interruption insurance is being processed.

Pakistan

Production from Pakistan increased to 15.1 kboepd (2010: 14.9 kboepd) during 2011 as front-end compression projects were completed at Zamzama and Qadirpur and additional development wells were tied-in on the Kadanwari and Qadirpur fields. Production levels are expected to be broadly stable in 2012.

Acquisition Activity

On December 20, Premier completed the acquisition of an additional 17.715 per cent interest in Wytch Farm, taking its total interest to 30.1 per cent. Adjusted consideration was $89.9 million. This completion followed the acquisition by Perenco UK Limited of BP's interest in the Wytch Farm area. Perenco UK will take on the operatorship of the field. Production from the Wytch Farm fields has been improving though the gas plant is still not fully operational and continues to restrict oil production. An infill and workover programme is expected to start later in the first quarter.

The acquisition of EnCore Oil plc was approved by its shareholders in December and subsequently sanctioned by the court in January. Shareholders representing 93.5 per cent of EnCore's shares elected to take new Premier shares which began trading on 17 January. As a result of the acquisition, Premier has increased its stake in the Catcher project from 35 per cent to 50 per cent and has been appointed operator of the project. Engineering and screening studies continue to progress, with concept selection for Catcher expected at the end of the first quarter.

The acquisition of three licences from Nexen Norway was approved by the relevant authorities in December. Formal completion will be on 31 January 2012. Premier has assumed operatorship of these licences as of this month. Seismic reprocessing for the adjoining Freki licence (Premier share 60 per cent) is under way.

Current and future development projects

North Sea

Development drilling at the Huntington field in the UK continues to progress well. The first two producer wells, which have been drilled and tested, have exceeded expectations while the third producer is presently drilling. The upgrade of the Voyageur FPSO is being progressed by Teekay and sail-away of the vessel is targeted for July 2012, with first oil in September 2012.

Formal approval of the Field Development Plan incorporating the West Rochelle area was received from DECC on December 20. Good progress has been made on the Rochelle development with subsea facilities fabrication and offshore construction on the host Scott platform progressing to schedule. Development drilling and subsea installation work is expected to commence in March and June, respectively, with first gas anticipated for the fourth quarter of 2012.

Premier was appointed operator of the Solan development on 1 January 2012, as per the terms of the Sale and Purchase Agreement. Project sanction is planned for April 2012. Elsewhere in the North Sea, the joint venture partners are evaluating development options for the Premier-operated Fyne field with a FPSO currently the favoured option. Project sanction is expected in early 2012 after the East Fyne appraisal well - which is presently drilling - has been completed and first oil is targeted for mid-2014.

In Norway, negotiations between the Bream operator and the selected FPSO provider are nearing completion. A formal concept selection decision for Bream is expected soon with PDO approval anticipated around mid-year. On the Frøy project, also in Norway, commercial discussions are ongoing with the operator and with other field owners in the area with a view to moving the project forward.

Asia

The Anoa Phase 4 project was sanctioned in November and the EPCI contract has been awarded. The project is expected to be completed during 2013 and will develop around 200 bcf of undeveloped proven reserves, through increasing the Anoa compression capability. Project sanction for the Pelikan and Naga fields is planned for the end of the first quarter of 2012, with first gas expected during 2014. Elsewhere in Indonesia, the operator of Block A Aceh (Premier 41.67 per cent interest) is targeting project sanction in the first half of the year.

In Vietnam, following approval of the Outline Development Plan by the Government, the long lead items for the Dua development project, a tie-in to the Chim Sáo field, are being purchased. First oil is anticipated in 2014.

Exploration and appraisal

Around 20 exploration and appraisal wells are planned during the next 12 months, with un-risked net prospective resource potential, on a P50 basis, in excess of 200 mmboe.

* Premier-operated well

** Operator estimate

North Sea

The East Fyne appraisal well spudded on 13 January and is expected to reach target depth at the end of the month. Once completed, the rig, Sedco 704, will move to drill the Bluebell prospect, also in the Central North Sea. In addition to these two wells, two other exploration wells - Carnaby and Coaster - will be drilled over the next six months to test the Eocene play in the Central North Sea. The Catcher area partners have a rig option to drill a third well in the area, to follow on from the Carnaby and Coaster prospects. A further exploration well is planned to test the Eocene play at Cyclone. This well is subject to partner approval and rig availability.

The Stingray well, testing a Mesozoic play on the northern margin of the Central North Sea, is expected to spud in February.

Premier, through its acquisition of EnCore, gained three new licences (one operated) in the second tranche of the 26th UK Licensing Round, which was announced earlier this month. These licences have added an estimated 140 mmboe of net un-risked prospective resource to Premier's prospect and lead portfolio (approximately 30 mmboe risked) and extends our acreage interests in the Central North Sea into the Inner Moray Firth Basin. EnCore was also awarded a 7.5 per cent interest in a licence in the English Channel immediately south of Wytch Farm which has been reassigned to the Egdon vehicle which, following the EnCore acquisition, is owned 29.9 per cent by Premier.

Premier has also agreed to transfer 37.3 per cent of its interest in Block 23/22b to a third party together with a carry for the Lacewing well, which is classified as HPHT. The third party, which has considerable HPHT experience in the North Sea, will operate the well, subject to partner and regulatory approval. Premier's retained equity will be 20.2 per cent. The well is planned for either the fourth quarter of 2012 or the first quarter of 2013. Premier has also agreed to transfer a 25 per cent interest in Block 23/21 to the same third party. Premier's retained equity in the block will be 25 per cent.

In Norway, the Luno II well on the southwest margin of the Greater Luno High is planned to be drilled in October using the Bedford Dolphin Rig. The operator, Lundin, estimates a prospect size of 140 mmboe (gross).

In respect of the APA 2011 licence round in Norway, the Norwegian government has offered Premier interests in four new licences: three in the Norwegian Central North Sea and one licence offshore mid-Norway. Premier will operate one of the Central North Sea licences. In total, these licences will add an estimated 185 mmboe of net un-risked prospective resource to Premier's prospect and lead portfolio (approximately 25 mmboe on a risked basis). 

Asia

In Natuna Sea Block A, the Anoa Deep well is currently drilling and the results are expected at the end of this month. Once completed, the rig will move to drill the Biawak Besar prospect. Elsewhere in Indonesia the Benteng-1 well on the Buton licence is expected to spud in the second quarter of 2012 and the Matang-1 well on Block A Aceh is expected to spud in the third quarter 2012.

In Vietnam, the Chim Sáo North West discovery made in 2011 will be appraised by a dedicated well in the second quarter of 2012. In Block 07/03, the plan, subject to partner approval, is to drill a further exploration well towards the end of 2012, targeting both the Miocene and Oligocene reservoirs.

Middle East/Africa/Pakistan

The K-28 well on Kadanwari was successfully drilled and has added an estimated net 2.5 bcf to Premier's reserve base, which is in line with pre-drill estimates. Elsewhere on the Kadanwari field area, the K-30 well is presently drilling. It is targeting a gross un-risked resource of 40 bcf.

In Kenya, the 3D and 2D seismic surveys over blocks L10A and L10B were completed in January ahead of schedule. It is expected that seismic data will be fully processed by mid-2012 and interpretation and mapping will be completed later in the year.

In Mauritania, the new C-10 exploration PSC (Premier share 6.23 per cent) was gazetted on 30 November. The licence carries a two well commitment in the first three years.

Financial

The average oil price realised for 2011 was $111.9/bbl (2010: $79.7/bbl) (pre hedge) and $89.6/bbl (2010: $78.3/bbl) (post hedge) compared with an average Brent crude price of $111.3/bbl for the year.

Average gas prices (pre hedge) for our principal gas producing areas for 2011 were:

* Relevant hedges resulted in a cash cost of $17.8 million

Total revenue for 2011 is expected to be in the order of $825 million (2010: $764 million). Pre-tax profits for full year 2011 will reflect an estimated $160 million of exploration write-off and a positive adjustment of around $32 million in respect of the group's commodity hedge portfolio. This was driven by the unwinding of prior provisions.

The group retains significant cash and undrawn facilities. As at 31 December, these are estimated at $300 million and $760 million respectively. As at 31 December, net debt is estimated to be $760 million (2010: $406 million). After taking into account the EnCore acquisition, which completed earlier this week, pro forma gearing (defined as net debt divided by net assets plus net debt) is expected to be 32 per cent. Anticipated capital spending for the full year 2011 is estimated at around $230 million (exploration, pre-tax) and $440 million (development). Estimated gross project costs (including some continuing costs for 2012) for the two key development projects brought on-stream in 2011 were $792 million for Chim Sáo and $680 million for Gajah Baru, against original budget costs of $800 million and $677 million respectively.

The group continues to benefit from its substantial UK corporation tax loss and allowance position with an estimate of $1.3 billion of losses and allowances carried forward at 31 December 2011.