Trading and Operations update

PREMIER OIL PLC

("Premier", or the "Company")

Trading and Operations update

12 July 2012

Premier today provides a Trading and Operations update ahead of its 2012 Interim Results which will be announced on Thursday 23 August 2012. Premier today also announces that it has agreed to farm-in for 60 per cent. of Rockhopper's licence interests in the Falkland Islands and a presentation by Premier management will be webcast today at 9am at www.premier-oil.com.

Simon Lockett, Chief Executive, commented:

"We are delighted with the recent strong performance from our producing fields and with the continuing advancement of our development portfolio. We have also made valuable discoveries in the North Sea and Indonesia during the first half of 2012 while our New Ventures team has delivered a number of potentially high impact opportunities to our exploration portfolio. We look forward to an increasingly material exploration programme over the next 12 months.

We are also pleased to have reached an agreement with Rockhopper for a 60 per cent equity stake in their licence interests in the Falkland Islands. This material opportunity will leverage our core development and operating capabilities in a new proven oil basin offering us the potential to create substantial value for our shareholders. The project capital spend will be concentrated in 2015 to 2017, which matches our strong free cash flow generation from our existing growth portfolio. In addition to being a strong financial fit, the transaction offers exploration and development upside which Premier looks forward to pursuing."

Acquisition of interests in the Falkland Islands

As separately released today, Premier announces that it has signed a farm-in agreement with Rockhopper. The agreement provides Premier with a 60 per cent interest in all of Rockhopper's licence interests in the Falkland Islands and provides Premier with operatorship of the Sea Lion development. In addition, the agreement offers exploration upside in the Falkland Islands and options in Southern Africa. Details of the terms of the farm-in are provided in a separate release by Premier and can be found on the company's website.

Production operations

Production averaged 58.4 kboepd in the first half of 2012. Recent performance has been strong, averaging 61.0 kboepd in the second quarter compared to 56.1 kboepd in the first quarter. Following a review of the planned shutdowns scheduled for the third quarter of this year, full year average production is expected to be around 60 kboepd, rising to an exit rate of 75 kboepd once Huntington and Rochelle are onstream. Premier's medium-term production target of 100 kboepd from existing projects remains on track and unchanged.

Working interest production by region

UK

In the UK, production averaged 13.7 kboepd for the first half of the year (1H 2011: 10.5 kboepd). The previously announced temporary loss of production (approximately 2 kboepd) from the Kyle field was largely offset by improved uptime from the Balmoral area fields and increased production from the Scott field. The drilling programme at Wytch Farm, which was initiated by the new operator in the first quarter, is ongoing with the second infill well now completed. From 2013, the operator plans to operate two rigs simultaneously at Wytch Farm.

Asia

Average production from the Chim Sáo field for the first half of the year was 26 kboepd. Recent levels of production have increased to 35 kboepd and the facility recorded an uptime of 91 per cent in the second quarter. Trial water injection to the Chim Sáo wells commenced in June with liquids production from the field currently restricted to 30 kbopd. Production outturn for the second half of the year is dependent upon successful water injection performance.

The two-well supplementary drilling programme, which was initiated to develop additional reservoirs, has been successfully completed. The two wells, which are currently being tied back to the Chim Sáo facility, are expected onstream in the second half of the year. The jack-up rig safely left the Chim Sáo platform on 10 July, after more than two years of operations and having drilled 17 wells, to drill the Chim Sáo North West appraisal well which is expected to spud imminently.

The first half of 2012 has seen continuing good production performance from our fields in Indonesia with Block A capturing a market share of 45 per cent of GSA1 against its contractual market share of 36.9 per cent. Elsewhere on the block, the Gajah Baru complex has performed exceptionally well achieving 98.8 per cent reliability in the last quarter. Gajah Baru met all of Singapore customer demand during the period and has also been able to lend gas to GSA1 where required.

The plan to sell additional gas from Gajah Baru (up to 2 kboepd net to Premier) via a domestic Gas Swap Agreement has not yet been executed due to the withdrawal of the prospective Indonesian state-owned gas purchaser. Alternative buyers are being sought by the Indonesian industry regulator but it is not expected that any gas will be delivered under this swap agreement in 2012.

Pakistan

Production from Pakistan was strong during the first half of the year averaging 15.9 kboepd (1H 2011: 14.9 kboepd). Natural decline was more than offset by improvements in production from the fields as a result of the tie-in of three exploration wells (K-27, K-28 and K-30) on Kadanwari, the completion of two extended reach wells at Qadirpur and additional perforation work on three wells at Zamama.

The first well of the three well pilot programme to test the tight gas potential in the Kadanwari area in Pakistan has reached target depth. Fracturing tests will now be performed ahead of the other two wells being drilled.

Development projects

UK

Good progress continues to be made offshore on the non-operated Huntington project in the UK North Sea. Development drilling remains on target for completion this month with the sixth and final well currently drilling ahead of the rig moving off location at the end of the month. The exact timing of the sailaway of the Voyageur FPSO depends on the progress of the commissioning work now being undertaken at the Nymo yard in Norway.

At Rochelle, the first of the two development wells will commence drilling shortly. There has been some delay to the installation programme following slippage in the arrival of the pipe lay vessel, but the upgrade to the Scott platform remains on track. While the contributions of the Huntington and Rochelle fields to full year average production will be small, the respective field operators continue to forecast that the fields will be onstream before the end of the year.

The Premier-operated $850 million Solan project, West of Shetland, continues to progress to schedule. The contracts for the topsides facilities, steel jacket, heavy lift installation and subsea tank fabrication have now been awarded and the construction of the topsides started in June. Following the signature of a rig contract for the project, development drilling is expected to commence in March 2013. First oil from the 40 million barrel oil field is targeted for the fourth quarter of 2014, as previously announced.

Premier is encouraged by the announced ownership changes in the Premier-operated Catcher joint venture partnership which will provide additional financial certainty around the funding of the development. Meanwhile, technical studies on the project are continuing to be progressed and evaluated with the scheme selection expected in the third quarter. Premier continues to target first oil in 2015.

Norway

In May, Premier purchased an additional 20 per cent equity interest in the Bream project offshore Norway from Skeie Energy, bringing Premier's equity interest in the development to 40 per cent. The Ministry of Petroleum and Energy and the Ministry of Finance have subsequently approved the transfer and completion is expected shortly. A number of contracts are under tender for the facilities and wells ahead of formal project sanction in the second half of 2012.

The operators of six fields in the Froy area are undertaking technical and commercial studies to identify and evaluate the preferred options for an area development. The current phase of these studies is expected to be complete by year-end. Premier models first oil for 2017, as previously announced.

Asia

In Vietnam, the Premier-operated Dua project, a tie-in to the producing Chim Sáo field, is expected to receive government approvals imminently following formal partner sanction by Santos and Premier earlier this year. Meanwhile, the long lead items and major tenders for the project, including contracts for the modification of the Chim Sáo FPSO and a drilling rig, are being progressed. Premier targets 2014 for first oil from the Dua field.

In Indonesia, the Anoa Phase 4 project, which is the largest of a number of engineering campaigns aimed at enhancing the Anoa facility, is progressing well. The construction barge is expected to arrive at the Anoa field later this month to prepare the platform for the installation of the compression upgrade modules. These modules are currently under construction at a site near Jakarta with installation remaining on track for mid-August. The Anoa Phase 4 project will develop around 200 bcf of undeveloped proven reserves and is expected to be completed in 2013.

Elsewhere in Indonesia, the Pelikan and Naga projects continue apace with all of the approvals required at this stage received. In addition, the platform structure designs have been finalised and the construction of pipeline materials is already underway. First gas from the Pelikan and Naga gas fields, which are estimated to have total reserves of 150 bcf, is targeted for 2014.

Exploration

Exploration and appraisal programme

A programme of around 16 exploration and appraisal wells is planned for the next 12 months. This includes Badhra-7, which is currently drilling, and the Chim Sáo NW Appraisal, which is expected to spud imminently. The programme is targeting an unrisked net prospective resource potential, on a P50 basis, of around 200 mmboe. Several of the planned wells for the first half of 2013 remain subject to partner approvals and government consents.

New venture activities continued in the first half of 2012 with additions to the portfolio in Vietnam and potentially Iraq. The results of Premier's applications in the UK 27th Round and the 2nd Cyprus Licence Round are expected by year-end.

North Sea

The next well expected to spud in the UK North Sea is the Spaniards East prospect on Block 15/25a, close to the producing Scott field. The WilPhoenix rig will drill the Spaniards East prospect in the third quarter ahead of drilling the Cyclone prospect on Block 21/7b. Elsewhere in the UK North Sea, the high pressure high temperature (HPHT) Lacewing prospect is expected to spud before year end, although the results of this high risk well will not be known until the first quarter of 2013.

Following the success of the Carnaby well in May 2012, Premier will return to exploration drilling on the Catcher licence in the second quarter of 2013 with the drilling of the Bonneville prospect. Additional potential prospects in the Catcher area are also being matured for drilling later in 2013.

In the Norwegian North Sea, the Luno II prospect, located on the southwest margin of the productive Utsira high, is expected to spud in the fourth quarter. Also in Norway, Premier has increased its stake in PL406, which contains the Mackerel discovery and the Herring prospect, from 40 per cent to 80 per cent. The Mackerel discovery will be incorporated into the Bream concept select decision later this year while the Herring prospect is being matured for drilling.

The three Norwegian exploration licences which Premier acquired at the end of 2011 have now been integrated with the company's understanding of its nearby Freki licence, which was awarded to Premier in 2010. Leads and prospects in the Greater Freki area continue to be worked up and it is expected that this acreage will deliver at least one high impact exploration well, either in late 2013 or early 2014.

Asia

Earlier this year, in Indonesia, Premier successfully tested the deeper Oligocene Lama Formation, beneath the Anoa field on the Premier-operated Natuna Sea Block A. Studies are ongoing to determine the potential extent of this discovery, both beneath Anoa and elsewhere on the block. This work will be completed towards the end of 2012 with a follow-on exploration well planned for the second half of 2013.

Premier also participated in an exploration well on the island of Buton, southeast of Sulawesi, in the second quarter of 2012. This wildcat well encountered oil pay in a shallow horizon and work is underway to determine the commercial viability of this shallow oil discovery.

On Block A Aceh in Indonesia, the Matang prospect is now expected to spud in the fourth quarter of this year ahead of the rig moving to drill the Alur Kacang prospect on the same block.

In Vietnam, the Chim Sáo North West discovery in the fault block immediately adjacent to the Chim Sáo producing field, will be appraised later this month. The results of this well are expected in late August.

Elsewhere in Vietnam, the exploration potential of Block 07/03 has been further reviewed. As a result, it is expected that an additional CRD appraisal well will be drilled in the second quarter of 2013. This appraisal well will then be followed by an exploration well also on Block 07/03, and the drilling of the Kuda/Singa Laut prospect on the adjacent Tuna Block in Indonesia.

Kenya

In Kenya, prospect maturation on L10A and L10B is ongoing. Fast track 3D data and inboard 2D seismic has been acquired with processing due for completion later this year. However, the results to date are encouraging and it is expected that at least one prospect on the acreage will be drilled in the second half of 2013.

New Ventures

Offshore Vietnam, Premier has agreed to farm into the Origin Energy-operated Block 121 for a participating interest of 40 per cent, effective upon formal Vietnamese Government approval which is expected shortly. Premier will pay its participating interest share in the drilling of the high risk Ca Voi prospect which will spud in either late 2012 or early 2013, subject to rig availability.

Block 121 lies in the northern part of the frontier Phu Khanh Basin. The prospectivity centres on the untested Oligocene play fairway, which Premier recognises as being geologically similar to that of the Cau formation which it has successfully explored in Blocks 12W and 07/03 in the Nam Con Son Basin.

Subject to ongoing discussions with the authorities in Iraq, Premier has agreed to join Bashneft on Block 12, an 8,000 km2 block in the underexplored Salman Zone in southern Iraq, with 30 per cent equity. The block contains a variety of leads at various stratigraphic levels with estimated resources in excess of 1 billion barrels. The current plan is to acquire seismic data over the block in 2013.

Finance

The average oil price realised for the first half of 2012 was $111.8/bbl (1H 2011: $109.7/bbl) (pre hedge) and $107.5/bbl (1H 2011: $79.6/bbl) (post hedge) compared with an average Brent crude price of $113.6/bbl for the year.

Average gas prices (pre hedge) for our principal gas producing areas for the first half of 2012 were:

*Relevant hedges resulted in a cash cost of $17.3 million

The group retains significant cash and undrawn facilities. As at 30 June, these are estimated at $280 million and $1.0 billion respectively. At 30 June, net debt is estimated to be $840 million. Anticipated capital spending for the full year remains unchanged at around $240 million (exploration, pre-tax) and $760 million (development).