Premier Oil PLC (LON:PMO) today announced its half-year results for the six months to 30 June 2019.
Tony Durrant, Chief Executive, commented:
“I am pleased to report another strong performance for Premier where we have exceeded our financial and operational targets for the period. The Company’s strong cash flow is driving debt reduction and the Zama divestment and Sea Lion farm-down processes are targeting further strengthening of the balance sheet, which remains the Group’s highest priority. Premier’s operated Tolmount gas project, due on-stream next year, and the addition of good quality exploration and appraisal acreage offer significant low cost opportunities for future value growth.”
Operational highlights
· Production of 84.1 kboepd (2018 1H: 76.2 kboepd), a record for 1H
· Catcher Area high plateau rates of 70 kboepd (gross) maintained, operating efficiency of 99%
· Tolmount project on schedule and under budget
· Zama gross resource upgraded to 810 mmboe (P50) following successful appraisal
· Attractive acreage captured: Andaman Sea position increased, entry into a high-impact appraisal project in Alaska
· Climate Change Committee established; review of all operations to reduce emissions initiated
Financial highlights
· Profit after tax of US$121 million (2018 1H: US$98 million)
· EBITDAX of US$680 million (2018 1H: US$488 million, adjusted for impact of IFRS 16)
· Opex of US$10/boe plus lease costs of US$6/boe
· Cash margins 35% higher than 2018 1H
· Free cash flow of US$182 million (2018 1H: US$90 million cash outflow)
· Net debt reduced to US$2.15 billion (31 December 2018: US$2.33 billion)
2019 Outlook
· Production (75-80 kboepd) and expenditure (US$12/boe opex, US$340 million capex) guidance unchanged
· Over 40% of 2019 2H oil production hedged at US$69/bbl
· First gas from Bison, Iguana and Gajah-Puteri (BIG-P) gas fields expected end Q4
· Tolmount East appraisal well results due early Q4
· Sea Lion Phase 1: discussions with senior lenders progressing, farm down process launched
· Formal Zama sale process initiated
· Forecast full year net debt reduction of over US$300 million reiterated (excluding any potential disposal proceeds)
Overview
Premier delivered another period of record production, supported by extremely high Group operating efficiency. Together with improved cash margins, this resulted in strong free cash flow delivery.
The Premier-operated Catcher Area (Premier-operated 50 per cent interest) in the UK North Sea was the Group’s highest net producer, achieving 99 per cent operating efficiency, validating the new build FPSO design, the delivery capacity of the existing well stock and the operational management of the plant and the reservoir. Following the asset’s continued strong subsurface performance, Premier currently expects to increase Catcher Area reserves as part of the Group’s formal year-end reserves assessment.
Premier’s operated assets in South East Asia – Chim Sáo (Premier-operated 53.1 per cent interest) and Natuna Sea Block A (Premier-operated 28.67 per cent interest) – continue to generate material free cash flow for the Group (after ongoing capital expenditures), producing with high uptime and from a low cost base. Output was lower than the prior corresponding period due to weaker Singapore demand for Premier’s Indonesian gas and due to some natural decline from the Chim Sáo oil field.
Across the Group’s producing assets, in both the North Sea and South East Asia, Premier has identified numerous opportunities to increase the reserves and field life of its producing assets through incremental investment in infill drilling and well intervention programmes, plant modifications, satellite developments and near field exploration. These projects, which are at various stages of maturity, are typically low cost with high rates of return and a rapid payback period.
On the development side, the Tolmount gas field (Premier-operated 50 per cent interest) is on track for first gas at the end of 2020 and underpins the Group’s medium-term UK growth profile. There is considerable upside in the Greater Tolmount Area including at Tolmount East which targets incremental resources of up to 300 BCF (gross).
The conclusion of the appraisal programme at the giant Zama field in Block 7 (Premier non-operated 25 per cent interest) offshore Mexico resulted in Premier upgrading its resource estimates and reaffirming Zama’s status as a world-class asset. Progress has also been made on the Group’s fully appraised Sea Lion field which, at 250 mmboe (gross) of resource in Phase 1, is a material oilfield development opportunity. Post period end, Premier submitted the Preliminary Information Memorandum, which forms the basis of a loan application for the senior debt component of the project financing structure, to export credit agencies.
The Group’s immediate priority is to further strengthen its balance sheet and this, together with significant industry interest, has led to Premier initiating a formal sales process for its interest in the Zama field which, if successful, will result in a material reduction in debt levels. In addition, Premier has launched a formal farm-down process of its 60 per cent operated interest in Sea Lion to optimise its level of participation in the project.
Exploration remains a key component of Premier’s strategy. The current environment has provided the opportunity to access highly prospective acreage without compromising the Group’s near term deleveraging targets. During the period, Premier increased its position in the emerging South Andaman Sea gas play at low upfront cost and has also entered the North Slope of Alaska, a prolific super basin, by farming into an appraisal project, which is estimated to contain 1 billion barrels (gross) of discovered conventionally reservoired oil-in-place.
The Group’s strong operational performance along with continued tight control of its cost base and capital expenditure generated US$182 million of free cash flow during the period. This was directed at reducing debt levels and underpins Premier’s expectation of achieving the upper half of its full year 2019 net debt reduction guidance of US$250 million to US$350 million. The Group also continues to reduce its covenant leverage ratio (covenant net debt / EBITDA), which was down from 3.1x at year-end 2018 to 2.4x at the end of the period. Premier’s covenant leverage ratio is expected to continue to reduce further by year-end 2019.
Integral to Premier achieving its business objectives is being a responsible operator and the Group adheres to the highest health, environmental and safety standards. The first half saw Premier establish a Climate Change Committee, initiate a review of its operations to identify further opportunities to reduce its emissions and align its Climate Change Policy with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Premier’s Greenhouse Gas (GHG) intensity was materially lower compared to the prior corresponding period primarily due to a higher production contribution from the Group’s Catcher Area, which has a low GHG intensity.
Looking to the remainder of 2019, the Group remains focused on maintaining its strong and safe operating performance and maximising its cash flows, which are protected via a robust hedging programme, and will be prioritised towards improving further the Group’s balance sheet. In addition, Premier looks forward to the outcome of the Tolmount East appraisal well, first gas from the BIG-P gas fields, feedback from potential senior lenders and farminees to its Sea Lion project, and progressing the Zama divestment process.
