Premier Oil PLC (LON:PMO) today announced its half year results for the six months to 30th June 2018.
Tony Durrant, Premier Oil Chief Executive, commented: “Premier met its operational targets for the period. The Catcher Area is now at plateau production rates which, together with higher commodity prices, is driving free cash flow generation and net debt reduction. We have progressed our development projects while maintaining strict capital discipline. We can also look forward to a high-graded exploration and appraisal programme which has the potential to deliver very significant value for the business.”
Operational highlights
· Production of 76.2 kboepd (2017 1H: 82.1 kboepd) reflecting Catcher Area production ramp up offset by asset sales and natural decline
· Production averaged 86.2 kboepd in July (July 2017: 76.7 kboepd), despite ongoing summer maintenance
· Catcher Area now at plateau production; day rates of up to 70 kboepd (gross) achieved
· Tolmount project sanctioned post period end; key contracts awarded
· Exploration acreage significantly enhanced with new licence awards in Mexico and Indonesia
· Sale of Babbage Area announced; ETS (UK) and Kakap (Indonesia) disposals completed
Financial highlights
· Profit after tax more than doubled to US$98.4 million (2017 1H: US$40.7 million)
· EBITDA of US$388.9 million (2017 1H: US$325.9 million), up 19 per cent
· Cash flows from operations of US$276.6 million (2017 1H: US$282.7 million)
· Opex of US$17.2/boe, 5 per cent below budget
· Net debt reduced to US$2.65 billion (2017: US$2.72 billion)
2018 Outlook
· Production guidance unchanged at 80-85 kboepd
· Forecast opex of US$17-US$18/boe and capex of US$380 million unchanged
· Tolmount platform construction to start in December
· Zama appraisal programme to commence in Q4
· Completion of Pakistan and Babbage Area sales transactions
· Forecast full year net debt reduction of US$300 to US$400 million with covenant leverage ratio expected to fall to 2.5x by end Q1 2019, in line with previous guidance
OVERVIEW
Premier again delivered a strong operational performance in the first half of the year. The ramp up in production from the Catcher Area (Catcher, Varadero and Burgman) and high uptime across our other producing assets enabled us to maintain production at year-end levels despite material asset sales. At the same time, we remain focused on maintaining our low cost base and continued to secure savings against budgeted expenditure.
The Catcher Area has been producing at plateau rates since May which, along with higher commodity prices, resulted in a step change in our production and our free cash flow generation, substantially de-risking our debt reduction forecasts. We also see the potential for considerable upside from the Catcher Area as a result of better than expected initial production rates and the opportunity to maintain and extend plateau production through infill drilling and the tie-back of near field discoveries.
Premier remains focused on delivering the highest return projects from its portfolio. The sanction of our operated Tolmount Main gas project marks a major milestone. It secures our medium-term UK production profile and realises further value from the 2016 E.ON transaction. Tolmount Main is one of the largest undeveloped gas discoveries in the Southern North Sea and, in barrel of oil equivalent terms, is of similar size to our Catcher Area. We have also secured an innovative financing structure for the project which minimises our capital expenditure whilst maintaining our exposure to the upside in the Greater Tolmount Area. The development of the Bison, Iguana and Gajah Puteri (BIG-P) gas fields, an incremental gas project in Indonesia, is also proceeding well, on budget, and scheduled to deliver first gas next year.
Beyond Tolmount Main and BIG-P, the portfolio contains a number of projects to maintain and grow our production, delivering value over the longer term. The first half saw us award Letters of Intent (LOIs) to the key contractors for our Sea Lion project which, at 220 mmboe (gross) of reserves in Phase 1 alone, represents a material opportunity for Premier. The focus for the second half remains on securing senior debt funding for the project. In Mexico, the programme for appraisal of our world-class Zama discovery is scheduled to start later this year while in Indonesia we are seeking to farm-down our interest in the Tuna discoveries ahead of a two well appraisal programme. The majority of the spend for these projects will be from 2020 by which time we will have restored balance sheet strength after a period of forecast material free cash flow generation.
Over the last few years we have re-focused our exploration portfolio on high-graded proven petroleum systems in emerging basins. This resulted in the Zama discovery last year and will see us drill the high value Tolmount East well in 2019 and two potential high impact wells in the Ceará Basin, offshore Brazil, targeted for 2020. We have also continued to enhance and replenish our exploration portfolio for future drilling. We were particularly excited to capture Block 30, south west of our Zama discovery, in Mexico’s Round 3.1, and the Andaman II licence offshore Indonesia where we see the potential for over 2 TCF of gas.
Potential acquisition opportunities that enhance our asset base and create synergies with our existing core businesses continue to be evaluated while our non-core disposal programme progressed over the period. In April we announced the sale of our interests in the Babbage Area which will immediately reduce our net debt and our committed exploration spend in 2019. We also completed the disposal of our interests in Kakap, offshore Indonesia, and the Esmond Transportation System (ETS) in the North Sea.
Debt reduction remains our key corporate priority in the near-term. We anticipate considerable debt reduction for the full year 2018 of US$300 to US$400 million, driven by increasing cash flow generation from our producing portfolio, cash proceeds from announced disposals and the early exchange of the convertible bond. As a result, at current oil prices, we anticipate our covenant leverage ratio falling to 3x EBITDA by the year-end and to 2.5x by the end of the first quarter of 2019.
Health, Safety, Environment and Security (HSES) matters will always be of paramount importance to us. We will not compromise on the integrity and safety of our people and our operations and we continue to set ourselves challenging HSES targets to drive continuous improvement.
