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Premier Oil progresses Solan facilities, Falklands exploration campaign

Premier Oil’s production in the first six months of 2015 averaged 60,300 BPD, the company announced in its most recent operations update. Full year guidance is reiterated at 55,000 BPD – excluding new production from Solan – taking into account planned maintenance work in the second half and natural decline in a number of fields.

 “We have delivered a strong production performance in the first half while further progressing our sanctioned developments and achieving significant exploration success in the Falklands,” Tony Durrant, Chief Executive, commented.“We have remained focused on minimizing our cost base with forecast full year operating expenditure below our already considerably reduced budgets. Consequently, net debt during the first half has remained flat despite our continuing investment program. We remain well-placed to generate long-term cash flows to fund both our committed developments and to manage our balance sheet, even in a sustained low oil price environment.”

Country Estimated 1H 2015 BOED (thousands) 1H 2014 BOED (thousands)
Indonesia 13.1 14.0
Pakistan and Mauritania 10.8 13.8
UK 16.8 21.3*
Vietnam 19.6 15.8
Total 60.3 64.9

*Includes assets sold in 2014

Development projects

The Premier-operated Chim Sáo field in Vietnam continues to outperform, driven by high operating efficiency and better than predicted reservoir performance. This was offset by lower production from the Huntington field, caused by constraints on the gas export route during the first quarter. Huntington resumed unrestricted production on 15 April. Amendments to the gas transportation agreement have now been finalized providing improved certainty of Huntington gas export volumes going forward. Premier’s other production assets continue to perform in line with expectations.

Work on the Premier-operated Solan facilities continues. With the Victory flotel on location in Q2, Premier was able to make significant progress towards achieving habitation of the facilities. Increased offshore productivity was realized, partly due to improvement in the weather but also due to organizational changes in the project execution team. The Victory flotel went off contract as planned in mid-May and was replaced with the Siem Spearfish ‘walk-to-work’ vessel, providing continuity of resources on the platform until the larger Regalia flotel arrives in early August. These two campaigns will enable habitation of the platform and completion of the commissioning of the production systems to allow first oil. Following the successful tie-in of the first pair of producer-injector wells, commissioning of the subsea infrastructure commenced in June and remains on-track for completion in September.  In parallel, drilling of the second pair of producer-injector wells has commenced. First oil continues to be targeted for Q4 this year. Cash spend to 30 June on the Solan project stood at $1.6 billion.

In May, Premier successfully acquired Chrysaor’s 40% interest in the Solan field for nil upfront consideration and entered into an agreement with FlowStream whereby a $100 million payment was received in return for the proceeds from 15% of production from the field for a period of time. As a result, partner funding concerns around the Solan project have been removed while, at the same time, the group’s balance sheet exposure to the project has been reduced.

The Premier-operated Catcher project remains within budget and on schedule for first oil in 2017. Subsea installation work has commenced with two templates already installed and gas export pipe lay underway. The Ensco rig is now on hire and is on track to commence development drilling shortly. Construction of the FPSO remains ongoing with the mating cone module completed and delivered to the hull fabrication yard.

At the Premier-operated Vette development, alternative lower-cost production facilities to a new build FPSO are being evaluated while Premier is continuing to progress pre-FEED activities and contractor selection on its Sea Lion project in the Falkland Islands. A 2016 sanction decision is still targeted for both developments.

Exploration and appraisal
Premier has had a successful start to its Falkland Islands exploration campaign with discoveries at both Zebedee and Isobel Deep. The Isobel Deep well encountered oil-bearing sandstone at the prognosed depth but was suspended due to unexpected overpressure. Pre-drill, the un-risked Pmean resources of the Elaine/Isobel complex were 400 million bbls of oil and while this has not changed as a result of the well, the risk has reduced. The Eirik Raude rig is expected to return to the North Falklands basin in August to drill the Jayne East and Chatham wells. Consideration is being given to performing more drilling at Isobel Deep as part of the program, possibly replacing the Jayne East well.

In Indonesia, the Anoa Deep appraisal well spudded in April and reached total depth in June. Following encouraging logging results, preparations are now being made to test the well with results expected later this month. Meanwhile, the Myrhauk well on the eastern flank of the Mandal High offshore Norway is expected to spud in mid-July with results anticipated in September.

During the period, Premier continued to re-shape its exploration portfolio with 21 further license relinquishments and disposals in mature areas. At the same time, Premier is continuing to pursue its strategy of adding acreage in emerging plays. Accordingly, Premier has farmed into Block 661 in the Ceara basin in Brazil, subject to government approval, and joined a consortium to evaluate Mexico’s Round 1 opportunities, with bidding scheduled for 15 July.

Country Well name Timing License interest (%) Gross prospective resource Risk
Indonesia Anoa Deep appraisal* Q2 2015 28.67 8-13-40 Low
Norway Myrhauk Q3 2015 40.00 10-50-135 Moderate
Falklands Jayne East** Q3 2015 36.00 23-73-232 Low
Falklands Chatham** Q3 2015 60.00 4-19-80 High

*The Anoa Deep appraisal well will appraise the initial Anoa Deep discovery as well as test the upside within the deeper part of the Lama play.

** Volumes quoted are unrisked prospective resources and excludes the volumes associated with appraisal of the main Sea Lion Field.

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