Premier Takes 2016 Hit, But E.ON Assets Do Well

UK independent Premier Oil is pleased how its $120mn acquisition last year from E.ON of UK North Sea assets has progressed, but booked an impairment charge of $652.2mn on its own UK West of Shetland Solan field in its March 9 results because of a downward revision to Solan reserves. The latter was largely offset by a tax credit but the firm still made a loss.

CEO Tony Durrant (pictured below) said that Premier’s “complex refinancing has created uncertainty and volatility but is now nearing completion”; assets bought from E.ON were “outperforming [with]  payback now anticipated in 1H 2017.” The deal provided Premier with producing stakes in the Elgin-Franklin gas-condensate, as well as Huntingdon and Babbage fields, all in the UK North Sea.

(Photo credit: Premier Oil)

Premier reported net 2016 profit after tax of $122.6mn, an improvement from its $1.1bn loss in 2015. Net impairment charges were $556.2mn in 2016, of which $383.7mn after tax. The $122.6mn loss last year was net of a tax credit of $522mn, most of it deferred from earlier years.

Net production last year of 71,400 barrels of oil equivalent per day, mostly in the UK, was up 24%. Its guidance for 2017 is 75,000 boe/d before any contribution from its operated UK North Sea Catcher development, which it says remains on schedule for first oil in 2017 with total capex now estimated at $1.6bn, 29% less than at sanction. First oil from Solan was produced April 12 2016.

Premier said its 50% stake in the UK Tolmount gasfield project now looks “increasingly attractive” with a nine-month front end engineering design (FEED) is now underway. Tolmount main structure will recover 540bn ft³ (P50) gas from four producing wells, with project sanction targeted for 1Q2018 and capex to first gas estimated at $550mn, it said, adding there is “significant upside, currently estimated at over 400bn ft³, beyond the main development in the Greater Tolmount Area.”

Two months ago Premier said it had put on the market a 30% stake in gas pipe system Esmond Transportation (ETS) and 20% of the Tolmount field, also part of the $120mn deal from E.ON. In March 9 results, it said: “We continue to look to dispose of non-core assets, such as our Pakistan business or certain assets from the E.ON portfolio where formal sales processes are ongoing.”

Assets written off in 2016 by Premier included costs incurred for drilling the Laverda/Slough and Bagpuss prospects in the North Sea and Foz in Brazil. Premier has ongoing production in, among other places, Indonesia (gas) and Vietnam (oil). It is also involved in the high-impact Zama exploration prospect in Mexico, due to spud in 2Q 2017

Mark Smedley