PREMIER Oil has slashed the valuation of the giant Solan field West of Shetland by another $652 million (£535m) after facing renewed complications on what is a key asset for the firm.
London-based Premier said it made the latest reduction in the valuation of Solan after cutting estimates of the amount of oil it will recover from the field.
The write down also reflected a cut in the company’s long term oil price assumption to $75 per barrel from $80/bbl.
News of the write down comes 11 months after Premier started production from Solan amid fanfare.
With production from Solan expected to ramp up to 25,000 barrels oil daily in the second half of last year, the start up encouraged faith in the potential of the relatively under-explored territory off Shetland.
However, production from Solan has fallen well short of expectations and is running at around 9,000 bod currently.
Announcing a $390m (£320m) pre tax loss for 2016, Premier highlighted poorer than expected reservoir performance in the eastern part of the field.
After trying short term, lower cost approaches to try to boost output, Premier said it may have to drill another well to gain a more material uplift in production rates and improve recovery.
The company’s experience highlights the challenges firms can face developing big fields off Shetland.
Solan came onstream around 18 months later than originally hoped.
Premier has highlighted the impact of low productivity and bad weather on the development programme for the field.
In February last year Premier said it had written $998m off the value of its North Sea portfolio in 2015, mainly related to Solan.
Premier cut the book value of a group of UK fields including Solan by $730m in 2014 after the sharp fall in the oil price from June of that year.
However, Premier said it has been making good progress with development work on the Catcher field east of Aberdeen.
The project is on schedule to produce first oil in the second half of this year. Its expected cost has fallen by 29 per cent to $1.6 billion, from around $2.2bn when the project was approved. Premier has benefited from the fall in the cost of services seen amid the downturn in the industry triggered by the crude price plunge.
Chief executive Tony Durrrant said Catcher is expected to deliver a step change in Premier’s production levels once it is onstream.
The company said the Tolmount gas field off England is looking increasingly attractive and is likely to provide its next phase of growth. The project meets Premier’s economic thresholds even at low gas prices.
Premier doubled production in the UK last year to 33,000 barrels oil equivalent daily, partly due to the $120m purchase of the North Sea portfolio of German utility E.ON last year.
North Sea operating costs fell to $24/boe from $30/boe, reflecting cost cutting and the fact an increasing share of total output came from newer fields such as Solan. Premier expects its UK operating costs to fall towards $20/boe.
The company, which also has assets in Asia and off the Falkland Islands, said its complex refinancing is nearing completion.
Mr Durrant said: “Looking forward, our strong and growing cash flows will reduce our debt and in due course allow us to invest in new projects to deliver value for all our stakeholders.”
Shares in Premier Oil closed down 2.5p at 59.5p.
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