PREMIER Oil boss Tony Durrant has said the company had been vindicated in its decision to expand in the North Sea amid the downturn triggered by the crude price plunge as it generates huge amounts of cash in the area.
Read more: North Sea oil industry to generate £10bn surplus
Speaking after Premier posted a $133 million (£100m) annual profit, Mr Durrant underlined the company’s appetite for more North Sea acquisitions.
“There are powerful commercial reasons for us continuing to grow in the North Sea,” he said.
On Friday Premier was reported to have teamed up with the Apollo investment firm to bid for the North Sea portfolio Chevron has put up for sale.
Mr Durrant said yesterday he would not comment on specific potential targets. However, he made clear that Premier believes the retreat of the majors from the North Sea has created opportunities the company can capitalise on.
Read more: North Sea shake up to continue after $140m acquisition of US giant's assets
A range of US firms have been looking to reduce their exposure to the North Sea in order to increase investment in areas such as the shale fields of Texas.
Mr Durrant said Premier could generate good returns from the kind of incremental field developments that bigger fish did not think were material.
“There is an opportunity for Premier to acquire mid-life, cash flow generative and profitable production assets with potentially significant upsides, which have not been pursued by the previous asset holders,” said Mr Durrant.
He said it was not very difficult to feel vindicated about North Sea expansion moves such as the $120 million acquisition of E.ON’s North Sea portfolio in January 2016, at what proved to be the bottom of the oil price cycle. Brent crude fell below $30 per barrel that month, after peaking at $115/bbl in June 2014.
Read more: Premier Oil shows faith in North Sea with $120m acquisition
The E.ON deal gave Premier interests in fields that have performed strongly, such as Elgin Frankin.
Mr Durrant noted:“There’s been a huge improvement in operating costs per barrel and in production efficiency and the North Sea is again very competitive with other offshore basins.”
While the crude price has fallen by around 20 per cent since October, amid booming production in the US, Premier can make very good profits at the current price of around $65 per barrel.
The strong performance of the 100m barrel Catcher field which the company brought onstream in 2017 with Cairn Energy helped Premier achieve record production last year.
Read more: London oil firm hails potential of massive field off Aberdeen
“The UK has become a very powerful cash flow generator,” observed Mr Durrant.
The company can use the cash to fund potentially transformational exploration in places such as Mexico and Indonesia, while also reducing debt.
“This will finally banish the much-used phrase ‘heavily indebted Premier,” Mr Durrant joked.
Premier expects to achieve a significant increase in North Sea production next year when the Tolmount gas development is scheduled to come onstream. It sanctioned the development in August. Tolmount lies on acreage Premier acquired through the E.ON deal.
But the performance of the flagship Solan development West of Shetland continues to fall short of original expectations.
Field output averaged 4,600 boepd last year. When it was brought onstream in 2016, Solan was expected to be producing 20,000 boepd or more by the end of that year. Mr Durrant noted the field had a chequered history but had delivered reliable production over the last two years. Premier plans to drill an additional production well next year. The Solan production infrastructure could be used on other field developments.
Premier produced a record 80,500 barrels oil equivalent per day in 2018, compared with 75,000 boepd in 2017, during which it lost $254m.
The company has producing assets in Asia and exploration acreage off the Falkland Islands and Mexico.
Net debt fell to $2.3bn at December 31, from $2.7bn at the preceding year end.
Shares in Premier Oil closed up 8%, 5.6p, at 79.5p.
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