UK's Premier Oil lowers output, spending guidance, as BP deal in doubt

London — London-listed Premier Oil has lowered its production guidance for this year and further reduced its spending plans after a glitch at its flagship Catcher field, adding that it is having fresh discussions in a battle over its planned purchase of BP assets.

In a trading statement, Premier reported its UK oil and gas production in the first four months of 2020 had dropped 18% year on year to 47,000 b/d of oil equivalent, with its overall production, including in Indonesia and Vietnam, also down 18% at 70,000 boe/d. As a result it lowered its full year guidance to 65,000-70,000 boe/d, from 70,000-75,000 boe/d previously.

The company said it was now targeting capital expenditure savings of $140 million this year, which would enable it to be "cash flow neutral," a goal it previously hoped to achieve with a $100 million capex cut.

CEO Tony Durrant noted the company was protected by its hedging program, which covers 30% of its expected full-year oil and gas output at $60/boe. "We are proactively managing the business in these challenging times and remain focused on the welfare, health and safety of our people," he said.

The spending cuts mean Premier is delaying two satellite projects intended to boost production from the Catcher field, which suffered a gas plant outage at the end of April and into May, reducing gross production from the field over the first four months to 57,000 b/d. Last year's production from the field averaged 67,000 b/d.

Premier said the Catcher North and Laverda projects, which had been scheduled for this summer, had now been deferred, although it noted it is currently drilling an in-fill well at the main Catcher structure.

Premier's plans have also been affected by pandemic-related restrictions at the yard in Italy where construction of the Tolmount gas field facility is being carried out. Premier said that project would now come on stream in the second quarter 2021 rather than the end of this year.

The company voiced optimism about drilling currently underway to revamp a West of Shetland oil project, Solan, that has fallen far below expectations. The field came on stream in 2016 at a development cost of $2 billion, but has produced only a few thousand barrels of oil a day; output in the first four months of 2020 averaged 2,200 b/d. However, drilling of an additional production well, with a side-track well now underway, should lift output to more than 10,000 b/d in the fourth quarter, Premier said.

Acquisition battle

On its planned purchase of BP's Andrew field and the UK major's stake in the North Sea Shearwater project, Premier confirmed reports it has re-entered discussions, following stiff opposition from its largest creditor, Asia Research & Capital Management, which launched a legal battle against the proposal, and extension of credit facilities it involves, in early January.

Premier reiterated Wednesday that it believed it could prevail in the battle playing out in the Scottish courts, but said its board now "believes it prudent to re-engage with its stakeholders regarding the proposed transactions and extension to its May 2021 credit maturities in light of current market conditions."

The main deal announced in January entails Premier buying BP's operated stakes in the Andrew area fields and a stake in the Shearwater gas and condensate hub operated by Shell, while also buying an additional 25% stake in the Tolmount gas project from South Korea's Dana Petroleum.

Premier also said its Sea Lion oil project in the UK Falkland Islands was on hold, but would be "reactivated" once macroeconomic conditions improved, and its proposed farm-in partner, Israeli-owned Navitas Petroleum, remained committed to buying a 30% stake.