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Premier Oil writes $558mln off new North Sea field

More than half a billion has been wiped from the value for the new North Sea field as Premier lowered near-term oil price assumptions.
Premier Oil writes $558mln off new North Sea field
Solan, in West of Shetland region, is due online ‘shortly’, Premier said.

Premier Oil (LON:PMO) has written off $558mln off the value of the Solan field, its key growth asset which is due online shortly.

The Solan field is located in the West of Shetland region, of the North Sea, and the programme has been impacted by adverse weather, but commissioning is now almost complete. The ramp-up of the field’s production will be a key focus for the company in the coming months.

As a result of lower near-term oil price assumptions used in balance sheet tests, the company has had to significantly downgrade its valuation of the asset.

Production from Solan is initially expected to be between 10,000 and 12,000 barrels oil equivalent per day, from the field’s first well, rising to a plateau of 20,000 to 25,000 boepd once a second well is brought online.

Premier today reported average production of 57,600 boepd for 2015, which it says was ahead of market guidance despite asset disposals.

Aside from Solan, the group’s recently announced acquisition of E.ON’s North Sea assets is expected to add a further 15,000 boepd to the production profile for 2016.

Meanwhile, it highlighted that the Catcher field development, also in the North Sea, is on schedule for a 2017 start and it is currently under-budget.

Financially, Premier said that it had strong cashflows from operations despite lower oil prices. It generated $809mln compared with $924mln in the prior year. Revenue for 2015 amounted to $1.1bn, down from $1.6bn in 2014.

The group’s post tax loss of $1.1bn, for 2015, included the $583.5mln of impairments which relate to lower oil price assumptions and are mainly from Solan.

Premier shares resumed trading at the start of February, following the announcement of the completion of its E.ON North Sea acquisition.

It marked the second leg of what is essentially an asset switch. Premier in November sold off loss-making operations in Norway. The cash is being reinvested via the E.ON deal.

Eon runs the Huntington field and has production interests in the Elgin, Franklin, Glenelg, West Franklin, Scoter and Merganser fields.

Premier today said the deal significantly enhances the core UK business, adding cash generative production and reserves, at a compelling valuation.

The company has revealed it had ‘significant liquidity’ with $1.2bn of cash and undrawn bank facilities.

Chief executive Tony Durrant, in the statement, said: “As we move into 2016 there remains considerable uncertainty over the direction of oil prices.

“Premier was quick to react to the fall in the oil price, rationalising our business while retaining our core skills and never compromising the safety or performance of our operations.  

“A low operating cost base ensures that we can operate effectively through a period of low oil prices and positions us well to take advantage of any future recovery.”

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