Premier Oil plc (the "Company")
2018 Annual Report and Financial Statements
and Notice of Annual General Meeting 2019
5 April 2019
Further to the release of the Company's Annual Results on 7 March 2019, the Company announces that it has today published its Annual Report and Financial Statements for the financial year ended 31 December 2018 (the "2018 Annual Report"). In addition, the Company has today posted to shareholders the Notice of Annual General Meeting ("AGM") 2019. The AGM will be held at No.11 Cavendish Square, London, W1G 0AN, at 11.00am on Thursday 16 May 2019.
In accordance with Listing Rule 9.6.1., copies of the 2018 Annual Report, the Notice of AGM and related form of proxy have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism at www.morningstar.co.uk/uk/nsm. The documents (except for the form of proxy) are also available to view on the Company's website at www.premier-oil.com
A condensed set of financial statements and information on important events that have occurred during the year ended 31 December 2018 and their impact on the financial statements were included in the Company's 2018 Annual Results announcement on 7 March 2019. That information together with the information set out below in Appendix 1, which is extracted from the 2018 Annual Report, fulfil the requirements of DTR 6.3.5. This announcement is not a substitute for reading the full 2018 Annual Report. Page and note references in the text in Appendix 1 are made in reference to the 2018 Annual Report. To view the 2018 Annual Results announcement, visit the Company website: www.premier-oil.com/investors
Daniel Rose Tel: +44 (0)20 7730 1111
Elizabeth Brooks Tel: +44 (0)20 7730 1111
This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the Group believes the expectations reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to factors beyond the Group's control or otherwise within the Group's control but where, for example, the Group decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.
Company Risk Factors (required under DTR 4.1.8)
Principal risk factor
How is it managed?
Oil and gas prices are affected by global supply and demand and can be subject to significant fluctuations.
Factors that influence these include operational issues, natural disasters, adverse weather, climate change regulations, political and security instability, conflicts, economic conditions and actions by major oil-exporting countries.
Price fluctuations can affect our business assumptions and our ability to deliver on our strategy.
Specific risks for 2019: inability to execute a satisfactory oil hedging programme due to low forward oil prices; uncertainty in implementation of IMO2020 regulations impacting fuel oil pricing.
Oil and gas price hedging programmes to underpin our financial strength and protect our capacity to fund future developments and operations.
Premier's investment guidelines ensure that our investment opportunities are robust to downside price scenarios.
Hedging of exposure to increasing carbon prices.
Sufficient funds may not be available to finance the business and fund existing operations and planned growth projects.
Volatile credit markets and bank risk appetite may impact ability to refinance debt at maturity on attractive terms.
Breach of delegated authority.
Specific risks for 2019: reduced flexibility to manage the business under existing lender controls; breach of banking covenants in downside scenarios; inability to fund a Sea Lion development.
Strong financial discipline. Premier has an established finance management system to ensure that it is able to maintain an appropriate level of liquidity and financial capacity and to manage the level of assessed risk associated with the financial instruments. The management system includes a defined delegation of authority to reasonably protect against risk of financial fraud in the Group.
Premier maintains access to capital markets through the cycle by proactive engagement with banks and lenders as evidenced by the completion of its refinancing in 2017.
An insurance programme is maintained to reduce the potential impact of the physical risks associated with exploration and production activities. In addition, business interruption cover is purchased for a proportion of the cash flow from producing fields. Cash balances are invested in short-term deposits with minimum A credit rating banks, AAA managed liquidity funds and A1/P1 commercial paper, subject to Board approved limits.
Economics of investment decisions are tested against downside project scenarios.
Discretionary spend is actively managed.
Uncertain geology, reservoir and well performance.
Availability of oilfield services including FPSOs and drilling rigs, technology and engineering capacity, and skilled resources.
Adverse fiscal, regulatory, political, economic, social, security (including cyber) and weather conditions.
Immaturity of decommissioning in the UK resulting in uncertain cost and timing estimates for decommissioning of assets.
Potential consequences include reduced or deferred production, loss of reserves, cost overruns and failure to fulfil contractual commitments.
Specific risks for 2019: reliance on performance of Catcher asset; failure to maintain schedule of Tolmount project; acceleration of decommissioning of certain assets if they underperform.
Effective management systems governing geoscience, reservoir and well engineering, and production operations activities, including rigorous production forecasting and reporting, field and well performance monitoring, and independent reserves auditing.
Effective project execution management systems, including contracting strategy and cost controls together with capable project teams and functional oversight.
Long-term development planning to ensure timely access to FPSOs, rigs and other essential services.
Preference for operatorship.
Specialist decommissioning team in place coupled with continued focus on delivering asset value to defer abandonment liabilities.
Joint venture partner
alignment and supply
Major operations and projects in the oil and gas industry are conducted as joint ventures. The joint venture partners may not be aligned in their objectives and this may lead to operational inefficiencies and/or project delays. Several of our major operations are operated by our joint venture partners and our ability to influence is sometimes limited due to our small interest in such ventures.
Premier is heavily dependent on supply chain providers to deliver products and services to time, cost and quality criteria and to conduct its business in a safe and ethical manner.
Specific risks for 2019: access to and cost of appropriate service providers if oil prices strengthen.
Due diligence and regular engagement with partners in
joint ventures in both operated and non-operated operations and projects.
Pursue strategic acquisition opportunities, where appropriate to gain a greater degree of influence and control.
Defined management system for management of non-operated ventures.
Due diligence of supply chain providers, including diligence of financial solvency, anti-bribery and corruption controls, and controls to prevent facilitation of tax evasion.
Monitor contractual performance and delivery, including periodic audit of the effectiveness of their management systems.
Complete roll out of a comprehensive contract performance management programme for major contracts.
The capability of the organisation may be inadequate for Premier to deliver its strategic objectives. The capability of the organisation is a function of both the strength of its personnel and the effectiveness of its business management system.
Premier may be unable to attract, engage or retain personnel with the right skills and competencies or to deliver suitable succession plans for senior roles.
The business management system may be inadequate or may not be sufficiently complied with.
Specific risks for 2019: unable to attract, engage or retain key staff due increasing competition for talent, ageing demographic and an ageing asset portfolio.
Premier has created a competitive reward package including bonus and long-term incentive plans to incentivise loyalty and performance from the existing skilled workforce.
Continue to strengthen organisational capability to achieve strategic objectives. This includes resource and succession planning, competency and leadership development.
Continuous improvement of business management system and related controls appropriate to the size and market position of the Company.
Implementation of staff engagement plans following the staff survey in 2018.
Implementation of Staff Forum across the Group to inform management and the Board on cultural and people related issues.
Continued focus on Diversity & Inclusion across the Group.
Continued phased rollout of the Talent Management programme, including continued senior level succession at local and Group levels.
Implementation of recommendations emerging from externally facilitated organisation health check conducted in 2018.
Premier may fail to identify and capture new acreage and resource opportunities to provide a portfolio of drillable exploration prospects and future development projects.
Specific exploration programmes may fail to add expected resource and hence value.
Lender controls may reduce ability to capture and execute the exploration programme.
Specific risks in 2019: inability to access quality global opportunity set due to lender restrictions in a highly competitive market; and negative appraisal results on Zama and Tolmount East appraisal opportunities.
Focus on geologies we know well and in which we can build a competitive advantage.
Continuous improvement in exploration management system with strong functional oversight.
Manage exploration portfolio to maintain alignment with strategic growth and spend targets.
Active new ventures activity and appropriate resourcing.
Significant asset integrity, process safety or wells incident on operated asset.
Significant incident arising from natural disaster, pandemic, social unrest or other external cause.
Consequences may include injury, loss of life, environmental damage and disruption to business activities.
Comprehensive HSES management systems including:
HSES reporting and auditing with a focus on the identification and management of major hazards.
Valid Safety Cases on all operated assets.
Robust crisis management and emergency response processes in place and tested against.
Senior management visits to operated facilities to demonstrate commitment to HSES values.
Learning from internal and third-party incidents.
Insurance against Business Interruption.
political and fiscal risks
Premier operates or maintains interests in some countries where political, economic and social transition is taking place or there are current sovereignty disputes.
Developments in politics, security, laws and regulations can affect our operations and earnings.
Consequences may include expropriation of property; cancellation of contract rights; limits on production or cost recovery; import and export restrictions; price controls, tax increases and other retroactive tax claims; and increases in regulatory burden or changes in local laws and regulations.
Consequences may also include threats to the safe operation of Company facilities.
Specific risk in 2019: monitor impact of change of Government in Mexico.
Premier strives to be a good corporate citizen globally, and seeks to forge strong and positive relationships with governments, regulatory authorities and the communities where we do business. Premier engages in respectful industry-wide lobbying and sustainable corporate responsibility and community investment programmes.
Premier maintains a portfolio of interests which includes operations in both lower and higher risk environments.
Rigorous adherence to Premier's Business Ethics Policy and Global Code of Conduct.
Monitor and adhere to local laws and regulations.
Active monitoring of the political, economic and social situation in areas where we do business, including business continuity plans tailored to pre-defined levels of alert.
Key Performance Indicators (required under DTR 4.1.9)
Working interest production (kboepd)
Premier aims to maximise production from its existing asset base and, over time, to deliver production growth. Production growth is measured using average daily production and the number of development projects being brought through to sanction.
· Record production in 2018 of 80.5 kboepd (2017: 75 kboepd)
· Tolmount Main gas project (UK) sanctioned, next phase of growth for the business
· Expected production of 75 kboepd, an underlying increase on 2018, after adjusting for disposals
· First gas from BIG-P expected late 2019
Reserves and resources (mmboe)
Premier aims to grow its reserves and resources base through a combination of successful exploration and selective acquisitions.
· Tolmount Main resources booked as 2P reserves
· Upward revision in 2P reserves estimates at Chim Sáo, Elgin-Franklin and the Catcher Area
· Recategorisation of Sea Lion 2P reserves as contingent resources
· Continue to evaluate acquisition opportunities
· Progress senior funding structures for Sea Lion, ahead of a final investment decision
· Complete sale of Pakistan business
Covenant Leverage ratio
Premier aims to have sufficient headroom against its covenant leverage ratio to ensure continued covenant compliance and access to liquidity throughout the commodity price cycle.
· Covenant leverage ratio (covenant net debt/ EBITDAX) reduced to 3.1x (2017: 6.0x)
· Increased EBITDAX of US$882 million, up 50%
· Early exchange of the Company's convertible bonds
· Completion of non-core asset sales
· Cash flows prioritised towards debt reduction
· Maintain sufficient liquidity to withstand another downturn in the commodity price cycle
Operating cash flow (US$ million)
Premier aims to maximise cash flow from operations to maintain financial strength, meet its debt obligations, invest in the future of the business and deliver long-term returns to shareholders. Premier's cash flows are protected by a forward hedging programme.
· c.US$350 million of operating cash flow net to Premier generated by Catcher
· Strong operating cash flow generation from the Group's operated Asian assets driven by high uptime and continued tight cost control
· Improved cash margins at comparable commodity prices due to increased UK production
· Substantial hedging programme protecting future cash flows and investment programmes.
Operating costs (US$/boe)
Premier aims to minimise costs from operations without compromising on health, safety and integrity. Operating costs per barrel of oil equivalent is a function of industry costs, inflation, the efficiency and effectiveness of Premier's people, technology and production output. Operating costs are monitored closely to ensure that they are maintained within pre-set annual targets.
· Operating costs of US$16.9/boe, of which US$10.4/boe related to field opex and US$6.5/boe to FPSO lease costs
· Low-cost base supported by high operating efficiency, tight cost control and a weaker sterling dollar exchange rate
· Slightly higher operating costs (US$13/boe field opex and US$7/boe FPSO lease costs) reflecting the change in portfolio mix
Net debt (US$ billion)
Premier aims to reduce the absolute level of its net debt in order to address the imbalance in its capital structure, to ensure compliance with its financial covenants and to provide the Company with future financial flexibility. Premier anticipates reducing its net debt by using cash flow generated from its producing assets and disposals, while maintaining tight cost control.
· Net debt reduced by US$393 million to US$2.3 billion
· Free cash flow generation of US$251 million (including cash receipts from disposals)
· Early exchange of the US$181 million convertible bonds
· Further debt reduction targeted, supported by an improved portfolio mix and a strong hedging programme
· Premier expects to generate free cash flow at oil prices above US$45/bbl during 2019
Premier is committed to managing its operations in a safe, reliable and environmentally responsible manner to prevent major accidents and to provide a high level of protection to its employees, contractors and the environment.
· Strong environmental performance with no significant spills
· Greenhouse Gas Intensity of our operating assets at the lowest level in Premier's reporting history
· Group recordable injury rate of 2.65 injuries per million man hours; Solan, Gajah Baru and Chim Sáo recordable injury free
· Tier 1 Process Safety Events of zero for the fifth consecutive year
· 35 senior management HSES visits to our operated facilities
We aim to deliver upper quartile HSES performance compared with our peers in the International Association of Oil & Gas Producers ('IOGP')
Directors' responsibility statements (required under DTR 4.1.12)
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
Group financial statements
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union ('EU') and Article 4 of the International Accounting Standards ('IAS') Regulation and have also chosen to prepare the Parent Company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
In preparing the Group financial statements, International Accounting Standard 1 - 'Presentation of Financial Statements' - requires that Directors:
· properly select and apply accounting policies;
· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and
· make an assessment of the Company's and Group's ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.premier-oil.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' responsibility statement
We confirm to the best of our knowledge:
1. the Group financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;
2. the Strategic Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and
3. the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
This responsibility statement was approved by the Board of Directors on 6 March 2019 and is signed on its behalf by:
Chief Executive Officer
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