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UPDATE - Premier Oil cuts back spending further, maintains production guidance

Published: 13:41 13 May 2015 BST

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Premier maintains its production guidance for the full year, which without including the new Solan operation is for 55,000 boepd.

--ADDS BROKER COMMENT--

Premier Oil (LON:PMO) revealed plans to further reduce spending, to US$750mln, from US$920mln, though it does intend to maintain an exploration budget of US$220mln.

The FTSE 250 oil firm, which had its annual general meeting (AGM) on Wednesday, said production averaged 60,200 barrels oil equivalent per day (boepd) during the first four months of 2015.

It told investors that cash flow for 2015 continue to be protected by hedging arrangements, under which it has 5.6mln barrels ‘sold forward’ at an average price of US$97.80 per barrel. Hedging for a portion of next year’s production has so far seen 3.5mln barrels sold forward at an average price of US$68.70.

Premier maintains its production guidance for the full year, which without including the new Solan operation is for 55,000 boepd.

‘First oil’ at Solan in the North Sea’s West of Shetland area is expected later this year. Development and commissioning work has seen the first two wells hooked up in March and drilling of the second pair is due to start this month.

Solan is expected to achieve plateau production rates between 20,000 and 25,000 bopd.

Planned work elsewhere in the North Sea is expected to see development drilling start for the Catcher field in July.

Catcher is on schedule for ‘first oil’ in July 2017, elsewhere the company is advancing towards project sanction decisions for the Vette field in Norway and the Sea Lion field in the Falklands.

Falkland exploration drilling is currently underway, and the current programme has already delivered some success – with the first well, Zebedee, finding additional oil resources that may be added to subsequent phases of the Sea Lion field development.

After an operational hiccup, a blow-out preventer fault, drilling has just resumed on the second new Falkland well, Isobel Deep, and a result is anticipated by the end of this month. Drilling is also underway at the Anoa Deep appraisal project, in Indonesia, where a result is expected later in the current quarter.

Premier told investors it had US$190mln of cash and US$1.1bn of undrawn facilities at the end of April.

Davy said the production performance was ‘slightly stronger’ than it had expected, the broker anticipated a rate of 59,000 bopd, though it described the guidance on Solan’s timing as ‘softer’ than before.

At the time of its full year results Premier Oil has guided for the ‘end of summer’, analyst Caren Crowley pointed out. Overall, the mixed trading update should have a neutral impact, she added.

Gerry Hennigan, analyst at Goodbody, Davy’s Dublin rival, meanwhile, said: “We view the statement from Premier Oil this morning as solid and take comfort from a current production base in excess of 60 kboepd ahead of contribution from the Solan development later in the year.”

London based VSA Capital claimed the production stats were below expectations, and said it remained ‘cautious’ about the company.

“Its key challenge will be to undertake capital intensive development operations in the current difficult market environment, while managing its net debt position which is flat at US$2.2bn,” VSA analyst Marc Anis-Hanna said in a note.

SP Angel was bullish, meanwhile, with analyst Zac Phillips saying the broker would be “a happy holder of the shares” while adding that any price weakness would present a “buying opportunity”.

Not that there was any weakness in the Premier Oil price on Wednesday as the FTSE 250 share advanced 3.6% to trade at 187p.

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