The assets acquired are located in the Central North Sea, West of Shetlands and the Southern Gas Basin and add stable UK gas revenues to the portfolio rebalancing Premier’s commodity exposure. These assets comprise:
- Elgin-Franklin (5.2%, TOTAL Operated) – world class asset currently producing 114kboepd with operating costs of c.$8/boe
- Huntington (25%, Operatorship) – currently produces c.15kboepd with remaining reserves of 10mmboe. Premier’s interest will increase to 100%.
- Babbage(47%, Operatorship) – currently produces from five wells with infield and near-field growth opportunities
- Tolmount (50%, Operatorship) – one of the largest discoveries in the Southern Gas Basin in recent years with estimated gross resources of 200Bcf-1Tcf
Meanwhile, Premier continues to progress commissioning of its new Solan platform West of Shetland. Platform occupation achieved but first oil production has been delayed to February due to’ unprecedented’ weather conditions.
Premier achieved operating cost reductions of more than 25% to $16-barrel in 2015 – producing savings of more than $100 million year on year – and aims to further reduce costs in 2016 by up to 10% more.
Nevertheless, full year revenues for 2015 are expected to be $500 million lower than the previous year due to prolonged fall of Brent crude oil prices.
Tony Durrant, Chief Executive, Premier Oil, explained: “Having recently completed the sale of our Norwegian assets for $120 million, this transaction allows us to further consolidate our interests in the UK North Sea where any acquisitions are immediately value enhancing as a result of our existing UK tax position.
“Premier has historically been able to capture long term value through acquisitions in low oil price environments. The material increase in low cost production and cash flow generation in 2016 and 2017, is materially covenant-accretive and strengthens our financial position in the current environment.
“These acquisitions provide potential for us to generate significant operating and cost synergies across the combined UK North Sea business.
“It will increase our presence in the Central North Sea – including a stake in the producing world class Elgin-Franklin asset and related fields – and also consolidate our interest in Huntington (pro-forma 100%) and assume operatorship with potential to reduce costs and optimise production.”
The West of Shetland sector remains the least-developed area of the North Sea, despite the first significant discovery occurring there almost 40 years ago.
A combination of technical challenges, extreme weather, limited operating windows and water depthts of up to 1,500m, means the region has remained relatively immature, with an estimated 95% of resources yet to be developed.
Until recently only three fields, the BP-operated Foinaven/Loyal and Schiehallion, were in production. Joined in early 2016 by Total’s Laggan-Tormore gas field and Premier’s Solan project, only the latter is a notable successful development by an independent to date