Premier Oil has increased its 2015 exploration budget by $20 million to account for higher investments in its drilling campaign in the Falkland Islands, the company said this week in a trading update. The company also revealed it is considering further drilling at the Isobel Deep recent discovery instead of going on to Jayne East in North Falkland.
Planned exploration expenditure for 2015 has increased by $20 million to around $240 million primarily due to additional expenditure on the Isobel Deep well in the Falklands, said the report.
Premier, which in the current exploration round made discoveries at Zebedee and Isobel Deep in the North Falkland earlier this year, is now considering further drilling at Isobel Deep, instead of going on to Jayne East and Chatham, when the semisubmersible drilling rig Eirik Raude returns to the North Falklands basin in August.
The company effectively reports that Premier has had a successful start to its Falkland Islands exploration campaign with discoveries at both Zebedee and Isobel Deep. The Isobel Deep well encountered oil bearing sandstone at the prognosed depth but was suspended due to unexpected overpressure. Pre-drill, the un-risked Pmean resources of the Elaine/Isobel complex were 400 mmbbls of oil and while this has not changed as a result of the well, the risk has reduced.
Consideration is being given to performing more drilling at Isobel Deep as part of the program, possibly replacing the Jayne East well.
CEO Tony Durrant underlined success in Falklands' drilling: we have delivered a strong production performance in the first half while further progressing our sanctioned developments and achieving significant exploration success in the Falklands.
The oil company whose operations stretch from the Falkland Islands to Indonesia, said it had received an offer for its Pakistan business and was starting a process with interested parties to dispose of those assets.
The company expects revenue in the first half of 2015 of $580 million, down 34% from a year earlier due to lower oil prices and lower production levels as the result of a disposal. Premier Oil is scheduled to report the group's half-year results on August 20.
The company added that a drop in figures reflected lower oil prices and lower production year-on-year as a result of the Scott area disposal. Production had dipped from 64,000 barrels of oil equivalent per day (boepd) last year to 60,300 boepd Premier said, reiterating its 55,000 boepd guidance.
Premier Oil said operating costs would be about 30% lower, at around $150m, from 2014’s figure of $216.9m, due to the sale of the high cost Scott area.
More specifically in the Falklands, the company said work is continuing to progress pre-FEED (*) activities and contractor selection on its Sea Lion project. A 2016 sanction decision is still targeted for the development.
CEO Durrant said the company had focused on minimizing its cost base. “Consequently, net debt during the first half has remained flat despite our continuing investment program”.
However during the first half of the year, Premier continued to re-shape its exploration portfolio with 21 further licence relinquishments and disposals in mature areas. At the same time, Premier is continuing to pursue its strategy of adding acreage in emerging plays. Accordingly, Premier has farmed into Block 661 in the Ceara basin in Brazil, subject to government approval, and joined a consortium to evaluate Mexico’s Round 1 opportunities, with bidding scheduled for 15 July.
As at 30 June, net debt was flat on the year-end position at $2.1 billion, despite the continuing period of development investment and the exploration campaign in the Falkland Islands. This is primarily due to a combination of Premier’s strong production performance, lower operating costs, proceeds received from disposals and the benefit of the company’s hedging program said the summary report.
Likewise Premier retains significant cash and undrawn facilities. As at 30 June, these were approximately $350 million and $1.1 billion respectively. During the period, Premier bought back $148 million and €40 million of its US private placement notes at a discount to par and repaid a $300 million term loan maturing in the first quarter of 2015.
(*) FEED stands for Front End Engineering Design. The FEED is basic engineering which comes after the Conceptual design or Feasibility study. The FEED design focuses the technical requirements as well as rough investment cost for the project. The FEED can be divided into separate packages covering different portions of the project. The FEED package is used as the basis for bidding the Execution Phase Contracts, etc and is used as the design basis.
A good FEED will reflect all the clients project specific requirements and avoid significant changes during the execution phase. FEED Contracts usually take around 1 year to complete for larger sized projects. During the FEED phase there is close communication between Project Owners and Operators and the Engineering Contractor to work up the project specific requirements.