Premier Oil 1st Half 2014 Operational Review - UK

abarrelfullabarrelfull wrote on 22 Aug 2014 11:23
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Higher production, driven by improved uptime from the Balmoral area field and increased contributions from Huntington and Rochelle, resulted in a strong rise in UK cash flows during the first half. Development activity at Solan continued apace with offshore installation of the facilities now under way. The Catcher project received government approval in the first half. These two projects will underpin the company’s future growing cash flows.

Production
UK production averaged 21.3 kboepd for the first half of the year, an increase of 59 per cent on the corresponding period (2013: 13.4 kboepd).

Strong production was achieved from the Premier-operated Balmoral area which averaged 3.7 kboepd, an increase of 40 per cent (2013: 2.7 kboepd). This was as a result of the reinstatement of four wells and improved performance from existing wells. In addition, operating efficiency improved, averaging 90 per cent in the first six months of 2014, up from 64 per cent for the same period last year. Wytch Farm also exceeded expectations due to improved operating efficiency and four new wells on-stream during the period.
Huntington produced 7.8 kboepd net to Premier during the first half (2013: 1.2 kboepd). Strong well performance was offset by unplanned production interruptions primarily caused by a combination of adverse weather, operational issues and downtime at the CATS riser platform. On 31 July, the field closed for planned maintenance to the Voyageur FPSO. Production is expected to recommence shortly. To date, the impact on Huntington production due to ongoing CATS pipeline restrictions and maintenance has been smaller than anticipated.

Production from Scott, Telford and Rochelle averaged 3.8 kboepd net to Premier over the period (2013: 4.2 kboepd). Performance from these fields was impacted by an unplanned outage on the Scott platform following a compressor valve bolt failure in late March. Rochelle production was also interrupted in late January due to the main valve on the production manifold failing to open following the tie back of the E2 well. This was rectified utilising a diving support vessel with production restarting in March. Following these unplanned outages the fields performed above expectations prior to the commencement of the annual shutdown in late July. On 30 June 2014 Premier agreed the profitable sale of its non-operating interests in the Scott, Telford and Rochelle fields for a consideration of US$130 million. As part of the transaction, all associated decommissioning liabilities will be transferred to the buyer. This disposal is expected to complete in the second half of 2014.

First oil was achieved from Kyle in July, following the completion of the two year reinstatement project. Flush production has been achieved from the K-12 and K-14 wells, which have reached combined peak production rates of in excess 7 kboepd (gross). The remaining two producer wells are expected to be brought on-stream shortly.

Developments
Material progress was made on the Premier-operated Solan project, west of Shetlands, during the first half with the project now in the final stages of execution. The first producer well has been completed, following the recommencement of development drilling in April, and flowed at good rates. The first injector well is also on track to be completed before the weather window west of Shetlands closes.

Onshore construction of the subsea storage tank, jacket and topsides has been completed and the offshore installation and heavy lift campaign is under way. The subsea storage tank was lowered to the seabed in early August and piling activities are nearing completion while the installation of the jacket by the Heerema Thialf is expected to commence shortly. The topsides are ready for sea fastening onto the barge and load out to the field for installation, which will be timed to coincide with the completion of the installation of the jacket, subject to good weather. Hook up and commissioning will then be undertaken ahead of first oil.

Total cash costs incurred to date on the Solan project are estimated at US$1 billion compared to the previous estimated total project cost of US$1.4 billion. Higher project costs have been incurred to maximise the opportunity to meet the 2014 installation window and due to longer than expected drilling times. Solan continues to be a valuable project with a payback period of approximately two years for Premier. Under existing contractual agreements, Premier will take an enhanced share of the project’s cash flow to recover the loan from our partner in the field, Chrysaor Limited, and until Premier has received a pre-agreed return on its investment. Negotiations are on-going over the possible early refinancing of Premier’s loan and the funding of our partner’s share of future capex requirements for the Solan project.

In June, Premier received government approval of its Catcher area Field Development Plan and the execution phase is progressing to schedule. The Catcher area fields will produce via subsea tie backs to a leased FPSO. The contract for the FPSO was awarded to BW Offshore, who will order a new build hull from Japan for the project, while the topsides will be constructed in the Far East with the integration work to be performed in Singapore. The Engineering, Procurement, Construction and Installation (EPCI) contract for the subsea scope, which includes three pipeline bundles, a riser system and a 10", 60km gas export/import pipeline was awarded to Subsea 7. Ensco was awarded the contract for the development drilling, which will consist of 14 production wells and eight water injector wells and will commence in 2015. An experienced project team has been assembled to deliver first oil in the summer of 2017.

Exploration
Premier’s exploration focus in the UK North Sea is on maturing prospects within the Catcher area for future drilling and planning for a 2015 appraisal well of the heavy oil discovery at Bagpuss on licence P1453. The combined Bagpuss/Blofeld prospects are estimated to contain in excess of 2 billion barrels of oil in place. Outside of this, Premier continues to rationalise its UK North Sea exploration portfolio, with a further five licences either relinquished or sold in the first half.


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