Premier Oil warns of charges and impairments

UK independent Premier Oil expects to book up to $800mn in impairments and other non-cash charges when it reports its half-yearly financial results next month.

The charges follow similar announcements by other European oil firms and are underpinned by a reduction in Premier's long-term oil and gas price assumptions. They comprise $50mn-100mn of post-tax impairments, $300mn-500mn related to deferred tax and a $200mn exploration write-off related to acreage offshore the Falkland Islands (Islas Malvinas).

Premier expects to report a 40pc year-on-year fall in revenue to $530mn in January-June, reflecting lower oil and gas prices. Production averaged 67,300 b/d of oil equivalent (boe/d) in the first half of the year, in line with the company's reduced full-year guidance of 65,000-70,000 boe/d.

The 2020 output guidance does not include any contribution from the Andrew Area or the Shearwater hub in the UK North Sea, which Premier is buying into through a renegotiated deal with BP. The firm aims to complete the amended deal at the end of September, subject to agreed refinancing terms and equity funding, and expects the new assets to add 17,000 boe/d to its production. It also expects a 10,000 b/d output boost later this year from the Solan field in the UK's west of Shetlands area, where a new well is scheduled to come on stream by the end of September.

Premier recently scrapped plans to acquire an additional 25pc in the Tolmount gas project in the UK North Sea from South Korean-owned Dana Petroleum. The project — in which Premier holds a 50pc operating stake — is on track for first gas in the second quarter of next year and could add 20,000-25,000 boe/d to Premier's production.

The company said it is on track to cut $130mn from its original $470mn capital expenditure (capex) budget this year, thanks to savings and deferrals. Its net debt stood at $1.97bn at the end of June, little changed from the end of December. And it expects to be free cash flow positive in 2020 on current price estimates.

By Rowena Edwards