Premier Oil report lower annual profits following $757.9 million total costs

Premier Oil (LON:PMO) have seen their shares in red, despite the firm giving a relatively steady update on Thursday.

Premier Oil told the market that it had seen a year of progress, however its’ profit levels had been bruised due to higher charges.

The CEO noted: “2019 was another year of strong operational and financial delivery by Premier with significant progress made against the Company’s strategic objectives.

Commodity prices were slightly weaker during 2019 driven by global trade tensions and ongoing concerns about the balance of supply and demand. Despite this, the Group reported record free cash flows and increased net profits”.

The oil exploration firm noted that revenue did jump 13% to $1.58 billion across 2019 – however pretax profit slumped 35% to $102.5 million.

Premier alluded this to $757.9 million of depreciation, depletion and amortisation costs – which impacted the results today.

Looking at production, the firm noted that 2019 average production was 78,400 barrels of oil equivalent per day, at the upper end of guidance.

However, this figure sees a 2.6% dip on the 2018 equivalent, but going forward Premier have maintained their stance that they expect production to lie within the 70,000 barrels a day and 75,000 barrels ball park per day.

The firm managed to reduce their net debt by 15% – which will be pleasing for shareholders. This metric now totals $1.99 billion, and Premier have made a pledge to get this lower as time goes on.

Tony Durrant, Chief Executive Officer, commented:

“Premier made significant progress against its strategic targets during 2019. Strong operational performance resulted in record free cash flows and reducing debt levels. We took material steps to commercialise our reserve and resource base and added to our exploration acreage position.  The proposed acquisitions will add material cash-generative UK production. Premier is committed to being a responsible operator and today announces that all operated projects will be developed on a net zero emissions basis.”

Premier also added that the ongoing coronavirus epidemic is playing a part in driving oil pries down – which could impact performance and trading.

The CEO concluded: “In the first quarter of 2020, oil prices have fallen significantly due to fears over the spread of COVID-19 and the impact this may have on global demand for oil.  The current volatile macro environment serves to highlight the importance of the business being sustainably free cash flow positive and ensuring that future growth can be funded through the commodity price cycle without compromising the balance sheet.

The Group’s immediate priority remains to reduce its debt levels and covenant leverage ratio towards 1x, a process which will be accelerated by the acquisition of the UK assets announced post period-end. At the same time, Premier will continue to maintain its capital discipline investing selectively in new international projects and exploration to create material value for all of its stakeholders over the longer term”.

Premier Oil announce board changes

In a separate update day, Premier Oil also announced that Elisabeth Proust will join the Company’s Board as an independent Non-Executive Director and member of the Health, Safety, Environment and Security Committee and Nomination Committee with effect from 1 April 2020.

The firm added that Proust has held a variety of roles with Total SA, and also has been the president of  president of the oil and gas association in Indonesia (IPA), then in Nigeria (OPTS) and, whilst in the UK, as director at the Oil and Gas UK Association board, Oil and Gas Technology Centre, Step Change in Safety and the Technology Leadership boards.

Upon the new appointment, Roy Franklin, Chairman said:

“I am delighted to welcome Elisabeth to the Board.  Elisabeth’s technical and operational experience and skills within the exploration and production industry will be of enormous value to the Board and the Company as a whole.

“I would particularly like to thank Robin Allan for his significant contribution to Premier. Robin has been an executive Board member for over 16 years and his contribution to the Company is marked both by his achievements within the business and with industry bodies such as Oil and Gas UK and BRINDEX.  I am delighted that Robin will continue to play a key role going forward in supporting our response to the climate change agenda and ESG initiatives.”

Premier Oil’s deal with BP

At the start of the decade, Premier announced that they had agreed a deal with oil major BP (LON:BP).

Premier have said that they will be buying the Andrew Area and Shearwater assets from oil major BP for $625 million.

Andrew Area includes five fields which produce 18,000 barrels of oil equivalent per day. Shearwater in comparison accounts for 25 million barrels of oil equivalent of reserves.

Premier have said that they will be taking 50% to 100% stake in five Andrew Area fields, and a 28% stake in the Shearwater assets.

Premier added that they intend to raise the funds through a $500 million equity raise, and if needed a $300 million bridge operation.

The equity raise will encompass a share placing and rights issuance, and further details will be announced over the next few weeks.

Shares in Premier Oil trade at 72p (-7.82%). 5/3/20 11:28BST.

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