Premier Oil Announces Sale of Wytch Farm Interests

Premier is pleased to announce that it has entered into a sale and purchase agreement to sell its entire interests in Licences PL089 and P534, which contain the Wytch Farm field ("Wytch Farm"), to Verus Petroleum SNS Limited ("Verus") for a cash consideration of $200 million (subject to certain customary financial adjustments) payable on completion (the "Disposal"). In addition, Premier will be able to release Letters of Credit totalling approximately $75 million which have been issued in relation to future decommissioning liabilities that are now being transferred to Verus. The effective date of the Disposal is 1 July 2017.

Wytch Farm is an onshore oil field located in Dorset, United Kingdom that has been producing since 1979. Verus is a UK-focused independent E&P company backed by HitecVision, a Norway based private equity investor focused on the upstream offshore oil and gas industry.

Background to and reasons for the Disposal

Premier has a track record of realising value at the appropriate stage of an asset's life-cycle through active portfolio management. The Board believes that the Disposal now is in the best long-term interest of Premier and its stakeholders. It represents an excellent opportunity to realise an attractive valuation well in excess of the implied valuation from the most recent transaction in Wytch Farm.

The Disposal will generate proceeds to accelerate deleveraging of the balance sheet. Wytch Farm is non-operated, onshore and with fewer near-term growth prospects than elsewhere in Premier's portfolio.

Wytch Farm overview

Wytch Farm is a large onshore oil field although a significant area extends offshore. The field has been developed with 11 well sites linked to a central onshore gathering station and is operated by Perenco UK Limited. Production is exported via pipeline to the Hamble terminal near Southampton for tanker loading.

Premier acquired a 12.4% interest in the Wytch Farm field in 1984. In December 2011, Premier completed the acquisition of an additional 17.7% interest from Perenco UK Limited and in July 2017 announced an agreement to acquire a further 3.7% from Maersk Oil North Sea UK Ltd, taking its total interest to 33.8%.

As of 31 December 2016, the estimated 2P reserves in Wytch Farm net to Premier were 14.91 mmboe. Wytch Farm production, net to Premier's working interest, averaged 5.11 boepd for the first half of 2017.

For the 12 months ended 31 December 2016, Wytch Farm generated profit before taxation of approximately $23.42 million and as at 30 June 2017 had gross assets of approximately $90.22 million.

Tony Durrant, Chief Executive, commented:
"The Disposal will allow for a significant reduction in Premier's net debt and generates material value for shareholders. This is the latest in a series of disposals in line with Premier's strategy of realising value for shareholders at the appropriate stage of an asset's life cycle and at an attractive valuation."

Premier Oil at a glance

Premier Oil plc is an FTSE 250 oil and gas exploration and production company with current interests in ten countries around the world.

Premier's story dates back to 1934 where the company was founded as the Caribbean Oil Company, to pursue oil and gas exploration and production activities in Trinidad.

Premier now has 11 offices world-wide with over 900 employees and is organised into six key business units – UK, Norway, Pakistan, Indonesia, Vietnam and Falkland Islands – with functional support provided by the corporate office in London. Premier is active both offshore and onshore, but all of the company’s operated interests are offshore.

Production averaged 71.4 kboepd in 2016 (2015: 57.6 kboepd), an increase of 24% on the prior year. 2P reserves and 2C resources increased to 835 mmboe (2015: 758 mmboe).

For 2017, Premier announced opex and capex guidance of <$16/boe and US$390 million, respectively and production guidance maintained at 75 kboepd, before any contribution from Catcher.

UK operations

Balmoral area (operated interest)
The Balmoral area fields – Balmoral, Stirling, Brenda & Nicol – are located in Blocks 16/21a and 16/21b in the UK Central North Sea, 200 kilometres northeast of Aberdeen. Premier acquired its interest in the Balmoral area fields through its acquisition of Oilexco in 2009. The Balmoral area fields produce via the Premier-operated floating production facility located on the Balmoral field. Oil is transported via the Brae-Forties link to Cruden Bay and overland to Hound Point. Premier also derives benefit from the Burghley and Beauly third party fields utilising the Balmoral area infrastructure.

Production from the Premier-operated Balmoral area averaged 3.1 kboepd in 2015 and the fields are in natural decline.  Operating costs were reduced significantly in 2015, representing savings from cost efficiencies such as the sharing of logistics with other operators plus reduced G&A allocations.

Elgin-Franklin (5.2% non-operated interest) & Glenelg (18.75% non-operated interest)
Premier acquired its 5.2% non-operated interest in Elgin-Franklin and 18.75% non-operated interest in Glenelg in 2016 through its acquisition of E.ON's UK North Sea assets. The Elgin-Franklin area, which is operated by Total, is a world class asset with very lower operating cost of less than $8/boe. The gas condensate fields are currently producing c. 110kboepd gross with production expected to be maintained at these high levels for the next three years as new wells are drilled on the fields.  It is a long term asset which is expected to keep producing for approximately another 20 years. The Glenelg field is produced via the G10 well which is located on the Elgin A platform.

Huntington (100% operated interest)
Premier acquired a 40% non-operated interest in the Huntington light oil field in 2009 as a result of the Oilexco acquisition. First oil from the Huntington field was achieved on 12 April 2013. The Huntington development consists of 4 producer wells and 2 water injectors tied back to a FPSO. Oil is exported through offshore loading to shuttle tankers while gas is exported via the CATS System and redelivered at the Teesside Gas Terminal where it is sold.  Premier acquired a further 25 per cent in the Huntington field following its acquisition of E.ON’s UK North Sea assets in 2016. Premier continues to take Iona’s and Noreco’s share of production following their default in 2015. 

Kyle (40% non-operated interest)
In 1995, Premier acquired a 20% interest in the P748 licence, which contains the Kyle oil field, through its acquisition of Pict. Between 1997 and 2002, Premier acquired additional equity interests in the Kyle field taking its total interest to 40%.

The Kyle field has been developed via subsea wells connected to two manifolds (North and South) tied back to the Banff FPSO. Oil and gas production from the Kyle field began in 2001. 2016 production year to date has averaged c. 2kboepd (net to Premier).

Scoter (12% non-operated interest) and Merganser (7.92% non-operated interest)
Premier acquired its interests in the Merganser and Scoter fields through its acquisition of E.ON's UK North Sea assets in 2016. The Scoter field is located in blocks 23/26d and 22/30a in the CNS and commenced production in 2004.  The development is a three well subsea tie-back to Shearwater. The Merganser field is located in blocks 22/30a and 22/25a in the central North Sea. The field was discovered in 1995 and began producing in 2006. The field produces from the Forties and Andrew reservoirs and consists of two subsea wells tied into the Scoter pipeline. Scoter and Merganser are currently producing c. 1 kboepd net to Premier.

Solan (100% operated interest)
The Solan oil field was discovered in 1991 by Hess. The discovery was further appraised by Chrysaor with two wells in 2008 and 2009.  In May 2011, Premier acquired a 60% equity interest in the Solan field.  In May 2015, Premier successfully acquired Chrysaor's 40 per cent interest for nil upfront consideration and entered into an agreement with FlowStream whereby a US$100 million payment was received in return for the proceeds from 15 percent of production from the field for a period of time.

The Solan field development consists of two producers and injectors tied back to a platform and, in April 2012, approval of the Solan Field Development Plan was granted from DECC.  Oil is produced into a subsea storage tank and offloaded by shuttle tanker. The facilities were installed during 2014 with first oil achieved in 2016. While initial production capacity from the field was good, production is currently constrained at 10-13 kbopd due to lower than anticipated water injection capability. A number of solutions are being looked at to increase water injection into the reservoir in order to allow higher production levels.

Babbage (47% operated interest)
The Babbage gas field is located in Block 48/2a in the UK Southern Gas Basin. Premier acquired its interest in the Babbage gas field as a result of its acquisition of E.ON's UK North Sea assets in 2016. The Babbage gas field consists of a 9 slot minimum facilities platform with horizontal multi-fracced wells. Gas is exported to West Sole and on to Dimlington Gas Terminal. The platform has initially been manned to support well drilling, fraccing and clean-up operations.  However, there are plans to reduce manning to daylight hours only. The field is currently producing c. 3.5 kboepd net to Premier.

Block 48/2a also contains the Hawking and the Cobra gas discoveries as well as several exploration prospects.

Caister Murdoch System (CMS)
Premier acquired interests in the Caister Murdoch System (CMS) area, which is centred on the Murdoch complex, in 2016 as a result of its acquisition of E.ON's UK North Sea assets in 2016.  Premier’s interests in the CMS area include a 40% interest in Caister, a gas condensate field that ceased production in 2015, a 74% operated interest in the Rita gas condensate field and a 79% operated interest in the Hunter gas condensate field. Premier also has a 20% interest in the CMS pipeline.

Orca (23.47% non-operated interest)
Premier acquired its 23.47% non-operated interest in the Orca field as result of its  acquisition of E.ON's UK North Sea assets in 2016. The Orca gas condensate field was developed with three wells from the Orca platform with gas exported to the D-15-FA facility. From D/15-FA gas is transported via the Noordgastransport pipeline to the Uithuizen terminal in the Netherlands.

Ravenspurn North (28.745% non-operated interest) & Johnston (50.1% operated interest)
Premier acquired its 28.745% interest in the Ravenspurn North & 50.1% operated interest in the Johnston gas fields through its acquisition of E.ON's UK North Sea assets in 2016. Ravenspurn North is a dry gas field discovered in 1984 within blocks 42/30a and 43/26a in the Southern North Sea. It came on-stream in 1990, had a peak rate of c. 450 mmscf/d in 1997 and is currently producing 25 mmscfd (gross). Johnston is a subsea development tied back to the Ravenspurn North platform. Gas is exported to the Cleeton facilities then onward via the Cleeton/Ravenspurn South line to the Perenco operated terminal at Dimlington. Upside opportunities include infill drilling and well workovers at Ravenspurn North.

Wytch Farm (30.1% non-operated interest)
Wytch Farm is Europe's largest onshore oil field. In December 2011, Premier completed the acquisition of an additional 17.715% interest in Wytch Farm, taking the Group’s total interest to 30.1%. Wytch Farm is a long life asset with cessation of production not anticipated until 2039. Wytch Farm is currently producing c. 5 kboepd net to Premier.

Premier's partners in Wytch Farm are Perenco (operator), Maersk, Ithaca and Talisman Sinopec. The Wytch farm partners also have interests in the offshore Beacon discovery.

Significant UK projects include:

Catcher area development (50% operated interest)
The Catcher field was discovered by the Catcher well drilled in May 2010 while the Catcher East side track, also encountered excellent quality oil bearing sandstones and established a common pressure regime. Phase 2 of the Catcher area exploration campaign was completed in early 2011 with successful discoveries at Varadero and Burgman. In June 2012, the Carnaby discovery was made on the western part of the block. It is expected that the Carnaby discovery will contribute as a future tie back to the Catcher area development.

The development concept was formally agreed by partners in December 2013 and government approval was received in June 2014. The development entails 22 subsea wells (14 producers and 8 water injectors) on the Catcher, Varadero and Burgman fields which will be tied back to a leased FPSO. The oil will be offloaded by tankers while the gas will be exported through the SEGAL facilities. Drilling activities started in July 2015 and, to date, the wells have met or exceeded pre-drill expectations in terms of reservoir quality and flow rates. Work is ongoing to assess the possibilit of reducing the overall well count without impacting production. All of the sbusea equipment has now been installed, including the risers, bundles, towheads, manifolds, midwater arches along with the buoy and morring system. The major elements of the subsea campaign are now complete with only short campaigns required in 2017 to tie-in wells as they become available from the drilling programme and to support commissioning operations once the FPSO has been installed. The outfitting of the FPSO continues apace in Keppel yard in Singapore and the sail away date of the FPSO for a 2017 start-up remains on schedule.

The Catcher project is scheduled to deliver first oil in the second half of 2017 and is expected to produce 96 mmboe with a peak production rate of around 50 kbopd. Forecast gross capex to first oil is now anticipated to be $1.3 bn, a reduction of 20 per cent below that originally sanctioned. Goss total project capex is forecast at $1.7 bn, a 24% reduction on the original sanctioned estimate.

Premier increased its interest in the Catcher area by 15% to 50% in 2012 as a result of the EnCore acquisition and acquired operatorship of the project. The partners in the Catcher area development are Premier (50 per cent, operator), Cairn, MOL and Dyas (10%).

Tolmount gas field (50% operated interest)
Premier acquired its 50% operated interest in the Tolmount gas field in 2016 as a result of its acquisition of E.ON's UK North Sea assets in 2016. The Tolmount gas field, which is situated in the Southern North Sea, was discovered in 2011 with further appraisal drilling in 2013. Premier is engaging with the contractor market with a view to enhancing returns and reducing further upfront capex on the project. Concept seelction is targeted for the end of 2016 with FEED taking place in 2017. Estimated resource for the Tolmount field is c. 450 bcf (gross). Further upside at Tolmount includes Tolmount East and Tolmount Far East which are estimated to hold c. 250 bcf and 150 bcf of unrisked prospective gas resource respectively. Premier’s partner in Tomount is Dana.

Verus Petroleum at a glance

Verus Petroleum are a production and development company focused on the UKCS with a strong commercial, operational and technical track record and ambitious growth plans in the region.

Backed by Europe’s leading upstream oil and gas private equity investor HitecVision, Verus has a mature and agile in-house technical and commercial team to screen, evaluate and complete acquisitions.

In January 2017 Verus completed the acquisition of an additional 9.8% stake in the Boa oil field taking their interest to 11.35%. Verus has also entered into a Reserves Based Lending facility with Nedbank Limited for up to $150 million.

Including the increased Boa equity Verus production was approximately 2,500 boepd as at 1 February 2017 with an average lifting cost of $7/boe.

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