Premier is a leading independent exploration and production company with gas and oil interests in the UK, Asia and Africa.

Transcription

1 Summary Review 2004

2 Premier is a leading independent exploration and production company with gas and oil interests in the UK, Asia and Africa. Our strategy is to add significant value per share through exploration and appraisal success, astute commercial deals and asset management. Contents Highlights 02 Exploring the world 04 Production and reserves 05 Exploration and appraisal 06 Our strategy 08 Strong cash flow and balance sheet 09 Tour of operations UK 10 Strength and depth of management teams 11 Tour of operations Indonesia 12 Firmly back in the exploration business 13 Tour of operations Pakistan 14 Technical excellence 15 Tour of operations New business 16 Respect for people and environments 17 Addresses Glossary boepd barrels of oil equivalent per day mboepd thousand barrels of oil equivalent per day mmboe million barrels of oil equivalent mmscfd million standard cubic feet of gas per day

3 2004 Highlights Financial Profit after tax up 57 per cent to US$43.8 million Healthy cash flow operating cash flow after interest and tax of US$109.8 million Ungeared balance sheet with net cash balances up at US$19.6 million 10 million share buy-back programme Operational achievements Production ahead of budget 34,700 boepd Booked working interest reserves higher at 177 mmboe Six exploration and appraisal drilling successes over 50 per cent success rate Record gas exports from Premier s operated West Natuna gas project, in Indonesia Record gas sales in Pakistan Acquired stakes in promising exploration acreage offshore Vietnam and onshore Egypt 2005 Outlook 16 exploration and appraisal wells currently planned Oil and gas developments active and on-track in all three of Premier s areas UK, Africa and Asia Premier Oil Summary Review

4 Exploring the world The group at a glance Europe West Africa United Kingdom Mauritania Guinea Bissau Gabon Overview We have oil production from three key fields in the central North Sea and from Wytch Farm in Dorset. We have an established solid cash generating business in an attractive portfolio of mainly non-operated oil and gas producing interests. In addition, we have exploration acreage in the central and southern North Sea. Highlights Arresting production decline at Wytch Farm oil field through in-fill drilling of multi-lateral side tracks Negotiation of commercial arrangements on Kyle with the Banff owners to reduce operating costs and extend field life Extending Fife area field life Signed new exploration licences Interests Fife area Kyle Scott Wytch Farm Overview We achieved early entry into the most successful acreage in Mauritania through acquisition in 2003 and Currently we are participating in developing the Chinguetti oil field and appraising oil discoveries at Tiof and Tevet. We have a portfolio of exploration prospects that are targeted for drilling in the short/ medium term. The Chinguetti project is on track to achieve first oil in the first quarter The field has proven and probable reserves estimated at around 120 million barrels of oil. Highlights Sanctioning of the Chinguetti oil field development by the Government and the operating partnership respectively Successful appraisal of the Tiof discovery Discovery at Tevet, close to the Chinguetti field Acquisition of two new 3D seismic surveys Planning up to five exploration/appraisal wells in 2005 Overview Our acreage offshore Guinea Bissau is an exploration opportunity where the potential rewards are high, the geological uncertainties are reasonable and understood and our 2004 discovery has reduced the risks considerably. Prospectivity is good, our equity is high, and there is the potential to provide significant reward for Premier. Planning at least one exploration well in Highlights Discovering oil in Sinapa-2 during 2004 providing follow up potential in 2005 Proving that there is a hydrocarbon system Interests Sinapa Esperança Deeper water acreage blocks 7a and 7b Overview In southern Gabon we have three blocks and are exploring for reservoirs underlying a regional salt seal. The state of the art technology used in 2004 will help clarify prospectivity in this technically challenging area. We have wells planned for Highlights Acquisition of Iris and Themis blocks Acquired 400 sq km of 3D seismic over Themis Identified prospects for the 2005 drilling programme Interests Dussafu Iris Themis Interests PSC A PSC B 2 Premier Oil Summary Review 2004

5 South Asia South East Asia Pakistan India Indonesia Vietnam Overview Premier has been exploring since the late 80s and has built a successful production business. Pakistan represents approximately one-third of Premier s global production business, and we are delivering gas into a rapidly growing and developed market. Highlights Commencement of production from Bhit and Zamzama Bhit gas field reserves up-graded Awarded Jhangara exploration block plan to drill the Maliri gas prospect, close to the Bhit field in 2005 Completion of successful tie-in at Kadanwari gas field, within 12 months of Kadanwari West discovery Signature of term sheet for additional sales from Zamzama Interests Bhit Jhangara Kadanwari Qadirpur Zamzama Overview We have two exploration blocks in north east India and are continuing to seek further opportunities. In the Jaipur block in Assam, we are exploring at the edge of existing fields using technology that we developed in Pakistan, and will begin drilling in early The Cachar block, east of Bangladesh, has similar structures to those in Bangladesh where large accumulations of gas have been discovered. Highlights Commenced the Lakkhi-1 well in Jaipur Farmed out equity in the Cachar block as part of risk management process Completed 230km of 2D seismic in hilly jungle terrain in Cachar Worked with Hanover University to develop proprietary technology to process the Cachar seismic Interests Cachar Jaipur Overview We entered the market in 1996 with the acquisition of Natuna Sea block A PSC. We have grown the business through exploration, appraisal and the commercialisation of gas. Indonesia now represents one-third of Premier s production and 45 per cent of our booked reserves. Highlights Gas exports to Singapore grew throughout the year Implementing ISO14001/OHSAS19001 safety and environmental management systems Successfully appraised the Gajah Baru discovery Four wells were drilled in 2004 including a successful workover programme on the Anoa field Commenced development of the West Lobe Interests Kakap block Natuna Sea block A Overview During 2004 we acquired acreage in the under-explored southern Nam Con Son basin by farming into four blocks that are geologically similar to our Indonesian acreage. We have opened an operating office in Ho Chi Minh City from where we will manage our first exploration well during Highlights Acquisition of 75 per cent operating interest in blocks 12E and 12W which already has the Dua oil and gas discovery Shooting 1,500km of 2D seismic in blocks 7 and 8/97 Option to acquire up to 67.5 per cent working interest in the adjacent blocks 7 and 8/97 3D seismic survey underway over the Dua discovery, to be followed by further exploratory drilling later this year Interests Blocks 7 and 8/97 Blocks 12 East and 12 West Premier Oil Summary Review

6 Production and reserves Our booked reserves are independently reviewed, and are 80 per cent gas, providing a long-term production profile underpinned by gas supply contracts. Our reserve life is over 15 years, and production is planned to grow towards 40 mboepd over the next few years, providing the cash flow to fund our exploration programme. Bhit Pakistan During the year reserves estimates at the Bhit field were significantly increased by integrating production and geological data from the field. Wytch Farm UK Continued infill drilling programme increased production and extended field life. Anoa Indonesia Production from Indonesia was increased due to higher than forecast offtakes of gas in Singapore. 4 Premier Oil Summary Review 2004

7 Exploration and appraisal Our growth will continue to come through exploration with risk spread across a portfolio of prospects. We are investing approximately US$50 million per annum worldwide in 12 to 18 wells, based on good rocks and good commercial terms, and using advanced technologies. Lakkhi-1 India We have recently commenced exploration drilling in Assam as part of our push to develop our Indian business. Sinapa-2 Guinea Bissau Sinapa-2 well successfully proved the existence of an oil play that will be further evaluated on adjacent prospects in Chinguetti Mauritania Exploration success in 2004 provides much encouragement for our 2005 drilling programme. Premier Oil Summary Review

8 Our strategy Robin Allan Director of Business Development and Simon Lockett Chief Executive 6 Premier Oil Summary Review 2004

9 Our strategy is to add significant value per share through exploration and appraisal success, helped by astute commercial deal-making and asset management. What is unique about Premier? Our strong balance sheet and long-term production assets finance our investment in organic growth from exploration projects. We are not targeting being big as such. Rather we re concerned with increasing shareholder value. We aim to use our creative commercial and scientific skills to generate extraordinary value per share growth. Two years ago we came out of our major corporate restructuring. This put Premier on a new path, focusing on exploration and commercial deal-making success. In a relatively short time, we have put together an exploration portfolio that gives us access to company maker type prospects. We have achieved this by having people on the ground who recognise the opportunities and have the entrepreneurial skills and corporate backing to capture them. We will continue to build in and around our existing businesses concentrating on places where we can compete, and in areas where we can manage the technical risks. Our business will be led by organic growth from exploration, and by selective exploitation of commercial opportunities where we see a clear path to add value using our skills and technology. Premier Oil Summary Review

10 Strong cash flow and balance sheet Premier is in an exceptionally strong position financially. Four years ago we had net debt of US$730 million and gearing of over 150 per cent. Going into 2005, we have no gearing and cash generation from our existing production assets that more than covers our exploration programmes and development expenditures. In 2004, we have more than replaced the reserves produced. In addition to the booked reserves, that are independently reviewed, we have additional hydrocarbons in the ground that we are in the process of appraising/commercialising, including oil in Tiof and Tevet in Mauritania and additional gas in Pakistan and Indonesia. The existing base business has long-term production generation of over 30,000 boepd, divided between Indonesia, Pakistan and the UK. Production is set to grow through the addition of new assets in Mauritania, and rising gas demand in Pakistan and Indonesia where the bulk of our gas reserves are located. 8 Premier Oil Summary Review 2004

11 Tour of operations UK Mick Jackson Business Unit Manager and Nick Werb UK Asset Manager Mick runs our non-operated production business and has a close-knit team to assist him. Within the team, Nick has responsibility for the UK producing assets. Chris Johns Chief Geologist and Neil Hodgson Group Head of Exploration Chris ensures the technical quality of our geological projects. Neil is responsible for all of Premier s exploration projects wordwide. UK production in 2004 represented 34 per cent of group working interest production. Production is from Wytch Farm in Dorset and the central North Sea including Kyle and Fife areas. UK reserves of 25 mmboe represent 14 per cent of total group booked reserves. The UK has a favourable political and fiscal regime and is currently a primary source of cash flow. There is remaining potential to increase production, and we will be exploring new acreage in the central and southern North Sea in Our key objectives are to provide cash flow for the business to fund exploration in other areas, and to add value from in-fill drilling and other projects to extend field life and defer abandonment. Over time the UK will decline, and our job is to optimise the future returns and take advantage of commercial deals when opportunities arise. Infill drilling with multi-lateral side tracks at Wytch Farm, in the offshore area under Poole Bay, arrested the natural decline in the field s production. A further three new infill wells in the offshore area are planned in 2005 and a project to enhance oil recovery by injection of low salinity water is also being progressed. Following negotiation with the Banff operator in 2004, the Kyle partners further agreed to tie-back the remaining Kyle wells to the Banff FPSO, and this is expected to take place this summer. As a result of this negotiation an all inclusive processing and transportation tariff has been agreed which will substantially reduce operating costs and allow the extension of field life up to end Plans for a compression upgrade at Banff, gas lift of wells and further infill drilling are also under consideration. Premier Oil Summary Review

12 Strength and depth of management teams We pride ourselves on being not just an investor in projects, but also an operator of projects worldwide. With the strength and depth of experience across the board from exploration, appraisal, development, production and crude and gas marketing, we have the capability to put together complex projects in challenging environments and to deliver on those projects. Premier has been operating in Pakistan for 14 years and Indonesia for 10 years. Premier has made a long-term commitment in both countries, and over this period has established substantial businesses that provides corner stones to the Premier group. We develop people within the organisation who have both general and specialist knowledge in the business areas in which we are operating. We encourage creative people men and women, with a pioneering spirit, who thrive on fresh challenges and ideas. 10 Premier Oil Summary Review 2004

13 Tour of operations Indonesia Agustav Uktolseja Field Production Supervisor and Jim Easton Head of Field Operations Agustav is responsible for maintaining production. Jim has overall responsibility for the running of the platform and FPSO. Triono Rahardjo Deputy Project Manager and Ron Aston Country Manager Triono is responsible for government liaison for all development project activities. Ron has overall responsibility for the Indonesia business and is based in our Jakarta office was an excellent year for gas exports from our facilities to Singapore. Gas exports achieved record levels in the year, with the average daily off-take by SembGas even exceeding the maximum contracted quantity during the fourth quarter. Pre-planning for the Anoa West Lobe development drilling campaign in 2006 continued in 2004 with an order in December for equipment required for drilling the first three platform wells. The design and procurement processes for the West Lobe Wellhead platform are due for completion in the first quarter of 2005, with fabrication work due to begin in August 2006 and production from West Lobe scheduled in August One of the technological achievements of the Gajah Baru-2 well was the use of Drilling with Casing technology over a world record depth. The introduction of such drilling innovations allowed us to keep drilling costs to a minimum. Commercial negotiations for further gas sales to Singapore continued during the year. Recently, talks have resumed regarding the possibility of export into Malaysia and we are also considering potential domestic opportunities in Indonesia. The safety record of the Anoa-AGX operation remains world class. Three production workover wells were safely drilled and there was a further successful exploration and appraisal well drilled in the Gajah Baru prospect. Gajah Baru-2 significantly increased proven reserves on the structure. The Gajah Baru field will be developed as soon as purchase agreements for these gas reserves are in place. Premier Oil Summary Review

14 Firmly back in the exploration business Since the restructuring of Premier in 2003 we are now firmly back in the exploration business. It is our passion to participate in exciting high reward exploration wells and we are continuing to build a portfolio of exploration opportunities. Growing shareholder value will not necessarily require us to grow the scale of our business. We will ensure that we have sufficient cash flow to fund our exploration activities. But we want to remain of a size where exploration success continues to matter. Exploration is a risky business with an industry success rate of between one in five and one in ten wells. We set our benchmarks much higher and, in 2003 and 2004, have achieved over 50 per cent success with exploration and appraisal wells. 12 Premier Oil Summary Review 2004

15 Tour of operations Pakistan Mazhar Farooq General Manager and Bob Pelling Drilling Superintendent Mazhar heads up the Premier Pakistan exploration organisation, based in Islamabad. Bob Pelling will be managing the drilling of the Maliri-1 well later in Masood Siddiqui Chief Executive Officer and Tanweer Aizad Chief Petroleum Engineer Masood heads up the Premier-Kufpec joint venture (PKP). Tanweer is responsible for petroleum engineering. Premier s exploration efforts in Pakistan have led to the development of a number of commercial fields over the past 14 years. Our production during 2004 rose again, due to completion of Phase 1 of Bhit and Zamzama field developments, and the expansion of Qadirpur s plant capacity from 400 to 500 mmscfd, which was completed in March A term sheet for the sale of 150 mmscfd high calorific value gas has been initialled by the gas buyer Sui Southern Gas Company Limited (SSGCL) and JV partners for the Zamzama Phase 2 development. First Phase 2 gas is expected in mid The Zarghun South Development and Production lease was signed with the Government of Pakistan. Premier s interest is to be carried by the operator during the development and production phases of the field. SSGCL and the joint venture has also initialled a draft gas sales agreement for the supply of 22 mmscfd, which is in the process of formal approval. Production is expected in mid Production from the Kadanwari field has been supported by the completion of the tie-back of the successful exploration well Kadanwari West-1 at the start of Another well in the Kadanwari West area is planned for Following successful appraisal of the Badhra field in the Kirthar licence south-east of Bhit, a Development and Production lease was awarded in Development of the Badhra reserves is now planned along with Bhit Phase 2, with expected gas production during Studies for the Bhit plant capacity enhancement are also underway. Premier Oil Summary Review

16 Technical excellence Our work encompasses two broad areas operations and exploration, each having its own personnel requirements: Operations need highly skilled, very experienced people. Premier s track record in developing, as operator, the Yetagun gas project offshore Myanmar and the West Natuna Sea gas project offshore Indonesia demonstrates we have people with great competence in this area who focus on getting it right first time. Technical excellence is key to both operational and exploration success. In operations, getting facilities designed to maximise safety, maximise control and maximise our reserves. In exploration, we strive to be at the cutting edge of technology. Exploration in a competitive market it is creativity that makes the bold and successful company. We encourage our explorers to comprehensively evaluate geological risks and then make recommendations that are needed to find new oil fields. 14 Premier Oil Summary Review 2004

17 Tour of operations New business Wayne Spencer New Ventures Manager for SE Asia and Phil MacLaurin Exploration Manager for SE Asia Wayne seeks out high quality new opportunities for Premier which are then handed over to Phil to manage. Rob Marshall Country Manager with Dr Bodapati Naidu Senior Geologist Rob heads up our India operations from our office in Delhi. Bodapati is responsible for monitoring the Lakkhi-1 well which is currently drilling. There are two sides to our new business activities. We look for both new areas to explore and new appraisal opportunities, in addition to production acquisitions of existing fields. In 2005, we will be placing more emphasis on this type of value-adding commercial deal. In 2004, we entered three new countries Egypt, the Philippines and Vietnam. We are conscious of not wishing to spread ourselves too thinly, but while Premier has not worked in Egypt before, many of our staff have. This breadth of experience enables us to explore parts of the world in which the company itself has not previously operated. Early in 2004, we farmed into the North West Gemsa concession, operated by Vegas Oil, onshore Gulf of Suez. We started our first exploration well in December We also completed two farm-in deals on blocks in Vietnam in the first quarter of The first, blocks 12E and 12W in the south Nam Con Son basin, gave us equity in an area which already contains oil and gas discoveries. The geology of these blocks is very similar to that of the Natuna Sea in neighbouring Indonesia where we have ten years of continual exploration experience. Building further on our Asian portfolio, our acquisition of the Ragay Gulf block in the Philippines was approved early in This underexplored block, operated by Premier from Singapore, has been accessed at low cost and has the playmaking potential for oil prospects. Premier Oil Summary Review

18 Respect for people and environments Corporate Social Responsibility (CSR) is a core part of Premier s business. We consider it our social licence to operate and it is embedded in our corporate strategy. It is also part of our performance management, and is one of the objectives against which we are measured. In 2004, we continued to engage with stakeholders on community development initiatives, transparency, human rights, identifying risks and related issues. We focused on three key areas: To remain an industry leader in the sustainable development arena We want to remain one of the top 50 companies in the world for reporting CSR, and are also one of the few oil and gas businesses that attracts investment from socially responsible investment funds. To continue to plan, and deliver, positive social and environmental impacts This means working to understand the impact of each stage of the oil and gas lifecycle to ensure that the outcome always leaves behind more positives than negatives. Examples of what we have achieved are on our website: To work in partnerships to multiply these positive impacts In each of the countries in which we operate we work with internationally recognised agencies the United Nations, Save the Children US, Voluntary Service Overseas to support programmes of real benefit including sanitation, education and biodiversity. 16 Premier Oil Summary Review 2004

19 Addresses Registered Office Premier Oil plc Registered No Scotland 4th Floor Saltire Court 20 Castle Terrace Edinburgh EH1 2EN Head Office Premier Oil plc 23 Lower Belgrave Street London SW1W 0NR Tel: +44 (0) Fax: +44 (0) Auditors Deloitte & Touche LLP Hill House 1 Little New Street London EC4A 3TR Solicitors Slaughter and May One Bunhill Row London EC1Y 8YY Stockbrokers Deutsche Bank AG London 6th Floor, Winchester House 1 Great Winchester Street London EC2A 2DD and Cannacord Capital (Europe) Ltd 1st Floor, Brook House 27 Upper Brook Street London W1K 7QF Registrars Computershare Investor Services PLC Lochside House 7 Lochside Avenue Edinburgh Park Edinburgh EH12 9DJ Designed and produced by williams and phoa. Photography by Mike Abrahams and Mike Goldwater. This report is printed on paper produced in a totally chlorine free process from up to 50% pre and post consumer waste. The paper mill has achieved accreditation to the environmental standard ISO Premier Oil Summary Review

20 Premier Oil plc 23 Lower Belgrave Street London SW1W 0NR Telephone: +44 (0) Fax: +44 (0)