Premier Oil PLC Annual Financial Report (5332J)

TIDMPMO

RNS Number : 5332J

Premier Oil PLC

07 April 2015

Premier Oil plc (the "Company")

Annual Report and Financial Statements 2014

and Notice of Annual General Meeting 2015

7 April 2015

Further to the release of the Company's Annual Results on 26 February 2015, the Company announces that it has today published its Annual Report and Financial Statements 2014. In addition, the Company has posted to shareholders the Notice of Annual General Meeting ("AGM") 2015. The AGM will be held at the Institute of Directors, 116 Pall Mall, London SW1Y 5ED, at 11.00am on Wednesday 13 May 2015.

In accordance with Listing Rule 9.6.1., copies of the Annual Report and Financial Statements 2014, the Notice of AGM and related form of proxy have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism at www.morningstar.co.uk/uk/nsm. The documents (except for the form of proxy) are also available to view on the Company's website at www.premier-oil.com

A condensed set of financial statements and information on important events that have occurred during the year ended 31 December 2014 and their impact on the financial statements were included in the Company's 2014 Annual Results announcement on 26 February 2015. That information together with the information set out below in Appendix 1, which is extracted from the Annual Report and Financial Statements 2014, fulfil the requirements of DTR 6.3.5. This announcement is not a substitute for reading the full Annual Report and Financial Statements 2014. Page and note references in the text in Appendix 1 are made in reference to the Annual Report and Financial Statements 2014. To view the 2014 Annual Results announcement, visit the Company website: www.premier-oil.com/premieroil/investors

Further enquiries:

Company Secretariat:

   Rachel Benjamin           Tel: [phone] 

Investor Relations:

   Elizabeth Brooks           Tel: [phone] 

Disclaimer

This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. Whilst the group believes the expectations reflected herein to be reasonable in light of the information available to it at this time, the actual outcome may be materially different owing to factors beyond the group's control or otherwise within the group's control but where, for example, the group decides on a change of plan or strategy. Accordingly, no reliance may be placed on the figures contained in such forward-looking statements.

APPENDIX 1

Company Risk Factors (required under DTR 4.1.8)

Premier's business may be impacted by various risks leading to failure to achieve strategic targets for growth, loss of financial standing, cash and earnings, and reputation. Not all of these risks are wholly within the company's control and the company may be affected by risks which are not yet manifest or reasonably foreseeable.

Effective risk management is critical to achieving our strategic objectives and protecting our personnel, assets, the communities where we operate and with whom we interact and our reputation. Premier therefore has a comprehensive approach to risk management as set out in more detail in the Corporate Governance Report.

A critical part of the risk management process is to assess the impact and likelihood of risks occurring so that appropriate mitigation plans can be developed and implemented. Risk severity matrices are developed across Premier's business to facilitate assessment of risk. The specific risks identified by project and asset teams, business units and corporate functions are consolidated and amalgamated to provide an oversight of key risk factors at each level from operations through business unit management to Executive Committee and Board level.

For all the known risks facing the business, Premier attempts to minimise the likelihood and mitigate the impact. According to the nature of the risk, Premier may elect to take or tolerate risk, treat risk with controls and mitigating actions, transfer risk to third parties or terminate risk by ceasing particular activities or operations. Premier has a zero tolerance to financial fraud or ethics non-compliance, and ensures that health, safety, environment and security (HSES) risks are managed to levels that are as low as reasonably practicable, whilst managing exploration and development risks on a portfolio basis.

Significant risk factors during 2014:

   --     Oil price weakness at year-end (weak share price and North Sea impairments); 
   --     Project delivery challenges (schedule and cost); 
   --     Negative market sentiment. 

Significant risk factors for 2015:

   --     Continued oil price weakness 

-- Cash flow and ability to fund existing and planned projects, thereby deliver business strategy

   --     Ability to maintain core competencies 
   --     Political and security instability in countries of current and planned activity 
   --     'Alignment' with JV partners (in particular their ability to fulfil commitments) 
   --     Negative market sentiment 
   --     Potentially accelerated decommissioning liabilities 
   --     Reputational impact if we defer projects 
 
 Key risk factor         Risk detail                  How is it managed?           Key steps to 
                                                                                    mitigate in 
                                                                                    2014/15 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Health, safety,         Major process                Comprehensive                Improved reporting 
  environment and         safety incident              HSES and operations          and response 
  security (HSES)         or operational               management systems           through implementation 
                          accident, natural            including emergency          across the group 
                          disasters, pandemics,        response and oil             of new electronic 
                          social unrest,               spill response               incident-recording 
                          civil war.                   capability and               and action-tracking 
                          Consequences                 asset integrity.             system. 
                          may include accidents        Active security              Improved asset 
                          resulting in                 monitoring and               integrity maintenance 
                          loss of life,                management and               through implementation 
                          injury and/or                regular testing              of new scorecard 
                          significant pollution        of business continuity       methodology 
                          of the local                 plans.                       (covering people, 
                          environment,                 Learning from                plant and process 
                          destruction of               company and third-party      lead indicators) 
                          facilities and               incidents.                   at all operated 
                          disruption to                                             production assets. 
                          business activities. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Production and          Uncertain geology            Geoscience and               Improved production 
  development delivery    and reservoir                reservoir engineering        forecasting, 
  (Of particular          performance leading          management systems,          enhanced reporting 
  significance            to lower production          including rigorous           and monitoring 
  during 2014 -           and reserves                 production forecasting       through in-house 
  Solan, Huntington       recovery.                    and independent              development 
  - and into 2015)        Availability                 reserves auditing            and introduction 
                          of services including        processes.                   of near-real-time 
                          FPSOs and rigs,              Operations, development      production analytics 
                          availability                 and project execution        platform. 
                          of technology                management systems           Improved project 
                          and engineering              and cost controls            planning and 
                          capacity, availability       together with                delivery through 
                          of skilled resources,        capable project              better co-ordination 
                          maintaining project          teams.                       and execution 
                          schedules and                Long-term development        of cross-functional 
                          costs as well                planning to ensure           review prior 
                          as fiscal, regulatory,       timely access                to decision 
                          political and                to FPSOs, rigs               gates. 
                          other conditions             and other essential          Independent 
                          leading to operational       services.                    'lessons learned' 
                          problems and                                              review of Solan 
                          production loss                                           project planned 
                          or development                                            for early 2015. 
                          delay.                                                    Increased ExCo 
                          Consequences                                              engagement on 
                          may include,                                              contractor selection/ 
                          lower production,                                         management. 
                          lower recovery 
                          of reserves, 
                          production delays, 
                          cost overruns 
                          and/or failure 
                          to fulfil contractual 
                          commitments. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Exploration success     Failure to identify          Strong portfolio             Re-organised 
  and reserves            and capture acreage          management and               Exploration 
  addition                and resource                 alignment with               team to improve 
                          opportunities                strategic growth             delivery from 
                          to provide a                 targets. Appropriate         existing portfolio 
                          portfolio of                 balance between              and new ventures. 
                          drillable exploration        growth by exploration        Corporate Exploration 
                          prospects and                and acquisition.             team strengthened 
                          sufficient development       Exploration management       to ensure greater 
                          projects to achieve          systems including            focus on prospective 
                          reserves addition            comprehensive                resource and 
                          targets.                     peer review with             risk assessment 
                          Specific exploration         focus on geologies           (with associated 
                          programmes may               in core areas                enhancement 
                          fail to add reserves         we know well and             of Exploration 
                          and hence value.             in which we can              management system 
                          Failure to negotiate         build a competitive          content). 
                          access rights                advantage.                   Near-field exploration 
                          or close transactions        M&A effort focusing          moved to business 
                          could slow growth            on geographical              unit management 
                          of reserves and              and technical                but with Exploration 
                          production and               areas aligned                function endorsement 
                          lead to loss                 with our strategy.           retained. 
                          of competitive               Diligence in acquisition     Majority of 
                          advantage.                   process and post-            low-impact, 
                                                       acquisition integration      high-risk North 
                                                       to ensure targeted           Sea opportunities 
                                                       returns.                     removed from 
                                                                                    portfolio. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Host government         Premier operates             Premier's portfolio          Improved provision 
  - political and         in some countries            includes operations          of politico-economic/ 
  fiscal risks            where political,             in both low and              security/societal 
                          economic and                 higher risk environments.    risk assessment 
                          social transition            Premier actively             informing investment 
                          is taking place              monitors the local           decisions. 
                          or there are                 situation and                Strengthened 
                          current sovereignty          has business continuity      Corporate Responsibility 
                          disputes. Developments       plans in each                management system 
                          in politics,                 area which can               and improved 
                          laws and regulations         be activated depending       Corporate Responsibility 
                          can affect our               on predefined                reporting. 
                          operations and               levels of alert.             Assessing cost/ 
                          earnings.                    Premier strives              benefit of political 
                          Consequences                 to be a good corporate       risk insurance. 
                          may include forced           citizen globally, 
                          divestment of                and fosters reputation 
                          assets; limits               by strong and 
                          on production                positive relationships 
                          or cost recovery;            with government 
                          import and export            and communities 
                          restrictions;                where we do business. 
                          international                Premier engages 
                          conflicts, including         in respectful 
                          war, civil unrest            industry-wide 
                          and local security           lobby and sustainable 
                          concerns that                corporate responsibility 
                          threaten the                 and community 
                          safe operation               investment programmes. 
                          of company facilities;       Rigorous adherence 
                          price controls,              to Premier's business 
                          tax increases                ethics policy 
                          and other retroactive        and code of conduct. 
                          tax claims; expropriation    Continuous monitoring 
                          of property;                 of the external 
                          cancellation                 environment for 
                          of contract rights;          emerging risks 
                          and increase                 to the business. 
                          in regulatory 
                          burden. It is 
                          difficult to 
                          predict the timing 
                          or severity of 
                          these occurrences 
                          or their potential 
                          impact. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Commodity price         Oil and gas prices           Oil and gas price            Hedging programme 
  volatility              are affected                 hedging programmes           (continued into 
  (Of particular          by global supply             to underpin our              2015). 
  significance            and demand and               financial strength           Economics of 
  in late 2014            price can be                 and to protect               development 
  and into 2015)          subject to significant       our capacity to              programmes re-worked 
                          fluctuations.                fund our future              to reflect low 
                          Factors that                 developments and             oil price environment. 
                          influence these              operations.                  Discretionary 
                          include operational          Premier investment           spend curtailed. 
                          issues, natural              guidelines ensure            Contingency 
                          disasters, weather,          that our development         planning for 
                          political instability,       programmes are               accelerated 
                          or conflicts                 robust to downside           decommissioning 
                          and economic                 sensitivity price            of identified 
                          conditions or                scenarios.                   production assets. 
                          actions by major 
                          oil-exporting 
                          countries. Price 
                          fluctuations 
                          can affect our 
                          business assumptions 
                          and can effect 
                          investment decisions 
                          and financial 
                          capability. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Organisational          Risk that the                Premier has created          Continuous improvement 
  capability              capability of                a competitive                of human resources 
                          the organisation             remuneration and             management systems 
                          is not adequate              retention package            and controls. 
                          to deliver plans             including bonus              Review of long-term 
                          for strategic                and long-term                incentive package. 
                          growth. The capability       incentive plans              Phased function 
                          of the organisation          to incentivise               roll-out of 
                          is a function                loyalty and good             competency management 
                          of both the strength         performance from             system commenced. 
                          of its human                 the existing, 
                          resources and                highly skilled 
                          its business                 workforce. 
                          management systems.          Premier is continuing 
                          Inadequate systems           to strengthen 
                          or lack of compliance        its organisational 
                          may lead to loss             capability to 
                          of value and                 achieve strategic 
                          failure to achieve           objectives. This 
                          growth targets.              includes resource 
                          Loss of personnel            planning, competency 
                          to competitors,              development, training 
                          inability to                 and development 
                          attract and retain           programmes, succession 
                          quality human                planning including 
                          resources and                leadership development. 
                          competency gaps              Continuous strengthening 
                          could affect                 of business management 
                          our operational              systems and controls 
                          performance and              as appropriate 
                          delivery of growth           to the size and 
                          strategy.                    market position 
                                                       of the company. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Joint venture           Global operations            Due diligence                Heightened engagement 
  partner alignment       in the oil and               and continuous               with joint venture 
                          gas industry                 and regular engagement       partners with 
                          are conducted                with partners                regard to their 
                          in a joint venture           in joint ventures            ability to fulfil 
                          environment.                 in both operated             commitments. 
                          There is a risk              and non-operated             Implementation 
                          that joint venture           projects. Premier            of new non-operated 
                          partners are                 takes strategic              ventures management 
                          not aligned in               acquisition opportunities    system. 
                          their objectives             where appropriate 
                          and drivers and              to gain a greater 
                          this may lead                degree of influence 
                          to inefficiencies            and control. 
                          and/or delays. 
                          Several of our 
                          major projects 
                          are operated 
                          by our joint 
                          venture partners 
                          and our ability 
                          to influence 
                          our partners 
                          is sometimes 
                          limited due to 
                          our small interest 
                          in such ventures. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 Financial discipline    Risk that sufficient         Strong financial             Economics of 
  and Governance          funds are not                discipline and               investment decisions 
  (Of particular          available to                 balance sheet.               and development 
  significance            finance the business.        Premier has an               projects re-worked 
  in late 2014            Risk of financial            established financial        to reflect low 
  into 2015)              fraud.                       management system            oil price environment. 
                                                       to ensure that               Deferred discretionary 
                                                       it is able to                exploration 
                                                       maintain an appropriate      spend. 
                                                       level of liquidity           Contingency 
                                                       and financial                planning if 
                                                       capacity and to              development 
                                                       manage the level             projects deferred 
                                                       of assessed risk             (Vette, Sea 
                                                       associated with              Lion). 
                                                       the financial                Reduction of 
                                                       instruments. Premier         contractor spend. 
                                                       maintains access             Contingency 
                                                       to capital markets           planning for 
                                                       through the cycle.           right-sizing 
                                                       The management               and re-structuring 
                                                       system includes              of group to 
                                                       policies and a               deliver business 
                                                       delegation of                goals. 
                                                       authority manual             Careful management 
                                                       to reasonably                of covenant 
                                                       protect against              headroom on 
                                                       risk of financial            the group's 
                                                       fraud in the group.          debt facilities. 
                                                       An insurance programme 
                                                       is put in place 
                                                       to reduce the 
                                                       potential impact 
                                                       of the physical 
                                                       risks associated 
                                                       with exploration 
                                                       and production 
                                                       activities. In 
                                                       addition, business 
                                                       interruption cover 
                                                       is purchased for 
                                                       a proportion of 
                                                       the cash flow 
                                                       from producing 
                                                       fields. Cash balances 
                                                       are invested in 
                                                       short-term deposits 
                                                       with minimum A 
                                                       credit rating 
                                                       banks, AAA managed 
                                                       liquidity funds 
                                                       and A1/P1 commercial 
                                                       paper, subject 
                                                       to Board approved 
                                                       limits. 
----------------------  ---------------------------  ---------------------------  -------------------------- 
 

Key Performance Indicators (required under DTR 4.1.9)

Premier measures its performance in line with its strategic objectives of growing the value of the underlying assets of the business and creating significant returns for shareholders in a safe and responsible manner. Despite the challenging conditions faced in the sector in 2014 Premier continued to deliver on a number of its key metrics.

Operating safely

Premier believes that all accidents are preventable. Premier recognises that its operations by their very nature have the potential to cause major accidents and is committed to managing them in order to provide a high level of protection to its employees, contractors, visitors, neighbours and the environment.

In 2014 Premier completed its new health, safety and environment (HSE) management system, bringing it in line with the ten elements system under the revised International Association of Oil & Gas Producers (IOGP) framework. A new accident and incident reporting system was also introduced across the company which, once fully implemented, will provide an improved centralised reporting function.

Health and safety performance is measured using a number of metrics including total recordable injury rate (TRIR) per million man-hours. Safety performance data includes both Premier employees and contractors. In 2014, Premier achieved a TRIR performance of 1.5 per million man-hours (2013: 3.4), a 57 per cent decrease on 2013. Despite a period of intense construction activity, the UK Business Unit's TRIR fell to a historical low of 2.0 and both the global production operations and drilling functions achieved a TRIR in line with the 2013 IOGP average (2013 IOGP Safety Performance Indicators Report).

Building a strong production base

Premier aims to maximise production from its existing asset base and, over time, to deliver production growth. This is measured using daily average production and the number of development projects being brought through to sanction. Average daily production in 2014 was 63.6 kboepd, up 9.3 per cent on 2013 and a record for the group.

Premier's production growth is underpinned by a pipeline of development projects being progressed through the portfolio, and the ability to commercialise and bring on-stream these projects is key to the company's success. In 2014, Premier achieved first oil from the UK North Sea field Kyle, following the completion of the reinstatement project, from the Dua oil field in Vietnam and from the Naga gas field in Indonesia. We also sold gas for the first time into Indonesia under the new Domestic Swap Agreement. In addition, the Solan and Pelikan projects were progressed towards first oil and gas in 2015 while the Catcher project received government approval and is now in the execution phase. Decisions on the development of the next phase of growth projects, including the Vette and Sea Lion fields, are expected to be taken over the next 12 months.

Shareholder returns

A key metric by which Premier's growth performance is measured is the compound annual growth rate in NAV per share. Premier targets a 10 per cent growth in NAV per share per year. Average NAV per share growth since 2005 fell in 2014, the first recorded reduction since the target has been introduced. This was primarily driven by opting for a lower capex solution for the Sea Lion project. The new concept will aim to develop over half of the original reserves for less than half the cost. Despite improving the internal rate of return of the project the consequence of a smaller development (and indeed the effect of phasing a second stage of development) is a natural reduction in the NAV of the Sea Lion project.

Premier, however, recognises that its share price does not always reflect the value of the underlying assets of the business. In these instances, and after balancing the capital needs of the business, Premier will look to return surplus cash flows to shareholders via distributions. In 2014 Premier paid a dividend of 5 pence per share and completed a US$93 million share buyback programme.

Delivering growth

Premier looks to access projects that will create future growth through successful exploration and selective acquisitions. This ambition is measured by reserve replacement, risked prospective resource added and finding costs.

Reserves and resources at the end of 2014 were 794 mmboe (2013: 794 mmboe). The impact of production and the 2014 disposal programme (the Scott area assets in the UK North Sea and the Luno II discovery offshore Norway) on Premier's reserve and resource base was offset by the booking of the Vette field as 2P reserves and the Kuda/Singa Laut discovery in Indonesia. The sale of Block A Aceh in Indonesia was completed in 2015 and the adjustment will therefore be made in the current year.

2014 was a successful year for Premier's exploration teams with two discoveries adding more than 100 mmboe of resource at a pre-tax finding cost of less than US$2/boe.

Maintaining financial strength

A key strategic objective of the group is to maintain financial strength in order to invest in the future of the business and deliver significant returns to shareholders. Despite the difficult macro environment and declining oil price the company registered a strong operating cash flow in 2014 of US$924.3 million (2013: US$802.5 million).

Premier's portfolio of crudes was sold at an average of US$98.2/bbl (2013: US$109.0/bbl). Realised average gas prices, a significant portion of which tracks oil price movement, achieved US$8.4 per thousand standard cubic feet (mscf) in 2014 (2013: US$8.3/mscf). Operating costs per barrel of oil equivalent (boe) reduced to US$18.8 in 2014 (2013: US$19.7/boe). This reflects higher operating efficiency as well as one-off credits in Vietnam and Indonesia totalling US$20 million.

Premier's cash flows, which are protected by a rolling forward hedging programme, together with the refinancing of the company's principal credit facility in 2014, ensure that the group has significant liquidity to fund its capital investment programme going forward.

Directors' responsibility statements (required under DTR 4.1.12)

The directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

Group financial statements

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) and Article 4 of the International Accounting Standards (IAS) Regulation and have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period.

In preparing the parent company financial statements, the directors are required to:

   --     select suitable accounting policies and then apply them consistently; 
   --     make judgements and accounting estimates that are reasonable and prudent; 

-- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

In preparing the group financial statements, International Accounting Standard 1 - 'Presentation of Financial Statements' - requires that directors:

   --     properly select and apply accounting policies; 

-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

-- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

   --     make an assessment of the company's and group's ability to continue as a going concern. 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website (www.premier-oil.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors' responsibility statement

We confirm to the best of our knowledge:

1. the group financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

2. the Strategic Report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

3. the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

Tony Durrant

Chief Executive Officer

Richard Rose

Finance Director

This information is provided by RNS

The company news service from the London Stock Exchange

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