Premier Oil says exceeding production forecast but capex to be cut

Premier Oil said it was cutting full year capital expenditure to cope with a lower oil price environment that is hitting revenues across the sector, with further cuts expected next year.

In a trading update, Premier said production averaged 57,000 barrels of oil equivalent a day (bpd) to the end of October, down from 64,000 bpd last year but in line with expectations and ahead of full year guidance of 57,000 bpd.

Development capital expenditure will fall to $850m (£560m) from previous guidance of $900m as some costs are phased into 2016. Exploration spend will fall to $200m from $240m as completion of a drilling programme in the Falklands moves into next year.

“Planned capital expenditure is anticipated to be substantially lower in 2016, reflecting the completion of the Solan development and limited committed development expenditure beyond the ongoing Catcher project.” the company said.

Cost savings will see 2015 operating expenses of around $16 per barrel, a reduction of over $100 million year-on-year. Total development and exploration expenditure in 2016 (including deferrals from 2015) is expected to be c $650 million, but remains subject to ongoing budget discussions.

Chief executive Tony Durrant said Premier continued to benefit from stable production and valuable hedging contracts.

“Commissioning on the Solan project progressed well during good autumn weather and the field remains on track for first oil by year-end. The Catcher project is on schedule and on budget. Looking ahead, we see reduced capital expenditure and significant cost reductions for both our current and future projects to mitigate the current oil price environment," he said.