Premier Oil encouraged by Mexico partner's drilling

Talos Energy, the operator of Block 7 offshore Mexico, where Premier has a 25% equity interest, has revealed that the Zama-2 well had encountered the oil reservoir at 3,279 metres with 152 metres of net pay before the oil water contact. This was in line with pre-drill estimates based on the drilling of the first Zama well.

Based on a full set of wireline, core and pressure data along with fluid samples the net-to-gross ratio, comparing reservoir to non-reservoir, was 73% compared to 63% at Zama-1, with Talos confirming that the reservoir quality was similar.

Premier chief executive Tony Durrant said the second well "enhances our interpretation of the large Zama discovery and increases our confidence in our resource estimates".

With the Zama appraisal programme progressing ahead of schedule and currently under budget, Zama-2 will now be side-tracked up-dip and flow tested as planned.

Shares in Premier, which in late December fell below 60p for the first time since September 2017, continued their recent rally with a further 4% gain to 70.97p on Thursday morning.

Peel Hunt analyst Werner Riding said the net-to-gross info "ought to bode well from an overall volumetric standpoint" and summarised the situation: "Beyond appraising the Zama discovery, the decision was taken to deepen the well and test the secondary exploration objective comprising the Marte prospect. It was indicated that reservoir was intercepted on prognosis but that no hydrocarbons were present. In terms of next steps, an up-dip side-track will now be drilled to acquire additional data and to carry out a drill stem test (flow test), all important requirements of the appraisal programme that will help inform a future development plan."