Medium-sized is beautiful, says Premier Oil

Oil and gas firm Premier Oil racked up record post-tax profits in 2012, which the group said demonstrated that there is a role for energy companies of its size, but debt rose significantly as the group continued to grow through acquisition.

Total sales revenue from all operations reached a new record level of $826.8m, up from $763.6m, driven by higher commodity prices. The cost of sales was lower $414.9m, versus 2010's $530.5m, mainly reflecting a $25.9m impairment reversal against a $65.3m charge in 2010, due principally to the sustained high oil price environment, which necessitated an increase in the base price assumption used for the valuation of future cash flows.

Pre-tax profits shot up to $141.5m from $100.8m in 2010, but the figure is boosted by a positive adjustment of $34.0m in respect of the group's commodity hedge portfolio (2010: +$38.6m). This was driven by the unwinding of prior year provisions in respect of Premier's oil and gas hedges.

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Profit after tax was a record $171.2m, up from $129.8m in 2010, resulting in basic earnings per share of 36.6 cents (2010 restated: 28.0 cents).

Year-end net debt stood at $744.0m, versus the end-2010 figure of net debt of $405.7m, giving rise to gearing of 30% (2010: 26%). The group still has undrawn lending facilities of just over $800m, plus just over $300m cash and cash equivalents in hand.

Unit operating costs were $15.90 per barrel of oil equivalent (boe) (2010: US$13.90/boe) reflecting higher unit costs in the UK, as production levels declined, and the inclusion of Vietnam operating costs in the last quarter.

Brent crude prices averaged $111.30 a barrel for the year, against $79.50 a barrel in 2010. Premier's portfolio of crude sells at an average of $1.50 a barrel premium to Brent. After taking into account the effect of long-term hedging contracts, the average oil price realised by Premier for 2011 was $89.60 a barrel, up from $78.3 a barrel the year before.

By the end of the year the group was churning out 60,000 (60k) barrels of oil equivalent per day (boepd), in line with guidance given to the market. Average production over the course of the year was down to 40.4k boepd from 42.8k boepd in 2010.

The group is sticking with its 2012 guidance of production of around 60k to 65k boepd, with the group targeting a production rate of 75k boepd by the end of the year.

An exploration programme of up to 20 wells is planned for 2012, targeting 200m barrels of oil equivalent of unrisked potential. The group said it has made an encouraging start with successes in Indonesia and Pakistan.

"Our exploration and acquisition teams are focused on accessing further profitable growth opportunities. We are in our strongest ever financial and operational position to take advantage of such opportunities as they emerge," stated Mike Wilson, Chairman of Premier Oil.

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