Premier has been part of the North Sea since 1971 but has never had offices in Aberdeen, or at least until now. The $500million purchase of the assets of Oilexco North Sea, which was concluded in May, changed that.
Its profile has been relatively low; investment pundits have, from time to time, accused it of lacking direction and boldness, yet it has some notable successes, including being a stakeholder in the BP-operated Wytch Farm field since 1984, with further investment planned. But the Oilexco deal has unquestionably rejuvenated the company’s North Sea presence; moreover, it is sufficiently well resourced to finance/raise the money for future developments, presumably without too much difficulty. Until the deal, Wytch Farm was the cornerstone of Premier’s North Sea business and, for some years, the overall group.
Tasked with taking the company forward on the UK Continental Shelf is Nigel Wilson, North Sea business unit manager.
The company has lately taken a number of strategic steps, such as raising its stake to about 23% in the Scott field by taking out the Hess stake.
“This happened just before the increase in oil prices a couple of years ago, so the timing was just right,” said Wilson.
“For us, there’s what we call the Scott area strategy … with the Oilexco deal we have some assets situated around Scott which are natural tiebacks to that platform. We’ve also got production from Kyle (operated by CNR. It has really been these three producing assets (Wytch Farm, Scott and Kyle) – what we call Premier North Sea – that have been the focus. But they’re non-operated and you can run those from anywhere. It’s the Oilexco deal that’s brought us to Aberdeen as a physical presence and, so far, it has been a good investment for us.
“However, the deal was becoming more and more difficult to do just because of the financial crisis. The timing of it, the ability of a company the size of Premier to fund it when we were having the worst financial crisis in our history tells you something about the achievement.”
But how competitive was the deal and how good are the assets, bearing in mind the way in which Oilexco’s president, Arthur Millholland, talked up the Huntingdon discovery but that early-2009 gossip around Aberdeen was that it might be 30million barrels of oil at best?
“At the end, we knew there were about four serious companies in play,” said Wilson.
“It was quite interesting … the whole aura of a company in administration, the swirl around Huntingdon, especially, as people went to the data-room to find out. I think quite a lot of companies were put off. When we started the process, we were looking at selecting assets rather than bidding the package. But we realised that if you were going to win it you had to bid everything because that is what the administrators wanted.
“Huntingdon will eventually be what it will be, but it remains important for us,” said Wilson, hinting at a several tens of millions of barrels development.
“We have just gone out to the market for a floating production, offloading and storage vessel option, with bids due in at the end of November. We’re looking at all sorts of options for Huntingdon, including exporting across BP ETAP.
“The FPSO market is in quite an interesting place at the moment and there are a number of vessels that could probably do the work.”
Timescale? Premier and its partners in this asset are seeking project sanction in 2010 with first oil in 2012, based on a four-five well development.
It is one thing carrying out due diligence prior to buying assets such as Oilexco’s, but it is only after the money has changed hands that the buyer can build the real picture. Were there any nasty surprises for Premier, bearing in mind that this was a less than perfect data-room process?
Wilson: “There are some assets that have disappointed and some that have surprised us. We didn’t put a lot of value on the exploration pieces of the package but, six months later, we’re now very enthusiastic about the potential.
“Regarding the Shelley field, we had no idea what it was going to do. But once we got it onstream, we renegotiated the (production) contract (with Sevan Marine) that was in place to ensure commercial protection for Premier and that other parties weren’t hurt too badly. Shelley will never be anything like what was expected, but it’s producing about 5,000 barrels per day and will continue through the next year or so. Reserves will probably be 1-2million barrels.”
Turning to the Balmoral asset, Wilson said it was producing in line with expectation, but it had been necessary to carry out work on the platform, notably replacement of some of the still-original risers, with more to go at the next shutdown.
“That was a key risk that we assumed and managed our way out of,” said Wilson.
“The fields coming across Balmoral – Brenda and Nicol – are both producing.
“The nearby Talisman field, Burghley, will be coming across Balmoral as a third-party tie-back during H2 2010, so that will keep the field alive for a bit longer while we look around for more third-party business.
“We have an extensive study of potential tie-backs, probably about 30km radius, and we’ve got to formulate a strategy that makes us the tie-back option of choice.”
Another priority is the Bugle area (Bugle and Blackhorse discoveries), which is regarded as a natural tie-back to Scott. The hope is for appraisal in early-2010, which should firm up reserves and open the door to development. Project sanction is potentially late-2010/early-2011.
The plan is that the foregoing assets will account for a significant slice of Premier’s overall 75,000bpd by 2012, of which the anticipated North Sea contribution should be 37,000bpd, versus 27,000bpd in recent weeks.
Premier is also playing the assets market, having just struck a deal with Canadian company Velo, of which Millholland is president (see Page 1), plus it is looking at further acquisitions.