Oil and gas explorer Premier Oil has scaled back its Sea Lion oilfield project north of the Falklands after it struggled to find a partner for the project.
Weak oil prices have also put pressure on the company to cut costs.
But new projects will be sanctioned by Premier if they are “robust” at a long-term oil price of $85 a barrel, it said yesterday as the price of a barrel of Brent crude slid below $80.
The London-listed oil firm now plans to develop fewer wells on Sea Lion for less than £1.27billion of project capital expenditure (capex), compared with around £2.54billion initially expected for the larger project.
“The new lower oil price environment and our commitment to maintaining a strong financial position has caused Premier to re-examine the scheme, with a view to reducing the capex,” the firm said in its third-quarter results statement.
The smaller project, expected to recover 160million barrels of oil in 15 years, may make it easier to attract an investment partner due to the lower financial contributions needed.
Premier Oil’s partner on the Sea Lion project, Rockhopper, said in a separate announcement that first oil was expected to flow from the field in 2019.
Premier chief executive Tony Durrant, who was promoted from chief financial officer in June, said he expected his firm’s full-year production to climb above the high-end of a 58,000-63,000 barrels-per-day target.
He added: “Despite external market volatility, 2014 has seen strong operational performance from Premier as we continue to deliver on the key targets communicated to investors earlier in the year.
“New projects will be sanctioned if they are robust at our long-term oil price, which is currently $85 (per barrel).
“This includes a phased, lower capex for Sea Lion.”
Premier’s production so far this year has averaged 64,000 barrels per day, mainly thanks to higher output from UK and Vietnamese fields.
The Premier-operated Balmoral area of the UK North Sea “continues to exceed expectations”, the firm said yesterday, adding: “The annual summer maintenance programme was completed in September and operating efficiency is now significantly above that achieved in 2013.”
The Premier-operated Catcher project, which achieved UK Government sanction in June, is progressing with construction of the floating, production, storage and offloading vessel hull targeted to start early next year.
Premier said its previously announced sale of stakes in the Scott, Telford and Rochelle fields to Hungary’s MOL was expected to complete soon.
The firm said it was in a strong hedging position to shield its business from falling crude prices.
For the fourth quarter, the company has sold forward 1.4million barrels of dated Brent oil at an average price of $102.9 per barrel.
Mark Henderson, analyst at stockbroker Westhouse Securities, said: “This is a solid update from Premier against the backdrop of weak oil prices.
“The adjustment to the planned Sea Lion development makes sense.”
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