Lowered Production Guidance For Premier Oil PLC

Premier Oil (LSE: PMO) reported average daily production in the first half of the year essentially on target, with guidance of 58,000 to 60,000 barrels of oil equivalent (boe) per day. However, the company lowered its guidance for production this year to 63,000 from previous expectations of 65,000 to 70,000.

The reduced guidance is a result of issues at the Huntington field, in which Premier has a 40% stake but which is operated by E.ON Exploration. Huntington produced first oil in April and was expected to ramp up to 25,000 to 30,000 boe per day. However, issues with the gas export system have delayed the increase in production, though the problem has been addressed and management is now looking for 20,000 boe per day to be achieved shortly.

Elsewhere and on a happier note

Premier’s operations in Asia appear to be doing better as its Vietnam and Pakistan wells are producing ahead of expectations and the Anoa Phase 4 development project in Indonesia is expected to start contributing to production this autumn. Five other projects are expected to come on line this year or next.

In May, the company reported going four for four with its first-half scheduled exploratory drilling and there are another nine wells to be drilled later this year, mostly in Vietnam and Pakistan.

Taking control

Also announced this morning was the acquisition by Premier from BG Group‘s Norwegian subsidiary of a further 10% stake and operatorship in the Bream field on the Norwegian Continental Shelf. Additionally Premier sold a 30% stake (it previously held 80%) in the nearby Mackerel discovery to the Kuwait Foreign Petroleum Exploration Company (KUFPEC) for $5 million. Tullow Oil has a 20% stake in both operations.

Premier’s shares have tumbled 14% since early May along with fellow North Sea explorer EnQuest in part because of weakening oil prices but also because the market was sceptical of the company’s production targets.

Such is the life for a small oil explorer — the fate of your company can lie in a few important projects and your shares will be volatile based on how well those projects are executed. For patient investors looking through the noise of short-term production delays towards management’s ability to grow reserves at a reasonable price can be the key to success.

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> Nate does not own any shares mentioned above.