More on Premier Oil
Premier Oil
Independent oil producer Premier Oil’s interim results showed declining turnover and margins. Turnover (including JV’s) was £75.4m, down 8.7% on last year and turnover excluding joint ventures was £60.7m down 15.6% on last year. Post tax profits increased by 13.2% (to £14.5m) mainly due to lower interest costs and better performance by joint ventures.
The company blames the weaker US dollar which depreciated 13% in 2004 against sterling (oil prices are determined in US$, the company reports its results in £) as well as a change in sales mix for the fall in turnover.
A change in production mix (and hence sales mix) in 2004, with a greater proportion of gas (which fetches a far lower price than oil - a barrel of oil realised £17.28 while a cubic metre of gas realised £1.83) produced is claimed to have contributed to the decline, although exactly how much is uncertain as the company does not disclose segmental product sales.
Premier’s average realised oil price, from ongoing operations in sterling terms averaged £17.28/bbl (2003: £16.55/bbl) an increase of 4.4% although underlying US$ price increased by 19.3%. Realised gas prices, from ongoing operations in sterling terms declined by 1% to an average £1.83/mscf (2003: £1.85/mscf) although the underlying US$ price grew 12%.
Gross margins declined by 10% to 44.15% (2003:49.2%)reflecting higher costs of production per barrel of oil equivalent (boe). Taking joint ventures into account, underlying group unit operating costs were £2.67 per boe, 10% higher at £2.43/boe from ongoing operations. The unit cost increase mainly reflects the impact of fixed costs at a time of lower production from UK fields.
The company derived almost half its turnover but only 16% of its profits from UK operations, a significant decline from last year where the UK contributed to 41% of turnover and 28% of profits. The decline reflects lower yields from UK fields and means the company will be more dependent on overseas operations for its future profits, possibly with greater exposure to exchange rate fluctuations.
The driver for the growth in pre-tax earnings was a saving in interest costs. Net interest costs fell by £7.5m to £0.6 million (2003 ongoing operations: £8.1 million) due to the reduction in net debt following the restructuring last year.
At 590p the prospective PE of 19.9× is at the upper end of the sector range and there is no dividend paid.
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