A strong
foundation for
our business
2018 Annual Report and
Financial Statements
Year to 31 December
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Operational highlights
80.5kboepd
Record Group production
4
Highly prospective licence awards
66kbopd
Catcher revised oil rates (gross)
500Bcf (gross)
Tolmount Main gas project sanctioned
600mmbbls
Zama discovery appraisal underway
Financial highlights
US$10/boe
Low fi eld operating costs
2017: US$12/boe
US$777m
Cash fl ows from operations
2017: US$475m
US$393m
Debt reduction
2017: US$41m
US$133m
Return to profi tability
2017: post tax loss of US$254m
Strategic Report
Financial Statements
01 Chairman’s foreword
02 At a glance
04 Production – Catcher
06 Development – Tolmount
08 Exploration & Appraisal
10 Our Strategy
12 Business model
14 Key Performance Indicators
16 Market overview
18 Chief Executive Offi cer’s Review
22 Business Units Review
30 Financial Review
36 Principal Risks
42
Corporate Responsibility
Governance
Audit and Risk Committee Report
56 Chairman’s Introduction
60 Board of Directors
64 Corporate Governance Report
72
77 Nomination Committee Report
79 Directors’ Remuneration Report
108 Directors’ Report
111
Statement of Directors’ Responsibilities
112 Independent Auditors’ Report
121 Accounting Policies
128 Consolidated Income Statement
129 Consolidated Statement of
Comprehensive Income
130 Consolidated Balance Sheet
131 Consolidated Statement of
Changes in Equity
132 Consolidated Cash Flow Statement
133 Notes to the Consolidated Financial Statements
165 Company Balance Sheet
166 Company Statement of Changes in Equity
167 Notes to the Company Financial Statements
Additional Information
169 UK Government Payment Reporting
171 Five Year Summary
172 Oil and Gas Reserves
173 Worldwide Licence Interests
175 Glossary
177 Shareholder Information
Premier is a leading
independent exploration
and production company
with oil and gas interests
in the North Sea, South East
Asia, Pakistan, the Falkland
Islands and Latin America.
Read more online
PREMIER-OIL.COM
Chairman’s
foreword
Strategy
Premier is an independent oil and gas company engaged in all stages of the exploration and
production cycle in selected geographic locations. We have long experience in finding oil and
gas resources and in funding, developing and operating new projects.
Our commitment is to:
– Operate in a safe and responsible manner
– Focus on high quality assets with commercially advantaged positions
– Maintain access to capital and financial liquidity
– Attract and retain the right people
Making progress
2018 was a strong year for Premier both operationally and financially. We have delivered on
our commitment of debt reduction whilst continuing to progress future growth projects. We
have benefitted from an upturn in oil and gas commodity markets, restoring profitability.
I would like to thank all of our stakeholders for their work and commitment to the
Company and our shareholders for their continued support.
Roy A Franklin
Chairman
Catcher driving free cash flow generation
Production
PAGE 4
Tolmount Premier’s next UK growth project
Development
PAGE 6
New licences offer the potential for significant value creation
Exploration & Appraisal
PAGE 8
0
1
6080100201820172016Production kboepd400600800201820172016Operating cash flow US$m2.02.53.0201820172016Net debt US$bn5007501000201820172016Reserves & resources mmboePremier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION AT A GLANCE
A solid platform
for a global
business
Established in 1934, Premier
is an independent full cycle
exploration and production company
with oil and gas interests in the North
Sea, South East Asia, the Falkland
Islands, Mexico and Brazil. Premier is
listed on the London Stock Exchange
and seeks to maintain the highest
standards of corporate responsibility.
80.5kboepd
Group record production
2017: 75.0 kboepd
US$777m
Operating cash flow
2017: US$475m
07/Brazil
04/Falkland Islands
06/Mexico
Business units
01/United Kingdom
02/Vietnam
03/Indonesia
2
0
Premier is organised
into five business
units – UK, Vietnam,
Indonesia, Falkland Islands,
and Pakistan – and has seven
offices worldwide. Functional
support is provided from the
corporate headquarters in
London. Premier's
exploration and business
development teams are also
managed from the Group's
London headquarters.
47kboepd
Record net production
79%
Operating efficiency
US$13/boe
Operating cost
15kboepd
Net production
95%
Operating efficiency
US$5/boe
Operating cost
13kboepd
Net production
99%
Operating efficiency
US$7/boe
Operating cost
PAGE 23
PAGE 25
PAGE 26
Premier Oil plc 2018 Annual Report and Financial Statements 01/United Kingdom
02/Vietnam
05/Pakistan
03/Indonesia
Key:
mmbbls million barrels
kbopd thousand barrels of oil per day
kboepd thousand barrels of oil equivalent per day
04/Falkland Islands
05/Pakistan
06/Mexico
07/Brazil
220mmbbls
Sea Lion Phase 1 (gross)
5kboepd
Net production
80kbopd
Expected peak production
(gross)
97%
Operating efficiency
up to US$400m
Contractor financing
US$5/boe
Operating cost
600mmbbls
Gross resource under
appraisal at Zama
3
New licences added
via Round 3.1
300-400mmbbls
Block 30 gross prospective
resource
>500mmbbls
Gross prospective resource
2
Well programme
2020
Drilling planned
0
3
PAGE 27
PAGE 28
PAGE 29
PAGE 29
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION N
PRODUCTION
Catcher
driving free
cash flow
generation
Premier’s operated Catcher
Area, which comprises the
Catcher, Varadero and
Burgman fields, was the
Group's highest net
producer in 2018 with oil
rates revised to 66 kbopd
(gross) in the fourth quarter.
56°46.12.44'N 00°42' 46.93'E
offloaded in 2018
30Catcher cargoes
66kbopd
Catcher FPSO revised oil rates
4
0
50%
Premier's operated interest in
the Catcher Area
>90%
Operating efficiency in Q4 2018
Catcher Area gross oil rates (bopd)
(1 January 2018–28 February 2019)
70,000
0
Dec17
Jun18
Dec18
Feb 19
Catcher
Varadero
Burgman
Premier Oil plc 2018 Annual Report and Financial Statements Left: The BW
Catcher FPSO
0
5
Above: The BW Catcher FPSO
Right: The Ensco rig which completed the
Catcher Area drilling programme
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION N
DEVELOPMENT
Tolmount
Premier's next
UK growth
project
The sanction of our operated
Tolmount Main gas field, which
Premier acquired at low-cost as
part of the 2016 E.ON transaction,
marks a major milestone for the
Group. Construction of the
platform started in December
and the project is progressing as
planned. With first gas scheduled
for the end of 2020, Tolmount
Main underpins our medium-term
UK growth profile.
Greater Tolmount Area –
indicative production profile (mmscfd)
300
250
200
150
100
50
0
6
0
2025
2030
2035
2040
Tolmount Main
Tolmount East
Upside
Greater Tolmount Area illustrative development schedule
2018
2019
2020
2021
2023
2035+
– Sanctioned
Tolmount Main
– Key contracts
awarded for
Tolmount Main
– Construction of
platform starts
– Construction
of pipeline
– Terminal upgrade
– Acquisition of
3D Seismic
– Appraise
Tolmount East
– Offshore
installation of
platform, pipeline
– Exploration well
on Tolmount
Far East
– 1st gas from
Tolmount East
development
– Cessation of
production from
Tolmount Main
– Development
drilling starts
– Tolmount Main 1st gas
Premier Oil plc 2018 Annual Report and Financial Statements 54°02' 27.416" N 0°26' 33.510"E
Tolmount East P50 gross resource
220Bcf
US$120m
Premier's net share of capex for Tolmount Main
Greater Tolmount
Area gross resource potential
1Tcf
US$1bn
Expected net cash flow to
Premier from Tolmount Main
(assumes 60 pence/therm)
500Bcf
Tolmount Main P50 gross reserves
Above: The Ensco 123 rig which is
contracted to drill the Tolmount
East Appraisal well and the
Tolmount Main development wells
0
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION EXPLORATION & APPRAISAL
Exploration
portfolio
enhanced
Below: The Ensco 8503 rig
on location at Zama-2,
offshore Mexico
8
0
Premier Oil plc 2018 Annual Report and Financial Statements Premier interests
3D seismic survey
Gas pipeline
THAILAND
Andaman II
Banda Aceh
Arun Terminal
NORTH
SUMATRA
NSO PSC
M
a
l
a
c
c
a
S
t
r
a
i
t
100km
Medan
Songkhla
MALAYSIA
During 2018 Premier secured
four highly prospective new
licences offshore Mexico
and Indonesia which offer
the potential for significant
value creation in the future.
In Mexico, we increased our exploration
footprint via success in Round 3.1. We were
particularly pleased to have secured the
heavily contested Block 30 (Premier 30 per cent
non-operated interest) in the Sureste Basin.
We were also awarded two blocks (Premier 100
per cent operated interest) in the more frontier
Burgos Basin, directly inboard of the prolific
deep water Perdido fold belt. In Indonesia,
Premier was awarded the highly prospective
Andaman II licence (Premier 40 per cent
operated interest) in the offshore North
Sumatra basin.
Above: The PGS Apollo
is acquiring 3D seismic
across Premier's
Andaman II licence in
the North Sumatra
basin offshore Aceh
0°26' 28.57"E 54°2' 27.31"N
Premier plans to drill its first well
on Block 30, offshore Mexico
2020
300-400mmbbls
Block 30 gross resource potential
0
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
OUR STRATEGY
Creating value
throughout the
oil life-cycle
Our vision and strategy
Our vision is to be a world class upstream
independent. As a full-cycle exploration
and production company, our strategy
must support this.
Our strategy is to grow shareholder value
by investing in high quality production
and development opportunities while
maintaining exposure to upside value
from successful exploration within
a strict capital discipline framework.
To achieve this, our strategy comprises
four pillars, all of which are underpinned
by rigorous corporate governance and
an unwavering belief in always
operating responsibly by considering
the communities and environments
in which we operate.
“Our Remuneration Policy is designed
to support direct alignment with
shareholder value, and as such our
remuneration packages are geared to
performance-related pay, which is linked
to the key elements of our strategy.”
Jane Hinkley
Chairman of the Remuneration Committee
01
Operating
in a safe and
responsible
manner
04
02
Effective organisation
sustained by the
right people
Strategic
priorities
Focused on high
quality assets
with commercially
advantaged positions
0
1
03
Access to capital
and financial
liquidity
Premier Oil plc 2018 Annual Report and Financial Statements 01
02
Operating in a safe and
responsible manner
Premier has a proven track record of operating and delivering
across the cycle from exploration through development to
production with a particular focus on offshore projects. The
Group leverages its operating capabilities to maximise value
from its assets and to position itself to take advantage of future
opportunities. Premier's aim is to focus on operational delivery
across all of its activities in a safe and responsible manner.
Focused on high quality assets with
commercially advantaged positions
Premier develops and operates high quality assets in parts of the
world where the Group has a strategic or operational advantage.
In the UK North Sea, Premier has a strong operating capability
and considerable tax assets. The Company is also a key player
in the South East Asia gas market and has a dominant position
in the North Falklands Basin with access to a significant
resource base.
Progress in 2018
• Record production of 80.5 kboepd
• Ramp up of Catcher oil production achieved
• Highly prospective new acreage captured (Mexico, Indonesia)
• No significant process safety events
• Two years of Chim Sáo production without a lost time injury
• Record low Greenhouse Gas intensity at operated assets
• No significant (> 1 barrel) spills to sea
Priorities for 2019
• Continue to operate all of our assets in a safe and
responsible manner
• Ensure the safety of our workforce remains paramount
• Ensure any potential risk to the environment is minimised
Zero
Tier 1 significant process safety events
Progress in 2018
• Significant increase in UK tax-advantaged production,
underpinned by increased Catcher production
• Tolmount Main, Premier's next UK growth project, sanctioned
• Increased market share of GSA1 captured by Natuna Sea Block A
• Selection of key contractors for Sea Lion completed
• Appraisal of the Zama discovery (Mexico) underway
Priorities for 2019
• Deliver first gas from BIG-P, Indonesia
• Progress Tolmount Main to schedule
• Complete Block 7 Zama and Tolmount East
appraisal programmes
• Progress financing structures for Sea Lion
500Bcf (gross)
Tolmount Main gas project sanctioned
03
04
Access to capital
and financial liquidity
Premier aims to have a suitable capital structure with sufficient
liquidity to underpin the Group’s capital investment programme
and ability to access new opportunities for future growth. The
Group is committed to maintaining a disciplined approach to
spending each year and, where necessary, will seek farm-in
partners for drilling programmes and development projects to
maintain this discipline.
Progress in 2018
• Net debt reduced by US$393 million to US$2.3 billion at year-end
• Covenant leverage ratio significantly reduced to 3.1x (2017: 6.0x)
at year-end
• Low-cost base maintained with field opex of US$10/boe and
lease costs of US$7/boe
• Disciplined capital spend with total capex of US$353 million
• Cash receipts of US$73 million from completion of non-core
asset disposal programmes
Priorities for 2019
• Deliver further debt reduction
• Prioritise capital to sanctioned and capital efficient projects
• Continue to tightly control cost base
• Continue to hedge to protect our cash flows, liquidity and future
capital investment programmes
Effective organisation sustained by
the right people
Premier employs highly capable in-house operating teams
at an asset and country level, supported by functional
experts with a significant track record of project delivery.
The Group aims to ensure that the organisation is appropriately
sized with the right calibre of people to deliver the Company’s
strategic initiatives.
Progress in 2018
• Continued low employee turnover
• Roll out of a Group-wide Talent Management programme,
relating to succession planning, retention and career
progression
• Group-wide Staff Engagement Survey completed with
an 87% participation rate; actions arising from the 2017
survey implemented
• Organisational Health Check undertaken to ensure that the
Group is appropriately structured and resourced to deliver on its
strategy and commitments
1
1
Priorities for 2019
• Continue to ensure that the organisation is appropriately sized
• Implement actions arising from the 2018 Group-wide Staff
Engagement Survey and the Organisational Health Check
• Implement Business Unit and Group-wide Staff Forums in
compliance with the 2018 Corporate Governance Code to assess
and monitor organisational culture
3.1x
Covenant net debt/EBITDAX leverage ratio
7%
2018 employee turnover
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION BUSINESS MODEL
Growth
from a strong
foundation
Premier aims to increase net asset value by
developing high quality projects. The Group
seeks to increase its reserve and resource base
through both acquisition and exploration activity
depending upon prevailing market conditions.
Inputs
How we create value
Committed and
integrated corporate
responsibility
A belief in always
operating safely and
responsibly by considering
our people, the community
and environment.
Link to strategy
01
Operate and develop
high quality projects
Maximising high margin
production, delivering
timely projects.
Link to strategy
02
Disciplined financial
control
Rigorous cost control
and capital allocation
focusing on returns and
financial liquidity.
Link to strategy
03
Highly trained staff
2
1
Capable in-house
operating teams
supported by
functional experts.
Link to strategy
04
Country and stakeholder benefits
Protecting its people, its assets and the environment grants Premier its
social and legal licence to operate, and is critical to Premier's business.
Portfolio management
Premier actively manages its portfolio to ensure the Group’s capital
and people are focused on its highest returning assets and where the
Company is best placed to create value.
Exploration
Premier seeks to replenish its
reserve and resource base through
successful exploration subject to
funding constraints.
Development
Premier has a long and
established history of executing
development projects.
Long-term growth
Medium-term growth
Premier’s high-graded exploration
portfolio provides the Group with
organic growth opportunities in the
longer-term such as Wahoo and Cabrilla
in Mexico, Tolmount East and Tolmount
Far East in the UK and Itarema and
Berimbau in Brazil.
Premier's 500 Bcf (gross) Tolmount
Main gas project in the UK supports
the Group's medium-term production
profile. Beyond Tolmount, Sea Lion
(Phase 1) in the Falkland Islands and
the giant Zama oil field in Mexico will
underpin Premier's long-term growth.
Financial, risk management
and rigorous corporate governance
Managing its risks and strict financial discipline are critical to the
success of Premier's business. All of the Group's operations are
carried out against a background of rigorous corporate governance.
Premier Oil plc 2018 Annual Report and Financial Statements Premier's strategy
Premier's business model is inherently linked to its strategy and supports all four pillars of it.
01 Operating in a safe and responsible manner
02 Focused on high quality assets with commercially advantaged positions
03 Access to capital and financial liquidity
04 Effective organisation sustained by the right people
Output
Production
Premier seeks to maximise value
from its low-cost, stable production
base to generate cash flows.
Short-term cash generation
Premier's robust production portfolio,
supported by increased Catcher Area
production and a strong performance
from its Asian assets, generates material
cash flow. This is protected from oil price
volatility via a hedging programme and is
directed towards reducing the Group's
debt levels and selective reinvestment.
Stakeholder
value
Cash flow
Debt
reduction
Selective
reinvestment
1
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION KEY PERFORMANCE INDICATORS
Measuring our
performance
The Board monitors the Group’s progress
against its Key Performance Indicators to assess
performance and the delivery of its strategy.
Op
Operational KPIs
Fn
Financial KPIs
Op
Op
Fn
Working interest production
kboepd
Reserves and resources
mmboe
Covenant Leverage ratio
4
9
7
8
5
7
5
3
8
2
0
9
7
6
8
1
5
5
6
2
4
2
8
4
0
0
6
3
7
6
6
.
3
6
6
.
7
5
4
.
1
7
0
.
5
7
5
.
0
8
3
4
2
2
3
3
3
5
3
2
0
3
4
9
1
x
4
.
2
x
3
.
3
x
4
.
5
x
0
.
6
x
1
.
3
'14
'15
'16
'17
'18
'14
'15
'16
'17
'18
'14
'15
'16
'17
'18
Objective
Premier aims to maximise production from its
existing asset base and, over time, to deliver
production growth. Production growth is
measured using average daily production and
the number of development projects being
brought through to sanction.
2018 Progress
• Record production in 2018 of 80.5 kboepd
(2017: 75 kboepd)
• Tolmount Main gas project (UK) sanctioned,
next phase of growth for the business
4
1
2019 Expectations
• Expected production of 75 kboepd, an
underlying increase on 2018, after adjusting
for disposals
• First gas from BIG-P expected late 2019
Objective
Premier aims to grow its reserves and
resources base through a combination
of successful exploration and selective
acquisitions.
2018 Progress
• Tolmount Main resources booked as
2P reserves
• Upward revision in 2P reserves estimates
at Chim Sáo, Elgin-Franklin and the
Catcher Area
Objective
Premier aims to have sufficient headroom
against its covenant leverage ratio to ensure
continued covenant compliance and access
to liquidity throughout the commodity
price cycle.
2018 Progress
• Covenant leverage ratio (covenant net debt/
EBITDAX) reduced to 3.1x (2017: 6.0x)
• Increased EBITDAX of US$882 million,
up 50%
• Recategorisation of Sea Lion 2P reserves as
• Early exchange of the Company's
contingent resources
convertible bonds
2019 Expectations
• Continue to evaluate acquisition
opportunities
• Progress senior funding structures for Sea
Lion, ahead of a final investment decision
• Complete sale of Pakistan business
• Completion of non-core asset sales
2019 Expectations
• Cash flows prioritised towards
debt reduction
• Maintain sufficient liquidity to withstand
another downturn in the commodity
price cycle
Premier Oil plc 2018 Annual Report and Financial Statements Op HSES performance
Objective
Premier is committed to managing its operations
in a safe, reliable and environmentally
responsible manner to prevent major accidents
and to provide a high level of protection to its
employees, contractors and the environment.
2018 Progress
• Strong environmental performance with
no significant spills
• Greenhouse Gas Intensity of our operating
assets at the lowest level in Premier's
reporting history
• Group recordable injury rate of 2.65 injuries
per million man hours; Solan, Gajah Baru
and Chim Sáo recordable injury free
• Tier 1 Process Safety Events of zero for the
fifth consecutive year
• 35 senior management HSES visits to our
Corporate HSES KPIs
Issue
Premier Oil metric
2018
2017
2016
Occupational
health and safety
Process safety and
asset integrity
Environment
Fatalities
Lost work day cases (‘LWDC’)
Restricted work day cases (‘RWDC’)
Medical treatment cases (‘MTC’)
Total recordable injury rate (‘TRIR’) 1
High potential incident rate (‘HiPoR’) 1
Man hours worked (million)
Process safety events (IOGP Tier 1)
Process safety events (IOGP Tier 2)
GHG intensity (operated assets)
(te CO2e/1000 te production)
Unplanned hydrocarbon released
to sea (total te)
0
9
1
7
2.65
9
1.40
0
2
164
0.4
35
0
3
0
6
1.47
4
0.65
0
1
0
6
1
6
1.95
8
1.20
0
0
183
1862
1.9
18
2.2
13
operated facilities
Leadership
HSES Leadership Site Visits
2019 Expectations
We aim to deliver upper quartile HSES
performance compared with our peers in
the International Association of Oil & Gas
Producers (‘IOGP’)
1 Per million man hours.
2 Greenhouse gas emissions from our Solan asset were not included in our reported GHG intensity figure for 2016.
Fn
Fn
Fn
Operating cash flow
US$ million
Operating costs
US$/boe
Net debt
US$ billion
3
.
4
2
9
5
.
9
0
8
4
.
1
3
4
3
.
5
7
4
2
.
7
7
7
5
.
8
1
5
.
5
1
8
.
5
1
4
.
6
1
9
.
6
1
1
.
2
2
.
2
8
.
2
7
.
2
3
.
2
'14
'15
'16
'17
'18
'14
'15
'16
'17
'18
'14
'15
'16
'17
'18
Objective
Premier aims to maximise cash flow from
operations to maintain financial strength,
meet its debt obligations, invest in the future
of the business and deliver long-term returns
to shareholders. Premier's cash flows are
protected by a forward hedging programme.
2018 Progress
• c. US$350 million of operating cash flow net
to Premier generated by Catcher
• Strong operating cash flow generation from
the Group's operated Asian assets driven by
high uptime and continued tight cost control
2019 Expectations
• Improved cash margins at comparable
commodity prices due to increased
UK production
• Substantial hedging programme
protecting future cash flows and
investment programmes
Objective
Premier aims to minimise costs from
operations without compromising on health,
safety and integrity. Operating costs per barrel
of oil equivalent is a function of industry costs,
inflation, the efficiency and effectiveness of
Premier's people, technology and production
output. Operating costs are monitored closely
to ensure that they are maintained within
pre-set annual targets.
Objective
Premier aims to reduce the absolute level of its
net debt in order to address the imbalance in
its capital structure, to ensure compliance
with its financial covenants and to provide
the Company with future financial flexibility.
Premier anticipates reducing its net debt by
using cash flow generated from its producing
assets and disposals, while maintaining tight
cost control.
2018 Progress
• Operating costs of US$16.9/boe, of which
US$10.4/boe related to field opex and
US$6.5/boe to FPSO lease costs
• Low-cost base supported by high operating
efficiency, tight cost control and a weaker
sterling dollar exchange rate
2019 Expectations
• Slightly higher operating costs (US$13/boe
field opex and US$7/boe FPSO lease costs)
reflecting the change in portfolio mix
2018 Progress
• Net debt reduced by US$393 million to
US$2.3 billion
• Free cash flow generation of US$251 million
1
5
(including cash receipts from disposals)
• Early exchange of the US$181 million
convertible bonds
2018 Expectations
• Further debt reduction targeted, supported
by an improved portfolio mix and a strong
hedging programme
• Premier expects to generate free cash flow
at oil prices above US$45/bbl during 2019
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION MARKET OVERVIEW
Commodity prices were higher
during 2018 although significant
price volatility persisted
As a medium-sized exploration and production
company, Premier is impacted by the volatility in
the oil price. Premier looks to manage this
through an active hedging programme and by
planning its business on a conservative basis.
Commodity
prices
Foreign exchange
rates
Investment
and costs
Brent oil prices improved during the
first nine months of 2018, peaking at
US$86/bbl in October buoyed by strong
global economic demand and
anticipation of US sanctions on Iran.
The fourth quarter saw Brent oil prices
fall steeply to a low of US$50/bbl as
concerns over global economic growth,
record US shale output and US waivers
for Iranian crude impacted oil prices. UK
gas prices remained robust through the
year supported by an increase in global
LNG pricing.
The sterling dollar exchange rate
remained volatile during the course of
2019, peaking at US$1.43/£ in April before
trending downwards for the remainder
of the year. This was driven by the
uncertainty around the potential Brexit
outcomes together with a progressive
US interest rate policy. As a result,
sterling closed the year at US$1.27/£.
6
1
Our response
Premier looks to reduce the volatility in
its revenues and to protect the downside
to commodity price fluctuations through
a rolling hedging programme, whilst
retaining upside to any potential
medium-term rally in prices. For 2019,
the Company has hedged approximately
40 per cent of its oil production at an
average price of US$69/bbl. In addition,
25 per cent of the Group's UK gas
production has been hedged at an
average price of 61 pence per therm.
Premier has also hedged part of its 2019
and 2020 Indonesian gas production.
Our response
Premier has considerable operating
cost exposure in sterling from its North
Sea operations, and a proportion of its
capital expenditure is also in sterling.
This is partially hedged by Premier's
sterling revenue streams from its UK gas
production, whilst the Company also
undertakes forward hedging to protect
against potential volatility in the dollar
sterling exchange rate. Premier also has
£250 million of sterling debt which has
been hedged by cross-currency swaps at
the time those debt arrangements were
put in place.
Global capital expenditure by the
industry increased in 2018, supported by
the strengthening in commodity prices,
but remained low by historical standards.
With the fall in commodity prices in the
fourth quarter of 2018, the investment
outlook for 2019 remains uncertain and,
while minor cost inflation has started
to come through in certain offshore
segments, it is unclear whether recent
oil price weakness will continue to
weigh on demand and therefore costs.
Our response
The key contracts for Premier's
Tolmount Main gas project were placed
on a turnkey basis reducing the Group's
exposure to cost over-runs. In addition,
Premier has entered an infrastructure
partnership which minimises the
Group's share of the capital expenditure.
Long-term contracts, including FPSO
lease contracts on Chim Sáo, also ensure
that the Company is partially insulated
from any potential future cost inflation.
Premier Oil plc 2018 Annual Report and Financial Statements READ MORE
IN MANAGING OUR
PRINCIPAL RISKS
PAGE 36
Exploration
Acquisitions and
disposal activity
Equity markets
Global exploration activity remained
muted, largely reflecting the
discretionary nature of the spend.
The exception to this being certain
emerging high impact plays and basins
in Guyana, Suriname and Mexico,
which saw strong competition for
access to the best exploration licences
and increased activity.
M&A activity continued to increase,
supported by an improvement in the oil
price outlook in the first nine months of
the year. In particular, 2018 saw increased
North Sea M&A activity with some of the
majors looking to divest large portfolios
with several of these processes live at
year-end. Capital markets activity also
increased towards the end of the year
with bids made for two of the Group's
peers listed in London.
2018 was a turbulent year for equity
markets with US markets down 5-7 per
cent, Europe down 10-18 per cent, the UK
down more than 10 per cent and China
down 25 per cent all of which drove the
FTSE All World Index down 12 per cent.
Sentiment was also impacted by the
inverting of the US yield curve which is
seen as a recessionary indicator. Sector
issuances on the London market
remained subdued from historic levels
with 2018 the lowest level of issuance
since 2015.
Our response
Premier's exploration spend in 2018
remained low as our free cash flow was
prioritised towards debt reduction.
Despite this, Premier secured highly
prospective licences offshore Indonesia
and Mexico, enabling us to build our
portfolio for the future. In 2019, the
Group's exploration spend will be
focused on appraisal activities at Zama
(Mexico) and Tolmount East (UK).
Our response
Premier continued to monetise its
non-core assets and rationalise its
portfolio. In 2018, Premier announced
and subsequently completed the disposal
of its interests in the Babbage Area,
realising further value from the E.ON
acquisition in 2016. Premier also
completed the sale of its interests in the
Kakap asset offshore Indonesia and the
ETS pipeline system in the North Sea.
Premier continues to monitor acquisition
activities that can create operational and
financial synergies with its core
businesses.
1
7
Our response
Premier re-entered the FTSE 250 in
2018 and made good progress
reinstitutionalising its share register.
Premier's balance sheet and leverage
means that the Group's equity value
is perceived as more leveraged to
movements in the oil price than its
peers in the sector. Consequently, while
Premier delivered a strong operational
and financial performance in 2018,
the share price was impacted materially
by the fall in oil prices towards
the end of the year.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CHIEF EXECUTIVE OFFICER'S REVIEW
2018 was another
year of solid
operational delivery
2018 saw higher production, positive free cash
flow and a return to profitability. The Group is
ahead of plans to restore balance sheet strength
and remains focused on consistently delivering
free cash flows. Growth projects such as
Tolmount, Zama and Sea Lion, together with
promising exploration in Mexico and Indonesia,
are being advanced within a disciplined
financial framework.
Tony Durrant
Chief Executive Officer
80.5kboepd
Record Group production
UK production (kboepd)
2018
2017
2016
47
40
33
Revenue by region US$1,438m
United Kingdom
Vietnam
Indonesia
Pakistan
66%
3%
13%
8
1
18%
Oil prices increased during the first three
quarters of 2018, peaking at US$86.2/bbl in
October before falling steeply to close the
year at US$50.2/bbl. Against this volatile
backdrop, 2018 was another year of solid
operational delivery by Premier, resulting
in significantly higher cash flows and a
return to profit.
Production increased year-on-year
averaging 80.5 kboepd, despite material
asset sales. This was driven by new
production from our operated Catcher
Area and continued high operating
efficiency across the portfolio.
Our production portfolio today is
concentrated in two main geographical
areas: South East Asia (Indonesia and
Vietnam) and the UK Continental Shelf.
Our operated Asian assets, driven by high
uptime and low-cost structures, generated
material free cash flows for the Group.
Singapore demand for our Indonesian gas
remained robust and the opportunity
remains to develop and deliver additional
resource into the Singapore market under
our long-term gas sales agreements. Our
Chim Sáo field in Vietnam continued to
outperform and we again increased our
reserves estimates for the field at the end of
2018, a third increase since first oil in 2011.
Production from our UK assets, which
represents over half the Group’s production,
grew materially during 2018. This was
driven by our Catcher Area which reached
increased plateau rates of 66 kbopd (gross)
in the fourth quarter, considerably in
excess of the 50 kbopd (gross) envisaged
at sanction. This strong performance has
continued into 2019 and further underpins
our confidence in the longer-term
cash flow generation potential of this
asset. At year-end, we revised upwards our
Catcher Area reserves to include the Catcher
North and Laverda accumulations.
In addition, with more production history
to calibrate our dynamic models and to
underwrite a higher recovery, we would hope
to be able to revise over time our estimate of
the Catcher Area reserves. We also aim to
drill infill wells to target unswept areas of
the reservoir to extend plateau rates and
to ensure that the Catcher Area FPSO
continues to operate at full capacity.
The sanction of our operated 500 Bcf (gross)
Tolmount Main gas field in August was a
significant achievement for the Group.
Tolmount Main is, in barrel of oil equivalent
terms, of similar size to our Catcher project
at sanction. By partnering with
infrastructure company Kellas Midstream,
we have been able to minimise our share of
capital expenditure while retaining our
equity exposure to the upside in the project,
significantly enhancing the expected
returns on our investment. Once on-stream,
Tolmount Main will provide the next phase
of growth for the UK business unit and will
contribute materially to the Group’s cash
flows, given our tax-advantaged position in
the UK.
The HGS ('Humber Gathering System')
infrastructure through which Tolmount
Main volumes will flow has the potential to
develop into a significant new production
hub over time. It is highly economic for us to
deliver additional equity gas resource over
the HGS infrastructure and we are on track
to spud the Tolmount East appraisal well,
which is seeking to confirm resource
potential of up to 300 Bcf (gross), in July.
We also plan to acquire seismic data over
the Greater Tolmount Area during the first
half of 2019 to further define prospectivity
in the area. In addition, there is the
potential to benefit from third party
volumes transported over the Tolmount
Main platform.
Premier Oil plc 2018 Annual Report and Financial StatementsPremier Oil plc 2018 Annual Report and Financial Statements In August 2018, Premier sanctioned the development of its operated
Tolmount Main gas field in the Southern North Sea. The 500 Bcf (gross)
Tolmount Main gas field is scheduled to come on-stream at the end
of 2020 and secures Premier's medium-term production profile.
Full year production of 80.5 kboepd,
a record year for the Group
Appraisal of giant Zama discovery
(Mexico) underway
Catcher at 66 kbopd, underpinned
by high operating efficiency
Tolmount Main gas project
sanctioned, platform construction
commenced
Highly prospective, new acreage
captured offshore Mexico and in the
Andaman Sea
Year-end net debt reduced to
US$2.3 billion, from US$2.7 billion
500Bcf
Tolmount Main 2P
reserves (gross)
867mmboe
Group 2P reserves +
2C resources reserves
Our largest pre-development project is the
fully appraised Sea Lion field which, at over
220 mmboe (gross) of resources in Phase 1
alone, represents a material opportunity for
Premier. During 2018 we selected the key
contractors for the project, many of whom
also worked on our operated Catcher
project, and put in place LOIs for the
provision of services. Our key contractors,
having carried out extensive due diligence,
agreed to provide up to US$400 million of
financing for Sea Lion Phase 1, underlining
the robust nature of the project and the
opportunity to be involved in developing
the first field in a new basin. The critical
path to a final investment decision remains
securing a senior debt funding structure,
likely involving a combination of export
credit financing and project bank funding.
The industry continues to follow closely
our progress and it remains our preference
to bring in an additional equity partner to
the project once we have finalised the
funding structure.
Our exploration team has done an
excellent job of refocusing our portfolio
towards lower risk but more impactful
opportunities whilst operating within
significantly reduced budgetary
constraints. A notable success was the
Zama discovery in 2017. Much of 2018 was
spent preparing for the Zama appraisal
campaign as well as progressing early
engineering work on potential development
concepts. The programme is well underway
with encouraging initial results.
WORKING INTEREST
ENTITLEMENT
Production (kboepd)
Indonesia
Pakistan
UK
Vietnam
Total
2018
13.2
5.3
46.8
15.2
80.5
2017
14.1
6.5
39.5
14.9
75.0
2018
8.7
5.3
46.8
13.0
73.8
1
9
2017
10.3
6.4
39.5
13.0
69.2
Premier Oil plc 2018 Annual Report and Financial StatementsPremier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CHIEF EXECUTIVE OFFICER'S REVIEW
Priorities for 2019
Looking ahead to 2019,
our priorities are:
Deliver 2019 production
guidance of 75 kboepd
Maintain high operating
efficiency at Catcher
Progress Tolmount Main to
schedule and within budget;
appraise Tolmount East
Progress senior financing
structure for Sea Lion
Complete Zama appraisal and
define development plans
Mature prospects on newly
captured acreage for drilling
Maintain a competitive cost base
Deliver debt reduction
These objectives, if successfully achieved,
will put us in good stead to enhance
shareholder value.
We have further enhanced our exploration
portfolio through the capture of additional
acreage in our basins of choice. We were
particularly pleased to have secured the
heavily contested Block 30 in Round 3.1
just prior to the new government placing a
moratorium on further licensing rounds.
We were also successful in securing the
Andaman II licence offshore Indonesia in
the highly prospective North Sumatra
basin. This has attracted considerable
industry attention with the opening up
of a potential commercialisation route
via the onshore Arun gas terminal. Today,
our exploration portfolio is capable of
delivering a series of high impact wells
which have the potential to augment
materially the Group’s resource base.
We have also continued to exit our more
mature legacy positions which do not
meet our internal investment hurdles.
At 31 December 2018, Group proven and
probable (2P) reserves and contingent (2C)
resources, on a working interest basis, were
867 mmboe (2017: 902 mmboe), including the
effect of 2018 production and asset sales.
The sanction of the Tolmount Main project
added 46 mmboe to 2P reserves. In addition,
Premier booked the 3 mmboe (net) 2P
reserves related to the Catcher North and
Laverda fields while there were also reserve
upgrades at Chim Sáo and Elgin-Franklin.
0
2
Our proven and probable (2P) reserves,
on a working interest basis, reduced to
194 mmboe (2017: 302 mmboe), primarily
due to the recategorisation of Sea Lion
Phase 1 2P reserves (134 mmboe) as 2C
resources following new guidelines issued
by the Society of Petroleum Engineers.
These point to holding Sea Lion
undeveloped resources as contingent
until financing for the project and formal
approvals have been secured. To rebook the
2C resources of Sea Lion as 2P reserves the
funding and other approvals would need to
be in place. The booking of the Tolmount
Main field as 2P reserves, following its
sanction, and an upward revision in our
estimate of 2P reserves at Catcher, Chim Sáo
and Elgin-Franklin, more than offset the
impact of 2018 production and disposals.
This represents a reserves replacement ratio
of 220 per cent, excluding the technical
recategorisation of Sea Lion resources.
We are the operator of the majority of
our assets which provides us with strong
control over future expenditure
programmes and the ability to flex
our discretionary spend in the event of
another downturn in the commodity price.
During 2018, development, exploration and
abandonment spend was US$353 million,
below original guidance, due to deferrals of
appraisal and abandonment expenditure
and tight cost control.
Total 2019 capital expenditure (including
abandonment) is expected to be US$340
million. Full year 2018 operating costs were
US$10/boe while leasing costs associated
with our operated Chim Sáo, Huntington
and Catcher FPSOs amounted to US$7/boe.
2019 operating costs are forecast at US$13/
boe, slightly higher than 2018, reflecting the
impact of disposals of low-cost gas
production and expected natural decline
from fixed cost base assets, while lease costs
are expected to be of the order of US$7/boe.
Debt reduction remains a key corporate
priority. The Group’s strong operational
performance supported by its low-cost base
and a disciplined capital expenditure
programme resulted in us generating
material free cash flow during 2018. This,
together with proceeds of US$73 million
from selective disposals of non-core assets
and the early exchange of the convertible
bonds, resulted in a reduction of net debt by
US$393 million to US$2.3 billion, ahead of
the plan agreed with our lenders. We also
significantly reduced our covenant leverage
ratio (covenant net debt/EBITDAX) to 3.1x
(2017: 6.0x) comfortably within the covenant
of 5.0x at year-end and back in line with
many of our peers.
1 January 2018
Production
Net additions, revisions
Sea Lion recategorisation
Disposals, relinquishments
31 December 2018
2P reserves (mmboe)
2P reserves + 2C
resources (mmboe)
302
(30)
66
(134)
(10)
194
902
(30)
21
-
(26)
867
Premier Oil plc 2018 Annual Report and Financial StatementsPremier Oil plc 2018 Annual Report and Financial Statements
Looking to the year ahead, we have a highly
cash generative production base, which is
supported by a substantial hedging
programme, an improved portfolio mix
(underpinned by high margin Catcher
barrels) and a tightly controlled cost base.
This positions us well to deliver further
debt reduction in 2019 while progressing
our future growth projects to create
material value to all of our stakeholders
over the longer-term.
We have considerable optionality within
our portfolio to grow organically and deliver
value over the longer-term. At the same
time, Premier has an excellent track record
of delivering value from acquisitions and
we continue to evaluate potential
acquisition opportunities that enhance our
asset base and create synergies with the
existing core businesses. With many of the
majors and larger independents looking to
refocus their portfolios away from the UK
North Sea, there is an opportunity for
Premier to acquire mid-life, cash flow
generative and profitable production assets
with potentially significant upsides, which
have not been pursued by the previous
asset holders. Of course, any potential
acquisitions have to be measured against
and compete for capital with the existing
organic opportunities within our portfolio.
It is our highest priority to continue to operate
all of our assets in a safe and responsible
manner, to ensure the safety of our workforce
and to minimise potential risk to the
environment. Not only is it the right thing to
do, it is also a prerequisite for maintaining our
social and legal licence to operate for the
longer-term. We are pleased to report that we
recorded no serious injuries, no spills and no
material process safety events during 2018.
We also had record low GHG gas intensity at
Premier’s operated assets. In all our HSES
metrics, we aim to deliver continuous
improvement and upper quartile
performance against our peer group.
The composition of the Board and its
committees is continually under review.
As Jane Hinkley will reach the ninth
anniversary of her appointment during 2019
we are pleased to announce that Barbara
Jeremiah, subject to the approvals of
shareholders at the AGM in May, will join
the Board. It is intended that, following a
transitional period, Barbara will take over
as Chair of the Remuneration Committee
from Jane.
Tony Durrant
Chief Executive Officer
2
1
Premier Oil plc 2018 Annual Report and Financial StatementsPremier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION BUSINESS UNITS REVIEW
Strong performance
across the portfolio
Premier has seven offices worldwide with 782 employees
and is organised into five business units – UK, Indonesia,
Vietnam, Pakistan and the Falkland Islands – with support
provided from the corporate headquarters in London.
Premier is active both offshore and onshore, but all of the
Company’s operated interests are located offshore.
2
2
01
05
02
03
06
07
04
01/ United Kingdom
PAGE 23
05/Pakistan
PAGE 28
06/Mexico
PAGE 29
07/Brazil
PAGE 29
02/ Vietnam
PAGE 25
03/Indonesia
PAGE 26
04/ The Falkland
Islands
PAGE 27
Premier Oil plc 2018 Annual Report and Financial Statements 01/United Kingdom
Solan
Shetland
Islands
Premier interests
Producing oil fields
Pipeline interests
Orkney
Islands
UK
SCOTLAND
Aberdeen
Catcher Area
Kyle
Balmoral Area
Huntington
Elgin/Franklin
ENGLAND
Tolmount
CMS
The UK delivered record production
in 2018 of 46.8 kboepd, up almost
20 per cent on 2017, driven by
increased Catcher Area (Premier
50 per cent operated interest)
production. In November and
December, UK production averaged
over 60 kboepd, supported by high
uptime across the asset base and
increased rates from the Catcher
Area, offset by the Babbage Area
sale in early December. In August,
Premier sanctioned its next UK
growth project, the 500 Bcf
Tolmount Main gas development
(Premier 50 per cent operated
interest) which is now in the
execution phase.
Production
The Catcher Area FPSO, which produces from
the Catcher, Varadero and Burgman fields,
reached oil production rates of 60 kbopd
(gross) in May, as commissioning of the gas
plant was completed. In the fourth quarter,
continued strong reservoir performance and
increased plant availability, following final
commissioning of the FPSO secondary
systems, resulted in oil plateau production
rates being increased to 66 kbopd and Premier
issuing the final acceptance certificate to the
FPSO provider. We have safely delivered 38
Catcher cargoes since first oil.
Four further Catcher Area producer wells
were drilled during 2018 with the 18th well,
a Burgman field producer, completed in
October. This concluded a highly successful
three-year drilling programme which was
33 per cent below budget and delivered well
productivity on average 30 per cent higher
than forecast. In addition, dynamic data
continues to demonstrate good connectivity
between the reservoirs and strong pressure
support provided by the aquifer and injector
wells. The Group remains highly
encouraged about the potential overall
recovery from the Catcher Area and expects
to refine its estimates as more production
data is obtained.
The non-operated Elgin-Franklin field
(Premier 5.2 per cent non-operated interest)
averaged 6.7 kboepd (net), ahead of forecast.
Production was boosted by a strong
performance from the new wells brought
on-stream, successful remedial work on
existing wells and continued high operating
efficiency. At year-end, Premier revised
upwards its 2P reserves by 7 mmboe (net)
which brings them in line with the operator’s
estimates and reflecting the inclusion of
planned additional infill wells.
Premier’s operated Huntington field
(Premier 100 per cent operated interest)
averaged 5.8 kboepd (net) during 2018,
reflecting forecast natural decline and
several unplanned shut downs.
Modifications to the FPSO were made to
facilitate gas import which, together with
the conversion of a former production
well to a water injector, has improved
reservoir deliverability and plant stability.
The Huntington field has continued to
benefit from high operating efficiency post
period end with production averaging over
6 kboepd year to date in 2019.
Production from the Premier-operated Solan
field (Premier 100 per cent operated interest)
averaged 4.6 kboepd, ahead of forecast,
driven by high operating efficiency of over
90 per cent. Premier expects to drill a new
producer (P3) in 2020 targeted at increasing
production from the Central Northern part
of the field. Separately, Premier continues to
review the potential for third party volumes
over the Solan infrastructure.
The Balmoral Area, comprising the Balmoral,
Brenda, Nicol and Stirling fields, delivered
1.3 kboepd (net) in 2018 with production
impacted by an extended summer
maintenance shut down. Production from
the Kyle field (Premier 40 per cent non-
operated interest) averaged 1.6 kboepd (net).
As a result of cost control and asset
performance, cessation of production from
the Balmoral Area has now been deferred
until 2021 while the lease of the Banff FPSO,
which handles Kyle’s production, has been
extended to August 2019. In the Southern
North Sea, the Rita (Premier 74 per cent
operated interest) and Hunter (Premier
79 per cent operated interest) fields ceased
production in mid-2018 following closure of
the Theddlethorpe gas processing terminal.
UK unit field operating costs on a per barrel
of oil equivalent reduced to US$13/boe (2017:
US$18/boe) while lease costs increased to
US$10/boe (2017: US$5/boe). These reflect
new production from the leased Catcher
FPSO. In 2019, Premier expects UK operating
costs (including lease costs) to remain
around US$23/boe with the impact of a full
year of Catcher production at increased rates
offset by natural decline on more mature,
fixed cost base assets such as Huntington,
Kyle and the Balmoral Area.
2
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION BUSINESS UNITS REVIEW CONTINUED
46.8kboepd
Record net UK production
Developments
Premier has identified several high-value
subsea tie-backs and infill drilling locations
to maintain and extend production rates
from the Catcher Area. Premier expects to
sanction the development of the Catcher
North and Laverda oil accumulations
(Premier 50 per cent operated interest)
during the first half of 2019 and, as a result,
at year-end 2018 booked the 3 mmboe (net)
reserves associated with the two fields. The
US$70 million (net) project will entail two
development wells drilled from a common
drill centre and tied back to the Varadero
field. Drilling is scheduled to commence in
mid-2020 with first oil targeted for early
2021. In addition, Premier expects to drill an
infill well on the Varadero field immediately
before the Catcher North and Laverda
drilling programme to target resources
beyond the reach of the initial production
wells. Premier plans to acquire 4D seismic
across the Catcher Area in the second
quarter of 2020 to help confirm additional
future infill well locations.
In August, Premier and its partners
sanctioned the development of the
Tolmount Main gas field (Premier 50 per
cent operated interest) in the Southern Gas
Basin. The Tolmount Main gas field is
expected to produce around 500 Bcf
(96 mmboe) (gross) of gas with peak
production of up to 300 mmscfd
(58 kboepd) (gross).
4
2
drilling at Tolmount Main as well as the
location of a potential Tolmount Far East
exploration well, in addition to defining
further prospectivity in the area.
Portfolio management
During 2018 Premier continued its
programme of non-core asset disposals
from the E.ON portfolio with the sale of
its 30 per cent interest in the Esmond
Transportation System ('ETS') to Kellas
Management Ltd for total cash proceeds
of US$22.9 million (after working capital
adjustments). Premier also completed the
sale of its interests in the Babbage Area to
Verus Petroleum SNS Ltd ('Verus') in
December 2018 receiving cash proceeds
of US$38.7 million, after adjustments for
Babbage cash flows collected since the
effective date of 1 January 2018. The sale
proceeds from both transactions were
used to pay down the Company’s debt.
The Tolmount Main gas project is now well
into its execution phase. Construction of
the minimal facilities platform commenced
in Rosetti Marino’s Ravenna yard in
December 2018 with fabrication of the
primary structural steel and nodes as well
as the rolling of the tubulars underway and
progressing to plan. Detailed engineering
and procurement of the trees, wellheads
and subsea pipeline has also started. At
Easington, Centrica’s onshore receiving
terminal, preparation for modifications
required for Tolmount gas import has
started and significant purchase orders are
being placed for engineering work-scopes.
The four well development drilling
programme is scheduled to commence
mid-2020 with the first well expected to
come on-stream in the fourth quarter of
that year. Premier continues to estimate
that its share of the capital expenditure to
develop Tolmount Main will be around
US$120 million, comprising project
management and development drilling
costs, with the infrastructure joint venture
between Kellas Midstream and Dana
Petroleum funding the platform, pipeline
and the terminal modifications.
Exploration and appraisal
Premier has contracted the Ensco 123 rig to
drill the Tolmount East appraisal well in
July ahead of drilling the Tolmount Main
development wells in 2020. The well is
targeting 220 Bcf to 300 Bcf (P50 to P10) of
gross unrisked resource in an area to the
east of the main Tolmount field which sits
above the Tolmount Main gas water contact.
On success, the Tolmount East appraisal
well will be suspended for use as a future
producer to be tied back to the HGS
infrastructure. A 3D seismic survey across
the Greater Tolmount Area is scheduled to
commence later this month. The survey will
be used to help optimise development
Premier Oil plc 2018 Annual Report and Financial Statements 02/Vietnam
The Vietnam business unit continued
to generate material free cash flow
for the Group during 2018. This
was driven by a strong production
performance, underpinned by a
better than forecast subsurface
performance and sustained high
operating efficiency, combined with
a continued low operating cost base.
On the back of this outperformance,
Premier again increased its total
recoverable reserves estimate to
over 120 mmboe.
Andaman II
CAMBODIA
VIETNAM
Ho Chi
Minh City
Vung Tau
NCS Pipeline
Chim Sáo
Gas Export
12W Chim Sáo / Dua
I
N
D
O
Premier interests
Producing oil & gas fields
Export pipeline
T
A M
N
V I E
M A L A Y
S I A
MALAYSIA
Natuna Sea
Block A
Tuna
discovery
WNTS to
Singapore
540km
Singapore
Singapore
Jurong
Island
SUMATRA
N
E
S
I
A
S I N G A P O R E
Singapore
STRAIT OF SINGAPORE
Route of
WNTS Pipeline
Batu Ampar
Batam Tee
BATAM
BATAM
Panaran
Production
Production from Block 12W (Premier
53.13 per cent operated interest), which
contains the Chim Sáo and Dua fields,
averaged 15.2 kboepd (net), up on the prior
corresponding period and above budget.
This strong performance was driven
by high operating efficiency of the
Chim Sáo FPSO and successful ongoing
well intervention programmes which
offset natural decline from established
reservoir horizons.
The Chim Sáo and Dua fields continued to
produce with a high operating efficiency of
over 90 per cent during 2018 with
maintenance programmes completed on
schedule. Production from the fields was also
boosted by four well intervention campaigns,
which perforated new zones in the shallower
reservoir sections of existing production
wells and resulted in an additional 1 kboepd
(net) of production during 2018. The two
Chim Sáo infill wells, drilled and completed
in December 2017, have also continued to
perform strongly contributing over 1 million
barrels of net oil production since coming
I N D O N E S IA
online. As a result of this strong subsurface
performance, Premier again increased its
reserves estimates of Chim Sáo by 5 mmboe
(net) at year-end 2018.
Operating costs from Block 12W have
remained low at US$5/boe while the lease
cost of the FPSO averaged US$6/boe as
Premier continues to maintain tight control
of its cost base in Vietnam. Premier also
continued to sell its Chim Sáo crude at a
premium to Brent during 2018.
15.2kboepd
2018 Vietnam net production
>90%
operating efficiency from Chim Sáo
2
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION BUSINESS UNITS REVIEW CONTINUED
03/Indonesia
The Premier-operated Natuna Sea
Block A (NSBA) fields delivered a
robust performance in 2018,
underpinned by an increased market
share within GSA1. This, together
with continued low operating costs,
led to the Indonesian business
generating US$110 million of net
cash flows for the Group.
Andaman II
CAMBODIA
VIETNAM
Ho Chi
Minh City
Vung Tau
NCS Pipeline
Chim Sáo
Gas Export
12W Chim Sáo / Dua
I
N
D
O
Premier interests
Producing oil & gas fields
Export pipeline
T
A M
N
V I E
M A L A Y
S I A
MALAYSIA
Natuna Sea
Block A
Tuna
discovery
WNTS to
Singapore
540km
Singapore
Singapore
Jurong
Island
N
E
S
I
A
S I N G A P O R E
Singapore
STRAIT OF SINGAPORE
Route of
WNTS Pipeline
Batu Ampar
Batam Tee
BATAM
BATAM
Panaran
SUMATRA
Development
The development of the Bison, Iguana,
Gajah-Pueri (BIG-P) gas fields (Premier
28.67 per cent operated interest) entails a
three well subsea tie-back to existing
infrastructure and is progressing to budget
and to schedule. The Naga and Pelikan
deck extensions and the Pelikan and AGX
platform spools were successfully installed
offshore during the third quarter.
Fabrication of the subsea structures
commenced in October and will be installed
offshore along with the flowlines, flexible
risers and umbilicals in mid-2019. A DSV will
then complete the final hook up and tie-ins
during the second half of the year. Drilling
of the three BIG-P development wells is on
track to commence in the first half of 2019
with first gas planned for late 2019. Once
on-stream, the BIG-P gas fields will support
the Group’s long-term gas contracts into
Singapore and will help to maintain
production from Natuna Sea Block A.
Production and development
Production from Indonesia in 2018 averaged
13.2 kboepd (net) with the Natuna Sea Block A
fields (Premier 28.67 per cent operated
interest) delivering 12.9 kboepd (net) and
the Kakap field (Premier 18.75 non-operated
interest), now sold, averaging 0.3 kboepd (net).
Premier sold an average of 233 BBtud (gross)
(2017: 234 BBtud) from its operated Natuna
Sea Block A fields during 2018.
Singapore demand for gas sold under GSA1
remained robust, averaging 292 BBtud
(2017: 286 BBtud). Premier’s Anoa and
Pelikan fields delivered 153 BBtud (gross)
(2017: 143 BBtud), capturing 52.4 per cent
(2017: 49.6 per cent) of GSA1 deliveries,
above Natuna Sea Block A’s contractual
share of 51.7 per cent. Gajah Baru and Naga
delivered production of 80 BBtud (gross)
(2017: 91 BBtud) under GSA2, representing
100 per cent nomination delivery by
Premier. Gross liquids production from t
he Anoa field was 1.2 kbopd (2017: 1.1 kbopd).
Gas sales from the Kakap field averaged
4 BBtud (gross) (2017: 17 BBtud (gross)) while
gross liquids production was 0.7 kbopd
(2017: 2.6 kbopd). The reduction on the prior
corresponding period reflects the sale of
Kakap to Batavia Oil which completed
in April.
6
2
Premier continues to benefit from a
low-cost base in Indonesia with operating
costs averaging US$6.7/boe for the period.
I N D O N E S IA
Exploration and appraisal
In January, Premier was awarded a 40 per
cent operated interest in the Andaman II
licence in the underexplored but proven
North Sumatra basin offshore Aceh in the
2017 Indonesian Licence Round. PGS has
commenced a 3D seismic acquisition
programme designed to mature the
numerous prospects and leads identified on
existing 2D seismic, many of which exhibit
direct hydrocarbon indicators. Drilling is
targeted for late 2020. The licence has the
potential to deliver significant gas volumes
into North Sumatra and adds a potentially
material new gas play to Premier’s
Indonesian portfolio.
On Natuna Sea Block A, Premier’s
exploration team is reprocessing existing
Anoa 3D datasets and analysing production
data from the WL-5X well to assess the
ultimate potential of the Lama play beneath
the Anoa field and to identify potential
infill drilling locations within the Anoa
main field.
Elsewhere in Indonesia, Premier and its
joint venture partners continue to seek a
farm in offer to the Tuna PSC (Premier 65
per cent operated interest) ahead of a two
well campaign to appraise the Tuna field.
Gas supply by contract
GSA1
GSA2
BBtud (gross)
Anoa, Pelikan
Gajah Baru, Naga
Kakap
Total
2018
153
–
4
157
2017
143
–
17
160
2018
–
80
–
80
2017
–
91
–
91
Note: Premier completed the sale of its interest in Kakap in April 2018.
Premier Oil plc 2018 Annual Report and Financial Statements Premier interests
Oil discovery
Sea Lion
Atlantic Ocean
Stanley
04/The
Falkland
Islands
During 2018, the focus has
been on securing LOIs (Letters
of Intent) with key contractors
and progressing the financing
structure for the first phase of the
development of the Sea Lion field
in the North Falklands Basin ahead
of a final investment decision.
220mmbbls
Sea Lion Phase 1 (gross)
up to US$400million
of vendor loan notes secured
Premier has also continued to progress
discussions with senior debt providers,
including export credit finance agencies,
around the funding structure of the project.
In particular, Premier is preparing to submit
an application for project funding once
FEED has been completed, scheduled for
the second quarter of 2019. In addition,
it remains the Group’s preference to
optimise its level of participation in the
project by bringing in an additional equity
partner once the funding structure has
been finalised.
The Sea Lion project represents a material
opportunity for the Group with around
400 mmboe (net to Premier) to be developed
over several phases. Sea Lion Phase 1
(Premier 60 per cent operated interest) will
develop over 220 mmbbls of gross resources
in PL032, using a conventional FPSO based
scheme, similar to Premier’s successful
Catcher development.
During 2018, Premier completed the
selection of its key contractors and put
in place LOIs for the provision of key
services, including an FPSO, the drilling rig,
well services, SURF, subsea production
systems and installation services, as well as
vendor financing. Premier is now working
with its selected contractors to complete
FEED and to convert the LOIs into fully
termed contracts.
2
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION BUSINESS UNITS REVIEW CONTINUED
05/Pakistan
Premier’s Pakistan business
continued to generate positive net
cash flows for the Group, supported
by high operating efficiency of over
95 per cent and a low-cost base.
Production from Premier’s six non-operated
producing gas fields in Pakistan averaged
5.3 kboepd (2017: 6.2 kboepd) during 2018.
The fall in production reflects natural
decline in the main gas fields partially
offset by better than expected results
achieved from the new Kadanwari
development wells brought onstream.
Premier realised an average price of
US$3.4/mscf for its Pakistani gas during
the period while operating costs remained
low at US$0.9/mscf (US$4.9/boe).
In April 2017, Premier announced the sale
of its Pakistan business to Al-Haj Group
for US$65.6 million. To date, Premier has
received US$40 million of deposits from the
buyer and also collected US$25 million in
cash flows since the economic date of the
transaction (1 January 2017). Premier
expects the sale to complete on settlement
of final working capital adjustments, which
is scheduled for the end of the first quarter
of 2019.
8
2
US$40million
Deposits received to date from buyer of
Pakistan assets
5.3kboepd
Pakistan production in 2018
Premier Oil plc 2018 Annual Report and Financial Statements Exploration
& appraisal
In recent years, Premier has
sought to rebalance its exploration
portfolio away from traditional
but now mature areas to under-
explored but proven hydrocarbon
basins with the potential to develop
into new business units over the
medium-term.
06/Mexico
In Mexico, pre-unitisation terms were
agreed by all potential partners in the
Zama field and approved by the
Mexican Government in September.
The pre-unitisation agreement provides
a framework to enable the sharing of data
to ensure the safe and optimal appraisal
of the Zama field and, in the event a shared
reservoir is proven, it establishes a defined
process for the overall development of
the field and the initial participation of
each party.
In September, the Mexican Government
approved the Block 7 (Premier 25 per cent
non-operated interest) appraisal
programme, comprising two back-to-back
wells and one side track. The first appraisal
well, Zama-2, spudded to the north of the
Zama discovery well at the end of
November. The well penetrated 152 metres
of net pay above the oil water contact and
encountered a better than anticipated net
to gross ratio. The rig subsequently spudded
the up-dip vertical Zama-2 well side-track
and has encountered the main reservoir
on prognosis. A comprehensive coring
07/Brazil
Premier has continued to take an
operational lead for environmental
licensing and well planning in the offshore
Ceará Basin, where the Group plans to drill
two wells in 2020.
In the first quarter of 2018 Premier secured
approval from the ANP to replace the two
well commitment on its operated Block 717
(Premier 50 per cent operated interest) with
a single deeper well targeting the stacked
Berimbau and Maraca prospects. Premier
intends to drill this well in the first half of
2020 as part of a two well campaign with
Block 661 (Premier 30 per cent non-operated
interest). The 661 well will test the Itarema
programme is now being undertaken
ahead of a drill stem test with the results
expected in early April. The rig will then
move to drill the second appraisal well
(Zama-3) to evaluate the southern part
of the Zama oil field. The results of the
appraisal programme will feed into the
early engineering work, being undertaken
by McDermott and IO, and will help inform
the concept select decision ahead of a final
investment decision which is targeted
for 2020.
In March 2018, Premier was awarded three
new licences in Round 3.1, significantly
enhancing the Group’s acreage position
offshore Mexico. Premier, together with its
joint venture partners (DEA (operator) and
Sapura), secured the highly contested Block
30 (Premier 30 per cent non-operated
interest) which is directly to the south west
of Premier’s Zama discovery in the shallow
water Sureste Basin. A block wide 3D
seismic acquisition programme is scheduled
to commence in June 2019. The programme
will further define potential exploration
targets, including the high impact Wahoo
prospect, which exhibits a flat spot on 2D
seismic analogous to the Zama discovery,
and the Cabrilla prospect ahead of a drilling
campaign in 2020.
Premier also secured a 100 per cent operated
interest in two blocks – Blocks 11 and 13 – in
the more frontier Burgos Basin, which is
directly inboard from the deep water
Perdido fold belt. An environmental
baseline study across the two blocks was
completed in 2018 and the forward plan is to
reprocess existing 3D seismic during 2019
with the aim of identifying potential
drilling targets.
On Block 2 (Premier 10 per cent non-
operated interest) in the Sureste Basin,
Premier’s option to participate and convert
its carried 10 per cent interest to a paying
interest of up to 25 per cent equity or to
withdraw was triggered in May 2018.
Premier has opted to exit and received final
government approval for its withdrawal
from the block in February 2019.
and Tatajuba prospects. The two wells
combined will test in excess of 500 mmbbls
of gross prospective resource.
Having matured and evaluated the
prospectivity on Block 665 (Premier
50 per cent operated interest) utilising
the high-quality 3D seismic acquired by
Premier and its partner, the decision has
been taken to relinquish the licence at the
end of the initial term in July 2019.
SCE-AP3
Premier interests
Oil discovery
3,0
0
0
m
2
9
3
,
0
0
0
m
1
,
0
2
,
0
0
0
0
m
0
m
CE-M-665
Pecem
discovery
CE-M-717
40km
South
Atlantic
Ocean
2,0
0
0
m
1,0
0
0
m1
0
0
m
BRAZIL
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION FINANCIAL REVIEW
Driving free cash
flow generation
and reducing debt
Higher production rates have allowed Premier
to return to profitability in 2018 and deliver a step
up in positive cash flows, enabling a significant
reduction in net debt which is expected to
continue in 2019
Richard Rose
Finance Director
US$1,438m
Revenue from all operations
2017: US$1,102 million
2018
2017
1,438
1,102
US$882m
EBITDAX: 2017: US$590 million
2018
2017
882
590
Overview
2018 saw continuing oil price volatility.
Brent crude opened the year at US$66.9/bbl,
rising to US$86.2/bbl in October before
then weakening considerably towards the
end of the year to close at US$50.2/bbl at
31 December 2018, which was the lowest
observed price in 2018. The average for 2018
was US$71.4/bbl against US$54.2/bbl for
2017. Subsequent to the year-end, prices
have strengthened and averaged US$62/bbl
in January and February 2019.
Against this economic backdrop we
have achieved our best ever full year
of production, averaging 80.5 kboepd
(2017: 75.0 kboepd), resulting in total revenue
from all operations of US$1,438.3 million
compared with US$1,102 million in 2017.
In addition, we have reduced net debt to
US$2,330.7 million, following the successful
conversion of the Group’s convertible bond
notes during the year and strong cash flow
generation.
Business performance
EBITDAX for the year from continuing
operations was US$882.3 million compared
to US$589.7 million for 2017. The increase
in EBITDAX is mainly due to higher
production and realised prices during
the year.
Business Performance
(continuing operations)
(US$ million)
Operating profit
Add: Depreciation,
depletion, amortisation
and impairment
Add: Exploration
expense and
pre-licence costs
Less: Gain on disposal
of assets
EBITDAX
2018
531.0
2017
33.8
358.4
667.8
35.2
17.1
(42.3)
882.3
(129.0)
589.7
0
3
Premier Oil plc 2018 Annual Report and Financial Statements Our 2018 financial highlights
1 Net debt reduced
– Significant debt reduction in 2018 of US$393 million
– Driven by improved cash margins and cost control
– Exercise of outstanding convertible bonds in the year
2 A return to profit
– Increased production rates and realised prices have delivered a step up in
the operating cash flow
– Combined with low and stable cost base, the Group has restored profitability
– Enhanced by completion of non-core disposals
3 Disciplined spend
– Strong cost control across the Group, with low and stable operating costs
– Development capex lower year-on-year
Income statement
Production and commodity prices
Group production on a working interest
basis averaged 80.5 kboepd compared to
75.0 kboepd in 2017. This was driven by a
full year of production from the Catcher
field which achieved first oil in December
2017 and outperformance from the
Chim Sáo field. Average entitlement
production for the period was 73.8 kboepd
(2017: 69.2 kboepd).
Premier realised an average oil price for
the year of US$67.9/bbl (2017: US$52.9/bbl).
Including the effect of oil swaps which
settled during 2018, the realised oil price was
US$63.5/bbl (2017: US$52.1/bbl). In the UK,
average natural gas prices achieved were
57 pence/therm (2017: 47 pence/therm),
which included 58.2 million therms were
sold under fixed price master sales
agreements. Gas prices in Singapore, linked
to high sulphur fuel oil (‘HSFO’) pricing and
in turn, therefore, linked to crude oil pricing,
averaged US$11.2/mscf (2017: US$8.4/mscf).
Realised prices
2018
2017
Oil price (US$/bbl)
post hedging
UK natural gas
(pence/therm)
Singapore HSFO
(US$/mscf)
63.5
52.1
57
11.2
47
8.4
Total revenue from all operations (including
Pakistan) increased to US$1,438.3 million
(2017: US$1,102 million). From continuing
operations (excluding Pakistan), sales
revenue increased to US$1,397.5 million
from US$1,043.1 million for the prior year.
Cost of operations
Cost of operations comprises operating
costs, changes in lifting positions, inventory
movements and royalties. Cost of
operations for the Group from continuing
operations was US$500.0 million for 2018,
compared to US$455.4 million for 2017.
Operating costs
(US$ million)
Continuing operations
Discontinuing
operations (Pakistan)
Operating costs
Operating costs
per barrel
2018
487.5
2017
438.4
9.5
9.6
497.0
448.0
16.9
16.4
Amortisation and
depreciation of oil and
gas properties
(US$ million)
Continuing operations
Discontinuing
operations (Pakistan)
Total
Depreciation, depletion
and amortisation
(‘DD&A’) per barrel
2018
386.5
2017
409.0
–
7.2
386.5
416.2
13.2
15.2
The increase in absolute operating costs
reflects a fullyear production contribution
from the Catcher field. Ongoing cost
reduction initiatives, successful contract
renegotiations and strict management of
discretionary spend continue to deliver low
and stable operating costs. Full year 2018
total operating costs were below the low
end of US$17-US$18/boe guidance at
US$16.9/boe (2017: US$16.4/bbl). The DD&A
charge has reduced to US$13.2/bbl (2017:
US$15.2/bbl).
Impairment of oil and gas properties
A non-cash net impairment reversal credit
of US$35.2 million (pre-tax) (US$25.0 million
post-tax) has been recognised in the income
statement. This relates to the Solan field in
the UK North Sea as a result of a reduction
in the expected gross decommissioning
cost attributable to the asset, giving rise
to a reversal of previously recognised
impairment of US$55.7 million. This
reversal has been partially offset by an
impairment charge of US$20.5 million for
the Huntington asset. After recognition
of the net impairment charge there is
US$2,245.6 million capitalised in relation
to PP&E assets and US$240.8 million
for goodwill.
Exploration expenditure and
pre-licence costs
Exploration expense and pre-licence
expenditure costs amounted to US$35.2
million (2017: US$17.1 million), primarily
relating to historical costs incurred on
the Block 2 licence in Mexico, the Sunbeam
prospect in the UK and Block 665
licence in Brazil. After recognition of
these expenditures, the exploration and
evaluation assets remaining on the balance
sheet at 31 December 2018 amount to
US$812.6 million, principally for the Sea
Lion asset and our share of the Zama
prospect and Block 30 in Mexico. US$224.5
million of costs in relation to the Tolmount
project previously recognised within
exploration assets, which mostly represents
fair value allocated to the project on
acquisition from E.ON, have been
reclassified to PP&E in the year following
sanction of the project in 2018.
General and administrative expenses
Net G&A costs of US$14.0 million (2017:
US$16.8 million) were comparable with
the prior year.
3
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
Discontinued operations, disposals and
assets held for sale
During the year, Premier completed the
previously announced sales of its interests
in the Babbage field in the UK, the Kakap
field in Indonesia and its 30 per cent
non-operated interest in the Esmond
Transportation System (‘ETS’). A net gain
on disposal of US$42.3 million has been
recognised in the period.
During 2018, Premier received a further
US$10 million cash deposit from Al-Haj, in
addition to the US$25 million deposit
received in 2017. Due to the expectation of
the completion of the disposal, the business
unit continued to be classified as a disposal
group held for sale and presented separately
in the current and prior year balance sheet.
Results for the disposal group in both the
current and prior periods have been
presented as a discontinued operation.
Subsequent to the year-end, Premier
received a further US$5 million deposit
from Al-Haj, bringing total cash received
to date of US$40 million, against the
headline consideration of US$65.6 million.
FINANCIAL REVIEW CONTINUED
Finance gains and charges
Net finance gains and charges of US$372.8
million, have increased compared to the
prior year (US$316.4 million). The step up in
the interest margin on our financing
facilities following the completion of the
refinancing in July 2017 has been partially
offset by a reduction in the fair value of the
Group’s outstanding equity and synthetic
warrants to US$31.8 million from US$59.8
million at 31 December 2017. Cash interest
expense in the period was US$228.7 million
(2017: US$223.7 million).
Taxation
The Group’s total tax charge for 2018 from
continuing operations is US$53.1 million
(2017: credit of US$96.1 million) which
comprises a current tax charge for the
period of US$90.6 million and a non-cash
deferred tax credit for the period of
US$37.5 million.
The total tax charge represents an effective
tax rate of 33.5 per cent (2017: 26.2 per cent).
The effective tax rate for the year is
primarily impacted by three specific UK
deferred tax items. The first is the impact
of ring fence expenditure supplement
claims in the UK during the year (US$76.6
million credit). The second is the impact
of the Babbage disposal resulting in a
clawback of UK tax allowances (US$30.4
million charge) and the third is foreign
exchange movements on historical
deferred tax balances (US$17.8 million
charge). After adjusting for the net impact
of the above items of US$28.4 million, the
underlying Group tax charge for the period
is US$81.5 million and an effective tax rate
of 51.5 per cent.
The Group has a net deferred tax asset of
US$1,294.6 million at 31 December 2018
(2017: US$1,297.5 million), which is broadly
comparable with the prior year.
2
3
Profit after tax
Profit after tax is US$133.4 million
(2017: loss of US$253.8 million) resulting in a
basic earnings per share of 17.3 cents from
continuing and discontinued operations
(2017: loss of 49.4 cents). The profit after tax
in the year is driven principally by the
increased sales revenue and consequent
impact on operating profits.
Cash flows
Cash flow from operating activities was
US$777.2 million (2017: US$475.3 million)
after accounting for tax payments of
US$128.8 million (2017: US$69.6 million) and
before the movement in joint venture cash
balances in the period of US$54.4 million.
The increase in operating cash flows was
largely driven by higher production, sales
volumes and realised prices.
Capital expenditure in 2018 totalled
US$279.8 million (2017: US$275.6 million).
Capital expenditure
(US$ million)
Fields/development
projects
Exploration and
evaluation
Other
Total
2018
2017
234.3
236.8
43.6
1.9
37.6
1.2
279.8
275.6
The principal development project was
the Catcher field in the UK. The majority
of exploration spend was related to the
commencement of the appraisal drilling
programme on the Zama prospect in
Mexico and the licence payment on Block
30. In addition, cash expenditure for
decommissioning activity in the period was
US$72.7 million (2017: US$25.7 million).
Further to this, US$17.7 million (2017: US$16.7
million) of cash was placed into long-term
abandonment escrow accounts for future
decommissioning activities.
Total 2019 development and exploration
capex is expected to be US$290 million of
which c. US$70 million relates to the BIG-P
development and c. US$100 million to
exploration and appraisal (including US$60
million for the Zama appraisal programme
and US$20 million for the Tolmount East
appraisal well). Abandonment spend in 2019
is expected to be US$50 million, before
taking into account the benefits of tax relief,
and primarily relates to abandonment
activities in the UK North Sea.
Premier Oil plc 2018 Annual Report and Financial Statements
Balance sheet position
Net debt
Net debt at 31 December 2018 amounted
to US$2,330.7 million (31 December 2017:
US$2,724.2 million), with cash resources
of US$244.6 million (31 December 2017:
US$365.4 million). The maturity of all of
Premier’s facilities at year-end is May 2021.
Following completion of the Wytch Farm
disposal in December 2017, net cash
proceeds received of US$176 million were
used to pay down and cancel the equivalent
value of the RCF debt facility in January
2018. Furthermore, the total available
RCF facility was reduced by a further
US$39 million in December 2018 by the
cash proceeds received from the Babbage
disposal. Following these two disposals,
the total available RCF facility reduced
from US$2,050 million to US$1,835 million
at year-end.
In January 2018, Premier invited convertible
bondholders to exercise their exchange
rights in respect of any and all of their
bonds. 87.5 per cent or US$205.8 million of
the US$235.2 million bonds outstanding
were accepted for early exchange with an
incentive amount of US$50 per US$1,000 in
principal of bonds. The exchange resulted in
the issue of 231,882,091 Ordinary Shares,
which included 7,578,343 incentive shares.
Completion of this offer, resulted in a
remaining convertible bond liability of
US$28.8 million.
Following this, in July 2018, the Group
announced its intention to exercise the
mandatory conversion option in the
remaining outstanding convertible bonds.
The exercise of this option converted all of
the remaining US$28.8 million outstanding
convertible bonds into approximately
31.4 million new Ordinary Shares of
Premier. This resulted in Premier’s
convertible bond liability being fully
extinguished in September 2018.
At 31 December 2018, after the exclusion of
US$30.2 million of cash held on behalf of
our JV partners, Premier retained cash of
US$214.4 million. Combined with undrawn
facilities of US$355.2 million, the Group had
liquidity of US$569.6 million at the year-end
(31 December 2017: US$541.2 million).
Subsequent to the year-end, in January 2019,
a further US$100.3 million of the Group’s
RCF debt facility was cancelled by Premier,
which will result in reduced commitment
fee costs for the Group in 2019.
Provisions
The Group’s decommissioning provision
decreased to US$1,214.5 million at 31
December 2018, down from US$1,432.1
million at the end of 2017. The reduction
is driven by a reduction in the forecast for
the gross cost estimate for the Solan asset
and expenditure in the year.
Non-IFRS measures
The Group uses certain measures of
performance that are not specifically
defined under IFRS or other generally
accepted accounting principles. These
non-IFRS measures used within this
Financial Review are EBITDAX, Operating
cost per barrel, DD&A per barrel, net
debt and liquidity and are defined in
the glossary.
Financial risk management
Commodity prices
Premier took advantage of the improved
oil price environment observed at times
during 2018 to increase its hedging position
in 2019 and 2020 to protect future free cash
flows and covenant compliance. The Group’s
current hedge position to the end of
31 December 2019 is as follows:
Oil swaps/
forwards
Volume (mmbbls)
Average price
2019
1H
2019
2H
3.77
68.5
3.84
69.2
The fair value of open oil swaps at 31
December 2018 was an asset of US$102.0
million (2017: liability of US$31.7 million),
which is expected to be released to the
income statement during 2019 as the related
barrels are lifted. During 2018, forward oil
swaps of 5.9 mmbbls expired resulting in a
net charge of US$71.2 million (2017: US$11.4
million) which has been included in sales
revenue for the year.
In addition, the Group currently has
forward UK gas sales of 48.8 mm therms
at an average price of 61 pence/therm that
will be physically settled during 2019.
Furthermore, Premier has hedged part of its
Indonesian gas production through the sale
of 330,000 mt of HSFO Sing 180 in 2019 and
2020 at an average price of US$378/mt.
US$16.9/bbl
Operating cost/bbl: 2017: US$16.4/bbl
2018
2017
16.9
16.4
US$777m
Operating cash flow: 2017: US$475 million
2018
2017
777
475
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION FINANCIAL REVIEW CONTINUED
4
3
Foreign exchange
Premier’s functional and reporting
currency is US dollars. Exchange rate
exposures relate only to local currency
receipts, and expenditures within
individual business units. Local currency
needs are acquired on a short-term basis.
At the year-end, the Group recorded a
mark-to-market loss of US$17.2 million on
its outstanding foreign exchange contracts
(2017: gain of US$32.5 million). The Group
currently has £150.0 million retail bonds,
€63.0 million long-term senior loan notes
and a £100.0 million term loan in issuance
which have been hedged under cross
currency swaps in US dollars at average
fixed rates of US$1.64:£ and US$1.37:€.
Interest rates
The Group has various financing
instruments including senior loan notes, UK
retail bonds, term loans and revolving credit
facilities. Currently, approximately 60 per
cent of total borrowings are fixed or have
been fixed using interest rate options. On
average, the cost of drawn funds for the
year was 7.6 per cent.
Insurance
The Group undertakes a significant
insurance programme to reduce the
potential impact of physical risks
associated with its exploration,
development and production activities.
Business interruption cover is purchased
for a proportion of the cash flow from
producing fields for a maximum period of
18 months. During 2018, US$1.4 million of
cash proceeds were received (net to Premier)
in relation to settled insurance claims
(2017: US$7.2 million).
Premier Oil plc 2018 Annual Report and Financial Statements Going concern
The Group monitors its funding position
and its liquidity risk throughout the year
to ensure it has access to sufficient funds
to meet forecast cash requirements. Cash
forecasts are regularly produced based
on, inter alia, the Group’s latest life of field
production and expenditure forecasts,
management’s best estimate of future
commodity prices (based on recent forward
curves, adjusted for the Group’s hedging
programme) and the Group’s borrowing
facilities. Sensitivities are run to reflect
different scenarios including, but not
limited to, changes in oil and gas production
rates, possible reductions in commodity
prices and delays or cost overruns on major
development projects. This is done to
identify risks to liquidity and covenant
compliance and enable management to
formulate appropriate and timely
mitigation strategies.
Management’s base case forecast assumes
an oil price of US$60/bbl and US$65/bbl in
2019 and 2020, respectively and production
in line with prevailing rates. The Group has
run downside scenarios, where oil and gas
prices are reduced by a flat US$5/bbl
throughout the going concern period and
where total group production is forecast
to reduce by 10 per cent.
At 31 December 2018 the Group continued to
have significant headroom on its financing
facilities and cash on hand. The base case
forecasts show that the Group will have
sufficient financial headroom for the 12
months from the date of approval of the
2018 Annual Report and Accounts. In the
downside scenarios ran, no covenant breach
is forecasted in the going concern period. If
more severe sustained downside cases were
to materialise then, in the absence of any
mitigating actions, a breach of one or more
of the financial covenants may arise during
the 12 month going concern assessment
period. Potential mitigating actions could
include further non-core asset disposals,
additional hedging activity or deferral
of expenditure.
Accordingly, after making enquiries and
considering the risks described above, the
Directors have a reasonable expectation
that the Company has adequate resources
to continue in operational existence for the
foreseeable future. Accordingly, the
Directors continue to adopt the going
concern basis of accounting in preparing
these consolidated financial statements.
Business risks
Premier’s business may be impacted by
various risks leading to failure to achieve
strategic targets for growth, loss of financial
standing, cash flow and earnings, and
reputation. Not all of these risks are
wholly within the Company’s control
and the Company may be affected by
risks which are not yet manifest or
reasonably foreseeable.
Effective risk management is critical to
achieving our strategic objectives and
protecting our personnel, assets, the
communities where we operate and with
whom we interact and our reputation.
Premier therefore has a comprehensive
approach to risk management.
A critical part of the risk management
process is to assess the impact and
likelihood of risks occurring so that
appropriate mitigation plans can be
developed and implemented. Risk severity
matrices are developed across Premier’s
business to facilitate assessment of risk.
The specific risks identified by project and
asset teams, business units and corporate
functions are consolidated and
amalgamated to provide an oversight of key
risk factors at each level, from operations
through business unit management to the
Executive Committee and the Board.
For all the known risks facing the
business, Premier attempts to minimise
the likelihood and mitigate the impact.
According to the nature of the risk, Premier
may elect to take or tolerate risk, treat
risk with controls and mitigating actions,
transfer risk to third parties, or terminate
risk by ceasing particular activities or
operations. Premier has a zero tolerance to
financial fraud or ethics non-compliance,
and ensures that HSES risks are managed
to levels that are as low as reasonably
practicable, whilst managing exploration
and development risks on a portfolio basis.
The Group has identified its principal risks
for the next 12 months as being:
• Further oil price weakness and volatility.
• Underperformance of Catcher asset.
• Failure to maintain schedule of
Tolmount project.
• Negative drilling results from key
appraisal assets.
• Ability to fund existing and planned
growth projects.
• Breach of banking covenants if oil
prices fall or assets underperform.
• Timing and uncertainty of
decommissioning liabilities.
• Continued ability to maintain
core competencies.
• Political and security instability in
countries of current and planned activity.
• Rising costs if oil prices recover could
limit access to services.
Further information detailing the way in
which these risks are mitigated is provided
on the Company’s website
www.premier-oil.com.
Richard Rose
Finance Director
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION PRINCIPAL RISKS
Managing our
principal risks
The company is committed
to continuously improving its
approach to risk management.
Significant risks during 2018
Significant risks in 2019
• Oil price weakness and volatility
• Further oil price weakness and
• Underperformance of existing assets
• Failure of new Catcher asset to fully
volatility
• Underperformance of Catcher asset
deliver to expectations
• Failure to maintain schedule of
• Execution of planned corporate
actions
• Ability to fund existing and planned
growth projects
• Breach of new banking covenants if
oil prices fall or assets underperform
• Ability to maintain core
competencies
• Timing and uncertainty of
decommissioning liabilities
• Political and security instability in
countries of current and planned
activity
• Rising costs if oil prices recover
could limit access to service
providers
Tolmount project
• Negative drilling results from key
appraisal assets
• Ability to fund existing and planned
growth projects
• Breach of banking covenants if oil
prices fall or assets underperform
• Timing and uncertainty of
decommissioning liabilities
• Continued ability to maintain core
competencies
• Political and security instability
in countries of current and
planned activity
• Rising costs if oil prices recover could
limit access to service providers
6
3
Iain Macdonald
Chairman of the Audit
and Risk Committee
Effective risk management is central to
increasing the likelihood of achieving our
business objectives and protecting our
personnel, assets, the communities where
we operate and with whom we interact,
and our reputation. Premier therefore
has a comprehensive approach to
risk management.
The Directors have carried out a robust
assessment of the principal risks facing
the Company, including those that would
threaten its business model, future
performance, solvency or liquidity.
A description of those risks, together
with an overview of how such risks are
managed, is set out on pages 38 to 39.
Risk management and internal
control in Premier
The corporate governance process in
Premier is designed to determine the nature
and level of risk that the company is willing
to take in pursuit of its strategic objectives
and to provide an appropriate level of
assurance that any risks taken are
appropriately managed and that the
system of internal controls is effective.
The risk management framework and the
systems of internal control are designed to
manage and communicate, rather than
eliminate, the risk of failure to achieve
business objectives and can provide only
reasonable, and not absolute, assurance
that material financial irregularities and
control weaknesses will be detected.
Premier Oil plc 2018 Annual Report and Financial Statements Risk management
Premier believes that risk management
leads to better quality decision-making
and increases the likelihood of the
company achieving its business
objectives.
Premier has adopted a comprehensive
framework for risk management based
on ISO 31000 principles and guidelines.
The Group Audit and Risk Function is
responsible for administering the risk
management framework and its
continued improvement. The framework
is illustrated here.
Establish context
The Company’s business objectives and
the risk appetite set by the Board
together set the overall context for the
management of risk in the Company.
Risk assessment
To facilitate assessment of the main
risks facing the business, specific risks
are identified by each business unit
and corporate function in the Company.
These risks are recorded in the Company
risk register. Each risk is assessed
based on the likelihood of the risk
manifesting and the impact of the risk
if it was to manifest.
A matrix of risk likelihood versus impact
is used to help, analyse and communicate
risks throughout the Company.
The risk matrix facilitates the
consideration of risk inter-dependency
and the amalgamation of similar
specific risks across the organisation.
Risks are categorised according to level
and escalated up the organisation
as appropriate.
CONTINUED ON PAGE 40
Group risk management framework
Risk management lies at the heart of Premier’s system of internal controls.
A systematic process to identify, assess, reduce, monitor and communicate the
risks facing the business is undertaken across the Company.
The process itself is periodically reviewed to continue to improve the
effectiveness of risk management in Premier.
Establish
context
Risk
communication
and consultation
Risk assessment
Risk identification
Risk analysis
and evaluation
Risk
reduction
Continuous improvement
Risk
monitoring
and review
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION PRINCIPAL RISKS CONTINUED
PRINCIPAL
RISK FACTOR
RISK DETAIL
HOW IS IT MANAGED?
FINANCIAL RISKS
Commodity
price
volatility
• Oil and gas prices are affected by global supply and
• Oil and gas price hedging programmes to underpin our
demand and can be subject to significant fluctuations.
• Factors that influence these include operational issues,
natural disasters, adverse weather, climate change regulations,
political and security instability, conflicts, economic
conditions and actions by major oil-exporting countries.
financial strength and protect our capacity to fund future
developments and operations.
• Premier’s investment guidelines ensure that our investment
opportunities are robust to downside price scenarios.
• Hedging of exposure to increasing carbon prices.
• Price fluctuations can affect our business assumptions
and our ability to deliver on our strategy.
• Specific risks for 2019: inability to execute a satisfactory
oil hedging programme due to low forward oil prices;
uncertainty in implementation of IMO2020 regulations
impacting fuel oil pricing.
Financial
discipline and
governance
• Sufficient funds may not be available to finance the business
and fund existing operations and planned growth projects.
• Volatile credit markets and bank risk appetite may impact
ability to refinance debt at maturity on attractive terms.
• Breach of delegated authority.
• Financial fraud.
• Specific risks for 2019: reduced flexibility to manage
the business under existing lender controls; breach of
banking covenants in downside scenarios; inability to
fund a Sea Lion development.
• Strong financial discipline. Premier has an established
finance management system to ensure that it is able to
maintain an appropriate level of liquidity and financial
capacity and to manage the level of assessed risk associated
with the financial instruments. The management system
includes a defined delegation of authority to reasonably
protect against risk of financial fraud in the Group.
• Premier maintains access to capital markets through the
cycle by proactive engagement with banks and lenders
as evidenced by the completion of its refinancing in 2017.
• An insurance programme is maintained to reduce the
potential impact of the physical risks associated with
exploration and production activities. In addition, business
interruption cover is purchased for a proportion of the cash
flow from producing fields. Cash balances are invested in
short-term deposits with minimum A credit rating banks,
AAA managed liquidity funds and A1/P1 commercial paper,
subject to Board approved limits.
• Economics of investment decisions are tested against
downside project scenarios.
• Discretionary spend is actively managed.
OPERATIONAL RISKS
Production and
development
delivery and
decommissioning
execution
Joint venture
partner alignment
and supply
chain delivery
8
3
• Uncertain geology, reservoir and well performance.
• Effective management systems governing geoscience,
• Availability of oilfield services including FPSOs and
drilling rigs, technology and engineering capacity,
and skilled resources.
• Adverse fiscal, regulatory, political, economic, social,
security (including cyber) and weather conditions.
• Immaturity of decommissioning in the UK resulting
in uncertain cost and timing estimates for
decommissioning of assets.
• Potential consequences include reduced or deferred
production, loss of reserves, cost overruns and failure
to fulfil contractual commitments.
• Specific risks for 2019: reliance on performance of
Catcher asset; failure to maintain schedule of Tolmount
project; acceleration of decommissioning of certain
assets if they underperform.
reservoir and well engineering, and production operations
activities, including rigorous production forecasting and
reporting, field and well performance monitoring, and
independent reserves auditing.
• Effective project execution management systems, including
contracting strategy and cost controls together with capable
project teams and functional oversight.
• Long-term development planning to ensure timely access
to FPSOs, rigs and other essential services.
• Preference for operatorship.
• Specialist decommissioning team in place coupled with
continued focus on delivering asset value to defer
abandonment liabilities.
• Major operations and projects in the oil and gas industry
• Due diligence and regular engagement with partners in
are conducted as joint ventures. The joint venture partners
may not be aligned in their objectives and this may lead to
operational inefficiencies and/or project delays. Several of
our major operations are operated by our joint venture
partners and our ability to influence is sometimes limited
due to our small interest in such ventures.
• Premier is heavily dependent on supply chain providers to
deliver products and services to time, cost and quality criteria
and to conduct its business in a safe and ethical manner.
• Specific risks for 2019: access to and cost of appropriate
service providers if oil prices strengthen.
joint ventures in both operated and non-operated operations
and projects.
• Pursue strategic acquisition opportunities, where appropriate
to gain a greater degree of influence and control.
• Defined management system for management of
non-operated ventures.
• Due diligence of supply chain providers, including diligence
of financial solvency, anti-bribery and corruption controls,
and controls to prevent facilitation of tax evasion.
• Monitor contractual performance and delivery,
including periodic audit of the effectiveness of their
management systems.
• Complete roll out of a comprehensive contract performance
management programme for major contracts.
Premier Oil plc 2018 Annual Report and Financial Statements PRINCIPAL
RISK FACTOR
RISK DETAIL
OPERATIONAL RISKS
Organisational
capability
• The capability of the organisation may be inadequate
for Premier to deliver its strategic objectives. The capability
of the organisation is a function of both the strength of
its personnel and the effectiveness of its business
management system.
• Premier may be unable to attract, engage or retain
personnel with the right skills and competencies or to
deliver suitable succession plans for senior roles.
• The business management system may be inadequate or
may not be sufficiently complied with.
• Specific risks for 2019: unable to attract, engage or retain
key staff due increasing competition for talent, ageing
demographic and an ageing asset portfolio.
HOW IS IT MANAGED?
• Premier has created a competitive reward package including
bonus and long-term incentive plans to incentivise loyalty
and performance from the existing skilled workforce.
• Continue to strengthen organisational capability to achieve
strategic objectives. This includes resource and succession
planning, competency and leadership development.
• Continuous improvement of business management
system and related controls appropriate to the size and
market position of the Company.
• Implementation of staff engagement plans following the
staff survey in 2018.
• Implementation of Staff Forum across the Group to
inform management and the Board on cultural and
people related issues.
• Continued focus on Diversity & Inclusion across the Group.
• Continued phased rollout of the Talent Management
programme, including continued senior level succession
at local and Group levels.
• Implementation of recommendations emerging from
externally facilitated organisation health check conducted
in 2018.
Exploration
success and
reserves
addition
• Premier may fail to identify and capture new acreage and
resource opportunities to provide a portfolio of drillable
exploration prospects and future development projects.
• Focus on geologies we know well and in which we can build
a competitive advantage.
• Continuous improvement in exploration management
• Specific exploration programmes may fail to add expected
system with strong functional oversight.
resource and hence value.
• Manage exploration portfolio to maintain alignment with
• Lender controls may reduce ability to capture and execute
strategic growth and spend targets.
the exploration programme.
• Specific risks in 2019: inability to access quality global
opportunity set due to lender restrictions in a highly
competitive market; and negative appraisal results on
Zama and Tolmount East appraisal opportunities.
CORPORATE RESPONSIBILITY RISKS
• Active new ventures activity and appropriate resourcing.
Health, safety,
environment
and security
Host government:
political and
fiscal risks
• Significant asset integrity, process safety or wells incident
Comprehensive HSES management systems including:
on operated asset.
• Significant incident arising from natural disaster,
pandemic, social unrest or other external cause.
• Consequences may include injury, loss of life, environmental
damage and disruption to business activities.
• HSES reporting and auditing with a focus on the
identification and management of major hazards.
• Valid Safety Cases on all operated assets.
• Robust crisis management and emergency response
processes in place and tested against.
• Senior management visits to operated facilities to
demonstrate commitment to HSES values.
• Learning from internal and third-party incidents.
• Insurance against Business Interruption.
• Premier operates or maintains interests in some
• Premier strives to be a good corporate citizen globally,
countries where political, economic and social transition
is taking place or there are current sovereignty disputes.
Developments in politics, security, laws and regulations
can affect our operations and earnings.
• Consequences may include expropriation of property;
cancellation of contract rights; limits on production or
cost recovery; import and export restrictions; price
controls, tax increases and other retroactive tax claims;
and increases in regulatory burden or changes in local
laws and regulations.
• Consequences may also include threats to the safe
operation of Company facilities.
• Specific risk in 2019: monitor impact of change of
Government in Mexico.
and seeks to forge strong and positive relationships with
governments, regulatory authorities and the communities
where we do business. Premier engages in respectful
industry-wide lobbying and sustainable corporate
responsibility and community investment programmes.
• Premier maintains a portfolio of interests which includes
operations in both lower and higher risk environments.
• Rigorous adherence to Premier’s Business Ethics Policy
and Global Code of Conduct.
• Monitor and adhere to local laws and regulations.
• Active monitoring of the political, economic and social
situation in areas where we do business, including
business continuity plans tailored to pre-defined levels
of alert.
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9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION PRINCIPAL RISKS CONTINUED
CONTINUED FROM PAGE 37
Risk reduction
Premier attempts to reduce the likelihood
and potential impact of the identified risks
facing its business. According to the nature
of the risk and the Board approved risk
appetite, Premier may elect to accept or
tolerate the risk as-is, treat the risk with
controls and mitigating measures, transfer
the risk to third parties or terminate the
risk by ceasing the underlying activity or
operation. In particular, Premier has a zero
tolerance approach to fraud and ethics
non-compliance, and also ensures that
safety and environmental risks are
managed to levels that are as low as
reasonably practicable. In addition,
exploration and asset development risks
are managed on a portfolio basis.
Risk visualisation models are widely used
to facilitate the identification of appropriate
risk reduction measures.
Of course, there are certain risks to which
Premier is exposed that it has very limited
ability to control or mitigate, such as oil
price or extended adverse weather
conditions in the UK North Sea.
Risk monitoring and review
The status of risks and risk reduction
measures are monitored through regular
business performance reviews,
risk workshops, control audits and activity
reviews. These reviews in their totality are
designed to identify changes in the level of
the identified risks, the emergence of new
risks and to assess the suitability and
effectiveness of control measures. As part
of these reviews, Premier seeks to learn
from incidents and materialised risks.
The reviews help ensure that risks
emerging as a result of changes in the
business activities or the external
environment are identified and
suitably managed.
0
4
During 2018, the company enhanced its
monitoring process by introducing a
regular Executive Committee review of
the most important risks facing each
business unit and group function and
including the emerging risks facing the
business.
Internal controls
Business Management System
Internal controls within Premier are set
out in the Business Management System
(‘BMS’). The BMS is composed of the policies
set by the Board, together with a nested set
of standards, procedures and processes for
each function and business unit involved in
carrying out the Company’s business.
During 2018, Premier improved the
comprehensiveness of its BMS, ensuring
the group functions have a suitable
management system in place to control
their activities.
Regular review
The adequacy of the BMS is a function of
its design and operating effectiveness.
The effectiveness is assessed through an
annual programme of control audits,
activity reviews, exercises and drills agreed
between functional and business unit
management, the most significant of
which are approved by the Audit and Risk
Committee. The programme is designed
to provide assurance to the Board that
Premier is embedding effective risk
management across its operations.
Significant findings from the most
significant audits and reviews are reported
to the Audit and Risk Committee. The
committee monitors the implementation
of recommendations arising.
Of note, during 2018 the company increased
its focus on the timely closeout of actions
arising from its control audits and
activity reviews, ensuring improvement
opportunities identified from such audits
were promptly embedded.
During 2018, the company also conducted
a review of the overall effectiveness of
its BMS and identified a number of
opportunities to continue to improve its
effectiveness that will be addressed
from 2019.
The annual cycle of monitoring in Premier
culminates in the completion of a Corporate
Governance Return. The return is a
declaration by the head of each business
unit and corporate function that confirms
compliance with the BMS and identifies
measures to continue to improve the
effectiveness of the management systems.
Reasonable assurance
The BMS, the risk management framework
and the programme of audits and reviews
together form the ongoing process for
identifying, evaluating and managing the
principal business risks faced by the
Company. This process has been in place
for the year under review and up to the
date of approval of the Annual Report and
Financial Statements. It is regularly
reviewed by the Audit and Risk Committee
and provides the Board with reasonable
assurance that appropriate controls are in
place to provide effective management of
business risks and to safeguard the Group’s
assets against inappropriate use or loss
and fraud.
Board responsibility
Overall responsibility for the systems of
internal control and risk management and
for reviewing the effectiveness of such
systems rests with the Board. This includes
an annual review to ensure that there is an
effective process to identify, assess and
reduce the level of any significant risks that
may affect the achievement of the Group’s
business objectives. The Board also
periodically reviews the major risks facing
the business.
Premier Oil plc 2018 Annual Report and Financial Statements Viability Statement
In accordance with provision C.2.2 of the
2014 revision of the Combined Code, the
Directors have assessed the prospects of
the Company over a longer period than
the 12 months required for the ‘Going
Concern’ statement. In preparing this
assessment of viability the Board has
considered the principal risks faced by
the Group, relevant financial forecasts
and sensitivities and the availability of
adequate funding.
Assessment period
The Board conducted this review for a
period of three years to 31 March 2022,
which was selected for the following
reasons:
• At least annually, the Board considers
the Group’s projections (the
‘Projections’) over a three-year period.
• Within the three-year period, liquid
commodity price curves are able to be
used in the forecast. Given the lack of
forward liquidity in oil and gas markets
after this initial three-year period, we
are reliant on our own internal
estimates of oil and gas prices without
reference to liquid forward curves.
• The Group is not currently committed
to any major capital expenditure
beyond the three-year period.
• Under the Group’s revised borrowing
facilities which were finalised during
2017, all of the Group’s current
borrowing facilities are available until
May 2021. The Group has assumed it will
be able to refinance its facilities before
May 2021, within the three-year period.
arise towards the end of 2020. Potential
mitigating actions could include further
non-core asset disposals, additional
hedging activity, deferral of expenditure
or completion of a corporate acquisition.
The Group plans to refinance its existing
financing facilities prior to their maturity
in May 2021. Once the refinancing is
completed, it is entirely possible that the
Group’s financial covenants will be
assessed on a different basis.
The potential impact of each of the
Group’s other principal risks on the
viability of the Group during the Forecast
Period, should that risk arise in its
unmitigated form, has been assessed. The
Board has considered the risk mitigation
strategy as set out for each of those risks
and believes that the mitigation strategies
are sufficient to reduce the impact of each
risk such that it would be unlikely to
jeopardise the Group’s viability during
the three-year period.
Conclusion
The Directors’ assessment has been made
with reference to the Group’s current
position and prospects, the Group’s
strategy and availability of funding, the
Board’s risk appetite and the Group’s
principal risks and how these are
managed, as detailed in the Strategic
Report. The Directors have also
considered the availability of actions
within their control in the event of
plausible negative scenarios occurring.
Therefore, the Directors confirm that
they have a reasonable expectation that
the Group will continue to operate and
meet its liabilities, as they fall due, for the
next three years and refinancing of the
Group’s existing financing facilities will
complete before maturity.
4
1
Review of financial forecasts
The Projections are based on:
• the Group’s latest life of field production
and expenditure forecasts on an asset
by asset basis, together with a variety
of portfolio management opportunities
which management could undertake
if required;
• assumed oil prices of US$60 in 2019,
US$65/bbl in 2020 and US$70 for in 2021,
(adjusted for the Group’s hedging
programme); and,
• the financial covenant tests and profile
required by the Group’s borrowing
facilities. The Projections assess the
Group’s financial projected performance
against these revised financial
covenants, for which more details are
provided in note 15 to the financial
statements, on page 144.
Sensitivities are run to reflect different
scenarios including, but not limited to,
changes in oil and gas production rates,
possible reductions in commodity prices
and delays or cost overruns on major
development projects.
Review of principal risks
The Group’s principal risks and
uncertainties, set out in detail on
pages 38 and 39, have been considered
over the period.
Under the Projections, the Group is
expected to have sufficient liquidity over
the three-year period and is forecasting to
be able to operate within the
requirements of the financial covenants
in its existing borrowing facilities. It has
been assumed that the existing covenants
would be adopted on the same basis in
any future refinanced facilities.
As part of the refinancing completed in
2017, the Group amended its financial
covenants. These covenants have
progressively tightened during 2018 and
for the 12 month period ending 31 March
2019 (and subsequent testing periods)
both the net debt/EBITDA and EBITDA/
Interest covenants have been reset to
3.0x. The Group has run downside
scenarios, where oil and gas prices are
reduced by a flat US$5/bbl throughout the
Forecast Period and where total
production volumes are forecast to reduce
by 10 per cent. In either downside
scenario, it is possible that, in the absence
of any mitigating actions by management,
a modest forecast covenant breach may
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE RESPONSIBILITY
A commitment
to responsible
behaviour
Premier is committed to behaving responsibly
and conducting our business with honesty and
integrity in everything we do. In support of this,
we are long-standing members of both the
FTSE4Good Index and the UN Global Compact.
Our approach to the following key areas of
corporate responsibility is explained throughout
this chapter:
2
Process Safety LOPC
(Tier 1 & Tier 2 events)
1,026
US$m
Total Economic Distribution
2.65
Total recordable injury rate (TRIR)
(per million man hours)
2.03
GJ per tonne of production
Energy intensity
2
4
164
Tonnes of CO2e per thousand
tonnes of production
Greenhouse gas emission intensity
PRINCIPLES, FRAMEWORKS
AND STANDARDS
PAGE 43
MATERIALITY
PAGE 44
HIGH-LEVEL MATERIAL ISSUES
PAGE 46
READ MORE IN OUR ONLINE 2018
CORPORATE RESPONSIBILITY REPORT
Third-party assurance
As part of the third-party assurance
process undertaken for our 2018 Corporate
Responsibility Report, ERM Certification and
Verification Services (‘CVS’) has confirmed:
• The integrity of selected indicators
used throughout this chapter.
• The alignment of the materiality process
described on pages 44 to 45 with the
requirements of the Global Reporting
Initiative Sustainability Reporting
Standards.
• With the exception of Mexico, all our
operations have established community
engagement and investment programmes.
The ERM CVS assurance statement can
be viewed on our website.
Premier Oil plc 2018 Annual Report and Financial Statements
Principles, frameworks
and standards
Our strong track record of responsible behaviour and
effective performance is underpinned by our values,
Group policies and relevant external principles and
standards. These are set out below.
Spirit
Our values
Our values underpin our behaviours and activities and are
reflected in our policies and procedures. They are:
Tenacity
Dynamism
Creativity
Professionalism
Respect
Foundation
Our approach is guided by
our overarching Corporate
Responsibility Policy, which,
amongst other commitments,
requires Premier to act with
respect for people, communities
and the environment.
We are also guided by the
following supporting policies:
• Business Ethics Policy and
associated Global Code of
Conduct
• Health, Safety, Environment
and Security (HSES) Policy
• Community Investment
Policy
• Human Rights Policy
• Equal Opportunities and
Diversity Policy
• Whistleblowing Policy
• Tax Policy
In addition, our Risk
Management Policy and
Risk Management Standard
help us to avoid and/or
mitigate the risks that might
otherwise prevent us from
achieving our corporate
responsibility objectives.
Internal
• Values
www.premier-oil.com Our Values
• Vision and Strategy
www.premier-oil.com Vision, Strategy and Business Model
• Business Ethics Policy and associated Global
Code of Conduct
• Corporate Responsibility Policy
• Health, Safety, Environment and Security (‘HSES’) Policy
• Human Rights Policy
• Community Investment Policy
• Risk Management Policy
• Equal Opportunities and Diversity Policy
• Whistleblowing Policy
www.premier-oil.com Company Policies
External
• United Nations Global Compact (participant)
www.unglobalcompact.org
• International Association of Oil & Gas Producers
(‘IOGP’) (member)
www.iogp.org
• OHSAS 18001 occupational health and safety
management system standard (applied to all Premier-
operated production assets and our drilling operations)
www.bsigroup.com
• ISO 14001 environmental management system
standard (applied to all Premier-operated production
assets and our drilling operations)
www.iso.org
• Voluntary Principles on Security and Human Rights
www.voluntaryprinciples.org
• United Nations Guiding Principles on Business
and Human Rights
www.ohchr.org
• ISO 31000 risk management system standard
(which underpins our approach to risk management)
www.iso.org
4
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
CORPORATE RESPONSIBILITY CONTINUED
Materiality
Premier has conducted a materiality assessment to identify and
prioritise our most significant corporate responsibility issues. This
assessment process, which is outlined below, draws on our existing risk
assessment process and stakeholder engagement activity.
Materiality assessment
In line with the Global Reporting Initiative
(GRI) Reporting Standards, our corporate
responsibility reporting is structured
around our most significant corporate
responsibility issues. These issues have
been prioritised (in conjunction with
third-party experts and with input from
external stakeholders) on the basis of:
• The potential and actual impact of
Premier on stakeholders and their
interests; and
• The potential and actual impact of
stakeholders on Premier and the
achievement of its business objectives.
sufficient significance to be addressed in
detail in this report or in our online 2018
Corporate Responsibility Report.
The steps involved in our materiality
process are outlined on page 31.
Material issues
The outcomes of this assessment are
displayed on the corporate responsibility
materiality matrix. Presentation of an issue
as ‘non-material’ on this matrix does not
mean it is not important or that it is not
being managed, but only that it is not of
The principal changes in material and
non-material issues resulting from our
2018 assessment include the following:
• Decreased impact of ‘Value generation
and distribution’ – reflecting Premier’s
improved debt position which has
strengthened our ability to generate and
distribute value to our stakeholders.
Corporate responsibility materiality matrix
h
g
H
i
l
s
r
e
d
o
h
e
k
a
t
s
n
o
t
c
a
p
m
I
w
o
L
4
4
01
02
03
08
12
14
06
04
05
11
10
07
13
16
15
24
23
20
19
18
21
17
22
09 Public policy and government relations
09
10 Environment (General)
Material issues
01 Asset integrity and process safety
02 Emergency preparedness
03 Value generation and distribution
04 Effluents and waste
05 Employee engagement
06 Occupational health and safety
07 Governance and ethics
08 Climate change and GHGs
11 Workforce
12 Responsible supply chain
management1
13 Human rights
14 Decommissioning
Non-material issues
15 Learning and development
16 Biodiversity
17 Child/forced labour
18 Customer impacts
19 Community impacts
20 General grievance mechanisms
21 Resource use
22 Market behaviour
23 General grievance mechanisms
24 Cyber security
1 Details of Premier’s responsible supply chain
management efforts can be found on page 46
and pages 54 to 55.
Low
Impact on Premier Oil
High
Arrows indicate key changes in our
material and non-material issues in 2018.
Premier Oil plc 2018 Annual Report and Financial Statements
Materiality assessment process
Research
Desk-based review of events, activities and relationships in 2018
likely to affect the 2017 prioritisation of Premier’s material issues.
These include:
• Premier’s activities and relationships
• Operating contexts
• Stakeholders
• External events and trends
Internal review
Engagement with Premier
functional managers to
identify further adjustments
Initial adjustment
Re-prioritisation of
material issues in light
of steps 1 and 2
Integration of
stakeholder input
Further adjustment of
material issues in light of:
• Business unit perceptions
of local stakeholder issues
• External feedback from our
stakeholder engagement
sessions
Finalisation of the 2018
materiality assessment
Update of materiality
matrix and its
communication to
stakeholders
4
5
• Decreased impact of ‘Decommissioning’
– reflecting the postponement of
decommissioning activities at our late life
assets in the Greater Balmoral Area until
2021 or later.
• Increased impact of ‘Responsible supply
chain management’ – reflecting increased
regulatory and civil society focus on this
issue, and internal reassessment of its
relative significance to Premier's business.
In 2018, Premier introduced a new
contract segmentation model to
strengthen the management of our supply
chain risk as well as additional controls to
prevent facilitation of tax evasion in our
supply chain.
• Increased impact of ‘Climate change
and GHGs’ – reflecting ongoing investor
focus on this issue, and increasing prices
for emission allowances traded on the
European market.
• Increased impact of ‘Workforce’ –
reflecting ongoing regulatory and civil
society focus on workforce gender
diversity and gender pay gap.
In 2018, Premier rolled out diversity and
inclusion training for all employees and
contractor personnel, and we began
monitoring gender diversity performance
across our recruitment process.
• Increased impact of ‘Cyber security’,
which remains a non-material issue –
reflecting increasingly sophisticated
instances of cyber-attack against
multinational companies and increasing
utilisation of automated production
processes across the oil and gas industry.
• Increased impact of ‘Community
impacts’ – reflecting the ramping up
of our Sea Lion project in the Falkland
Islands, and the work undertaken on
our Environmental Impact Statement
(EIS) and Social Impact Assessment
(SIA) during 2018.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE RESPONSIBILITY CONTINUED
High-level material issues
The following section provides
an overview of our most
significant (or ‘material’) corporate
responsibility issues. It sets out
why these issues are material to
Premier, how they are managed,
and the outcomes of our
management efforts.
Premier has mapped its material
issues against the UN Sustainable
Development Goals (‘SDGs’).
SDGs related to our material
issues include:
6
4
For additional details on this
mapping process, see our
online 2018 Corporate
Responsibility Report.
Governance and business ethics
Why this issue is material
Beyond our efforts to ensure compliance
with applicable laws and regulations, we
recognise that our success – both now
and in the future – is dependent upon
maintaining the trust of our stakeholders.
These include host governments and
societies, current and potential investors,
and our business partners. We are therefore
committed to upholding and, where feasible,
strengthening good governance and ethical
standards wherever we do business.
Potential areas of risk in this regard include
procurement activities and interactions
with government officials.
Premier has recognised business ethics
as a key element of the following principal
risks: ‘financial discipline and governance’,
‘joint venture partner alignment and supply
chain delivery’, and ‘host government:
political and fiscal risks’. More information
can be found on pages 38 to 39.
Policies
Our Business Ethics Policy supports our
overall Corporate Responsibility Policy. It
requires Premier’s employees and
contractor personnel to behave ethically
and with personal integrity. Our approach
to business ethics is developed further in
our Global Code of Conduct (the ‘Code’),
which establishes specific standards
(including in relation to anti-corruption and
preventing the facilitation of tax evasion).
The Code covers:
• Legal compliance
• Anti-bribery
• Facilitation payments
• Gifts and hospitality
• The appointment of intermediaries
• Charitable and political donations
• Whistleblowing
• Prevention of the facilitation of
tax evasion
• The proper recording of transactions
and the application of relevant
accounting and reporting standards.
For details about our corporate governance
framework and activities, see pages 56 to 58
and 64 to 71.
How we implement our policies
We require all employees, contractor
personnel and those associated with
Premier, such as consultants, to adhere
to the Code. Business partners, including
joint venture partners, contractors and
customers, must also apply the principles
of the Code – or equivalent standards. This
is achieved by the inclusion of business
ethics provisions in our contracts.
We aim to train all employees and
contractor personnel on the Code within
one month of their induction. All employees
and contractor personnel are required to
undertake additional training on the Code
on an annual basis thereafter.
The Audit and Risk Committee monitors the
effectiveness of the Code and its supporting
policies. To support this, we:
• Undertake an ongoing corporate-wide
review process to assess internal
compliance with the Code, led by our
Legal Function.
• Use our Business Ethics Screening Tool to
assess the exposure of Premier’s operated
and non-operated exploration,
development and production operations
to external business ethics risks.
• Have established a Company-wide
leadership group comprised of business
ethics champions from each business
unit, which meets at least twice annually
to discuss where performance can be
further improved.
In addition, all new material contracts are
now subject to our Supply Chain Contractor
Due Diligence Process, following its pilot
testing across our operational business
units during the second half of 2017. This
involves a two-stage questionnaire-based
online business ethics assessment, which
identifies potential issues of concern,
triggering (where relevant) a bespoke full
due diligence process. This enables us to
effectively manage identified risks, which
may include appropriate mitigations, before
contracts are entered into.
Employees, contractor personnel and agency
workers who believe that Premier, or anyone
working for or on behalf of the Company, has
violated the Code are encouraged to report
their concerns to their line managers. They
can do so on a confidential basis and without
fear of recrimination. All reports are properly
investigated and the results reported to
the Board.
Premier Oil plc 2018 Annual Report and Financial Statements
READ MORE OUR PRINCIPAL
RISKS RELATED TO THESE
ISSUES CAN BE FOUND ON
PAGE 36 TO 41
How corporate responsibility
is governed
Our Corporate Responsibility Policy
is owned and approved by our Board.
Its supporting management systems
are owned and implemented by our
Executive Committee and relevant
Group Functional Managers.
In 2018, the principal topics arising from
Premier’s activities that have economic,
social and environmental impacts on
stakeholders, and the Premier managers
and executives responsible for overseeing
them on a day-to-day basis, were:
• Human resources, overseen by the
Group Human Resources Director.
• Legal and regulatory compliance,
ethical behaviour and human
rights, overseen by the Group
General Counsel.
• HSES, overseen by the CEO.
• Tax, overseen by the Finance Director.
• Risk management, overseen by the
Group Audit and Risk Manager.
Allegations of malpractice can also be
raised via Premier’s well-publicised,
confidential and independently managed
reporting hotline, which is available
24 hours a day.
Employees found to have breached the
requirements of the Code will be subject
to a disciplinary procedure and, in extreme
cases, instant dismissal and referral to
the relevant law enforcement authorities.
Contractor personnel found to have
breached the Code may have their
contracts terminated.
Any breach of the Code by our business
partners will result in either an agreed
corrective action plan and measures to
avoid a recurrence, or potential termination
(where contractually permissible).
Above: Phil MacLaurin, Vietnam Business Unit Manager
Outcomes
Key indicators – Governance and business ethics
Material issue Premier Oil metric
Governance
and ethics
Significant legal sanctions in
relation to business ethics
2018
0
2017 2016
0
0
Our performance in 2018
During 2018, no significant legal sanctions were imposed
on Premier.
Disciplinary actions or dismissals
for breaches of the Code
2
0
0
There were four confirmed cases of non-compliance with the
Code in 2018, none of which had a material impact on our
business. Three of the cases involved failure to report a
conflict of interest and one case involved inaccurate reporting,
which were not material to the Group. All cases were
investigated, which resulted in two Premier employees
electing to resign and two other Premier employees receiving
disciplinary sanctions.
4
7
All new members of our workforce received induction
training, which addresses all aspects of the Code, including
anti-bribery.
100%/
99%
100%/
95%
68%/
94%
As of March 2019, 99% of our workforce had completed
the training assigned to them in 2018. We will closely monitor
completion of this training throughout 2019.
100% 100% 100%
New members of our workforce2
receiving induction training on
the Code
Existing members of our
workforce2,3 assigned refresher
training on the Code /
completed training3
2 ‘ Workforce’ includes both employees and contractor personnel.
3 As of 1 March 2019.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE RESPONSIBILITY CONTINUED
Health, safety and security
Why this issue is material
Given the potential hazards involved in
offshore oil and gas operations, it is
essential that we continuously apply
rigorous health, safety and security
practices. Not only does this help to avoid
negative impacts upon the health, wellbeing
and security of our employees, contractors
and joint venture partners, it also supports
the maintenance of our:
• Operational continuity;
• Regulatory compliance; and
• Corporate reputation.
Our most significant health, safety and
security issues are:
• Occupational health and safety;
• Process safety and asset integrity;
• Emergency preparedness; and
• Employee and asset security.
Premier has identified ‘health, safety,
environment and security’ as a principal
risk. More information can be found on
page 39.
Policy
Our Health, Safety, Environment and
Security (HSES) Policy sets out the
Company’s overarching commitments to:
• Never knowingly compromise our
HSES standards;
• Do all that is reasonably practicable to
reduce HSES risks; and
• Ensure the safety and security of
everyone affected by our operations.
8
4
How we implement our policy
Occupational health and safety
Our HSES Policy is implemented through our
HSES Management System. The management
system is comprised of a comprehensive set of
standards and procedures, which form part
of Premier’s BMS.
We apply the management system across
our global operational activities and use
it to define how HSES issues should be
managed throughout the lifecycles of our
projects. The management system is
externally certified to the OHSAS 18001
health and safety management system
standard for our production facilities and
drilling operations. We also aim to achieve
Group-wide alignment of our management
system to the ISO 45001 and ISO 14001
standards by 2020, as set out in our new
three-year Group HSES Strategy.
To drive continual improvement, our HSES
Management System is regularly reviewed
and updated in line with our operational
requirements and the findings from our
major accident risk assessments and
internal audits. This enables us to establish
the necessary control measures to reduce
risk exposure to a level that is ‘as low as
reasonably practicable’ (ALARP). In
addition, our workforce health surveillance
programme helps us to identify potential
early indications of work-related health
issues and the follow-up actions required to
diagnose, treat or prevent their progression.
We monitor our HSES performance closely
and report this information on an ongoing
basis to the Executive Committee and to
the Board.
Process safety and asset integrity
Our HSES Management System defines
Premier’s objectives and minimum
requirements for process safety and asset
integrity in all operations. In addition, it
sets out the responsibilities, verification
and validation required to provide
assurance that these have been met.
A system of Process Safety and Asset
Integrity Performance Reporting is applied
at all of our operated assets. Each business
unit tracks a suite of leading and lagging
process safety and asset integrity key
performance indicators (KPIs) to drive
continuous improvement. This includes a
self-assessment of the status of six critical
‘barriers’: plant integrity, plant maintenance,
plant control, people, procedures and
recovery (i.e. emergency response) – each of
which have a role in the management of
major accident hazards. Assessment scores
are reported monthly to the Board, and
provide assurance that the barriers are
suitable to manage the hazard risks.
Emergency preparedness
Premier’s HSES Management System
minimises the risk of catastrophic safety
incidents and other major events occurring
at our facilities. The complex nature of our
assets, their offshore location and the
combustibility of hydrocarbons and other
materials used on our facilities means that
we go to significant lengths to prevent the
occurrence of major accidents.
All our business units and operated
facilities have emergency response plans,
which are regularly reviewed. We also
conduct regular offshore drills for all
personnel, as well as periodic integrated
emergency exercises involving our onshore
and offshore emergency response teams.
Workforce and asset security4
Premier undertakes security assessments
for our employees and assets, which assess
the latent risks posed by their location, as
well as recent incidents. We apply a formal
travel risk management process when any
employee travels abroad. As such, visitors to
these locations are supported by in-depth
travel risk assessments and guidance, as
well as enhanced physical security and
evacuation precautions where appropriate.
Environment
Why this issue is material
All of Premier’s operated activities are
conducted offshore. We drill for and extract
both oil and gas from sub-surface reservoirs
(in cooperation with our operational
contractors) for transport to markets
(by pipeline and/or third-party shipping
partners). Without effective management,
these activities have the potential to
negatively impact water quality, air quality
and local ecosystems. Any failure to avoid
and/or mitigate these impacts would have
material reputational and regulatory
consequences for our business.
Our most significant environmental issues
relate to:
• Greenhouse gas (GHG) emissions
associated with energy consumption
and flaring at our facilities; and
• Effluents and waste, including the
prevention of spills and the responsible
management of hazardous materials.
Premier has identified ‘health, safety,
environment and security’ and (with
regards to climate change regulation) ‘host
government: political and fiscal risks’ and
‘commodity price volatility’ as principal
risks. More information can be found on
page 39.
164
tonnes CO2e per thousand
tonnes of production
Greenhouse gas emission intensity
4 No significant security incidents directly affected our personnel in 2018
Premier Oil plc 2018 Annual Report and Financial Statements Outcomes
Key indicators – Health and safety
Material issue Premier Oil metric
Occupational
health and
safety
Fatalities*
Lost work day cases (‘LWDC’)*
Restricted work day cases (‘RWDC’)*
Medical treatment cases (‘MTC’)*
2018 2017 2016
0
0
0
9
1
7
3
0
6
6
1
6
Total recordable injury rate (‘TRIR’)5*
2.65
1.47
1.95
High Potential Incidents (HiPo)
9
4
8
High potential Incident Rate (HiPoR)6* 1.40
0.65
1.20
Man-hours worked (million)
6.4
6.1
6.7
Our performance in 2018
The increase in TRIR in 2018 was largely due to a rise in injuries
caused by 'slips, trips and falls', attributed to a combination
of personal and job factors. We report and investigate all
incidents and near misses in accordance with our Group HSES
Management System.
In 2018, we identified nine HiPo events; seven relating to
production activities; one relating to construction activities and
one relating to drilling activities. Once we have established
the cause of each HiPo, we issues HSES alerts to all relevant
personnel and appropriate external stakeholders.
The increase in man hours in 2018 was largely due to the
subsea structure fabrication work that was required for the
development of the Bison, Iguana and Gajah-Puteri (BIG-P)
gas field in Indonesia.
Process
safety
and asset
integrity
HSES
Management
Process safety events (IOGP Tier 1)*
Process safety events (IOGP Tier 2)*
0
2
HSES Audit Actions Close Out Rate
92%
0
1
–
HSES Leadership Site Visits
35
18
0
0
No Tier 1 process safety events occurred in 2018.
The two process safety events involved a gas release at the
Catcher FPSO vessel in the UK and a crude oil spill at the
Anoa FPSO vessel in Indonesia. No workforce injuries occurred as
a result of these two events.
– We initiated the reporting on HSES Audit Action Close Out Rate
in 2018 and exceeded our target of 90%.
13 We conduct routine leadership site visits across our business units
to promote visibility and effective HSES conversations at site level.
*Data for 2018 assured by ERM CVS.
5 Per million man hours.
6 Per million man hours.
Policy
As set out in our HSES Policy
http://www.premier-oil.com/sites/default/
files/files/hses-policy-poster-2018-final.pdf,
we are committed to minimising our
environmental impacts and will never
knowingly compromise our environmental
standards to meet our operational
objectives.
Furthermore, while not a formal policy,
our Carbon Strategy describes Premier’s
approach to managing carbon emissions
and the risks and opportunities associated
with climate change. Amongst other
things, the strategy describes Premier’s
commitment to managing these risks in an
effective and responsible manner. In 2018,
we initiated the review of our Carbon
Strategy. More information can be found
on page 50.
How we implement our policy
Our HSES Management System helps us
manage our environmental impacts across
the lifecycles of our operations and projects.
All of our operated production and drilling
activities are certified to the ISO 14001
environmental management standard.
As required by our HSES Management
System, we perform baseline surveys and
prepare environmental and social impact
assessments (ESIAs) for all of our operated
activities7.
In line with our HSES Management
System requirements, we also undertake
ongoing monitoring to assess the
environmental impact of our activities
throughout the lifecycle of our projects.
The assessments address our:
• Physical impacts;
• Ecosystem impacts; and
• Socio-economic impacts.
During this systematic process, we assess
the impacts of our proposed activities, and
consider how each can be reduced to a level
that aligns with the ALARP principle.
Potential impact controls are then
considered and implemented according to
their efficacy, practicality and cost.
Our business units record key
environmental metrics on an ongoing
basis. These metrics are analysed on a
monthly basis and relevant performance
indicators are reported to the Board. We
distribute an HSES scorecard to all
personnel to keep them informed of
Company HSES performance.
Climate change and greenhouse
gas emissions
Our approach to managing our GHG
emissions involves:
• The efficient operation of our existing
equipment and infrastructure. This
includes minimising flaring and venting,
where possible;
• The reduction of fugitive gas emissions
through, for example, leak detection
and repair (LDAR) programmes;
• The installation of best available
technology into all new projects to
minimise their carbon intensity; and
• The application of carbon-pricing
throughout the lifecycles of all new
and existing projects in the UK.
4
9
7 Our social and/or environmental impact assessments typically involve significant stakeholder engagement. For example, in 2018 Premier submitted the Environmental Impact
Statement (EIS) for our Sea Lion project to the Falkland Islands Government (FIG). This was subject to a 42-day public consultation starting in January 2018. It was completed in
consultation with local authorities, conservation groups (local and international), special interest groups and the general public, amongst others. The EIS received approval in
November 2018 and Premier Oil is in the process of updating it to address the comments received.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE RESPONSIBILITY CONTINUED
Outcomes
Key indicators – Environment8
Material issue
Climate change
and GHGs
Premier Oil metric
Total Scope 1 GHG emissions
(thousand te)9*
Total Scope 2 GHG emissions (te)10*
GHG intensity (tonnes/1000 te of
production)*
Energy consumption (GJ/te of
production)
Effluents
and waste
Unplanned hydrocarbon released to
the sea (te)*
2018
1,193
2017
946
605
164
2.03
0.4
877
183
2.3
1.9
2016
846
964
18611
2.2
2.2
Hydrocarbon in produced water
(ppm-wt)*
12.2
10.6
9.1
Our performance in 2018
In 2018, we initiated the review of our Carbon
Strategy to align it with the recommendations of
the Taskforce on Climate-related Financial
Disclosures (TCFD) and with emerging climate
change policies across our locations of operation.
Once finalised, the strategy will also be
re-positioned as Premier's 'Climate Change
Strategy' to support the holistic management of
greenhouse gas emissions across our business.
In 2018, 0.4 tonnes of hydrocarbons were released
over 15 spill events. The largest hydrocarbon spill,
involving the release of 90 kg of marine gas oil,
occurred at the Catcher FPSO.
The increase in 2018 represented an increase in
produced water content from our maturing assets
across our operated portfolio and the
commencement of routine produced water
discharges at our Solan facility in the UK.
Waste materials produced (te)*
5,982
5,810
8,176 This included 5,043 tonnes of hazardous waste and
939 tonnes of non-hazardous waste.
Spending on environmental
protection measures (US$m)
7.1
7.1
8.4
This included US$1.7m on waste disposal,
emissions treatment and remediation and US$5.4m
on prevention and environmental management.
*Data for 2018 assured by ERM CVS.
8 Our environmental performance reporting is aligned with IPIECA reporting guidance and the GRI Sustainability Reporting Standards.
9 Calculation for Scope 1 emissions (in thousand tonnes) are based on equations and emission factors provided in the 2009 API GHG Compendium. Global warming potential rates
are taken from the IPCC (2013) Assessment Report as well as IOGP guidance.
10 Calculation for Scope 2 emissions are based on emission factors supplied by the UK Department of Energy and Climate Change (now the Department for Business, Energy and
Industrial Strategy) (2015) and International Energy Agency (2012) guidance. A different factor is used for each country, and is applied to the total energy consumption in our
onshore facilities (offices and warehouses). Emission factors are used to give an estimate of CO2 equivalent.
11 Greenhouse gas emissions from our Solan asset were not included in our reported GHG intensity figure for 2016.
We also:
• Conduct environmental ALARP
studies during the design phase of
all new projects;
• Set specific, measurable, attainable,
relevant and time-bound (SMART) annual
GHG intensity targets to drive operational
efficiency at our operated production
assets; and
• Aspire (through target setting and the
measures explained above) to achieve
a carbon intensity for steady-state
operated production that is in line with
the overall industry intensity figure
published by the International
Association of Oil & Gas Producers (IOGP).
0
5
Where possible, we also seek to reduce our
indirect emissions, for example, through
the reduction of unnecessary air travel by
using video-conferencing.
We integrate carbon- and climate change-
related risks into our overall enterprise risk
management framework, where relevant.
We recognise the potential physical risks
that climate change poses to our operations.
These might include heightened storm risks
and long-term sea level rises.
As part of our management of these risks,
we undertake detailed meteorological and
oceanographic impact assessments for all
new projects during the design phase. These
incorporate projections of rising sea levels
and more frequent unpredictable weather
events.
We also monitor the multiple corporate-
level risks that climate change poses to
the Company. Most notably, this includes
the evolving fiscal and legislative response
to climate change in our host countries.
The 2015 Paris Agreement reflects the
commitment of the international
community in this respect. Premier will
continue to monitor the developing policy
environment and to adapt our future
carbon emissions strategy accordingly.
For more information about how related
physical risks are managed, please see page
48 (‘Health, safety and security’), and, for
related regulatory risks, please see pages 38
to 39 (‘Host government: political and fiscal
risks’ and ‘commodity price volatility’)12.
Effluents and waste
All Premier’s operated offshore assets
extract oil, gas and formation water from
offshore reservoirs. Each of these elements
is separated using our on-site processing
plant. The water is then either re-injected
into the reservoir to maintain underground
pressure or it is cleaned, filtered and then
discharged into the sea. All planned
discharges are cleaned to meet or exceed
national standards, using conventional
separation techniques. Our offshore
production operations, which discharge
water to the sea, are not located in any
protected areas.
We collect hazardous and non-hazardous
waste materials from our global drilling and
production operations. These materials are
disposed of onshore. They include drill
cuttings, used oil and scrap metal, wood,
plastic and other materials. We segregate
and recycle as much non-hazardous waste
as possible and encourage the use of
recycled input materials, where feasible.
12 During 2018, no post-control physical impacts associated with climate change affected our operations. Furthermore, no negative impacts upon our business associated with
climate change regulation were experienced.
Premier Oil plc 2018 Annual Report and Financial Statements 1.40
Incidents per million man hours
High Potential Incident Rate (HiPoR)
Employees
Why this issue is material
Our current and future success is
underpinned by our ability to recruit,
retain and motivate high quality, skilled
employees and contracted employees. Any
failure in this regard has the potential to
undermine our operational capabilities,
management effectiveness and, ultimately,
our profitability. In this context, we seek to
treat our people fairly, listen and respond to
their views, offer meaningful professional
development and deliver rewards
commensurate with employee performance.
Key issues in this regard include:
• Workforce profile; and
• Employee engagement.
Premier has identified employee attraction,
retention and succession as principal risks
under the principal risk ‘organisational
capability’. See page 39 for more information.
Policies
Our overall management of human
resource issues is guided by our Corporate
Responsibility Policy, Human Rights Policy,
Business Ethics Policy and our Equal
Opportunities and Diversity Policy.
How we implement our policies
Our day-to-day management of human
resource matters is supported by our
Human Resources Management System,
which includes guidance relating to:
• Performance;
• Resourcing;
• Reward; and
• Competency management13.
This guidance is hosted on the People
Portal – Premier’s online human resources
information system – and our BMS. The
BMS helps us achieve an appropriate
balance between consistent corporate-level
policy expectations and flexible, local-level
requirements across the Group14.
We continuously monitor and analyse
human resources data across the Group to
help ensure that we uphold our policy
commitments. This includes data relating
to our workforce profile and turnover rate,
as well as a variety of feedback that we
receive through our employee engagement
activities. In 2018, we also began monitoring
gender diversity metrics at each stage of the
recruitment process for employee and
contractor personnel vacancies.
Workforce profile
We prioritise the employment of suitably
qualified nationals whenever possible, and
support this aim by investing in their skills,
knowledge and experience. This helps
ensure the nationals we employ can access
opportunities across our organisation, while
also supporting the success of our business.
We treat people fairly, equally and without
prejudice, irrespective of gender, race, age,
disability, sexual orientation or any other
discriminatory attributes. This is reflected
in our Equal Opportunities and Diversity
Policy which applies to all permanent and
temporary staff, contractors and job
applicants. Employee obligations in this
respect are set out in our Employee
Handbook which prohibits discrimination
(whether direct or indirect), harassment
and victimisation.
We have also sought to protect jobs across
the Company during challenging economic
conditions. These efforts have included:
• A continued focus on sustainable cost
reduction efforts within our supply chain,
including contractors;
• Transfer of staff to new roles where
possible, in order to avoid redundancy;
and
• Seeking to retain high-performing
employees through our appraisal and
reward framework.
Employee engagement
Premier encourages open communication
between employees and managers on an
ongoing basis. We keep employees informed
about wider Company issues15 via a number
of communication mechanisms, including:
• Regular team meetings;
• The Company intranet;
• Messages from our Chief Executive;
• Ongoing email communications;
• Town Hall staff meetings at each business
unit, attended by visiting members of the
Executive Committee and senior
management; and
• The release of the Company’s half-year
and annual operational and financial
results, as well as trading and operations
updates.
We conduct structured employee surveys at
Group and business unit level. The results
of these surveys help us to understand and
respond effectively to employee attitudes
towards commitment, rewards, retention,
working conditions and related issues16.
5
1
13 We encourage all staff to develop their professional skills, to the benefit of both the individual and the Company. We are committed to supporting our staff in this regard, through
the provision of experiential learning opportunities, coaching and training. We do not currently employ any disabled people. Our commitment to supporting staff with the
development of their professional skills will fully apply to those disabled staff members that we employ in the future. We will also strive to provide continued employment for
members of our workforce who become disabled whilst employed by us.
14 Premier complies with all local labour laws, including those related to working hours and overtime.
15 Where relevant, this includes information about economic and financial factors affecting the Company’s performance.
16 We also gather feedback through, for example, regular performance reviews; our formal non-recriminatory human resources grievances procedure (should employees feel
uncomfortable raising issues through normal management channels); and our confidential, independently managed whistleblower hotline.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE RESPONSIBILITY CONTINUED
Outcomes
Key indicators – Employees
Material issue
Workforce profile Number of employees at end of
Premier Oil metric
year/turnover during the year
2018
76717/43
2017
2016
Our performance in 2018
783/51 799/16418 The size of our workforce was predominantly stable
in 2018, reflecting our continued efforts to protect
jobs where possible, our low turnover rate and our
focus on recruiting only for roles of high
importance.
Gender balance of total employee
workforce at end of year
(male/female)
Gender balance at senior
management level19,20 (male/
female)
577/190
595/188
604/195
102/13
99/12
99/13
Gender balance at Board level
(male/female)
7/2
7/2
7/2
Female participation rates in our total employee
workforce, senior management and Board of
Directors stood at 25%, 11% and 22% per cent
respectively in 2018. We recognise that women are
typically under-represented in the oil and gas
sector. Accordingly, we aim to ensure that our own
management systems, practices and working
culture do not discourage or restrict female access
to – and success within – our workforce. In 2018, we
implemented several initiatives to support diversity
and inclusion across the Company, with a particular
focus on enhancing gender diversity.
Employee
engagement
Number of employee surveys
2
2
1 We conducted two employee surveys in 2018. One
was our second Group-wide engagement survey,
which developed our understanding of satisfaction
and engagement levels across the workforce. The
other was an independent organisational review
based on engagement with over 100 senior
managers across the Group.
Percentage of employees
receiving performance reviews
99
98
99
In 2018, 99% of employees received performance
reviews against their Individual Performance
Contracts (IPCs), and were assigned performance
ratings by their managers. This rating was used to
guide salary adjustments and bonus
recommendations.
*Data for 2018 assured by ERM CVS
17 This represents the actual employee count on 31 December 2018, which is different to the number reported on page 28 (783), where an average approach method was used.
18 114 of the employees that left the Company in 2016 had joined Premier as a result of our acquisition of E.ON’s UK North Sea assets in April 2016.
19 Senior management is defined as Grade 5 and above.
20 Some members of our Board are also part of senior management and are therefore not included in these figures. This applied to three Board members in 2017 and 2016.
2
5
We respect the right of all employees to
join a legitimate trade union and bargain
collectively. We support organised labour
through, amongst other things, carrying out
official collective consultations in Indonesia,
Vietnam and the UK.
We have collective bargaining agreements
in place in our Indonesia and Vietnam
business units. Collectively, these
agreements cover 64 per cent of Premier's
total employee workforce.
At our UK and Falkland Islands business
units, as well as our corporate office, we
undertake collective consultations with
employee representatives only if 20 or more
UK-based employees are made redundant
within a 90-day period.
Typically, Premier will provide employees
and, where relevant, their elected
representatives with at least one month’s
notice of any significant operational
changes that might affect them.
Premier Oil plc 2018 Annual Report and Financial Statements Outcomes
Key indicators – Community relations
Material
issue
Value
generation and
distribution
Premier Oil
metric
Community
investment
spend (US$m)
2018 2017 2016
0.74
0.74
Our in performance
in 2018
0.69 With the exception of Mexico, all our
operations have established
community engagement and
investment programmes.
How we implement our policy
We implement our policy through our
Community Investment Management
System, which is aligned with IPIECA
standards. This helps us to systematically
identify, manage, evaluate and budget our
engagements in host countries. It focuses
on the following key aspects:
• Policy governance;
• Risk evaluation management;
• Planning;
• Implementation and monitoring; and
• Audit and review.
All of our operations have established
community engagement and investment
programmes.
Furthermore, our HSES Policy requires us
to prepare ESIAs for each of our operated
activities. As part of this process, we engage
with local communities, where relevant.
None of our operations have been identified
as having any material negative impacts on
local communities, again reflecting their
remote, offshore locations.
We also invest in community projects to
help deliver sustainable social, economic
and environmental benefits for local
communities and their host governments.
For details on these projects see Premier
2018 Corporate Responsibility Report.
Community relations
Why this issue is relevant
As an offshore operator, we have relatively
limited direct interaction with local
communities compared to most companies
with onshore operations. Nonetheless, our
relations with communities are very
important, due to:
• The potential and actual impacts of our
activities (and those of our partners) on
local fishing communities;
• The role of certain onshore communities
as transit and logistics points for our
offshore operations;
• The positive impact our community
investment has on local communities,
as well as on our reputation and social
licence to operate;
• The potential and actual impacts of the
non-operated, onshore production assets
in Pakistan, in which we had interests
during 2018; and
• The potential for new onshore operations
in the future.
We are careful to minimise our negative
impacts on local communities, if they
do occur 21.
Policy
Premier’s Community Investment Policy
governs our approach to interacting with
local communities. Amongst other
commitments, it requires Premier to:
• Invest in well-planned social projects that
support the development priorities of host
communities and governments;
• Work to achieve a net positive socio-
economic impact on local communities;
and
• Treat our neighbours with respect
and understanding, acknowledging
community governance and seeking
free and informed consent prior to
initiating operations that have a
potentially significant social impact
on the community.
Society
Why this issue is material
Our activities can potentially affect
national- and local-level stakeholders. In
turn, these stakeholders can potentially
affect the achievement of our business
objectives in our countries of operation. As
such, we strive to avoid and/or minimise
our potential negative impacts and to
maximise our positive impacts across a
range of issues. These include the rights of
local people, interactions with governments
and other stakeholders, the delivery of
economic contributions to broader society
and decommissioning activities.
Key issues in this regard are:
• Human rights;
• Public policy and government relations;
• Value generation and distribution –
specifically our economic contributions;
and
• Decommissioning.
Premier has identified ‘host government:
political and fiscal risks’ as a principal risk.
More information can be found on page 39.
Policies
Premier’s interactions with stakeholders
across society are governed by several
policies. Most notably, this includes our
overarching Corporate Responsibility
Policy, Human Rights Policy, Risk
Management Policy, Tax Policy, Business
Ethics Policy and the Code (page 46). We
implement these policies through our
associated management systems.
Amongst other commitments, our policies
require us to:
• Engage with stakeholders in our efforts
to respect and promote the fundamental
rights set out in the Universal Declaration
of Human Rights 22;
• Act transparently with all stakeholders
in full respect of the rule of law;
• Contribute to the development goals of
host countries;
5
3
• Support the socio-economic sustainability
and wellbeing of communities through
local procurement and other engagement
with local business; and
• Not seek to engage in artificial tax
avoidance arrangements.
21 No material impacts of this nature took place in 2018. Where relevant, Premier is committed to providing fair and adequate compensation for any losses for which we are liable.
This commitment is implemented through our management systems.
22 Our Human Rights Policy is guided by those rights enshrined in the core labour conventions of the International Labour Organization and by the United Nations Global Compact.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE RESPONSIBILITY CONTINUED
All new contractors undergo an initial
risk-based HSES assessment via
prequalification, bidding and/or negotiation.
Any that we consider to be ‘high risk’ are
subjected to more detailed HSES screening.
We also carry out performance reviews of
some of our most significant contracts
following their award, which includes
assessment of the HSES performance of the
contractor. Furthermore, all material new
contracts are assessed for human rights and
labour rights risks using our Supply Chain
Contractor Due Diligence Process.
Finally, all major commitments include
relevant HSES, human rights and
prevention of forced/involuntary labour
and human trafficking obligations.
Premier also maintains a presence at
major construction and fabrication yards
undertaking work for the Company. This
helps us to ensure their adherence to
relevant human rights, labour rights and
HSES obligations within their contracts.
Public policy and government relations
Each of our business units engages directly
with their host governments and regulators.
Furthermore, our Exploration team has
significant interaction with government
entities in the process of acquiring acreage,
including the preparation of bids in
licensing rounds or through direct
negotiations. All engagement is carried out
in line with Premier’s applicable policies,
including our Corporate Responsibility
Policy, Human Rights Policy, Business
Ethics Policy and the Code.
Employees, contractor personnel or agency
workers who believe Premier may have
failed to engage with host governments and
regulators in the manner required by the
Code (and other applicable policies) can
report concerns to their line manager or via
our confidential, independently managed
reporting hotline. Government officials can
also raise concerns with Premier directly.
All reports are properly investigated and the
results reported to the Board.
Premier is a member of a number of bodies
that use their legitimate influence to lobby
governments on issues affecting the oil and
gas sector. These include, for example:
• Association of British Independent Oil
Exploration Companies (BRINDEX);
• Falkland Islands Petroleum Licensees
Association (FIPLA); and
• Indonesian Petroleum Association (IPA).
How we implement our policies
Human rights
Premier’s Human Rights Policy is based
on international human rights norms.
It is implemented through our Human
Rights Management System, which sets
out how to:
• Embed human rights23;
• Conduct risk assessments;
• Develop action plans;
• Carry out implementation and
monitoring; and
• Audit and review compliance
and performance.
4
5
We use our Human Rights Risk Screening
Tool to screen our own operations, our
non-operated joint venture partners and
countries identified for possible exploration
or joint venture activities for high-level
human rights and labour rights risks. Risk
issues assessed include child labour, forced
and involuntary labour, and the protection
of indigenous peoples’ rights. This enables
us to prioritise current and future assets
for targeted management.
Where appropriate, we carry out third-party
due diligence investigations and ad hoc
risk assessments for new partnerships
and operating locations (which include
consideration of human rights issues,
if relevant).
Premier’s human rights grievance
procedure, which we launched in 2017,
enables us to better identify and address
actual or potential human rights impacts,
whether they are directly or indirectly
associated with our activities.
We do not typically employ or contract
security personnel, although landlords at
Premier’s office locations do provide their
own security personnel. Accordingly, we do
not typically conduct human rights training
for internal or external security personnel.
Where we require additional security
support outside of our office locations, our
providers are required to apply human
rights standards that are aligned with
our Human Rights Policy.
We also seek to monitor the human rights
performance of our business partners,
including our non-operated joint venture
partners and contractors, in line with the
requirements of the UN Guiding Principles
on Business and Human Rights.
23 Including the core labour conventions of the International Labour Organization.
Premier Oil plc 2018 Annual Report and Financial Statements Outcomes
Key indicators – Society24
Material issue
Human rights
Premier Oil metric
Identified violations of our
Human Rights Policy
(by Premier and its employees)
2018
0
2017
0
Significant negative human rights or
labour rights impacts identified in
our supply chain
Value of political donations and
contributions (US$)
0
0
0
0
Economic value distributed (US$m)25
1,02626
923
825
Public policy
and government
relations
Value generation
and distribution
2016
Our performance in 2018
0 No violations were identified in 2018. This reflects our
ongoing human rights due diligence efforts, as well
as the offshore and relatively remote nature of our
operated activities.
0 No significant negative human rights or labour rights
impacts were identified in our supply chain during
2018. All new material contracts are now subject to
our Supply Chain Contractor Due Diligence Process.
0 We made no political donations or contributions in
2018. All of our interactions with host governments
and regulators were conducted in line with our
Business Ethics Policy and the Code.
Value generation and distribution
We believe that we can most effectively
generate longer-term value for our
shareholders by operating in a way that
delivers lasting benefits to all our other
stakeholders. Much of the value we create is
distributed throughout our host societies,
and directly supports long-term socio-
economic development.
In this context (and in line with relevant
local content requirements), Premier
seeks to:
• Employ nationals where they are
appropriately qualified; and
• Use contractors based in our host
countries, where they can meet our HSES,
operational and economic requirements.
To help nationals and host country
contractors access these opportunities,
we support local capacity building where
economically feasible.
We are committed to prompt disclosure and
transparency in all tax matters and have
met all applicable statutory requirements in
this respect. This includes the disclosures
and submissions that we make to comply
with the requirements of the European
Union Accounting Directive (EUAD), the
Extractives Industries Transparency
Initiative (EITI) and Country-by-Country
Reporting (CBCR).
Premier’s Tax Policy is implemented by its
internal Tax Management Standard, which
defines the framework for the management
of tax.
The standard establishes the minimum
performance requirements that are applied
throughout the Group, including actively
monitoring tax legislation in all operating
environments to ensure compliance with tax
law and compliance with Premier’s Tax Policy.
Decommissioning
At present, only one of Premier’s operated
production fields (Caledonia Field) has been
declared inactive25. However, within these
assets we have 17 open-water subsea wells
that have been declared inactive and will
be plugged and abandoned in a safe and
efficient manner, integrated ideally with
other Decommissioning Programmes. We
are in the process of developing full
Decommissioning Programmes for the
Greater Balmoral Area, Caledonia,
Huntington and Hunter and Rita fields,
some of which were submitted for public
consultation and regulatory approval
during the course of the year.
However, in 2018, Premier postponed
production cessation and closure
activities for the Greater Balmoral Area
to 2021 or later, in agreement with the
Oil and Gas Authority. This was driven
by a re-evaluation of the asset’s
performance in the context of stronger
oil market conditions.
Throughout 2018 we continued to generate
significant levels of economic value, much
of which was distributed to stakeholders
throughout our host societies.
We have developed a clear strategy to
decommission our operated assets in
a continuous, sequential fashion,
incorporating learnings and progressive
improvements as we move through the
decommissioning portfolio. We have put
in place an experienced in-house team
who are committed to undertaking
decommissioning activity in a safe and
efficient manner. Our activities in this
respect are guided by our HSES Policy
and standards.
We are incorporating innovative
technological and proven engineering
solutions into the decommissioning
preparation work we are undertaking at
our Balmoral asset, to help minimise HSE
risks and increase cost-efficiencies. We
are also proactively collaborating with
regulatory authorities, joint venture
partners and operators in the region to
share knowledge, contribute to joint
research initiatives and rationalise
and coordinate decommissioning
programmes where possible.
The Strategic Report, which has
been prepared in accordance with
the requirements of the Companies
Act 2006, has been approved and
signed on behalf of the Board.
5
5
Tony Durrant
Chief Executive Officer
6 March 2019
24 i.e. operating costs, royalties, staff costs, dividends, finance costs, corporate income tax payments and community investments.
25 In 2018, Premier paid US$129m in the form of corporate income tax payments to our host governments. We did not engage in artificial tax avoidance arrangements and met all
statutory and transparency requirements with respect to tax matters.
26 We define ‘inactive sites’ as production fields that are no longer producing, but have not yet been decommissioned, as well as subsea infrastructure that is no longer economically
viable for production (this includes: subsea wells, templates, manifolds and flow lines, and umbilicals that have been flushed of hydrocarbon and other chemicals disconnected
from production assets, prior to decommissioning).
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION Successfully
delivering
our strategy
Premier has established a clear vision and core
values that complement and support the
Board’s strategy. These values are at the heart
of all Premier’s activities, and good corporate
governance provides a sound framework for
embedding them throughout the organisation.
Roy A Franklin
Chairman
Dear shareholder,
I am pleased to report that your Company
delivered good operational and financial
performance during the year, which
resulted in improvements to its capital
structure and balance sheet, and positioned
it for the next phase of development.
Having completed my first full year as
Chairman, I have been impressed by the
level of hard work and dedication shown
by the Group’s management and employees
and I firmly believe that we are well placed
to tackle the immediate challenges whilst
being in a position to create value for all of
our stakeholders over the medium and
longer-term.
Our governance framework
Premier has established a clear vision and
core values that complement and support
the Board’s strategy. These values are at
the heart of all Premier’s activities and
good corporate governance provides a
sound framework for embedding them
throughout the organisation.
Our governance framework not only
ensures that the right decisions are taken
at the right time; it supports and informs
all that we do. This report describes that
framework and will help you to understand
how the Company has been run, risks are
managed, controls are monitored, and key
decisions taken during the year.
Our governance framework
Compliance overview
Leadership
The Company is led by a Board with
significant collective experience across
the oil and gas industry. Non-Executive
Board members challenge the Executives
on all aspects of the Company's business
to ensure high quality decisions are
taken at the right time and in the best
interests of our stakeholders.
The roles of Chairman and Chief
Executive Officer remain separate,
with a clear division of responsibilities
between them.
PAGE 60
Effectiveness
The Board has a diverse range of skills,
knowledge and experience and includes
two female Directors (22 per cent of the
total). The ongoing process of succession
planning, overseen by the Nomination
Committee, aims to ensure that the
Board continues to be properly balanced,
with the necessary skills, knowledge and
experience to successfully deliver the
Company’s strategy. The Board comprises
a majority of Non-Executive Directors, all
of whom are independent.
An externally-facilitated Board
evaluation was undertaken during
2018 to review Board and Committee
performance in a structured manner
and provide recommendations
for improvement.
PAGE 68
6
5
Accountability
The Board monitors risks and controls on
an ongoing basis and conducts annual
assessments of the effectiveness of its
systems of risk management and internal
control. The Board has also taken steps
during 2018 to ensure that the Company's
risk management procedures enable
effective identification and management
of emerging risks.
PAGE 36
Shareholder engagement
Regular dialogue takes place with
institutional investors, retail investors
and analysts at meetings, presentations
and conferences.
PAGE 70
Remuneration
Our Remuneration Policy is designed
to ensure alignment with our immediate
and long-term strategic objectives.
Details of how the Policy has been
implemented during the year are
included in the Directors’ Remuneration
Report.
PAGE 79
Premier Oil plc 2018 Annual Report and Financial StatementsCHAIRMAN’S INTRODUCTION
Board composition
number of Directors as at 6 March 2019
Chairman
Executive Directors
Non-Executive Directors
1
3
5
Board focus during 2018
Following the successful refinancing of
the Group’s credit facilities in 2017, one of
the Board’s primary areas of focus has
been debt reduction and ensuring ongoing
compliance with our banking covenants.
With a portfolio of assets currently
producing in excess of 75 kboepd Premier
is generating significant free cash flow,
which has accelerated debt repayment
and will give the Company increasing
flexibility to invest in growth projects.
Achieving the contractual maximum
production rates at Catcher during 2018 was
a significant milestone for the Company
and I would like to pay tribute to all those
involved in the successful completion of
this project. After the end of the reporting
period, we were very pleased to negotiate an
increase to the maximum rate which has
allowed us to increase production above
nameplate capacity. We now look forward
to capturing further upside opportunities
in the Catcher area thereby extending
the production profile and growing the
reserve base.
Elsewhere in the UK, the Board sanctioned
the development of the Tolmount Main gas
field which will extend the Company’s
medium-term production profile via a
high-return, capital efficient project. We
look forward to working with all of our
partners and stakeholders to deliver this
project on time and on budget.
With Premier well positioned for future
growth and with a number of new Non-
Executives having joined the Board in 2017,
including myself, your Board took the
decision during the year to commission an
externally facilitated ‘health-check’ of the
business to get an objective view on the
Company’s governance, organisation,
processes and culture, with the overall
objective of preparing the Company for its
next stage of growth. In June, the Boston
Consulting Group (‘BCG’) were appointed to
carry out this review, further details of
which can be found in the Nomination
Committee Report on page 78.
2018 UK Corporate Governance Code
In July, the Financial Reporting Council
published the new Corporate Governance
Code. Over the latter part of the year, the
Board carefully considered the key areas
of focus in the Code, in particular the issues
of workforce and stakeholder engagement,
culture, succession, diversity and
remuneration. Various actions have been
taken by the Board to ensure that the
Company applies the principles of the
new Code from January 2019 and we
will report on our compliance in the 2019
Annual Report.
Further details about some of the actions
that have been taken to prepare for the
new Code can be found in the Nomination,
Remuneration and Audit and Risk
Committee Reports.
5
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION Compliance statement
This report, together with the Nomination
Committee Report, the Audit and Risk
Committee Report, the Directors’ Remuneration
Report, the Directors' Report and sections of
the Strategic Report incorporated by reference,
describes the manner in which the Company has
applied the main principles of governance set
out in the UK Corporate Governance Code
published in April 2016 (the ‘Code’) and
complied with the individual Code provisions.
The Code can be found on the Financial
Reporting Council’s website at www.frc.org.uk.
It is the Board’s view that the Company has fully
complied with the Code throughout the financial
year ended 31 December 2018.
CHAIRMAN’S INTRODUCTION CONTINUED
Engagement with our shareholders
I have taken the opportunity to meet a
number of our major shareholders during
the year to solicit their views on the
business and our growth plans. I have been
encouraged by the number of new investors
who have taken long-term positions in the
Company over the past year, and we look
forward to building on our engagement
with them as the Company moves in to its
next phase of development. During 2019,
the Board will continue to engage with
shareholders as we formulate our
remuneration policy to be put to
shareholders in 2020. Aligning the interests
of management with our stakeholders’
interests remains a key focus for the
Board as we commence this process.
Board focus during 2019
Debt reduction continues to be a priority
for the Board as we look to strengthen
the balance sheet to ensure we have
the flexibility to pursue growth
opportunities, both in the existing
portfolio and through acquisitions.
We will continue to ensure that our
governance framework supports the
achievement of our strategy, and HSES
remains central to our decision-making.
On behalf of the Board, I would like to
express my thanks to our employees and
to all other stakeholders for their
continued support.
Roy A Franklin
Chairman
Board effectiveness
As indicated in my statement in last
year's Annual Report, the Board conducted
an externally facilitated review of its
effectiveness during 2018. The evaluation
was carried out by Lintstock Limited and
involved one-to-one interviews with all
Board and Committee members as well as
360 reviews of each Director's performance.
Further details about the evaluation
process and the actions arising can be
found on page 68.
Board changes
Jane Hinkley, the Company's Senior
Independent Director and Remuneration
Committee Chair, has indicated to the Board
that she intends to stand down as a Director
at the end of 2019, having served on the
Board since 2010. At the Company's 2019
AGM, the Directors will propose the election
of Barbara Jeremiah to the Board as an
independent Non-Executive Director and
successor to Jane as Remuneration
Committee Chair.
Barbara brings with her a wealth of
strategic and commercial experience
obtained in the strongly cyclical
environment of the resources sector,
which will enable her, if elected, to make a
valuable contribution to our Board and as
Chair of our Remuneration Committee.
Further details regarding the appointment
process for Barbara can be found in the
Nomination Committee Report on page 78.
Diversity
Your Board recognises the benefits of
diversity in enhancing the quality of
its performance, therefore, all Board
appointments are made on merit, against
objective criteria and with due regard to
the benefits of diversity in its widest
sense, including gender diversity.
Further details on our Board Diversity
Policy can be found on page 78.
8
5
Premier Oil plc 2018 Annual Report and Financial Statements The Board
The Board provides leadership to the Group with a view to
delivering long-term value to shareholders and other
stakeholders. It sets the strategy and oversees its execution
within an agreed framework of internal controls, ensuring that
risk is appropriately managed.
As at 31 December 2018, the Board of Directors comprised the
Chairman, Chief Executive Officer, two other Executive Directors
and five independent Non-Executive Directors. Biographical
details of each Director in service as at 6 March 2019, including
membership of Board Committees, are set out on pages 60 to 63.
Roy A Franklin
Chairman
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
Robin Allan
Director, North Sea
and Exploration
Dave Blackwood
Non-Executive Director
Anne Marie Cannon
Non-Executive Director
Jane Hinkley
Senior Independent
Non-Executive Director
Iain Macdonald
Non-Executive Director
Mike Wheeler
Non-Executive Director
The Committees
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Executive Committee
The Executive Committee
supports the Chief
Executive Officer with
the development and
implementation of Group
strategy, management of
the operations of the
Group including
succession planning,
financial planning, risk
management, internal
control, HSES and
corporate responsibility.
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Iain Macdonald (Chair)
Roy A Franklin (Chair)
Jane Hinkley (Chair)
Dave Blackwood
Mike Wheeler
Dave Blackwood
Dave Blackwood
Anne Marie Cannon
Anne Marie Cannon
Tony Durrant
Jane Hinkley
Iain Macdonald
Mike Wheeler
Considers Board and
Committee structure,
composition and succession
planning and oversees
succession planning and
development of senior
management.
Mike Wheeler
Ensures that there is an
appropriate reward strategy
in place for Executive
Directors with the intention
of aligning their interests
with those of shareholders.
This Committee also
oversees reward strategy for
senior management.
Keeps under review the
effectiveness of the Group’s
risk management and
internal control systems
and the programme of
reviews coordinated by
Group Audit and Risk;
monitors the integrity of
the Company’s financial
statements and the overall
fairness of the Annual
Report and Financial
Statements; oversees the
Company’s relationship
with the Auditor and
assesses the effectiveness
of the audit; takes
responsibility for the
appointment or
reappointment of the
Company’s Auditor ensuring
that the process follows the
required best practice and
legal obligations.
FULL COMMITTEE REPORT
ON PAGES 72 TO 76
FULL COMMITTEE REPORT
ON PAGES 77 TO 78
FULL COMMITTEE REPORT
ON PAGES 79 TO 107
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Premier Oil plc 2018 Annual Report and Financial Statements
BOARD OF DIRECTORS
The Board
Board tenure as at 6 March 2019
Audit and Risk
Remuneration
Nomination
Chairman of Committee
Roy A Franklin
Chairman
Board tenure
1 year 6 months
Tony Durrant
Chief Executive Officer
Board tenure
13 years 8 months
Current external roles
• Non-Executive Director and Deputy Chairman
Current external roles
Not applicable
Richard Rose
Finance Director
Board tenure
4 years 6 months
Current external roles
Not applicable
of Equinor
• Senior Independent Non-Executive Director
of Wood plc
• Member of the Advisory Board of
Kerogen Capital LLC
• Chairman of privately held
Cuadrilla Resources Ltd
• Chairman of privately held Energean Israel Ltd
Past roles
• Non-Executive Director of Santos Ltd
• Chairman of Keller Group PLC
• Non-Executive Director of OMV AG
• Non-Executive Director of Boart Longyear Ltd
• Chairman of Novera Energy PLC
• Chief Executive Officer of Paladin Resources PLC
• Group Managing Director of Clyde Petroleum plc
Board contribution
Roy has more than 45 years’ experience as an
executive in the oil and gas industry. He spent 18
years at BP and has served on a number of
international energy boards in non-executive roles.
He has extensive experience in chairing boards of
listed companies, and his expertise in the energy
sector in particular enables him to ensure that the
Board focuses on the right issues and discusses
them productively.
Past roles
• Non-Executive Director and Chairman
of the Audit & Risk and Remuneration
Committees of Greenergy Fuels
• Managing Director and Head of the European
Natural Resources Group at Lehman Brothers
• Member of the Advisory Committee
of Flowstream Commodities
Board contribution
Tony has been involved in numerous financing
and mergers and acquisitions transactions in the
upstream sector and, since joining Premier as
Finance Director in 2005, has been instrumental in
transforming Premier’s portfolio from producing
35,000 boepd to one that is currently producing
circa 75,000 boepd. Now with nearly 14 years’
experience at Premier including over 4 years as
CEO, Tony has a deep understanding of the
Company and the economic, financial and political
environment in which it operates. This, together
with his long experience as Premier’s Finance
Director, is invaluable as he leads Premier in
identifying and progressing growth opportunities
and restoring the strength of the balance sheet.
Past roles
• Chartered accountant with Ernst & Young LLP
• Partner in Equity Research at Oriel Securities
• Managing Director at RBC Capital Markets
• Strategy and Head of Corporate Communications
at Ophir Energy
Board contribution
Richard brings a wealth of knowledge and
experience to Premier, including his time as an
adviser to the Company in his previous corporate
broking roles. He has extensive knowledge of debt
and equity markets which were invaluable for
Premier in completing the comprehensive
refinancing of the Group's debt facilities in 2017,
and his experience in this area continues to be of
vital importance as the Company looks to ensure
appropriate financing for its growth activities.
0
6
Committee membership
Committee membership
Committee membership
Independent
Yes1
Independent
Not applicable
None
Independent
Not applicable
1 Chairman was independent on appointment.
Premier Oil plc 2018 Annual Report and Financial Statements Robin Allan
Director, North Sea and Exploration
Board tenure
15 years 3 months
Current external roles
• Chairman of The Association of British
Independent Oil Exploration Companies
(‘BRINDEX’)
• Board member of Oil & Gas UK
Gender diversity
number of directors
Male
Female
Length of tenure
number of directors
<3 Years
3 – 6 Years
7 – 10 Years
>10 Years
7
Past roles
• Within Premier, Robin has previously served in a
variety of roles including: Director: Asia,
Director of Business Development and Country
Manager in Indonesia
2
• Robin joined Premier in 1986 from Burmah Oil
Board contribution
With a background as a geologist, Robin has 30
years’ experience in senior positions at Premier
and has a particularly thorough understanding
of the Company’s operations having worked
both in South East Asia and the UK. He now
plays a leading role within the UK oil industry,
representing North Sea operators through his
additional roles as Chairman of BRINDEX and as a
Board member of Oil & Gas UK. With the increase
in size of Premier’s UK operations over recent
years, Robin’s understanding of the operational
and regulatory environment in the North Sea has
been and continues to be integral to the success of
this major part of the Group’s operations, while his
experience in Asia helps him to direct Premier’s
worldwide exploration programme.
7
Male
2
Female
Committee membership
None
Independent
Not applicable
2
1
4
<3 years
3-6 years
2
1
7-10 years
2
>10 years
4
2
6
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION BOARD OF DIRECTORS CONTINUED
The Board
Board tenure as at 6 March 2019
Audit and Risk
Remuneration
Nomination
Chairman of Committee
Dave Blackwood
Non-Executive Director
Anne Marie Cannon
Non-Executive Director
Jane Hinkley – Senior Independent
Non-Executive Director
Board tenure
1 year 7 months
Board tenure
5 years 1 month
Board tenure
8 years 6 months
Current external roles
• Senior Advisor to Evercore Partners Ltd
• Director of Aberdeen Science Centre
Past roles
• Non-Executive Director of Expro International
Group Holding Ltd
• Senior Independent Director of Valiant
Petroleum plc
• Managing Director of BP North Sea
• Joint Chairman of Oil & Gas UK
Current external roles
• Deputy Chair of Aker BP ASA
• Non-Executive Director of Aker ASA
• Non-Executive Director of Aker Energy AS
• Non-Executive Director and Chairman of the
Remuneration Committee of STV Group plc
Past roles
• Various roles at J Henry Schroder Wagg, Shell UK
E&P and Thomson North Sea
• Executive Director at Hardy Oil and Gas and
• Director of Aberdeen City and Shire Economic
British Borneo
Future (‘ACSEF’)
Board contribution
Dave has over 43 years’ experience in the oil and gas
sector, 7 years in the service sector with
Schlumberger in the North Sea and the middle East,
and 27 years in various global roles within BP,
including heading up BP’s upstream business in the
UK and Norway. He has a strong understanding of
the technical and commercial issues at play in an
exploration and production company and has broad
experience in developing and managing large-scale,
complex energy assets throughout the world, from
exploration through to decommissioning. Dave’s oil
and gas experience and technical expertise are
valuable to the Board as it monitors current projects
and assesses potential ones.
• Senior Adviser to the natural resources group at
Morgan Stanley
Board contribution
Anne Marie has over 36 years’ experience in the oil
and gas sector through senior roles within both
investment banking and quoted companies. Having
spent much of her career in the energy teams at
Morgan Stanley and J Henry Schroder Wagg,
Anne Marie has significant experience advising on
mergers and acquisitions within the upstream
sector, and is thus well equipped to engage with
management and provide appropriate independent
challenge in relation to commercial transactions.
2
6
Current external roles
• Non-Executive Director and Chairman of the
Remuneration Committee of Vesuvius plc
• Chairman of Teekay GP LLC
Past roles
• CFO and subsequently Managing Director of
Gotaas-Larsen Shipping Corporation
• Managing Director at Navion Shipping AS
• Non-Executive Director of Revus Energy ASA
Board contribution
Through her management roles and directorships
in the oil and gas shipping sector, together with her
financial background as a qualified accountant,
Jane brings strong, relevant listed company
experience to the Board. In addition, Jane is an
experienced remuneration committee chairman,
having served in such roles for the past seven years
within public companies.
During 2019, Jane will complete 9 years of service on
the Board and she has indicated that she intends to
retire at the end of the year. The Board considers
that she remains independent in attitude and
continues to offer a degree of challenge to
management and engagement in the Company’s
affairs that is appropriate in a Senior Independent
Non-Executive Director. The Board therefore
proposes her re-election at the AGM so that she is
able, inter alia, to remain a member of the
Company’s Remuneration Committee until her
retirement and ensure a smooth handover of
responsibilities to her successor, helping in
particular with the review of Premier’s
Remuneration Policy (which Jane played a key role
in developing in 2017) prior to its submission to
shareholders for approval in 2020.
Committee membership
Committee membership
Committee membership
Independent
Yes
Independent
Yes
Independent
Yes
Premier Oil plc 2018 Annual Report and Financial Statements
Iain Macdonald
Non-Executive Director
Mike Wheeler
Non-Executive Director
Rachel Rickard1
Company Secretary
Rachel joined Premier in January 2014 and was
appointed Company Secretary in May 2015.
She is a Fellow of the Institute of Chartered
Secretaries and Administrators with more than
16 years’ experience gained across a variety of
industries and sectors in FTSE 100 and FTSE 250
listed companies, including three years within the
financial services sector. As Company Secretary,
Rachel is responsible for advising the Board,
through the Chairman, on all governance matters.
Board tenure
2 years 10 months
Board tenure
1 year 7 months
Current external roles
• Non-Executive Director and Chairman of the
Audit Committee at SUEK JSC
• Non-Executive Director of The Workforce
Development Trust
Past roles
• Various roles at BP in engineering, licensing,
business management and finance including
three years as Deputy Group CFO for BP plc
• Served as a Non-Executive Director of TNK-BP
Ltd from 2009 to 2011
Board contribution
With his extensive experience in senior financial
and operational roles at BP, Iain brings a wealth of
experience to his role as Chairman of the Audit and
Risk Committee, which he assumed in May 2017
following a year-long transition period. Since
taking the Chairmanship, Iain has developed the
rolling programme of Audit & Risk Committee
presentations to ensure that the Committee’s
oversight of the business is appropriate to enable it
to effectively monitor the Group’s internal control
and risk management processes.
Current external roles
• Chairman of Glitnir
• Non-Executive Director and Chairman of the
Audit Committee of Sunseeker International
Past roles
• Chairman of Citadel Securities Europe and
Chairman of the Audit Committee
• Non-Executive Director and Chairman of the
Audit & Risk Committee of the UK Department
of Health
• Chairman of the Audit & Risk Committee of
Dubai Holding
• Senior Adviser/Non-Executive Chairman of Close
Brothers Corporate Finance
• Senior Adviser to BDO
• Non-Executive Chairman of Vantis plc
• Non-Executive member of the Audit Committee
of the Institute of Financial Services
Board contribution
Mike has held senior roles in businesses across a
variety of sectors, bringing a diverse outlook and a
broad range of experience to the Board. His career
at KPMG spanned 30 years, including serving as
Global Chairman, Restructuring. Through his role
at KPMG and experience serving on audit and risk
committees he has built up significant expertise in
the areas of restructuring and corporate finance,
which is an important element of the Board’s ability
to deliver its strategy.
Committee membership
Committee membership
Independent
Yes
Independent
Yes
6
3
1 Rachel is currently on maternity leave. Andy Gibb,
Group General Counsel, is Interim Company
Secretary in Rachel’s absence.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
CORPORATE GOVERNANCE REPORT
The role of the Board
The Board is collectively responsible for the
governance of the Company on behalf of
Premier’s shareholders and is accountable
to Premier’s shareholders for the long-term
success of the Group.
The Board governs the Group in accordance
with the authority set out in the Company’s
Articles of Association and in compliance
with the UK Corporate Governance Code
(the ‘Code’). A copy of the Articles of
Association is available on Premier’s website
www.premier-oil.com. A copy of the Code
can be accessed at www.frc.org.uk.
Our governance goes beyond regulatory
compliance and puts the interests of all our
stakeholders at the heart of the Board’s
decision-making.
Risk management and internal control
The Board sets the Company’s strategic
objectives and ensures that they are
properly pursued within a sound framework
of internal controls and risk management.
As part of this process, the Board
determines the nature and extent of the
principal risks it is willing to take in
achieving the Company’s strategic
objectives and ensures that major risks are
actively monitored, with health, safety,
environment and security (‘HSES’) borne in
mind at all times.
Position
Role and responsibilities
Risk communication
and consultation
Establish context
Risk assessment
Risk identification
Risk analysis
and evaluation
Risk reduction
Continuous improvement
Risk monitoring
and review
The Board is responsible for maintaining
sound risk management and internal
control systems. In meeting this
responsibility, the Board monitors the
Company’s risk management and internal
control systems throughout the year and,
on an annual basis, carries out a review of
their effectiveness.
Further details about the systems used
for ongoing monitoring and annual review
of the Company’s risk management and
internal control systems are set out on
pages 36 and 37 of the Principal Risks
section of the Strategic Report and on
pages 73 and 74 of the Audit and Risk
Committee Report.
Chairman of
the Board
• The Chairman’s role is part-time and he is a Non-Executive Director. His primary responsibility is the leadership of the Board,
ensuring its effectiveness in all aspects of its role including maintaining effective communication with Premier’s shareholders and
other stakeholders. The Chairman is also responsible for ensuring the integrity and effectiveness of the Board/Executive
relationship. This is effected through meetings, as well as contact with other Board members, shareholders, joint venture partners,
host governments and other stakeholders.
• There is a clear division of responsibilities between the roles of the Chairman and Chief Executive Officer, which has been agreed
by the Board and is set out in writing.
Chief Executive
Officer
• The Chief Executive Officer is responsible for the day-to-day running of the Group’s operations, for applying Group policies,
including HSES, and for implementing the strategy agreed by the Board. He plays a pivotal role in developing and reviewing the
strategy in consultation with the Board and in executing it with the support of the Executive Committee.
Senior
Independent
Director
Non-Executive
Directors
4
6
• The Company’s Senior Independent Director is available to shareholders who have concerns that cannot be resolved through
discussion with the Chairman, Chief Executive Officer or other Executive Directors. The Senior Independent Director is responsible
for leading the annual appraisal of the Chairman’s performance.
• The Non-Executive Directors bring independent judgement to bear on issues of strategy and resource, including senior appointments
and standards of conduct. The Non-Executive Directors have a particular responsibility to challenge independently and
constructively the performance of executive management and to monitor the performance of the management team in the delivery
of the agreed objectives and targets. In meeting this responsibility, the Chairman and the Non-Executive Directors meet periodically
without the Executive Directors present, and the Non-Executive Directors meet once a year without the Chairman present. The
Non-Executive Directors must also be satisfied with the integrity of the Group’s financial information and with the robustness of
Premier’s internal control and risk management systems. The Non-Executive Directors are responsible for determining appropriate
levels of remuneration for the Executive Directors and have a key role in succession planning and the appointment of and, where
necessary, removal of Directors.
• Non-Executive Directors are required to be free from any relationships or circumstances which are likely to affect the independence
of their judgement. The Nomination Committee regularly reviews the independence of Non-Executive Directors.
• Non-Executive Directors are appointed for a specified term of three years subject to annual re-election and to Companies Act
provisions relating to the removal of a director. The terms and conditions of their appointment are made available for inspection.
Letters of appointment set out an expected time commitment, and all Non-Executive Directors undertake that they will have
sufficient time to discharge their responsibilities effectively. Any significant other business commitments are disclosed to the Board
prior to appointment. Changes to such commitments are disclosed to the Board on an ongoing basis. Where necessary to discharge
their responsibilities as directors, the Directors have access to independent professional advice at the Company’s expense.
Company
Secretary
• The Company Secretary is responsible for advising the Board, through the Chairman, on all governance matters. The Company
Secretary, under the direction of the Chairman, is responsible for ensuring good information flows between the Board and its
Committees and between senior management and the Non-Executive Directors. The Company Secretary also plays a pivotal role
in facilitating the induction of new Directors and assisting with the ongoing training and development needs of Board members
as required. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that
Board procedures are complied with. The appointment and removal of the Company Secretary is a matter reserved for the Board
as a whole.
Premier Oil plc 2018 Annual Report and Financial Statements to ExCo members, the Group HSE Manager,
Group Financial Controller and additional
members of the exploration team.
Quarterly Performance Review meetings
are also held between ExCo members and
the senior management team from within
each of the business units and include risk
management and HSES reviews as part of
the overall review of each quarter.
Disclosure Committee
The Company is required to make timely
and accurate disclosure of all information
that is required to be so disclosed to meet
the legal and regulatory requirements
arising from its listing on the London
Stock Exchange.
A Disclosure Committee has been
established to assist the Company in
meeting the above requirements and has
responsibility for, among other things,
determining on a timely basis the disclosure
treatment of material information.
The Committee also has responsibility for
the identification of inside information for
the purpose of maintaining the Company’s
insider list.
How the Board operates
The Board has a structured agenda for the
year ensuring all relevant matters are
considered, with sufficient time for
discussion. The programme is structured to
include: strategic issues, including setting
the strategy and assessing performance in
executing the strategy; the annual business
plan and budget; HSES and risk; internal
controls and risk management; corporate
responsibility; financing; investor relations;
corporate reporting; Board Committee
related activity, including matters requiring
Board sanction; and other corporate
governance matters.
The Board meets at least six times each year
and, in addition, an update conference call
generally takes place in the months when
no formal meeting is scheduled. Ad-hoc
Board meetings are held as required to deal
with specific matters requiring Board
consideration. The agenda for each Board
meeting is set by the Chairman in
consultation with the Chief Executive
Officer and the Company Secretary based
on an annual programme, with any
additional matters included as and when
they arise.
Board members receive a monthly report on
the Company’s activities which incorporates
an update on progress against corporate
objectives, financial performance and the
management of business risks including
HSES matters.
A formal schedule of Matters Reserved for
the Board can be found on the Company’s
website www.premier-oil.com. The schedule
is regularly reviewed by the Board. Key
matters reserved for the Board are set out in
the diagram below.
The Board has the opportunity to meet with
management and discuss key projects
through Board presentations and more
detailed management presentation sessions.
Board Committees
The Board has established Audit and Risk,
Remuneration and Nomination
Committees. Each Committee has formal
terms of reference approved by the Board,
copies of which can be found on the
Company’s website. The Company Secretary
provides advice and support to the Board
and all Board Committees. Board
Committees are authorised to engage
the services of external advisers as they
deem necessary.
Details of the work of our Audit and Risk,
Remuneration and Nomination Committees
are set out in the Committee sections of this
report.
Executive Committee and
management structure
The Board delegates the day-to-day running
of the Group to the Chief Executive Officer
who is assisted by the Executive Committee.
The Executive Committee (‘ExCo’) meets
formally once a month and its membership
comprises: each of the Executive Directors;
Nic Braley, the Group Commercial and
Strategy Manager; Mike Fleming, the Group
HR Director; Andy Gibb, the Group General
Counsel; Dean Griffin, the Head of
Exploration; Stuart Wheaton, Chief
Technical Officer; and Bassem Zaki, the
Business Development Manager. In addition
to formal monthly ExCo meetings, the ExCo
holds fortnightly meetings with the
Country Managers and, in the alternate
weeks, there is a fortnightly meeting with
functional heads which includes, in addition
Matters Reserved for the Board
Corporate strategy
• Overall direction and
strategy of the business
• Oversight of the Group’s
operations and review of
performance
• Group values
• Major changes in
organisation structure
• New country and/or
business entry
• Acquisition and/or
disposal of interests
Finance
• Group debt and
equity structure
• Significant changes in
accounting policies
• Controls related to covenant
compliance
Expenditure
• Group budget
• Major capital expenditure
• Development plans
and projects
Risk management and
internal control
• Determination of the
appropriate level of risk
exposure for the Company
Shareholder communication
• Approval of Half-Year
and Full-Year results
announcements and
trading updates
• Recognising high impact
• Management of relationships
business risks and approving
risk mitigating strategies
and dialogue with
shareholders
• Monitoring effectiveness of
internal control systems
including finance, operations,
HSES and asset integrity and
undertaking an annual
assessment thereof
Corporate governance
• The Group’s corporate
governance and compliance
arrangements
• Undertaking an annual
evaluation of Board and
Committee performance
• Approval of the Company’s
Annual Report and Financial
Statements
Succession planning
and appointments
• Appointment and removal of
Directors and the Company
Secretary
• Appointment and removal
of the Company’s brokers
and advisers
6
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CORPORATE GOVERNANCE REPORT CONTINUED
Board activity during the year
The Board held six scheduled meetings
during the year and, in addition, an update
conference call was held in between the
scheduled meetings. No ad-hoc meetings
were held. Details of the number of Board
meetings held and individual attendance by
Directors are shown in the table below.
Following completion of the Company’s
refinancing in 2017, a key focus for the
Board in 2018 was to reduce indebtedness
and rebalance the Company’s capital
structure. As part of this process, the
Board approved an invitation to convertible
bondholders to accelerate the exchange
of their outstanding bonds. This process
was successfully completed in January
and, coupled with a mandatory conversion
of the remaining bonds in September,
reduced accounting net debt by
US$181 million.
In addition, the Board regularly reviewed
the progress of the Company’s ongoing
disposal programme with the sales of
Babbage, Esmond Transportation System
and Kakap assets all approved during the
year. These actions, coupled with the
Catcher field reaching plateau production
during the year, have meant that the
Group’s balance sheet has been significantly
strengthened with net debt reduced by
US$393 million since the end of 2017.
Looking to the future, the Board considered
and approved the sanction of the Tolmount
Main field development in August, thereby
securing the Group’s medium-term UK
production profile and realising further
value from the 2016 E.ON transaction. In
terms of longer-term opportunities and,
following the Zama oil discovery in Mexico
during 2017, the Board approved a proposal
by the Exploration Team to participate in
Mexico's Licensing Round 3.1. Following a
highly competitive bidding process, Premier
was awarded Blocks 11 and 13 in the Burgos
Basin along with Block 30 in the prolific,
shallow water part of the Sureste Basin. The
awards significantly enhance our existing
acreage position in Mexico and have the
potential to deliver significant organic
growth for our business in the longer term.
Following a number of Board changes in
2017, the Board agreed the terms of
reference for an externally facilitated
organisational ‘health-check’ during the
year and, in June, the Boston Consulting
Group (‘BCG’) was appointed to carry out
the review. BCG's work highlighted a
number of areas of strength on which the
Company can build over the medium-term
and, at its December meeting, the Board
approved a high-level action plan presented
by ExCo and BCG to address the points
raised. Further details regarding the BCG
review can be found in the Nomination
Committee Report.
Delegation of authority
Responsibility levels are communicated
throughout the Group as part of the
Business Management System (‘BMS’)
and through an authorisation manual
which sets out delegated authority levels,
segregation of duties and other control
procedures.
The BMS provides access to policies,
standards and procedures across the Group
and facilitates their regular review and
update, thus ensuring that our internal
control framework remains robust and is
effectively communicated across the Group.
During 2018, work continued to ensure the
content of the BMS was both effective and
balanced. The key objectives for this review
were to ensure:
• Each BMS document is suitable for its
intended purpose;
• Each BMS document is complied with;
• A programme for testing effectiveness
of the BMS is in place;
• The BMS features a simple and scalable
hierarchy; and
• A minimum set of rules are in place that
do not stifle innovation and creativity.
During 2019, the development of the BMS
will focus on simplification and adoption
with the objective being to create a
consistent and distinctive "Premier way
of doing things". An update on the progress
of this project will be provided in next
year's Annual Report.
Meetings held during 2018
Jan ‘18
Feb ‘18
Mar ‘18
Apr ‘18
May ‘18
Jun ‘18
Jul ‘18
Aug ‘18
Sept ‘18
Oct ‘18
Nov ‘18
Dec ‘18
Board meeting
Board update call
Management
presentations
AGM
The number of meetings of the Board held during 2018 and individual attendance by Directors
6
6
Current Directors
Robin Allan
Dave Blackwood
Anne Marie Cannon
Tony Durrant
Roy A Franklin
Jane Hinkley
Iain Macdonald
Richard Rose
Mike Wheeler
Scheduled
/
6
/
5
/
6
/
6
/
6
/
6
/
6
/
6
/
6
6
6
6
6
6
6
6
6
6
100%
83%
100%
100%
100%
100%
100%
100%
100%
Premier Oil plc 2018 Annual Report and Financial Statements The following table shows some of the areas covered by the
Board during the year:
Our strategic pillars
Operating in a safe and
responsible manner
Focused on high quality
assets with commercially
advantaged positions
Access to capital and
financial liquidity
Effective organization
sustained by the
right people
Subject
Shareholder and lender engagement
• The Chairman met with major shareholders to discuss their views on the Company and its major projects.
• Received and discussed feedback from roadshows/presentations to investors by the CEO and Finance Director.
• Met with major institutional shareholders and shareholder representative bodies to discuss implementation of
the Company’s Remuneration Policy and outcomes.
Corporate strategy
• Reviewed the corporate asset
• Reviewed and discussed monthly
database and discussed
opportunities within the existing
portfolio to create value and grow
the production base.
reports from the Company’s
business units on the status of
agreed objectives to deliver
corporate strategy.
• Reviewed potential disposal
and acquisition opportunities.
• Reviewed and approved the
sales of the Babbage, Kakap
and ETS assets.
Cross reference
Link to
strategic
objectives
Shareholder
engagement activity
(see page 70)
Directors’ Remuneration
Report (see pages
79 to 107
Company’s business
model and strategy
(see pages 10 to 13)
Chief Executive Officer’s
Review (see pages
18 to 21)
Financial Review (see
pages 30 to 35)
Financial Statements
(see pages 112 to 176)
Finance and expenditure
• Regularly reviewed the status of
the Group’s banking covenants.
• Considered proposals for a future
refinancing of the Group’s debt
facilities.
• Reviewed and approved the 2019
annual budget.
HSES and risk management
• Reviewed and discussed the Group’s
risk profile and, in particular, the
Group’s principal risks.
• Reviewed 2018 corporate HSES KPIs
and HSES plan.
• Reviewed and discussed HSES
performance.
Corporate governance
• Considered the new UK Corporate
Governance Code and agreed a
plan to ensure compliance from
1 January 2019.
• Reviewed the terms of reference
for the Audit and Risk, Nomination
and Remuneration Committees.
• Held a separate workshop to
• Reviewed and approved the
consider the Group’s ‘emerging
risks’.
• Received reports from the Audit
and Risk Committee on the
effectiveness of the Group’s risk
management and internal control
systems.
Company’s Annual Report and
Financial Statements for the year
ended 31 December 2017.
• Reviewed and approved the
Group’s insurance arrangements.
• Reviewed and approved the
Group’s Tax Policy.
• Held a separate workshop to
• Reviewed and approved the
consider the Group’s ‘emerging
risks’.
Company’s policies on anti-slavery
and human trafficking and tax.
• Received reports from the Audit
• Reviewed the Group’s risk
and Risk Committee on the
effectiveness of the Group’s risk
management and internal control
systems.
management and internal control
framework.
Risk Management (see
pages 36 to 41)
Principal Risks (see
pages 38 to 39)
Corporate
Responsibility
Review (see pages
42 to 55)
• Reviewed the Schedule of Matters
• Conducted an externally facilitated
Reserved for the Board.
• Engaged the Boston Consulting
evaluation of the Board and its
Committees.
Governance section of
the Annual Report (see
pages 56 to 111)
Group to carry out a 'health check'
of the Group's organisational
structure and operating model.
• In consultation with the
Nomination Committee, reviewed
the independence of Non-Executive
Directors.
Corporate social responsibility (‘CSR’)
• Reviewed ethical performance and control systems.
Reviewed the Group’s Code of Conduct and Business Ethics Policy.
• Considered bi-monthly updates in respect of environmental KPIs.
• Reviewed and approved the Company’s Corporate Responsibility Report.
Corporate
Responsibility Review
(see pages 42 to 55)
Succession planning and appointments
• Monitored progress against the Company’s succession plan for Non-Executive Directors.
• In consultation with Committee chairmen, considered and approved changes to Board Committee membership.
• Reviewed proposals from management on the Group’s leadership and organisational structure.
Nomination Committee
Report (see pages
77 and 78)
6
7
Employees
• Reviewed and approved proposals for awards to the wider employee population under the Company’s share
award schemes.
• Considered proposals for workforce engagement mechanisms in accordance with the new UK Corporate
Governance Code.
• Reviewed the results from the employee engagement survey.
Directors’ Remuneration
Report (see pages
79 to 107)
Governance section of
the Annual Report (see
pages 56 to 111)
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
CORPORATE GOVERNANCE REPORT CONTINUED
Board performance evaluation
During the year, the Board undertook an
externally facilitated performance
evaluation exercise. The previous externally
facilitated performance evaluation was
undertaken in 2016.
Detailed surveys were compiled with input
from all relevant internal stakeholders.
Topics included:
• Board size and composition
• Board expertise
• Board dynamics
• Management and focus of meetings
• Board support and Committees
• Strategic oversight
• Risk management and internal control
• Succession planning and human
resource management
• Priorities for change
The evaluation was carried out by Lintstock
Limited (‘Lintstock’) supported by the
Company Secretary. Lintstock has been
the provider of the Company’s insider list
management software since August 2013
but other than this and the 2016
performance evaluation, has not
undertaken any other work of any kind
for the Board or the Company.
The evaluation included individual
Director performance reviews, a review of
the work of the Board and each of the
Board Committees, and a review of the
Chairman’s performance.
Surveys were issued and one-to-one
interviews were held with each Director
and attendees of the Board Committees.
Independent reports were then prepared
by Lintstock and were reviewed by the
Chairman and the Company Secretary.
The results of the evaluation were then
condensed into reports by the Chairman
and discussed by the Board and each of the
Committees. An action plan was then
drawn up by the Chairman and Company
Secretary for the Board and actions were
agreed for each Committee with the
relevant Committee Chair.
2017 performance evaluation
Actions identified for 2018 from the 2017
Board performance evaluation included
conducting a full review of Committee
composition and undertaking an externally
facilitated Board performance evaluation
in 2018. The review of Committee
composition was conducted by the
Nomination Committee in November
and, following an assessment of the skills,
knowledge and independence of the
Non-Executive Directors, the Committee
concluded that the composition of the
Board’s Committees remained appropriate.
As noted above, an externally facilitated
evaluation process was conducted during
the year, thereby closing the other key
action from the 2017 review.
8
6
In-depth
management
presentations
Meetings
with Directors
and senior
executives
One-to-one
meetings
with external
advisers
Key corporate
governance
documents
Directors’
induction and
development
Board
resource
library
Site visits
to business
units
Regular
briefings on
governance
and legal
issues
Board appointments
Premier is an international business
and has to manage a variety of political,
technical and commercial risks. It is
crucial therefore that the Board has the
appropriate mix of skills, knowledge and
experience as well as independence to
enable it to meet these challenges.
To this end, the Nomination Committee
reviews the structure, size and composition
of the Board and makes recommendations
to the Board with regard to any changes
that are deemed necessary with due regard
for the benefits of diversity on the Board,
including gender diversity.
When recruiting new Directors, the
Nomination Committee prepares a
description of the role and capabilities
required for a particular appointment in the
context of the existing skills, experience,
independence and knowledge on the Board
and the time commitment expected.
Further details regarding succession
planning can be found in the Nomination
Committee Report on pages 77 and 78.
Induction of new Directors
New Directors receive a full, formal and
tailored induction to the Company.
The induction programme consists of:
• a comprehensive briefing session with
the Company Secretary to discuss the
proposed induction programme and
to provide details of Board and
governance procedures;
• an introduction to the Company’s online
resource centre for Directors, through
which they can access key corporate
governance documents, including details
of the policies and procedures forming
part of the Group’s governance
framework; a dedicated resource library
containing comprehensive information
on key projects; copies of past Board
presentations; and copies of external
communications such as investor
presentations, annual reports and
corporate social responsibility reports;
• one-to-one meetings with each of the
Executive Directors, members of senior
management and external advisers; and
• meetings with other functional
representatives as requested by Directors.
Shareholders are given the opportunity
to meet with new Directors upon request
or at the next Annual General Meeting
following their appointment and, in the
case of the Chairman, meetings are offered
to the Company’s major shareholders.
Premier Oil plc 2018 Annual Report and Financial Statements
Board development
As part of the Board’s annual rolling
agenda, in-depth management
presentations are planned throughout the
year. These sessions are held outside main
Board meetings and are designed to give the
Board insight into key aspects of the
Company’s operations, its development
projects and strategy. The presentations
provide Directors with the opportunity to
discuss matters with members of senior
management in an informal setting.
During 2018, management presentations
were given on: the corporate asset database
and opportunities within the existing
portfolio; exploration; the Sea Lion project;
and risk management.
Regular updates are provided to all
Directors on governance and legal matters.
Information is also provided on relevant
external training courses available to
further complement Directors’ skills
and knowledge.
Formal procedures are in place to enable
individual Board members to take
independent advice at the Company’s
expense where appropriate.
Information and support
All Non-Executive Directors have access to
the Company’s senior management between
Board meetings and the Board aims to hold
at least one meeting each year in one of
the business units to allow Non-Executive
Directors to meet and engage with local
staff. In addition, the continuing
development of Board members is
supported through in-depth management
presentations into specific business areas as
well as presentations by management and
regular updates on changes to the legal and
regulatory landscape.
All Directors have access to the Company
Secretary and, if required, can take legal
advice at the Company’s expense.
Directors also have access to an online
Board resource library.
Election and re-election of Directors
In accordance with the Code, Directors are
submitted for re-election at regular
intervals subject to continued satisfactory
performance. It is the Company’s current
policy to submit all Directors for annual
election or re-election by shareholders.
In addition, Directors appointed since the
last Annual General Meeting are required
to step down at the next Annual General
Meeting following their appointment and
stand for election by shareholders.
For any term beyond six years for a
Non-Executive Director, performance is
subject to a particularly rigorous review.
It was agreed that Jane Hinkley, who has
served as a Director for over eight years
and will be standing for re-election,
continues to provide sound, independent
judgement and to make a significant
contribution to the Board and its
Committees. All Non-Executive Directors
standing for election or re-election are
considered to be independent.
Following satisfactory performance
effectiveness reviews, the Nomination
Committee recommended and the Board
approved that each of the Directors be put
forward for election or re-election at the
2019 AGM.
Details of the Executive Directors’ service
contracts and the Non-Executive Directors’
letters of appointment are set out in the
Directors’ Remuneration Report on pages 89
and 91 respectively.
The main responsibilities of each Board role
are set out on page 64 of this report. Full
biographies can be found on pages 60 to 63.
These set out the skills, knowledge and
experience of each Director as well as
current and previous appointments.
6
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION Investor contact by type
One-to-one meetings
Group meetings
18
194
Investor contact by location of investor
United Kingdom
US
Europe
Other
122
25
42
43
CORPORATE GOVERNANCE REPORT CONTINUED
Conflicts of interest
Under statute, a Director has a duty to
avoid a situation in which he or she has,
or may have, a direct or indirect interest
that conflicts, or potentially may conflict,
with the interests of the Company.
Formal procedures are in place to ensure
that the Board’s power to authorise
conflicts or potential conflicts of interest
of Directors is operated effectively. The
Board is satisfied that during 2018 these
procedures were enforced and adhered
to appropriately.
Power of Directors and process for
amending Articles of Association
Details regarding the Company’s Articles
of Association and any amendment thereto,
including the powers of Directors under
the Articles, are included in the Directors’
Report on page 108.
Stakeholder engagement
Engagement with all of our stakeholders
remains a priority for the Board. By
maintaining good dialogue, we ensure that
our objectives are understood and that we
receive regular feedback on our strategy,
performance and governance. This enables
us to build confidence amongst our
stakeholders in the Board’s ability to
oversee the Company’s strategy and
address the immediate challenges faced
by the business.
As part of the steps being taken by the
Board to ensure compliance with the 2018
UK Corporate Governance Code, the Board
undertook a stakeholder mapping exercise
in October to review:
• who our material stakeholders are;
• the types of engagement undertaken
with them;
• who engages with these stakeholders at a
Board and Senior Management level; and
• issues likely to be relevant to the
stakeholder groups.
Further detail on stakeholder engagement
and how stakeholders' interests have been
considered in board discussions and
decision-making will be included in the
Company’s 2019 Annual Report.
0
7
Communications with shareholders
There is regular dialogue with institutional
investors through meetings, presentations
and conferences. Scheduled presentations
are given to analysts and investors
following the Full-Year and Half-Year
Results (which are broadcast live via the
Company’s website www.premier-oil.com)
and at other ad-hoc events.
Approximately 200 meetings were held with
investors and prospective investors during
2018. The Chairman, Chief Executive Officer
and Finance Director are the Directors
primarily responsible for engaging with
shareholders. They ensure that other
members of the Board receive full reports of
these discussions. The Board also receives
copies of analyst and broker briefings and
shareholder sentiment reports prepared by
the Investor Relations team. The Senior
Independent Director is available to
shareholders in the event that they have
concerns which contact with the Chairman,
Chief Executive Officer or Finance Director
has failed to resolve, or where such contact
would be inappropriate. Non-Executive
Directors are expected to attend meetings, if
requested, with major shareholders.
Extensive information about the Group’s
activities is provided in the Annual Report
and Financial Statements, the Half-Year
Results and other trading statements and
press releases, all of which are available on
our website. The Company’s website also
provides detailed information on the
Group’s activities. Information regarding
the Company’s share capital, including
details of significant shareholders, is
included in the Directors’ Report on pages
108 to 110.
The Remuneration Committee Chairman
and Chairman of the Board met with major
shareholders in advance of the 2018 AGM to
discuss, among other things, the Company’s
Remuneration Policy and shareholders’
voting intentions.
Despite this consultation with major
shareholders, a significant number of votes
were received against the resolution to
approve the Directors’ Remuneration
Report at the 2018 AGM. As a result, the
Remuneration Committee analysed the
voting outcome and wrote to 30 of the top
40 institutional shareholders who voted,
both for and against the Remuneration
Report, to invite them to discuss their views
on the Company’s Remuneration Policy.
Responses to these letters were received
from a small number of shareholders. The
Remuneration Committee has considered
this feedback when determining
remuneration outcomes for 2018 and will
continue to do so during the formulation
of the Remuneration Policy during 2019
and 2020.
Premier Oil plc 2018 Annual Report and Financial Statements The Company has posted guidelines on its
website, advising shareholders of how to
recognise and deal with potential share
scams. Shareholders are advised to be
extremely wary of any unsolicited advice
or offers and only to deal with financial
services firms that are authorised by the
Financial Conduct Authority. More
information can be found in the
Shareholder Information section of the
Investors section of the Company’s website.
Enquiries from individuals on matters
relating to their shareholding and the
business of the Group are welcomed and
shareholders are encouraged to attend the
AGM to discuss the progress of the Group.
The primary method of ongoing
communication with shareholders is the
Investors section of the Company’s website.
This contains key information such as
reports and financial results, investor
presentations, share price information,
regulatory news announcements and
information on Premier’s AGM.
In accordance with current regulations,
the Company uses its website as its default
method of publication for statutory
documents in order to reduce printing
costs and help reduce our impact on the
environment. All shareholders are offered
the choice of receiving shareholder
documentation, including the Annual
Report, electronically or in paper format,
as well as the choice of submitting proxy
votes either electronically or by post.
Premier promotes the use of online
shareholder services via the Company’s
online share portal www.premier-oil-
shares.com. Using this service, shareholders
are able to access information about their
shareholding, update their address or
submit queries on their account directly
to the Company’s Registrar. Shareholders
also have the ability to vote online prior
to general meetings. The share portal
encourages shareholders to register to
receive communications by email, rather
than by post, thus further reducing the
number of documents printed and
distributed. Shareholders who have
actively registered receive an email
notifying them when the Company has
added a statutory document to its website.
7
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION AUDIT AND RISK COMMITTEE REPORT
Iain Macdonald
Chairman of the Audit
and Risk Committee
Members
Iain Macdonald (Chair)
Dave Blackwood
Mike Wheeler
SCHEDULED
Meetings attended
(eligible to attend)
4(4)
3(4)
4(4)
Role of the Committee
• Monitors and reviews the effectiveness of
How the Committee spent
its time during the year %
Governance
Risk management and internal control
Financial reporting
Audit
14%
32%
10%
44%
the Company’s risk management and
internal control systems.
• Monitors and reviews the effectiveness
and objectivity of the Company’s Group
Audit and Risk Function, the
appropriateness of its work plan, the
results of audits and reviews undertaken,
and the adequacy of management’s
response to matters raised.
• Monitors the integrity of the Company’s
financial statements and any formal
announcements relating to the Company’s
financial performance and the significant
financial reporting judgements they
contain.
• Reviews the external auditors’
independence and objectivity and the
effectiveness of the audit process.
• Develops and implements policy on the
engagement of the external auditors to
supply non-audit services.
• Monitors the enforcement of the
Company’s Global Code of Conduct
and the adequacy and security of its
whistleblowing procedure.
2
7
Dear shareholder,
As Chairman of the Audit and Risk
Committee it is my responsibility to ensure
that the Committee is rigorous and effective
in carrying out its role as summarised in the
adjacent column.
The terms of reference of the Committee are
reviewed annually by the Committee and
then by the Board, and are available on the
Company’s website www.premier-oil.com.
The members of the Committee are
currently Dave Blackwood, Mike Wheeler
and myself, all of whom are independent
Non-Executive Directors. All have been
members throughout 2018.
The Board is satisfied that the membership
of the Committee meets the requirement for
recent and relevant financial experience.
The meetings of the Committee are
normally attended by the Chairman,
Finance Director, the Group Financial
Controller, the Group Audit and Risk
Manager and representatives of the
auditors. Other members of the Executive
Committee or senior managers are required
to attend when significant risk management
or internal control matters relating to their
area of responsibility are considered by the
Committee. During the year, the Committee
meets privately with the Group Audit and
Risk Manager and with the Company’s
auditors. The Company Secretary acts as
secretary to the Committee.
The Committee is required to report its
findings to the Board, identifying any
matters on which it considers that action
or improvement is needed, and to make
recommendations on the steps to be taken.
Meetings
The Committee meets four times per year
and has an agenda linked to events in the
Company’s financial calendar.
Activities during the year
The Committee held four scheduled
meetings during 2018.
In March 2018, the Committee reviewed
the 2017 Full-Year Results and the Annual
Report and Financial Statements, discussed
with the auditors their audit findings and
completed its annual review of the
effectiveness of the Company’s risk
management and internal control systems
so as to be able to approve its statements on
risk management and internal control in
the Annual Report. In completing this
review, the Committee discussed specific
operational issues that had arisen in 2017
Premier Oil plc 2018 Annual Report and Financial Statements place by each function and business unit for
2019. As discussed in more detail on page 75,
the Committee also reviewed the
effectiveness of the audit process and the
independence of Ernst & Young LLP.
Risk management and internal control
The Committee continues to be responsible
for reviewing the design and operating
effectiveness of the Group’s risk
management system. This system is
designed to assess, reduce, monitor and
communicate the principal risks facing
the Group and to identify emerging risks.
There is an continuing process of
refinement and embedding of risk
management best practice throughout
the Group in accordance with the principles
and guidelines set out in ISO 31000. Risk
management and internal control in the
Group is discussed more fully in the
Principal Risks section of the Strategic
Report on pages 36 to 41.
The Group-wide governance, risk
management and internal control systems
include specific internal controls governing
the financial reporting process and
preparation of financial statements. These
systems include clear policies, standards
and procedures for ensuring that the
Group’s financial reporting processes and
the preparation of its consolidated accounts
comply with relevant regulatory reporting
requirements. These policies are applied
consistently by the finance reporting teams
at head office and in each business unit in
the preparation of the financial results.
Management representations covering
compliance with relevant policies and the
accuracy of financial information are
collated on a biannual basis. Detailed
management accounts for each reporting
business unit are prepared monthly,
comprising an income statement and a cash
flow statement in a manner very similar to
the year-end and half-yearly reporting
processes. These are subject to management
review and analysis in the monthly
consolidated management accounts.
7
3
and significant risks foreseen for 2018, with
particular emphasis on risks arising due to
accounting for the Group’s refinancing.
The Committee reviewed and endorsed the
schedule of reportable audits and reviews
of the internal controls planned for the year.
The Committee reviewed with management
the hydrocarbon reserves reporting process
and undertook a review of its own
effectiveness. Finally, the Committee
reviewed and approved its report for
inclusion in the Annual Report and
Financial Statements.
At its June meeting, the Committee received
updates on the current major business risks,
including learnings from recent incidents
and materialised risks. The Committee also
reviewed the structure and design of the
company’s Business Management System
and the plans in place to continue to
improve its effectiveness. The Committee
also received a presentation from the
company’s cyber security manager on
the cyber risks facing the business. The
Committee reviewed progress and
significant findings from the management
system audits and reviews that were
conducted over the period including the
closeout status of actions arising from
these audits. In addition, the Committee
reviewed issues that were expected to
affect the Half-Year Results, including
future oil price assumptions and
consequent asset impairment indicators.
Finally, the Committee reviewed the
Audit Planning report and received an
overview of the likely impact on the
Group of the implementation of IFRS 16,
on Lease accounting.
At the August meeting, the Committee
reviewed the Half-Year Results and
discussed the auditors’ report on their
review of the Half-Year Results. The
Committee received updates on the current
major business risks and significant
findings from the reported audits and
reviews conducted over the period and the
closeout of actions arising from these
audits. The Committee also received
presentations from the Company’s
Marketing and Supply Chain departments
on selected risks facing their business area
and the controls in place to manage these
risks. Finally the Committee received a
progress update on actions set out in the
annual control improvement plans put in
place by the group functions and business
units for the year.
In November, the Committee received
updates on the current major business risks,
including learnings from recent incidents
and materialised risks. The committee also
discussed the emerging risks facing the
business and the procedures in place to
identify them, in accordance with the
incoming Code requirements for 2019. The
committee also noted significant findings
from the reported audits and reviews
conducted over the period and considered
the closeout of actions arising from these
audits including the status of overdue
actions. As part of its review, the Committee
received presentations from the Company’s
Tax, Treasury and Information Systems
departments on certain risks facing their
business functions and the controls in place
to manage them. The Committee considered
expected accounting and reporting issues
relating to the Full-Year Results and the
auditors’ work plan (which built on the
discussions held at the time of the Half-Year
Results), and reviewed and approved the
proposed audit fee. In addition, the
Committee received a report outlining the
Group’s work on the implementation of
IFRS 16 and the expected financial impact
on implementation on 1 January 2019 and
the Group’s 2019 budget.
The Committee met in March 2019 to review
the key accounting and reporting issues
relating to the 2018 Full-Year Results and the
draft Annual Report and Financial
Statements and to discuss with the auditors
their audit findings. In these meetings the
Committee also completed its annual review
of the effectiveness of the Group’s risk
management and internal control systems
so as to be able to approve the statements on
risk management and internal control in
the ‘Principal Risks’ section of the Strategic
Report on pages 36 to 41 and to report to the
Board that, in the Committee’s view, the
Annual Report and Financial Statements,
taken as a whole, is fair, balanced and
understandable and provides the
information necessary for shareholders to
assess the Group’s position and
performance, business model and strategy.
The Committee’s review included the going
concern statement and viability statement
included within the Annual Report and
Financial Statements and the forecasts
prepared by management on which the
statements are based. In completing its
annual review of the effectiveness of the
risk management and internal control
systems, the Committee reviewed the
close-out of the audits and review from 2018
and the control improvement plans put in
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION AUDIT AND RISK COMMITTEE REPORT CONTINUED
Internal assurance
Internal assurance in Premier is
administered by the Group Audit & Risk
Manager in conjunction with the Group
Financial Controller and with the support
of the Group Functional Managers.
The company assures the effectiveness
of its internal controls through an annual
risk-based programme of management
system audits and reviews.
The Company conducts three levels
of review:
1.
2.
3.
Local management team review. Local
management reviews are designed to
assure the effectiveness of a local
management system.
Group function review of a business
area. Group functional reviews are
designed to assure the effectiveness of
a group management system as applied
to a business unit, asset or project.
External third-party review. Third party
reviews are commissioned on a risk basis
to provide independent assurance of the
effectiveness of a group or local
management system. For certain
risk-critical management systems, the
company assures the effectiveness of the
management system though recognised
industry certification (e.g. ISO14001,
OHSAS18001).
On an annual basis, the Committee agrees
the risk-based programme of the most
significant audits and reviews with
management. The Committee then receives
reports at each meeting from the Group
Audit & Risk Manager covering progress
against the audit programme, significant
findings emerging and the closeout of
actions agreed to address the findings.
By agreeing a suitable risk-based audit
programme and ensuring that audit
findings are followed up, the Committee
is able to provide assurance to the Board
that Premier is embedding effective risk
management and assuring the effectiveness
of its internal controls.
4
7
Financial reporting
The Committee reviewed the 2018 Half-Year
and Full-Year financial results
announcements and 2018 Annual Report
and Financial Statements with the Finance
Director and Group Financial Controller
and considered the findings from the
auditors’ review of the Half-Year Results and
their audit of the 2018 financial statements.
The areas of focus for the Committee
included consistency of application of
accounting practices and policies;
compliance with financial reporting
standards and stock exchange and legal
requirements; the appropriateness of
assumptions and judgements in items
subject to estimation; the going concern
assumption; the clarity and completeness
of disclosures in the financial statements;
and, in relation to the Annual Report and
Financial Statements, whether, taken as
a whole, it is fair, balanced and
understandable and provides the
information necessary for shareholders
to assess the Group’s position and
performance, business model and strategy.
The Committee considered the following
major items that required significant
judgement and estimation in preparing
the 2018 financial statements:
Going concern
The Committee reviewed in detail
management’s projections of the Group’s
liquidity position under the terms of its
revised financing facilities. Key
assumptions in the projections included
those related to oil and gas prices during the
period and portfolio management options
available during the forecast period. The
key assumptions were assessed and
challenged by the Committee.
Following the completion of the Group’s
refinancing of its credit facilities in 2017, at 31
December 2018 the Group had availability of
financing and the Group’s base case
projections indicated that the Group will be
able to operate under the requirements of its
existing borrowing facilities and will have
sufficient financial headroom throughout
the going concern period, which is for the
12-month period ending 31 March 2020.
The Committee is satisfied that the
judgements applied in making the
assumptions and estimates that underpin
the forecasts and projections have been
exercised in an appropriate manner.
Therefore, the Committee has concluded
that the statement on going concern in the
Financial Review on page 35 is fair and
balanced.
The Committee has advised the Board that
it is reasonable for the Directors to expect
that the Group will have adequate resources
to continue in operational existence for
the foreseeable future and, accordingly, that
the going concern basis is the appropriate
basis of preparation for the 2018 financial
statements.
Recoverability of intangible exploration
and evaluation (‘E&E’) assets
The Committee satisfied itself by reference
to the Group’s business plan and discussion
with management that, in respect of all
E&E assets, either commercially viable
resources have been discovered or
substantive expenditure on further
exploration and evaluation activities in the
specific area is budgeted or planned and an
unexpired licence period remains. Details of
the Group’s E&E assets are provided in note
9 to the financial statements on page 140.
Oil and gas reserves
Unit-of-production depreciation, depletion
and amortisation charges are principally
measured based on management’s
estimates of proven and probable oil and
gas reserves. Estimates of proven and
probable reserves are also used in the
determination of impairment charges.
Proven and probable reserves estimates
are based on a number of underlying
assumptions including future oil and gas
prices, future costs, oil and gas in place
and reservoir performance, all of which
are inherently uncertain.
The Committee considered reports from
management on the process applied to
calculate the reserves estimates, addressing
in particular the extent to which the
methodology and techniques applied
by the Company were generally accepted
industry practice, whether the methodology
and techniques applied were consistent
with those applied in prior years, and the
experience and expertise of the managers
who prepared and reviewed the estimates.
The Committee noted that estimates of the
Group’s oil and gas proven and probable
reserves prepared by independent reservoir
engineers for producing and development
fields were marginally lower than
management’s estimates. The Committee
discussed with management the main
reasons for the difference between the
two estimates and was satisfied that it
was appropriate to apply management’s
estimates for the purpose of preparing
the financial statements.
Premier Oil plc 2018 Annual Report and Financial Statements Impairment of oil and gas properties
As explained in note 10 to the financial
statements on page 142, a net reversal of
impairment of US$35.2 million has been
credited to the income statement in the
year, in respect of the Solan field (credit of
US$55.7 million pre-tax) in the UK North
Sea as a result of a reduction in the expected
decommissioning cost for the asset. This
has been partially offset by an impairment
charge of US$20.5 million (pre-tax) in
relation to the Huntington field in the
UK North Sea, principally due to an increase
in the expected decommissioning cost of
the asset.
In order to determine whether an asset
is impaired or whether a reversal of
impairment is required, management assess
whether any indicators for impairment or
reversal of impairment exist for the Group’s
producing and development oil and gas
properties. Where such an indicator exists,
the future discounted net cash flows the
Company expects to derive from the asset
must be estimated. Such estimates are
based on a number of assumptions
including future oil and gas prices, the latest
estimates of costs to be incurred in bringing
fields under development into production,
oil and gas reserves estimates, production
rates and the associated cost profiles and
discount rates that reflect risks specific to
individual assets.
In view of continued volatility in observed
oil and gas prices, management prepared a
detailed ‘indicators of impairment’ report
for the Committee setting out the key
assumptions for each of the oil and gas
properties. The Committee challenged these
assumptions and judgements to ensure that
they were consistent with those that were
used by management for budgeting and
capital investment appraisal purposes; that
production volumes were derived from the
oil and gas reserves estimates discussed
above, applying the same assumptions
regarding future costs; and that they were
reasonable within the context of the
observed field performance and the wider
economic environment currently being
observed.
The Committee noted the long-term
planning assumptions used by the
Company that assumed future oil and gas
prices of US$60/bbl in 2019, US$65/bbl in
2020, US$70/bbl in 2021 followed by an oil
price of US$75/bbl in ‘real’ terms thereafter
(as explained in more detail in note 10 to the
financial statements on page 142). The
Committee also noted that forecast field
development costs were based on detailed
and carefully reviewed current estimates.
The Committee was satisfied that the
rates used to discount future cash flows
appropriately reflect current market
assessments of the time value of money
and the risks associated with the specific
assets concerned, to the extent risks are
not incorporated in forecasted cash flows.
The Committee was satisfied that the most
significant assumptions on which the
amount of the impairment charge and
reversal of impairment are based are
future oil and gas prices and the discount
rate applied to the forecast future cash
flows and, accordingly, that the disclosure
of the sensitivity of the impairment charge
to changes in these factors in note 10 to the
financial statements.
Provisions for decommissioning costs
Estimates of the cost of future
decommissioning and restoration of
hydrocarbon facilities are based on current
legal and constructive requirements,
technology and price levels, while estimates
of when decommissioning will occur
depend on assumptions made regarding the
economic life of fields which in turn depend
on such factors as oil prices and operating
costs. The Committee therefore discussed
with management the estimation process
and the basis for the principal assumptions
underlying the cost estimates, noting in
particular the reasons for any major
changes in estimates as compared with the
previous year. The Committee was satisfied
that the approach applied was fair and
reasonable. The Committee was also
satisfied that the combination of discount
and rig rates used to calculate the provision
was appropriate. Further information on
decommissioning provisions is provided in
note 17 on page 146.
Taxation
The Group currently produces oil and/or gas
in five countries and is subject to complex
hydrocarbon and corporate tax regimes in
each of them. Judgements must be applied
in order to make provision for the amounts
of tax that are expected to be settled. Also,
in order to continue to recognise the
substantial deferred tax asset relating to
tax losses and allowances in the UK, it must
be considered that sufficient taxable profits
will be available against which the tax
losses and allowances can be utilised. This
in turn requires assumptions about future
profitability.
The Committee discussed with
management their projections of probable
UK taxable profits and noted that these
projections include existing producing
assets and certain currently unsanctioned
UK development projects. The projections
use underlying assumptions which are
consistent with those used in the asset
impairment review and support the
recognition of a net deferred tax asset of
US$1,294.6 million, resulting in a tax charge
of US$53.1 million for the year. Further
details of the deferred tax asset and the
assumptions used to estimate the amount
of tax recoverable in respect of tax losses
and allowances are provided in notes 6 and
19 to the financial statements on pages 136
and 152, respectively.
External audit Audit effectiveness
The Committee reviewed the auditors’
work plan at the start of the audit cycle,
considering in particular the effectiveness
of the transition from Deloitte to Ernst &
Young LLP as external auditors and the new
auditors’ assessment of the significant areas
of risk in the Group’s financial statements.
For 2018, the significant areas of risk
corresponded with the major areas of
judgement identified by the Committee
discussed above, and the scope of their
work. At the conclusion of the audit, the
Committee discussed with the auditors
the findings of the audit, including key
accounting and audit judgements, the level
of errors identified during the audit, the
recommendations made to management
by the auditors and management’s response.
The Committee met privately with the
auditors in 2018 and in March 2019 at the
conclusion of the 2018 audit.
The Committee also assessed the
effectiveness of the audit process, based on
its own experience and on feedback from
the corporate and business unit finance
teams, and considered in particular:
• the experience and expertise of the
audit team;
• the auditors’ fulfilment of the agreed
audit plan and any variations from
the plan;
• the robustness and perceptiveness of
the auditors in their handling of the key
accounting and audit judgements; and
• the quality of the auditors’
recommendations for financial reporting
process and control improvements.
7
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION AUDIT AND RISK COMMITTEE REPORT CONTINUED
Ernst & Young LLP were required to
confirm to the Committee that they have
both the appropriate independence and
objectivity to allow them to continue to
serve the members of the Company. The
Committee also requires the auditors to
confirm that in providing non-audit
services, they comply with the Ethical
Standards for Auditors issued by the
UK Auditing Practices Board. This
confirmation was received for 2018.
Auditor appointment
The Committee considers the
reappointment of the auditors each year.
Based on its review of the effectiveness of
the 2018 audit and the independence and
objectivity of the auditors, the Committee
concluded that the auditors’ effectiveness
and independence has not been impaired
in any way. The Committee has reported
accordingly to the Board and a resolution
to re-appoint EY as the Group's external
auditors will be proposed at the Group's
2019 Annual General Meeting.
Committee evaluation
The performance and effectiveness of the
Committee was reviewed as part of the
Board performance evaluation process and
the Committee also carried out a detailed
self-assessment. The Committee was
considered to be operating effectively and
in accordance with the Financial Reporting
Council’s Guidance on Audit Committees.
On behalf of the Audit and Risk Committee.
Iain Macdonald
Chairman of the Audit and Risk Committee
Auditors‘ independence and objectivity
The Committee regularly reviews the
independence and objectivity of the
auditors. This review considers the overall
relationship between the auditors and the
Company, based on feedback from the
Company’s Finance Function and from the
auditors, and the nature and extent of
non-audit services provided by the auditors,
and takes account of the safeguards
established by the auditors against loss of
audit independence, including rotation of
the audit engagement partner.
The Committee believes that certain
non-audit work may be carried out by the
auditors without compromising their
independence and objectivity. The
allocation of non-audit work is considered
by reference to the Company’s policy on the
provision of non-audit services by the
auditors, which can be found on the
Company’s website. The use of the auditors
for services relating to accounting systems
or the preparation of financial statements is
not permitted, and neither are various other
services, such as valuation work, which
could give rise to conflicts of interest or
other threats to the auditors’ objectivity
that cannot be reduced to an acceptable
level by applying safeguards. The
Committee believes that certain non-audit
assurance and advisory services may be
best performed by the auditors as a result of
their unique knowledge of the Company.
Any non-audit work of this nature requires
approval by the Committee.
The Committee approves the fees for the
audit and half-yearly review after reviewing
the scope of work to be performed, and
reviews the scope and fees for non-audit
assignments awarded to the auditors to
satisfy itself that the assignments
concerned do not give rise to threats to the
auditors’ independence and objectivity.
Details of audit and non-audit fees in the
current year are provided in note 3 to the
financial statements on page 135.
6
7
Premier Oil plc 2018 Annual Report and Financial Statements NOMINATION COMMITTEE REPORT
Roy A Franklin
Committee Chairman
Members
Roy A Franklin (Chair)
Dave Blackwood
Anne Marie Cannon
Mike Wheeler
Tony Durrant
Iain Macdonald
Jane Hinkley
Role of the Committee
• To plan Board member succession and
oversee plans for senior management
succession, taking into account the
strategy of the Company and the skills,
knowledge, diversity and experience
required to deliver the strategy.
• To regularly review the structure,
size and composition of the Board
and Committees.
• To lead the process for Board
appointments, identifying and
nominating for the approval of the Board,
candidates to fill Board vacancies.
20%
Meetings attended
(eligible to attend)
3(3)
2(3)
3(3)
3(3)
3(3)
3(3)
2(3)
How the Committee spent
its time during the year %
Governance and organisational structure
Executive Director and
senior management succession
Non-Executive Director succession
40%
40%
Dear shareholder,
Following a number of appointments to
the Board in 2017, including my own, the
Committee has focused much of its time
in 2018 on leadership development and
reviewing the organisational structure
of the business to ensure that your
Company is well positioned for the next
phase of its development.
This report outlines details of the
Committee’s work during the course of 2018,
including the preparations that the
Committee has made to ensure that the
Company is able to apply the principles of
the new UK Corporate Governance Code.
Leadership structure
With the Catcher field reaching plateau
production in 2018 along with the sanction
of the Tolmount Main Development, the
Committee reviewed a number of changes
to the senior leadership team proposed by
the Executive. Stuart Wheaton, formerly
the UK Business Unit Manager, moved to
the London office to take up the role of
Chief Technical Officer on the Executive
Committee, providing technical support
for the Business Units whilst leading the
Group Function in London. Paul Williams,
formerly Group Development and
Operations Manager, succeeded Stuart as
UK Business Unit Manager in July. At the
same time, a number of changes were
made to the leadership structure of the
UK Business Unit to ensure that the
organisation continues to be appropriately
configured to manage its operated assets
and to deliver the Tolmount project.
Employee engagement and
succession planning
The active engagement and development of
the Group’s employees has again been a key
area of focus for the Committee during the
year, particularly at such an important
point in the Company’s growth.
Engagement in this context refers to the
employees’ level of commitment and
enthusiasm towards their work and the
Company; factors that are crucial in
ensuring we are able to recruit, retain and
motivate high quality, skilled employees.
To this end, the Committee reviewed the
action plan proposed by the Group HR
Director regarding staff engagement
activities during 2018 and beyond. These
included: the implementation of individual
development plans for all employees;
presentations on the group reward process;
townhall meetings to communicate
strategy and operational progress; a talent
7
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOMINATION COMMITTEE REPORT CONTINUED
review process across the organisation;
and global diversity and inclusion training.
To benchmark the effectiveness of these
actions, an engagement survey was
commissioned in the second half of 2018
with the results providing a comparison
to the previous survey undertaken in 2017.
I am pleased to report that participation
in this survey was high and, overall,
engagement levels within the organisation
are in line with the industry benchmark.
The action plan for engagement activities
during 2019 and beyond has been formalised
by the Group HR Function to address a
variety of different aspects of staff
engagement and the Committee will
continue to monitor this work as required.
In terms of succession planning activities,
work has continued to ensure the stability
and continuity of experience, capability
and performance within the senior
management team. During 2018, the focus
of this work was on the level below the
Executive Committee and Business Unit
and Country Managers. The Committee
was briefed throughout the process by the
Group HR Director. Staff attrition rates and
flight risk analysis were also considered by
the Committee, with a focus on ensuring
optimum resource capability for upcoming
projects.
Review of organisational structure
Following the completion of the refinancing
in 2017 and with a number of new Non-
Executive Director appointments over the
last 18 months, your Board felt it was
appropriate to commission an externally
facilitated ‘health-check’ of the Group’s
organisational structure. In June, the
Boston Consulting Group (‘BCG’) were
selected by the Committee to carry out this
review. BCG conducted over 100 interviews
across the business, along with an extensive
document analysis and research effort.
8
7
Their report was presented to the
Committee in November and I am pleased
to report that there were many areas of
notable strength, such as the Company's
open culture, FPSO experience and
commercial deal making ability which were
all commended by BCG.
The report also identified some areas for
improvement and steps have already been
taken to address these. The agreed action
plan will focus primarily on: better
definition and communication of strategy
internally; establishing a strong
performance management culture; and
refining the Group's operating model and
establishing a "Premier way of doing
things". During 2019, the Board and ExCo
will look to implement the recommended
actions and report to shareholders on
progress in next year's Annual Report.
Changes to the UK Corporate
Governance Code
Both the Committee and the Board as a
whole spent time in the second half of the
year considering the UK Corporate
Governance Code 2018 (the “New Code”) that
applies to the Company with effect from 1
January 2019. Of particular focus for the
Committee was the New Code provision
regarding workforce engagement and the
implementation of an appropriate
mechanism to facilitate such engagement.
In November, the Committee considered a
proposal that a workforce advisory panel
should be constituted in 2019 to provide a
forum for communication between the
Board and employees. The composition and
terms of reference for this panel were
agreed by the Committee and the selection
process for representatives took place early
in 2019. I look forward to reporting back on
the work of the panel in due course.
Board and Committee composition and
Board changes in the year ahead
The Committee reviewed the composition
of the Board and its Committees at several
points during 2018. In doing so, the
Committee considered the need for
continuity of Committee membership to
maintain the knowledge and insight of the
Committees, while at the same time giving
due and careful consideration to the need to
refresh membership.
Jane Hinkley, Senior Independent Director
and Chair of the Remuneration Committee,
will reach the end of her nine-year term
during 2019 and has indicated her intention
to step down from the Board at the end of
the year. In the latter half of 2018, the
Committee instructed Ridgeway Partners,
an external search consultancy who are a
signatory to the Voluntary Code of Conduct
on Executive Search Firms and have no
other connection with the Company, to
faciliate the recruitment process for a
suitable successor for Jane as a
Non-Executive Director and Chair of the
Remuneration Committee. Ridgeway
Partners produced detailed profiles of
prospective candidates, which were later
reduced to a shortlist of candidates, both
male and female. All Directors were given
the opportunity to meet with shortlisted
candidates and provided feedback to the
Committee before a decision was made in
respect of the appointment.
Following the recruitment process, the
Board, on the recommendation of the
Committee, has proposed the election
of Barbara Jeremiah to the Board as an
independent Non-Executive Director at
the Company's 2019 AGM. The Board intend
that Barbara will succeed Jane as Chair
of the Company's Remuneration Committee
following a short transition process.
The Committee will ensure that your Board
continues to have the appropriate balance
of skills, knowledge and experience to lead
Premier going forward.
Board Diversity Policy
The Board recognises the benefits of
diversity in enhancing the quality of its
performance. We remain committed to
ensuring the diversity of our Board,
including gender diversity, and currently
have two female Non-Executive Directors,
Jane Hinkley and Anne Marie Cannon, on
a Board of nine Directors which equates to
22 per cent.
The objective of our Board Diversity Policy
is to ensure an optimum Board and efficient
stewardship to successfully deliver the
Company’s strategy. The Committee
reviewed its approach to Board diversity
during the year and chose to maintain its
current policy of embracing diversity in its
broadest sense without setting measurable
objectives.
Further details of the Board’s composition
are outlined on pages 60 to 63.
Roy A Franklin
Committee Chairman
6 March 2019
Premier Oil plc 2018 Annual Report and Financial Statements DIRECTORS’ REMUNERATION REPORT – CHAIRMAN’S STATEMENT
Jane Hinkley
Chairman of the
Remuneration Committee
Members
Jane Hinkley (Committee Chairman)
Dave Blackwood
Anne Marie Cannon
Mike Wheeler1
SCHEDULED
AD-HOC
Meetings attended
(eligible to attend)
Meetings attended
(eligible to attend)
4(4)
3(4)
4(4)
0(1)
2(2)
0(2)
2(2)
1(1)
1
Mike Wheeler was appointed as a member of the Committee on 15 October 2018. He was therefore only eligible
to attend two meetings during 2018.
Role of the Committee
• Develop and maintain a Remuneration
Policy to attract, retain and motivate
employees to enable the Company to meet
its objectives, taking into account the
long-term interests of employees,
shareholders and other long-term
stakeholders.
• Consider and approve the remuneration
arrangements for the Chairman, the
Executive Directors and other senior
executives as determined by the
Committee.
• Exercise oversight of the pay and
performance conditions across the Group.
How the Committee spent
its time during the year %
Incentive arrangements
Senior executive remuneration
Group remuneration policies
Corporate governance
Consulting with shareholders
Other
10%
10%
20%
10%
35%
15%
Dear shareholder,
On behalf of the Remuneration Committee,
I am pleased to present the Directors’
Remuneration Report (the ‘DRR’) for the
year ended 31 December 2018. The report
summarises our Remuneration Policy,
explains how it has been implemented
during the reporting period and
demonstrates our continued focus on
ensuring remuneration is aligned not
only to corporate strategy, but also
shareholder experience and expectation.
2018 has been a strong year both
operationally and financially and, as a
result, we have been able to reduce our
debt by US$393 million, a key target for the
year. There has been tight control of both
operating costs and capital expenditure.
The Remuneration Committee has sought
to support these aims through the setting
of targets for the annual bonus. In addition,
during its deliberations, the Committee has
considered the continuing challenges posed
by volatile oil prices and their impact on
our share price and sought to balance this
with the need to ensure our staff remain
motivated. We have not awarded salary
increases to our Executive Directors for
the last five years (with the exception of
an increase in 2017 for Richard Rose, our
Finance Director) and have significantly
cut back the amounts granted under our
LTIP schemes for the last four years. This
restraint continues for 2018 and 2019, with
no salary increases for Executive Directors
or members of senior management and
reduced grants under our LTIP schemes.
In respect of the annual bonus, after two
years of reduction from the formulaic
outcome, we paid the full outcome for 2016
and 2017 and have done so for 2018 also.
Payment for achievement against the
targets set at the beginning of the year
was considered appropriate by the
Committee especially in the light of the
restraint in other areas.
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT – CHAIRMAN’S STATEMENT CONTINUED
Implementation of Remuneration Policy
in 2018
Long Term Incentive Plans
2018 saw the final vesting of awards under
the legacy 2009 LTIP. At grant in 2016, the
quantum of awards was significantly scaled
back; the Equity Pool Award was capped at
50 per cent of salary, the Performance Share
Award was reduced by 50 per cent and the
Matching Share Award was removed. In
calculating the growth in equity value, the
metric for the Equity Pool, the shares
resulting from the conversion of our
convertible bonds in 2018, which otherwise
would have inflated the Equity Pool, were
excluded. The annualised increase in value
of those shares in existence at 1 January
2016 was 12.7 per cent, resulting in Equity
Pool vesting outcomes of between 22.6 per
cent and 25.7 per cent of salary for the
Executive Directors, significantly below the
50 per cent of salary cap. The Performance
Share Awards are based on Relative
Shareholder Return, where we ranked
sixth out of our peer comparator group of 19.
This resulted in a vesting outcome of 75.1
per cent of the shares under award. The
Committee considered the underlying
performance of the Company and
concluded that the vesting outcomes were
justified. 50 per cent of vested shares are
deferred for a further three years.
As noted above, awards made in 2018 under
our 2017 LTIP were again scaled back. The
Restricted Share Award grant was scaled
back by 50 per cent, and the stretch target
for the Performance Share Award was
increased from upper quartile to upper
decile relative performance against our
peer group.
Annual Bonus
Details of the targets set for 2018 and their
achievement can be found on page 96.
In setting these targets, the Committee
focused on areas critical for the Company:
delivering against our refinancing and
balance sheet recovery plans, reducing debt,
pursuing future growth opportunities and
ensuring strong operational standards and
cost control.
The critical financial targets relating to debt
levels and costs were met in full. Whilst the
threshold production target was met, the
phased ramp-up of Catcher production did
not achieve the target set. There were mixed
results in respect of the HSES targets.
Looking to the future, there was significant
progress on the three key strategic targets:
• The Tolmount Main project in the UK was
sanctioned in August with first gas
scheduled for 2020. Construction
commenced in December.
• Further advances in putting contractor
and funding agreements in place for the
Sea Lion project.
• Zama (Mexico) - pre-unitisation
agreement and appraisal programme
approved, and the first well spudded.
This performance resulted in a bonus
outcome of 51.8 per cent for the corporate
targets, which, together with the personal
target outcomes resulted in bonus outcomes
for the Executive Directors of between 63.8
per cent and 66.5 per cent of salary out of a
maximum bonus opportunity of 120 per
cent of salary. All awards above 50 per cent
of base salary are deferred in shares for
three years.
Implementation of our Remuneration
Policy in 2019
A general 3.46 per cent pay adjustment,
subject to personal performance and pay
position to market, inclusive of promotions,
was granted for our UK employee
population below senior management level
and corresponding inflationary
adjustments were granted to our overseas
staff. However, it was agreed, given the
continued volatility in the market, that the
Executive Directors and other members of
senior mangement would not receive a
salary increase in 2019. The Committee,
consistent with this approach, also decided
to defer the pay review for the Chairman,
as did the Board with respect to the
Non-Executive Directors.
The 2019 performance targets for the
annual bonus are set out in general terms
on page 102. However, for reasons of
commercial sensitivity, detailed figures are
not given. Our intention is to publish these,
together with the bonus outcome, in the
Annual Report on Remuneration for 2019.
Due to the fall in oil price in the fourth
quarter of 2018 and continued volatility in
the market, the Committee has again
decided to scale back the 2019 LTIP awards
(and staff Premier Value Share Plan ‘PVSP’
awards across the Group), consistent with
the methodology applied in 2018. For
Executive Directors, Performance Share
Awards were granted in full, however, we
have continued to apply a stretch target of
upper decile relative total shareholder
return. The Restricted Share Awards have
again been scaled back by 50 per cent. They
remain subject to a performance underpin
related to the leverage covenant agreed
with our lenders. Consistent with the Policy,
vesting of the awards will be subject to
performance measured over a three year
period commencing on 1 January 2019 and a
Holding Period will be applied ending on the
fifth anniversary of the Award Date.
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Premier Oil plc 2018 Annual Report and Financial Statements Compliance statement
This report has been prepared in
accordance with Schedule 8 of the Large
and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment)
Regulations 2013. The Companies Act 2006
requires the Auditor to report to the
shareholders on certain parts of the
Directors’ Remuneration Report and to
state whether, in the Auditor's opinion,
those parts of the report have been
properly prepared in accordance with the
above regulations. The Chairman’s Annual
Statement and the Policy Report are not
subject to audit. The sections of the Annual
Report on Remuneration that are subject to
audit are indicated accordingly.
Committee changes
In order to widen the input to the
Committee, Mike Wheeler joined the
Committee on 15 October 2018.
Having been a Non-Executive Director at
Premier Oil since September 2010 and Chair
of the Remuneration Committee since May
2011, I intend to stand down at the end of the
year. Subject to shareholder approval at the
2019 AGM, Barbara Jeremiah will join the
Board as a Non-Executive Director and the
Directors intend that Barbara will succeed
me as Chair of the Remuneration
Committee. This will ensure adequate time
for a comprehensive handover to Barbara
and preparation for the shareholder
consultation to inform our Remuneration
Policy in 2020.
It has been a privilege to serve as a Non-
Executive Director at Premier Oil and help
steer the Company and the Remuneration
Committee through such a challenging
time. I know that Barbara brings a wealth
of experience to the role and will ensure
our remuneration strategy and practice
going forward strongly serves the future
growth of the Company, closely aligned
to the interests of our shareholders and
other stakeholders.
Jane Hinkley
Chairman of the Remuneration Committee
UK Corporate Governance Code
The Terms of Reference of the Committee
have been updated to incorporate
recommendations resulting from the 2018
Corporate Governance Code and the
Committee’s activities in relation to the
changes to the Code will be reported on in
next year’s report.
The Committee will be undertaking a full
review of our Remuneration Policy and
practice across the Group in 2019 and will
further consult with our shareholders later
in the year to help inform our 2020
Remuneration Policy.
Shareholder consultation
We introduced our existing Remuneration
Policy in 2017 following extensive
consultation with our major shareholders
and their representative bodies. Feedback
from that consultation was incorporated
into our Policy, resulting in strong
shareholder support (88.18 per cent).
However, a significant number of votes
(31.66 per cent) at the 2018 AGM were
cast against the implementation of the
2017 Policy.
Following the AGM , the Remuneration
Committee analysed the voting outcome
and wrote to our largest shareholders
inviting them to discuss their views on the
Company’s Remuneration Policy. Responses
were received from a small number of
shareholders, which were considered by the
Committee. We very much appreciate those
who did respond and discuss with us their
concerns. The Committee also noted that a
significant number of institutional
shareholders had chosen to follow guidance
issued by the main proxy voting advisory
firms which had highlighted the level of
bonus payments in 2017. As discussed, we
seek to balance the interests of our
shareholders and staff to ensure that our
Remuneration Policy is aligned to Company
strategy, is reflective of performance and
motivates our staff.
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT
Policy Report
This section of the Remuneration Report sets out the Remuneration Policy which was approved by shareholders at the Annual General
Meeting held on 17 May 2017 and has been effective since that date.
The 2017 Remuneration Policy (the 'Policy') remains unchanged and will therefore not be put to a shareholder vote at the 2019 Annual
General Meeting (‘AGM’). Shareholder approval will next be sought no later than at the Annual General Meeting to be held in 2020. Details
of the Policy have been included in the Directors' Remuneration Report to provide the context within which the Committee has conducted
its work during the year. The full Remuneration Policy Report, as approved by shareholders at the 2017 AGM, is contained on pages 96 to
105 of the Company's 2016 Annual Report and accounts, a copy of which can be found in the Investor Relations section of the Company's
website www.premier-oil.com.
The Annual Report on Remuneration on pages 92 to 107 (which sets out how the Policy has been applied during 2018 and how it will be
applied throughout the remainder of 2019) will be put forward to shareholders for an advisory vote at the 2019 AGM.
Key principles of our Remuneration Policy
The Committee regularly reviews remuneration policy to ensure it supports shareholder interests and reinforces the business strategy.
Overall, the Committee aims to ensure that pay rewards all employees fairly and responsibly for their contributions. Remuneration
packages are intended to be sufficiently competitive to attract, retain and motivate individuals of the quality required to achieve the
Group’s objectives and thereby enhance shareholder value. In addition, the Committee aims to ensure that remuneration policy does not
raise environmental, operational, social or governance risks by inadvertently motivating irresponsible behaviours.
In reviewing remuneration arrangements, the Committee considers the following objectives:
• keep the design simple;
• gear remuneration towards performance-related pay;
• emphasise long-term performance;
• ensure annual incentives reward the achievement of short-term objectives key to delivering the long-term strategy;
• ensure that each element of the package is based on different performance criteria;
• incorporate significant deferral requirements;
• ensure incentive payments are commensurate with the Company’s underlying performance; and
• take account of corporate governance guidance.
The graphic below indicates how the current incentive structure operates:
Year-end
0
1
2
3
4
5
6
Performance Period
Deferral in shares for awards > 50% of salary
Malus/clawback provisions apply
Performance Period
Malus/clawback provisions apply
Deferred Shares vest
Holding Period
PSAs vest
Performance Period
Holding Period
1 third of RSAs vest
1 third of RSAs vest
1 third of RSAs vest
Malus/clawback provisions apply
Annual
bonus
Performance
Share Award
('PSA')
Restricted
Share Award
('RSA')
2
8
The current long-term incentive structure also reflects the long-term incentive arrangements introduced for employees below Executive
Committee level, as summarised on page 86. Awards to Directors under the Premier Oil 2017 Long Term Incentive Plan (‘2017 LTIP’)
comprise three key elements – Restricted Share Awards, Performance Share Awards and Deferred Bonus Awards. The combination of
these three elements places greater focus on outcomes that are controllable and that reward out-performance of the market rather than
outcomes related to the commodity cycle. The maximum opportunity under the 2017 LTIP has been significantly reduced to reflect the
Restricted Share Award element. Further details are included in the Policy Table on pages 85 to 86.
Premier Oil plc 2018 Annual Report and Financial Statements Executive Director Policy
A summary of the Policy for Executive Directors is set out below:
Salary
Purpose and link to strategy • To provide an appropriate level of salary to support recruitment and retention, and with due regard to the
role and the individual’s responsibilities and experience
Operation
• Typically reviewed annually with reference to Company and individual performance, each executive’s
responsibilities and experience, the external market for talent, and salary increases across the Group
• Salaries are benchmarked against oil and gas sector companies and UK-listed companies of a similar
size to Premier
• Adjustments are normally effective 1 January
Opportunity
• Salary increases are awarded taking into account the outcome of the review and also broader
circumstances (including, but not limited to, a material increase in job complexity and inflation)
• Salary increases will normally be in line with increases awarded to other employees. The Committee may
make additional adjustments in certain circumstances to reflect, for example, an increase in scope or
responsibility, to address a gap in market positioning and/or to reward performance of an individual,
and where it does so the Committee will provide an explanation in the relevant year’s Annual Report
on Remuneration
• The Executive Director salaries for the financial year under review are disclosed in the Annual Report
Performance metrics
• Not applicable
on Remuneration
Pension
Purpose and link to strategy • To help provide a competitive pension provision
Operation
• Executive Directors who join Premier on or after 20 August 2013 are eligible to participate in the
Company’s defined contribution personal pension plan and/or receive an equivalent cash supplement
• For Executive Directors who joined prior to 20 August 2013, the Company provides a pension substantially
as if they are contributing members of the Company’s final salary Retirement and Death Benefits Plan
(the ‘Scheme’), which was closed to new members in 1997
• The only pensionable element of pay is salary
Opportunity
• Executive Directors who join Premier on or after 20 August 2013 receive pension contributions and/or an
equivalent cash supplement equal to 20 per cent of salary
• For Executive Directors who joined prior to 20 August 2013 the Scheme provides a payment on broadly a
fiftieths accrual basis up to two-thirds of salary at age 60, with benefits actuarially reduced on early
retirement and pensions in payment increased in line with the lower of inflation, or 5 per cent per annum.
The Scheme is subject to an internal earnings cap which is reviewed annually but for Executive Directors,
the Company provides for pension benefits above the earnings cap through a ‘pension promise’, based on
the cash equivalent transfer value of benefits accrued within the defined benefit scheme for earnings
above the earnings cap. The way this promise is currently administered is as follows:
1. Executive Directors are given a pension allowance equal to 20 per cent of uncapped salary. This may
either be paid into a pension scheme and/or as a salary supplement
2. Executive Directors accrue notional defined benefits entitlement within the Scheme
3. To the extent that payments made under 1 above are not paid into the Scheme, they are deemed to have
8
3
been invested into a Life Fund
4. At the point that a Director departs or retires, a comparison is undertaken between the value of the
notional defined contribution pot outlined in 3 above and the cash equivalent transfer value of the
notional defined benefits. Subject to appropriate deductions, the differential is available either as a
contribution into their pension plan or a cash payment
5. Regular reviews are carried out to assess the extent to which the payments already made to each
Director are projected to be sufficient to provide the accrued component of their target pension;
where such reviews indicate a shortfall, the Company may provide an additional payment
Performance metrics
• Not applicable
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Benefits
Purpose and link to strategy • To provide a benefits package competitive in the market for talent
Operation
• Executive Directors receive a competitive benefits package, which may include medical and dental insurance, car
allowance, life assurance, income protection cover, personal accident insurance, expatriate benefits, relocation
allowance, health checks and a subsidised gym membership. Other benefits may be introduced from time to
time to ensure the benefits package is appropriately competitive and reflects the circumstances of the individual
Director
Opportunity
• Set at a level which the Committee considers appropriate for the role and individual circumstances
• The benefits payable to the Executive Directors during the financial year under review are disclosed in the
Performance metrics
• Not applicable
Annual Report on Remuneration
All-employee share plans
Purpose and link to strategy • To encourage share ownership in Premier
Operation
• Executive Directors may participate in all-employee share plans on the same terms as other employees
• In particular, UK-based employees (including Executive Directors) may be invited to participate in the
following HMRC approved share plans:
– Share Incentive Plan (‘SIP’), under which employees may buy partnership shares using gross pay and the
Company may then grant matching shares. Under the SIP, free shares may also be granted. Dividends may
accrue on any shares and be automatically reinvested
– Save As You Earn (‘SAYE’) scheme under which employees are invited to make regular monthly contributions
over three or five years to purchase shares through options which may be granted at a discount
Opportunity
• Under the SIP, participants may spend up to the HMRC permitted allowance to buy partnership shares,
and matching shares may be granted up to the HMRC permitted limit
• Under the SAYE, employees may save up to the HMRC permitted allowance
Performance metrics
• Not applicable
Annual bonus
Purpose and link to strategy • To reinforce the delivery of key short-term financial and operational objectives and, through the deferred
share element, help ensure alignment with shareholders and support retention
Operation
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8
• Performance is measured on an annual basis for each financial year against stretching but achievable
financial and non-financial targets, comprising Key Performance Indicators (‘KPIs’), other corporate
objectives and personal performance
• Performance measures, weightings and targets are set at the beginning of the year and weighted to reflect
business priorities
• Annual bonus awards up to 50 per cent of salary are normally paid in cash, with any award above this
deferred in shares for three years
• Dividend equivalents may accrue on Deferred Bonus Awards and be paid on those shares which vest
• Annual bonus payouts and deferred shares are subject to malus and clawback in the event of material
misstatement of the Company’s financial results, gross misconduct, material error in the calculation of
performance conditions, or in such other exceptional circumstances as the Committee sees fit
• The Committee may exercise malus and clawback until the later of: (i) one year from the payment of the
bonus or the vesting of the shares, or (ii) the completion of the next audit after payment/vesting
Opportunity
• Up to 120 per cent of salary
• Target amount is 60 per cent of salary
Performance metrics
• Performance is assessed against a corporate scorecard encompassing several performance categories, which
may include some or all of: production; exploration; Health, Safety, Environment and Security; finance;
business development; and personal and strategic objectives
• Normally, the Committee would not expect the weighting for any performance category in the corporate
scorecard to be higher than 50 per cent. However, it retains discretion to adjust weightings to align with the
business plan for each year
• The Committee may adjust the bonus outcome to ensure alignment with underlying Company performance
• Further details of the measures, weightings and targets applicable for the financial year under review are
provided in the Annual Report on Remuneration on pages 92 to 107
Premier Oil plc 2018 Annual Report and Financial Statements Long-term incentives
The Premier Oil 2017 Long Term Incentive Plan – Performance Share Awards
Purpose and link to strategy • To support alignment with shareholders by reinforcing the delivery of returns to shareholders, with a
focus on relative stock market out-performance over the long term, and with due regard for the underlying
financial and operational performance of the Company
Operation
• The Committee may grant Performance Share Awards annually
• Awards may be in the form of nil or nominal priced options or conditional shares
• Performance Share Awards vest after three years subject to performance and continued employment
• Award levels and performance conditions are reviewed in advance of each grant to ensure they remain
appropriate
• The net (i.e. after tax) shares received from any awards vesting are subject to a minimum two-year Holding
Period such that the total time horizon is at least five years. The Holding Period may be terminated early if
the executive ceases employment due to death, ill-health, injury or disability. If an executive is dismissed
for gross misconduct, shares subject to the Holding Period will be forfeited for no payment
• Unvested awards for good leavers are normally pro-rated to the date of termination subject to
performance review at the Normal Vesting Date. Unvested awards for bad leavers are forfeited. Vested
awards for both good and bad leavers remain subject to the Holding Period except as described above
• Dividend equivalents may accrue on Performance Share Awards and be paid in shares or cash on those
shares which vest
• All Performance Share Awards are subject to malus and clawback in the event of a material misstatement
of the Company’s financial results, gross misconduct, material error in the calculation of performance
conditions or in such other exceptional circumstances as the Committee sees fit
• The Committee may exercise malus and clawback until the later of: (i) one year from the vesting date or (ii)
the completion of the next audit after vesting
Opportunity
• Performance Share Awards may be granted up to 175 per cent of salary
Performance metrics
• Performance Share Awards normally vest based on Premier’s TSR performance relative to a comparator
group of international oil and gas sector peers. Up to 25 per cent vests for median performance, with full
vesting for upper quartile performance and straight-line vesting in between
• Ahead of each performance cycle, the Committee may review and adjust the TSR comparator group for
future cycles to ensure relevance to Premier. The Committee may adjust the TSR comparator group for
outstanding cycles in the event that a TSR comparator ceases to exist, de-lists or is acquired or the
Committee deems it to be no longer a suitable comparator
• Before finalising Performance Share Award payouts, the Committee assesses the underlying financial and
operational performance of the Company, and, if appropriate, may reduce the level of vesting
• Further details of the measures, weightings and targets applicable for awards granted in 2017 and 2018 are
provided in the Annual Report on Remuneration on pages 92 to 107
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Long-term incentives continued
The Premier Oil 2017 Long Term Incentive Plan – Restricted Share Awards
Purpose and link to strategy • The Restricted Share Awards specifically align to our refinancing circumstances and requirement to
deleverage the Company decoupled from other performance objectives
Operation
• The Committee may grant Restricted Share Awards annually
• Awards may be in the form of nil or nominal priced options or conditional shares
• Award levels are reviewed in advance of each grant to ensure they remain appropriate
• Restricted Share Awards normally vest in one third increments in years three, four and five respectively
subject to continued employment and the achievement of a financial underpin measured at the end of
year three
• The net (i.e. after tax) shares received from any awards vesting are subject to a Holding Period such that
the total time horizon is at least five years. The Holding Period may be terminated early if the executive
ceases employment due to death, ill-health, injury or disability. If an executive is dismissed for gross
misconduct, shares subject to the Holding Period will be forfeited for no payment
• Unvested awards for good leavers are normally pro-rated to the date of termination subject to
performance review at the Normal Vesting Date. Unvested awards for bad leavers are forfeited. Vested
awards for both good and bad leavers remain subject to the Holding Period except as described above
• Dividend equivalents may accrue on Restricted Share Awards and be paid in shares or cash on those
shares which vest
• All Restricted Share Awards are subject to malus and clawback in the event of a material misstatement of
the Company’s financial results, gross misconduct, material error in the calculation of performance
conditions or in such other exceptional circumstances as the Committee sees fit
• The Committee may exercise malus and clawback until the later of: (i) one year from the vesting date, or (ii)
the completion of the next audit after vesting
Opportunity
• Restricted Share Awards may be granted up to 40 per cent of salary
Performance metrics
• Restricted Share Awards vest subject to continued employment, a financial underpin based on the
Company’s capital structure and balance sheet strength, and Committee assessment of overall
Company performance
• For awards granted in 2017, this performance underpin is specifically related to two metrics to assure
balance sheet and business strength – the reduction in absolute level of net debt and the reduction of the
ratio of net debt to EBITDA. For awards granted in 2018, the underpin comprises a net debt to EBITDA
component. These performance underpins are in line with the covenants agreed with our lenders in 2017.
• Underpin metrics for subsequent grants will be selected to specifically reinforce changes to strategic focus
in future years
Further details on the Policy
Remuneration Policy for other employees
The Company’s policy for all employees is to provide remuneration packages which reward them fairly and responsibly
for their contributions.
Premier’s approach to annual salary reviews is consistent across the Group. All employees participate in the Company’s incentive
structures and, like the remuneration package for Executive Directors, remuneration is structured such that a proportion of total
remuneration is delivered through long-term share-based incentives to ensure maximum alignment with shareholders.
The Executive Committee and other senior leaders all participate in the same annual bonus plan as for Executive Directors with the
opportunity tailored to the role and level of seniority. They also participate in the same long-term incentive plan and structure but for the
most part at a lower quantum of opportunity.
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8
The broader employee population participates in the Premier Value Share Plan (‘PVSP’). Similar to the LTIP for senior executives, under
the PVSP, annual awards of time-vesting restricted shares and three-year performance-vesting shares are made, with performance-
vesting shares subject to the achievement of Premier’s delivery of long-term shareholder return.
Similarly, all employees are eligible to receive an annual bonus, with measures and targets tailored to individual business units and
responsibilities as appropriate. The specific bonus framework varies by job level and scope to ensure annual incentives support motivation
and retention accordingly. These schemes provide a clear link between pay and performance, ensuring that superior remuneration is paid
only if superior performance is delivered.
Premier Oil plc 2018 Annual Report and Financial Statements Share ownership requirements
The Committee aims to ensure that our Remuneration Policy serves shareholder interests and closely reflects the Group’s business
strategy. Further, the Company recognises the importance of aligning the interests of Executive Directors with shareholders through the
building up of a significant shareholding in the Company. Accordingly, the Company requires the Executive Directors to retain no less
than 50 per cent of the net value of shares vesting under the Company’s long-term incentive plans until such a time that they have reached
a holding worth 250 per cent of salary.
Details of the current shareholdings of the Executive Directors are provided in the Annual Report on Remuneration on page 104.
Incentive plan discretions
The Committee operates the Company’s incentive plans according to their respective rules and Remuneration Policy, and in accordance
with the Listing Rules and HMRC rules where relevant. The rules of the new long-term incentive plan (the ‘Premier Oil 2017 Long Term
Incentive Plan’) were approved by shareholders at the 2017 AGM.
In line with common market practice, the Committee retains discretion as to the operation and administration of these incentive plans,
including with respect to:
• who participates;
• the timing of grant and/or payment;
• the size of an award and/or payment (within the plan limits approved by shareholders);
• the manner in which awards are settled;
• the choice of (and adjustment of) performance measures and targets in accordance with the Remuneration Policy and the plan rules;
• in exceptional circumstances, amendment of any performance conditions applying to an award, provided the new performance
conditions are considered fair and reasonable and are neither materially more nor materially less challenging than the original
performance targets when set;
• discretion relating to the measurement of performance in the event of a variation of share capital, change of control, special dividend,
distribution or any other corporate event which may affect the current or future value of an award;
• determination of a good leaver (in addition to any specified categories) for incentive-plan purposes, based on the plan rules and the
appropriate treatment under the plan rules; and
• adjustments required in certain circumstances (e.g. rights issues, share buybacks, special dividends, other corporate events, etc.).
Any use of the above discretions would, where relevant, be explained in the Annual Report on Remuneration for the relevant year. As
appropriate, it might also be the subject of consultation with the Company’s major shareholders.
Minor changes
The Committee may make minor amendments to the Policy set out above (for regulatory, exchange control, tax or administrative purposes
or to take account of a change in legislation) without requiring prior shareholder approval for that amendment.
Provisions of the 2014 Remuneration Policy that will continue to apply
Any commitment made prior to, but due to be fulfilled after, the date of the 2017 AGM (being the date on which the 2017 Policy became
effective) will be honoured. Such commitments include the following:
• Equity Pool Awards and Performance Share Awards under the 2009 Long Term Incentive Plan. As at 31 December 2018, Messrs Durrant,
Allan and Rose had outstanding awards under the 2016 LTIP cycle (‘2016 LTIP’). In March 2019, the Committee determined that, based on
the performance achieved to 31 December 2018, the Equity Pool Awards and Performance Share Awards under the 2016 LTIP should vest.
Further details of the final vesting levels are outlined on page 98. The value of vested Equity Pool Awards under the 2016 LTIP are subject
to a cap of 50 per cent of salary.
• The grant of Deferred Awards under the 2009 Long Term Incentive Plan. 50 per cent of any shares vesting pursuant to the 2016 LTIP
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Equity Pool Awards and Performance Share Awards will be deferred into shares in the form of a Deferred Award. The Deferred Shares
will be subject to a three-year deferral period ending on 31 December 2021. The awards will not qualify for a Matching Award.
• Good leaver and change of control provisions will continue to apply in accordance with the rules of the 2009 Long Term Incentive Plan.
• Deferred Bonus Awards granted in relation to bonuses for the year ended 31 December 2016.
• Malus and clawback and change of control provisions will continue to apply to all outstanding awards under the 2009 Long Term
Incentive Plan and to bonus awards made to Directors for the year ended 31 December 2016.
• Robin Allan was employed by the Company between September 1986 and November 1999 and is entitled to a deferred pension under the
Scheme in respect of this period of employment.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Illustration of application of the Executive Director Remuneration Policy
The 2017 Policy is geared towards performance-orientated pay, with a particular emphasis on long-term performance. For example,
at ‘on-target’ performance, approximately 54 per cent of the CEO’s remuneration package is delivered through variable components;
this is broadly unchanged from the 2014 Policy. However, the Committee has significantly de-leveraged and de-risked remuneration
arrangements, with the maximum potential opportunity reduced by around 40 per cent compared with arrangements under the 2014 Policy.
The performance scenario charts below show the estimated remuneration that could be received by the current Executive Directors for
2019, both in absolute terms and as a proportion of the total package under different performance scenarios. The assumptions underlying
each performance scenario are detailed in the table below:
Remuneration receivable for different performance scenarios
Fixed pay
• 2019 salary, as disclosed in the Annual Report on Remuneration on page 102
• 2018 taxable benefits, as provided in the single figure table on page 94
• Pension contribution of 20 per cent of salary for the Finance Director and 2018 pension benefits for other
Executive Directors as provided in the single figure table on page 94
Annual bonus
Minimum
Nil payout
On-Target
Maximum
Payout of 50 per cent of maximum
Maximum payout (120 per cent of salary)
Long-term incentive plan Nil payout
• Performance Share Awards vest
• Performance Share Awards vest in full
at 25 per cent of maximum
(175 per cent of salary)
• Restricted Share Awards vest in full
• Restricted Share Awards vest in full
(40 per cent of salary)
The charts below illustrate the potential reward opportunities for each of the current Executive Directors for the three performance scenarios.
Tony Durrant, Chief Executive Officer
(£’000s)
(%)
Maximum
On-Target
Fixed
698
698
698
683
228
996
Maximum
27
26
341
228
249
On-Target
46
Fixed
9
23
100
38
15
16
0
500
1,000
1,500
2,000
2,500
3,000
0
20
40
60
80
100
Fixed
Annual bonus
Richard Rose, Finance Director
(£’000s)
RSA
PSA
(%)
Maximum
On-Target
Fixed
441
441
441
425
142
619
Maximum
27
26
212
142
155
On-Target
47
Fixed
9
22
100
38
15
16
0
225
450
675
900
1,125
1,350
1,575
1,800
0
20
40
60
80
100
Fixed
Annual bonus
RSA
Robin Allan, Director, North Sea and Exploration
(£’000s)
PSA
(%)
8
8
Maximum
On-Target
Fixed
433
433
433
425
142
619
Maximum
27
26
212
142
155
On-Target
46
9
23
38
15
16
Fixed
100
0
225
450
675
900
1,125
1,350
1,575
1,800
0
20
40
60
80
100
Fixed
Annual bonus
Restricted Share Awards
Performance Share Awards
Notes:
The valuation of Annual bonus, Performance Share Awards (‘PSAs’) and Restricted Share Awards (‘RSAs’) excludes share price appreciation, any dividend accrual and the impact
of any scale back of awards. RSAs vest in one third increments in years three, four and five respectively subject to continued employment and a performance underpin. PSAs
vest after three years subject to TSR performance and continued employment. Both PSA and RSA awards are subject to a Holding Period ending on the fifth anniversary of the
date of grant of the awards.
Premier Oil plc 2018 Annual Report and Financial Statements Approach to remuneration of Executive Directors on recruitment
In the cases of hiring or appointing a new Executive Director, the Committee may make use of all the existing components
of remuneration.
The salaries of new appointees will be determined by reference to the experience and skills of the individual, relevant market data,
internal relativities and their current salary. New appointees will be eligible to receive a personal pension, benefits and to participate
in the Company’s HMRC approved all-employee share schemes, in line with the Policy.
The annual bonus structure described in the Policy Table will normally apply to new appointees with the relevant maximum being
pro-rated to reflect the period served. Objectives under the individual element will be tailored towards the executive. New appointees are
eligible for awards under the Company’s Long Term Incentive Plan which will normally be on the same terms as other Executive Directors,
as described in the Policy Table.
When determining appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant
factors (including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that the pay
arrangements are in the best interests of both Premier and its shareholders. The Committee may consider it appropriate to ‘buy out’
incentive arrangements forfeited on leaving a previous employer. In doing so, the Committee will use the existing Policy where possible or,
in exceptional circumstances, the Committee may exercise the discretion available under Listing Rule 9.4.2R. The value of any such award
will not be higher than the expected value of the outstanding equity awards and, in determining the expected value, the Committee will
use a Black-Scholes, or equivalent, valuation and, where applicable, discount for any performance conditions attached to these awards.
In cases of appointing a new Executive Director by way of internal promotion, the Committee will apply the Policy for external appointees
detailed above. Where an individual has contractual commitments that vary from our Policy for Executive Directors, but made prior to his
or her promotion to Executive Director level, the Company will continue to honour these arrangements.
Service contracts and exit payments and change of control provisions
Executive Director service contracts, including arrangements for early termination, are carefully considered by the Committee and are
designed to recruit, retain and motivate Directors of the quality required to manage the Company. The service contract of each Executive
Director may be terminated on 12 months’ notice in writing by either party. Executive Directors’ contracts are available to view at the
Company’s registered office.
Details of the service contracts of the current Executive Directors are as follows:
Director
Robin Allan
Tony Durrant
Richard Rose
Contract date
Unexpired term of contract
09.12.03
01.07.05
25.07.14
Rolling contract
Rolling contract
Rolling contract
The Company will consider termination payments in light of the circumstances on a case-by-case basis, taking into account the relevant
contractual terms, the circumstances of the termination and any applicable duty to mitigate. In such an event, the remuneration
commitments in respect of the Executive Director contracts could amount to one year’s remuneration based on salary, benefits in kind and
pension rights during the notice period, together with payment in lieu of any accrued but not taken holiday leave, if applicable. There are
provisions for termination with less than 12 months’ notice by the Company in certain circumstances. If such circumstances were to arise,
the Executive Director concerned would have no claim against the Company for damages or any other remedy in respect of the
termination. The Committee would apply general principles of mitigation to any payment made to a departing Executive Director and will
honour previous commitments as appropriate, considering each case on an individual basis.
8
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
The table below summarises how Performance Share Awards and Restricted Share Awards under the Premier Oil 2017 Long Term
Incentive Plan and Annual Bonus Awards are typically treated in different leaver scenarios and on a change of control. Whilst the
Committee retains overall discretion on determining ‘good leaver’ status, it typically defines a ‘good leaver’ in circumstances such as
retirement with agreement of the Company, ill health, disability, death, redundancy, or part of the business in which the individual is
employed or engaged ceasing to be a member of the Group. Final treatment is subject to the Committee’s discretion.
Event
Annual bonus/Deferred Bonus Awards
Timing of vesting/award
Calculation of vesting/payment
‘Good leaver’
• Annual bonus is paid at the same time as to
• Annual bonus is paid only to the extent that any
continuing employees
• Unvested Deferred Bonus Awards vest on
cessation of employment
performance conditions have been satisfied and is
pro-rated for the proportion of the financial year
worked before cessation of employment
‘Bad leaver’
• Not applicable
• Individuals lose the right to their annual bonus and
unvested Deferred Bonus Awards
Change of control1
• Annual bonus is paid and unvested Deferred
• Annual bonus is paid only to the extent that any
Bonus Awards vest on the date of change of event
Restricted Share Awards and Performance Share Awards
‘Good leaver’
• On normal vesting date subject to the Holding
Period (or earlier at the Committee’s discretion)
performance conditions have been satisfied and is
pro-rated for the proportion of the financial year
worked to the effective date of change of control
• Unvested awards vest to the extent that any
performance conditions have been satisfied over
the full performance period (or a shorter period
at the Committee’s discretion)
• The number of unvested awards is reduced pro-rata
to take into account the proportion of the vesting
period not served
‘Bad leaver’
• Unvested awards lapse
• N/A
• Any vested shares subject to the Holding Period
are forfeited by bad leavers who leave due to
gross misconduct, but remain and are released
at the end of the Holding Period for other bad
leavers (e.g. following resignation)
Change of control1
• On the date of the event
• Unvested awards vest to the extent that any
performance conditions have been satisfied and a
pro-rata reduction applies for the proportion of the
vesting period not completed
1 In certain circumstances, the Committee may determine that unvested Deferred Bonus Awards, Restricted Share Awards and Performance Share Awards under the Premier
Oil 2017 Long Term Incentive Plan will not vest on a change of control but will instead be replaced by an equivalent grant of a new award, as determined by the Committee, in
the new company.
Upon exit or change of control, SAYE and SIP awards will be treated in line with the approved plan rules.
If employment is terminated by the Company, the departing Executive Director may have a legal entitlement (under statute or otherwise)
to additional amounts, which would need to be met. In addition, the Committee retains discretion to settle other amounts reasonably due
to the Executive Director, for example to meet the legal fees incurred by the Executive Director in connection with the termination of
employment, where the Company wishes to enter into a settlement agreement (as provided for below) and, in which case, the individual is
required to seek independent legal advice.
0
9
In certain circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including (but
not limited to) settlement, confidentiality, restrictive covenants and/or consultancy arrangements. These will be used sparingly and only
entered into where the Committee believes that it is in the best interests of the Company and its shareholders to do so.
External appointments
Executive Directors are entitled to accept non-executive director appointments outside the Company and retain any fees received
providing that the Board’s prior approval is obtained. Details of external directorships held by Executive Directors along with fees
retained are provided in the Annual Report on Remuneration on page 104.
Premier Oil plc 2018 Annual Report and Financial Statements Consideration of employment conditions elsewhere in the Company
The Committee does not specifically consult with employees over the effectiveness and appropriateness of the Policy. However, the
Committee does consider the pay and conditions elsewhere in the Company, including how Company-wide pay tracks against the market.
When awarding salary increases to Executive Directors, the Committee takes account of salary increases across the Group, particularly for
those employees based in the UK. Further, the Company seeks to promote and maintain good relationships with employee representative
bodies – including trade unions – as part of its employee engagement strategy and consults on matters affecting employees and business
performance as required in each case by law and regulation in the jurisdictions in which the Company operates.
Consideration of shareholder views
The Committee aims to ensure that the Policy serves shareholder interests and is aligned with the Group’s business strategy, market
practice and evolving best practice. The Committee Chairman consults major shareholders and proxy advisers ahead of any major changes
to the Remuneration Policy, and also from time-to-time to discuss the Remuneration Policy more generally. The Committee considers all
feedback received from such consultations, as well as guidance from shareholder representative bodies more generally, to help to ensure
the Policy is aligned with shareholder views.
Non-Executive Director Remuneration Policy
Non-Executive Directors have letters of appointment effective for a period of three years, subject to annual re-election by shareholders at
each Annual General Meeting in accordance with the UK Corporate Governance Code. All letters of appointment have a notice period of
three months and provide for no arrangements under which any Non-Executive Director is entitled to receive remuneration upon the
early termination of his or her appointment. Non-Executive Directors’ letters of appointment are available to view at the Company’s
registered office.
Director
Roy A Franklin
Dave Blackwood
Anne Marie Cannon
Jane Hinkley
Iain Macdonald
Mike Wheeler
Year appointed Director
Date of current appointment letter
2017
2017
2014
2010
2016
2017
10.08.2017
09.08.2017
24.01.2017
17.05.2017
13.04.2017
10.08.2017
The Company’s Articles of Association provide that the remuneration paid to Non-Executive Directors is to be determined by the Board
within limits set by the shareholders. The Policy for the Chairman and Non-Executive Directors is as follows:
Fees
Purpose and link to strategy • To provide fees that allow Premier to attract and retain Non-Executive Directors of the highest calibre
Operation
• Fees for Non-Executive Directors are normally reviewed at least every two years
• Fees are set with reference to oil and gas sector companies and UK-listed companies of a similar size to
Premier
• Fees paid to the Chairman are determined by the Committee, while the fees of the other Non-Executive
Directors are determined by the Board
• Additional fees are payable for acting as Senior Independent Director, and as Chairman of any of the
Board’s Committees
• Adjustments are normally effective 1 January
• The Non-Executive Director fees for the financial year under review are disclosed in the Annual Report
on Remuneration
Opportunity
• Non-Executive Director fees are set at a level that is considered appropriate in the light of relevant
market practice and the size/complexity of the role
• Aggregate fees are within the limit approved by shareholders in the Articles of Association
9
1
Performance metrics
• Not applicable
Approach to Non-Executive Director recruitment remuneration
In the case of hiring or appointing a new Non-Executive Director, the Committee will follow the Policy as set out in the table above.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Annual Report
on Remuneration
Remuneration Committee membership and considerations during 2018
As at 31 December 2018, the Committee comprised four Non-Executive Directors, all of whom are independent. Jane Hinkley served as
Chair of the Remuneration Committee throughout the year. Membership of the Committee during 2018 is summarised below:
Committee Member
Jane Hinkley (Chair)
Anne Marie Cannon
Dave Blackwood
Mike Wheeler
Member throughout 2018
Yes
Yes
Yes
No
Appointed during 2018 (Date)
–
–
–
15 October 2018
Members of the Committee met without
any executives present for part of each
meeting. The Chairman of the Board and
the Chief Executive Officer attended
meetings of the Committee by invitation
but absented themselves when the
Committee discussed matters relating to
their own remuneration. The Group HR
Director attended meetings as appropriate.
The Company Secretary acts as Secretary to
the Committee and attends all meetings of
the Committee. Members of the Board and
any other employees attending Committee
meetings leave the meeting when their own
remuneration is being discussed.
The Committee acts within written terms of
reference, which are reviewed regularly and
published on the Company’s website
www.premier-oil.com. The main
responsibilities of the Committee include:
• determining the Remuneration Policy
for Executive Directors and senior
management and engaging with the
Company’s principal shareholders
thereon;
• determining the individual remuneration
packages for each Executive Director and
any changes thereto;
• approving the remuneration package
of the Chairman;
• considering the design of, and
determining targets for, the annual
bonus plan;
2
9
• reviewing and recommending to the
Board the establishment of any new
employee share plans and any material
amendments to the Company’s existing
share plans;
• determining the quantum and
performance conditions for long-term
incentive awards;
• reviewing pension arrangements, service
agreements and termination payments
for Executive Directors and senior
management;
• approving the Directors’ Remuneration
Report, ensuring compliance with related
governance provisions and legislation;
• reviewing the Gender Pay Gap Report;
• reviewing bonus outcomes for the Group,
including Executive Directors; and
• considering the remuneration policies and
practices across the Group.
During 2018, the Committee met six times.
Four meetings were scheduled in advance
with two ad-hoc meetings held.
Key activities of the Committee during the
year included:
• determining the remuneration for
Executive Directors, including
consideration of annual pay adjustments
for the Executive Directors and senior
management alongside the broader
employee population and reviewing
pension arrangements for Executive
Directors and employees;
• consulting with shareholders on the
2017 remuneration outcomes and
implementation of the Remuneration
Policy and on the reasons for the
significant vote received against the
resolution to approve the Directors’
Remuneration Report at the 2018 Annual
General Meeting (further details can be
found on page 93);
• considering the outcome of the employee-
wide compensation review;
• monitoring dilution limits across the
Company’s share schemes and ensuring
that share awards were made with due
regard to limiting shareholder dilution;
• approving the issue of an invitation
under the Company’s SAYE Scheme
to all qualifying employees;
• considering and subsequently approving
long-term incentive awards to be made to
the broader employee population
(excluding Directors and certain members
of senior management) under the terms of
the Company’s Premier Value Share Plan
(‘PVSP’);
• considering and subsequently approving
long-term incentive awards to Executive
Directors and members of senior
management under the terms of the 2017
LTIP, including setting performance
conditions;
• determining the 2017 bonus outcome and
bonus targets for 2018;
• monitoring performance of outstanding
awards under the Premier Oil 2009 Long
Term Incentive Plan (‘2009 LTIP’) and
considering the treatment of share
issuances during the year with respect to
the performance conditions associated
with the 2009 LTIP (further details can be
found on page 98);
• considering the gender pay gap reporting
requirements;
• reviewing market trends in executive
remuneration;
• reviewing developments in best practice
on executive remuneration;
• consideration of the independence of the
Committee’s remuneration advisers;
• reviewing the Committee’s terms of
reference;
• assessing the impact of the 2018 UK
Corporate Governance Code; and
• reviewing the Committee’s performance.
Premier Oil plc 2018 Annual Report and Financial Statements Advisers
Mercer | Kepler, a brand of Mercer Limited which is part of the MMC group of companies (‘Kepler’), is the independent adviser to the
Committee. Kepler was appointed by the Committee in 2011 through a competitive tender process and was retained during the year. The
Committee is of the view that Kepler provides independent remuneration advice to the Committee and does not have any connections
with Premier that may impair its independence. Kepler is a founding member and signatory to the UK Remuneration Consultants’ Code of
Conduct which governs standards in the areas of transparency, integrity, objectivity, confidentiality, competence and due care, details of
which can be found at www.remunerationconsultantsgroup.com. In 2018, Kepler provided advice on remuneration for executives, market
and best practice guidance, and on the shareholder consultation process with respect to the implementation of the Remuneration Policy.
They also assisted with the drafting of the Directors’ Remuneration Report and attended Committee meetings. Kepler reports directly to
the Committee and provides no other services to the Company. Its total fee for the provision of remuneration services in 2018 was £97,690
on the basis of time and materials.
During the year, the Committee also took advice from PwC to provide performance updates on outstanding awards granted under the
2009 and 2017 LTIPs. PwC also provided advice to the Committee regarding possible adjustments to the 2009 LTIP to reflect share
issuances made by the Company during the year. Total fees for PwC for the provision of remuneration services in 2018 were £36,000
The Committee evaluates the support provided by its advisers annually and is satisfied that the advice it received in 2018 was objective
and independent.
Voting on remuneration matters
Section 439A of the Companies Act 2006 (the ‘Act’) requires the Remuneration Policy to be submitted to shareholders for a binding vote
every three years or where there is a change in the Remuneration Policy. Accordingly, a new Remuneration Policy (the ‘2017 Remuneration
Policy’) was submitted to shareholders for approval at the Company’s 2017 Annual General Meeting. The Policy is included on pages 82 to 91
of the Annual Report for reference and a copy can also be found on the Company’s website www.premier-oil.com.
Votes received at the 2018 Annual General Meeting in respect of approval of the Annual Report on Remuneration along with the votes
received at the 2017 Annual General Meeting on the Directors’ Remuneration Policy, are set out below.
Resolution
Directors’ Annual Report on Remuneration
Directors’ Remuneration Policy (2017)
Votes FOR
and % of votes cast
Votes AGAINST
and % of votes cast
258,516,183
126,747,108
68.34%
88.18%
119,764,664
16,991,271
31.66%
11.82%
Votes
WITHHELD
6,260,141
273,793
The Committee notes that the resolution to approve the Remuneration Report in 2018 received a significant number of votes cast against it
(31.66% of the votes cast). As part of its regular programme of engagement with shareholders, following the publication of the 2017 Annual
Report, the Committee wrote to the institutional investors represented among the Company's top 20 shareholders offering to discuss the
Remuneration Report and any other Remuneration matters of concern to them. Following the 2018 AGM, the Committee analysed the
voting outcome and wrote to the 30 out of the top 40 institutional shareholders (representing 53% of the share register) who had voted at
the AGM either for or against the Remuneration Report, inviting them to discuss with the Company their views on the Remuneration
Policy and its implementation. The Committee considered it important to contact positive as well as negative voters in order to encourage
further engagement on their part. Only one shareholder (representing just over 2 per cent of the shares in issue at the time) took up this
offer, and the Committee has considered this feedback when determining remuneration outcomes for 2018 and will continue to do so
during its review of the Remuneration Policy during 2019 and 2020.
When considering shareholders’ responses, the Committee noted that a majority of the dissenting institutional shareholders had followed
guidance issued by one or more of the main proxy voting advisory firms, which had highlighted the level of bonus pay-out for Executive
Directors in a year of equity dilution and the alignment of pay with performance. The Committee is also aware that some shareholders are
not in favour of the use of Restricted Shares.
In taking the decision to award bonuses in respect of 2017, the Committee took account of the strong operational performance of the
Company during the year, as reflected in the strong achievement of the scorecard used to assess the corporate element of the bonus, as
well as the need to continue to motivate all employees, including the Executive Directors. The Committee concluded that the most
appropriate mechanism through which to reflect the shareholder experience during 2017 was through the continued scale-back of
awards under the 2017 LTIP and more challenging LTIP performance targets.
9
3
Restricted Share Awards are part of the Remuneration Policy approved by 88 per cent of shareholders who voted in 2017; which included
the introduction of a performance underpin. In response to our shareholder consultation, shareholding requirements were increased to
at least 250 per cent of salary for all Executive Directors. In addition, the Committee has considered the views expressed by shareholders
and believes that the use of Restricted Share Awards continues to be appropriate and, in particular, that the Restricted Share Awards are
appropriately aligned to the circumstances of the Company's financial objectives.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
The Board would like to thank those shareholders and voting bodies who engaged with the Committee on Directors’ Remuneration.
The Committee is committed to continuing dialogue with shareholders to help shape the implementation of our Remuneration Policy
and welcomes further engagement and feedback.
Single total figure of remuneration for Executive and Non-Executive Directors (audited)
Single total figure of remuneration for Executive Directors
The table below reports total remuneration for the year ended 31 December 2018 for each Executive Director who served as a Director at
any time during the year. The information contained in the table is as prescribed by the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 and contains a single total figure of remuneration for each Executive Director.
Director
Robin Allan
Tony Durrant
Richard Rose
Salary1
£’000s
2017
2018
353.8
353.8
569.0 569.0
353.8
353.8
Taxable
benefits2
£’000s
Bonus3
£’000s
Long-term
incentives4
£’000s
Pension5
£’000s
Other
Payments6
£’000s
Total
£’000s
2018
23.1
25.5
23.6
2018
2017
22.7
225.7
25.6 370.4
22.2
235.2
2018
2017
265.3
287.5
433.0 507.8
269.2
257.6
2017
0
0
0
2018
56.1
103.2
63.4
2017
94.1
445.2
63.7
2018
1.5
1.5
1.8
2017
1.5
1.5
1.8
2018
947.7
2017
737.4
1,577.4 1,474.3
710.7
935.4
Notes to 2018 figures (unless stated):
1 Salary is shown on a gross basis.
2 Taxable benefits include medical and dental insurance, car allowance, life assurance, income protection, personal accident insurance and a subsidised gym membership. In
particular, in 2018, Robin Allan, Tony Durrant and Richard Rose each received a car allowance of £15,000
3 Robin Allan, Tony Durrant and Richard Rose received total annual bonus awards for the year ended 31 December 2018 of 63.79 per cent of salary, 65.09 per cent of salary and
66.48 per cent of salary respectively out of a maximum bonus opportunity of 120 per cent of salary. Bonus amounts above 50 per cent of salary will be awarded in the form of
deferred shares (‘Deferred Bonus Awards’). The number of Deferred Bonus Awards will be calculated by reference to the five-day average price of Premier Oil shares over the
period immediately preceding the date of grant. The awards have been approved by the Committee and it is anticipated that they will be granted as soon as reasonably
practicable following the release of the Company’s 2018 Results. The Deferred Bonus Awards vest at the end of a three-year period from the date of grant subject to continued
employment. Good leaver provisions apply such that awards may vest before the end of the three-year period if an Award holder leaves in exceptional circumstances such as
death, redundancy, change of control and retirement. Further details of the 2018 total annual bonus awards to each Executive Director, including performance criteria,
achievement and resulting awards, are set out on pages 95 to 98.
4 Long-term incentives include awards granted under the Premier Oil 2009 Long Term Incentive Plan (‘2009 LTIP’) subject to a performance period ending in the relevant
financial year. In March 2019, the Committee determined that, based on the performance achieved to 31 December 2018, the Equity Pool Awards and Performance Share Awards
under the 2009 LTIP should vest. Further details of the final vesting levels are outlined on page 98. Total vesting values shown in the table above are based on a share price of
88.96p (the volume weighted average price from 1 October 2018 to 31 December 2018). Further details of performance conditions for the 2009 LTIP are contained in the 2014
Remuneration Policy, a copy of which can be found on the Company’s website www.premier-oil.com.
5 Richard Rose’s pension figure includes a combination of pension contributions to the defined contribution scheme and a salary supplement. For other Executive Directors,
pension figures are accrued pension entitlements under the Company’s final salary scheme and exclude Director contributions. See page 99 of the Annual Report on
Remuneration for further details on total pension entitlements for each Executive Director.
6 Other payments for Robin Allan, Tony Durrant and Richard Rose comprise Share Incentive Plan (‘SIP’) awards only. SIP awards are valued as the number of Matching Awards
granted multiplied by the share price at date of award. Other payments would normally include both SIP and Save As You Earn (‘SAYE’) awards. No SAYE awards were granted
to the Executive Directors in 2018. No discount was applied to SAYE awards granted in 2016 and therefore the embedded value of those options was nil. Participation in the SIP
and SAYE schemes is available to all qualifying employees. Full details of Executive Director SAYE options and SIP awards are available on page 107 of the Annual Report
on Remuneration.
4
9
Premier Oil plc 2018 Annual Report and Financial Statements Single total figure of remuneration for Non-Executive Directors
Director
Roy A Franklin (Chairman)
Dave Blackwood
Anne Marie Cannon
Jane Hinkley
Iain Macdonald
Mike Wheeler
Base fee
£’000s
2017
56.5
20.9
53.0
53.0
53.0
20.9
2018
169.6
53.0
53.0
53.0
53.0
53.0
Additional fees
£’000s
2017
–
–
–
17.2
6.6
–
2018
–
–
–
21.2
10.6
–
Expenses1
£’000s
2017
3.0
–
–
0.1
0.2
–
2018
5.9
–
–
–
–
–
Total
£’000s
2017
59.5
20.9
53.0
70.3
59.8
20.9
2018
175.5
53.0
53.0
74.2
63.6
53.0
Notes to 2018 figures (unless stated):
1 Amounts disclosed relate to taxable travel and accommodation expenses paid to Non-Executive Directors in respect of qualifying services during the year.
No fees were paid to Non-Executive Directors for membership of a Committee or for attending Committee meetings. Additional fees
were payable of £10,600 (2017: £10,600) for acting as Senior Independent Director, as Chairman of the Audit and Risk Committee or as
Chairman of the Remuneration Committee. The Company Chairman waived the fee of £10,600 payable to him as Chairman of the
Nomination Committee.
Payments for loss of office (audited)
There were no payments for loss of office during the year.
Payments to past Directors (audited)
There were no payments to past Directors during the year
2018 Annual Bonus (audited)
In line with the Company’s 2017 Remuneration Policy, during 2018 Executive Directors participated in non-pensionable annual bonus
arrangements. The 2018 annual bonus provided for awards of between 0 per cent and 120 per cent of salary for Executive Directors. Annual
performance was assessed against a performance scorecard encompassing health, safety, environment and security (‘HSES’), production,
development, exploration, finance, business development and organisation, as well as personal performance.
In assessing the 2018 bonus payout, the Committee reviewed performance against each measure in the performance scorecard and
considered the overall Company performance and the oil sector environment. In terms of personal performance, the Committee assessed
the Executive Director performance against a series of specific individual performance targets focussed on the delivery of financial and
operational objectives which were agreed at the start of 2018, further details are set out on page 97.
The Committee agreed that the formulaic outcome of the bonus payments was reflective of the strong underlying operations of the
business and the delivery of results during the year. In particular, the Committee noted the stretch delivery of the financial covenant
objectives reflecting strong underlying cashflows and operational performance. Also of particular note was the sanction of the Tolmount
Main project and the progression of the Zama appraisal plan.
The table below details the financial and operational performance categories, their relative weightings and achievement against specific
targets. The table on page 97 provides further details on the Directors’ personal objectives.
9
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
2018 Corporate Targets
Performance target ranges
Strategic
pillar
Focused on
high quality
assets with
commercially
advantaged
positions
Access to
capital and
financial
liquidity
Finance
HSES
Operating
in a safe and
responsible
manner
Strategic
Projects
Focused on
high quality
assets with
commercially
advantaged
positions
Subcategory Measure
Production
Portfolio in line
with budget (excl.
Catcher) (kboepd)
Threshold
58.9
Target
62.3
Stretch
64.2
Actual
Performance
59.0
Weighting
15%
Formulaic
outcome for
the year
3.86%
Catcher in line
with ramp-up
(kboepd)
On track to meet
year-end net
debt covenant
On track to meet
2019 1Q EBITDA
covenant
Opex
(US$/bbl)
G&A (US$m)
TRIR
(injury rate
per million
man hours)
LOPC
(Tier 1 and 2
process safety)
Spills (kg/year)
Leadership visits
Progress
Tolmount
to project
sanction
Progress
financing, fiscal
and commercial
initiatives for
Sea Lion1
Progress Zama
project initiation
23.0
26.8
30.0
21.5
Meet covenant Meet covenant Net debt
>5% below
requirement
Meet covenant Meet covenant On track to
beat covenant
by >5%
Net debt
covenant >5%
below
requirement
On track to
beat covenant
by >5%
15%
10%
0%
10%
10%
10%
17.9
163
1.47
1
1000
16
16.9
158
1.17
0
500
29
15.9
153
0.81
0
250
42
16.9
155.7
2.65
2
392
35
Sanction by
31 Dec
with 2021
first gas
Threshold
performance
relating to
progress
Sanction
by 31 Dec
with 2020
first gas
Sanction
by 30 June with
2020 first gas
Project
sanctioned
in August
Target
performance
relating to
progress
Stretch
performance
relating to
progress
Threshold
performance
achieved
Well trade
agreement
with Pemex
Full appraisal
plan agreed
with Pemex
Full appraisal
plan approved
by CNH
Full appraisal
plan approved
by CNH
5%
5%
4%
4%
4%
4%
8%
8%
8%
2.5%
3.65%
0%
0%
2.86%
2.92%
5.6%
2.4%
8%
Total
100%
51.8%
Notes:
1 For reasons of commercial sensitivity, the specific project milestone and associated performance targets cannot be disclosed at this time. Disclosure will be made in the 2019
Annual Report where this does not compromise the interests of the Company.
6
9
Premier Oil plc 2018 Annual Report and Financial Statements 2018 Personal objectives
The achievement against personal objectives represented up to 20 per cent of Annual Bonus opportunity for the Executive Directors.
These are a blend of targets related to their individual responsibilities and behavioural attributes. The outcome for the year is
summarised below:
Director
Robin Allan
Overview of performance objectives
A combination of personal involvement and
direction of UK and Exploration objectives
Key achievements in the year
• Board sanction decision for the Tolmount Main
gas development project.
Outcome for
the year
11.72/20
• Mexico appraisal programme, working
closely with JV partners, Pemex and
Mexican authorities.
• Delivery of Exploration key performance
indices, notably the conclusion of legacy
UKCS exploration commitments and the
capture of high potential new acreage in
Mexico and Indonesia.
• Work related to the disposal of the Pakistan BU,
coordinating all aspects of the transaction.
• Primary role in external stakeholder
management, especially collaboration with the
Oil and Gas Authority.
Tony Durrant
A combination of personal strategic leadership
and financial objectives and behavioural
attributes
• Leadership of the Executive Committee and
delivery of the Corporate key performance
indices.
12.80/20
Richard Rose
A combination of financial, investor relations,
business development and crude marketing
objectives
• Work with the Board on key management
succession, organisational structure and
expertise.
• Above target delivery of financial covenant
commitments – both net debt reduction and
leverage performance ahead of schedule. Opex,
Capex and G&A are all under budget.
• Rebuild of equity base and institutional
investment support - significantly enhanced
with personal commitment to extensive
roadshows to 170 institutions.
• Delivery of key operational targets, noting
Tolmount Main sanction in particular.
• On target HSES performance.
• Successful delivery of year-end covenant net
debt and Q1 2019 leverage targets, including
disposal programme and induced conversion
of outstanding convertible bonds.
• Development of a forward plan for a future
refinancing.
• Management of all treasury commitments and
compliance under the current financing
arrangements.
• Continue building the shareholder register and
strengthening investor relations.
• Ongoing strategic business development,
concurrent with funding and refinancing
initiatives.
• Enhanced business and cash forecasting.
• Delivery of crude marketing hedging
differentials.
13.96/20
9
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
2018 Annual Bonus award (audited)
Annual bonuses awarded to Executive Directors are summarised in the table below. Amounts awarded exceeding 50 per cent of salary will
be awarded in the form of shares, deferred for three years.
Director
Robin Allan
Tony Durrant
Richard Rose
Bonus as %
of salary
63.8
65.1
66.5
Total value
£
225,657
370,362
235,173
Cash amount
£
176,875
284,500
176,875
Amount to be awarded as
deferred shares
£
48,782
85,862
58,298
Retrospective disclosure in respect of the 2017 Annual Bonus
The Committee disclosed in the 2017 Directors’ Remuneration Report that the bonus target in relation to a specific milestone for the Sea
Lion project could not be disclosed for reasons of commercial sensitivity. The target centred on securing financing for the project. At the
point of considering the 2017 bonus outcome, discussions were ongoing with senior debt providers and supply chain contractors to secure
suitable funding and commercial terms. In addition, Letters of Intent had been signed with contractors for the provision of a range of
services, including vendor financing. The Committee therefore resolved that the outcome for this objective represented 2 per cent out of a
maximum of 8 per cent of the total outcome.
LTIP vesting outcomes in 2018 (audited)
The 2016 Equity Pool and Performance Share Awards granted under the 2009 LTIP completed their three-year performance periods on
31 December 2018. When granting the 2016 LTIP awards, the Committee determined that awards be scaled back to 50 per cent of the
maximum and with no Matching Share Award opportunity. The performance conditions of the Performance Share Awards and Equity
Pool Awards are as follows:
• The funding of the Equity Pool is based on three-year annualised compound growth in the Company’s equity value per share. Threshold
performance requires compound growth in the Company’s equity value per share of at least 10 per cent per annum at which 1 per cent of
the compound growth is credited to the Equity Pool. A maximum of 2.5 per cent of the compound growth is credited to the Equity Pool
when growth in equity value per share is 20 per cent per annum. The funding rate is based on straight-line interpolation between these
points.
• Performance Share Awards vest on three-year TSR relative to a comparator group of international oil and gas sector peers (see page 106
for the peer group). 25 per cent vests for median performance, with full vesting for upper quartile performance and straight-line vesting
in between.
The vesting outcomes of these awards are as follows:
• 2016 Equity Pool Awards: The base valuation for the Equity Pool Awards was averaged over the three-month period from 1 October 2015
to 31 December 2015, with the terminal valuation averaged over the three-month period from 1 October 2018 to 31 December 2018. The
Committee resolved that shares issued to convertible bondholders during the performance period should be excluded from the
calculation of the terminal valuation. Taking these adjustments into account, the Company’s market capitalisation increased from £349.7
million to £501.3 million during the performance period, equivalent to growth of 12.7 per cent per annum, generating an aggregate LTIP
Equity Pool valued at £2.14 million.
• 2016 Performance Share Awards: Over the Performance Period, the Company’s TSR was 35.2 per cent which, relative to its peers, was
between the median and upper quartile, warranting a vesting of 75.1 per cent.
On 4 March 2019, the Committee satisfied itself that the vesting outcomes were reflective of the underlying performance of the Company
and that the 2016 Equity Pool and Performance Share Awards should vest as soon as practicable after the Company enters an open period
for dealing in shares.
8
9
2016 LTIP awards made to Executive Directors are summarised below. The value of the Equity Pool Vesting to each Executive Director will
be converted into shares by dividing the amount allocated to them by the average of the mid-market closing price of the first five days that
the Company is in an open period for dealing in shares. These shares will be added to the number of Performance Shares vesting for each
Director, with 50 per cent of the total number of shares being released immediately on vesting and the remaining 50 per cent being
deferred for three years.
Director
Robin Allan
Tony Durrant
Richard Rose
Equity Pool Awards
Performance Share Awards1
Percentage of
Equity Pool
allocated
4.25
6.00
4.25
Value of Equity
Pool Vesting
(£'000s)
90.9
128.4
90.9
Performance
Shares
Granted
294,203
567,864
249,500
Vested
Performance
Shares
220,946
426,465
187,374
Value of
Performance Shares
(£'000s)
196.6
379.4
166.7
Total Long Term
Incentives
(£'000s)
287.5
507.8
257.6
1 Total vesting values shown in the table above are based on a share price of 88.96p (the volume weighted average price from 1 October 2018 to 31 December 2018).
Premier Oil plc 2018 Annual Report and Financial Statements LTIP awards granted in 2018 under the terms of the 2017 Long Term Incentive Plan (audited)
In view of market conditions, the Committee determined that Restricted Share Awards should be scaled back by 50 per cent with
Performance Share Awards granted in full. The Performance Share Awards are subject to upper decile relative TSR performance,
providing a greater stretch target than the upper quartile target stated in the Remuneration Policy.
The LTIP awards were granted to Executive Directors on 15 March 2018 and comprise:
• Performance Share Awards: conditional share awards vesting on three-year TSR relative to a comparator group of international oil and
gas sector peers with 25 per cent vesting for median TSR performance and full vesting for upper decile performance and straight-line
vesting in between.
• Restricted Share Awards: conditional share awards vesting over three, four and five years subject to a financial underpin based on the
reduction of the ratio of net debt to EBITDA, as agreed with the Company’s lenders. Further details of the 2017 Long Term Incentive Plan
are set out in the 2017 Policy on pages 82 to 91.
Details of the awards are set out in the table below. Performance for these awards will be measured between 1 January 2018 and
31 December 2020. The constituents of the comparator group are detailed on page 106.
2018–2020 cycle
Performance Share Awards1
Director
Robin Allan
Tony Durrant
Richard Rose
% salary to be
awarded as
Performance
Shares
175%
175%
175%
Number of
Performance
Share Awards
granted2
865,458
1,392,073
865,458
Grant Date
15.03.2018
15.03.2018
15.03.2018
% salary to be
awarded as
Restricted
Shares after
scale back
20%
20%
20%
Face value
£’000s3
619.1
995.8
619.1
Restricted Share
Awards1
Number of
Restricted Share
Awards
granted2
98,909
159,094
98,909
Face value
£’000s4
70.8
113.8
70.8
Notes:
1 Any dividends paid accrue on Performance Share Awards and Restricted Share Awards and will be paid on vesting as shares, in proportion to those shares that vest.
2 The number of Performance Share Awards and Restricted Share Awards were determined by reference to the relevant percentage of salary divided by the average of the
closing market prices of a Premier Oil share over the five dealing days immediately preceding the award date: 71.53p.
3 The face value of the Performance Share Awards is the maximum number of shares that would vest if the stretch performance target was achieved in full, multiplied by the
average of the closing prices of a Premier Oil share over the five dealing days immediately preceding the award date: 71.53p.
4 The face value of the Restricted Share Awards is the maximum number of shares that would vest if the financial underpin was met, multiplied by the average of the closing
market prices of a Premier Oil share over the five dealing days immediately preceding the award date: 71.53p.
Total pension entitlements (audited)
In line with the Policy, as Executive Directors appointed prior to 20 August 2013, Robin Allan and Tony Durrant receive a pension
substantially as if they were contributing members of the Company’s final salary Retirement and Death Benefits Plan (the ‘Scheme’) and,
in regard to service completed subsequent to their appointment as Directors, not subject to the Scheme’s cap on pensionable earnings
(£160,800 for the 2018/19 tax year).
As a Director who joined the Company after 20 August 2013, Richard Rose is entitled to receive a pension contribution and/or cash
supplement equal to 20 per cent of his salary.
The accrued pension entitlements of the Directors who were members (or deemed members) of the Scheme during 2018 are as follows:
(a)
Accrued
pension as at
31 December
2017
£’000s pa
1,3
(b)
Accrued
pension in (a)
after allowing
3
for inflation
£’000s pa
(c)
Accrued
pension as at
31 December
2018
£’000s pa
1,3
(d)
Value of growth
in accrued
pension above
inflation
£’000s
2,3
(e)
Deduction for
deemed
contributions
3
by Director
£’000s
(f)
Value of growth
in accrued
pension above
inflation less
deemed
contributions by
3
Director
£’000s
9
9
93.7
137.5
96.5
141.6
100.3
148.4
76.0
136.0
19.9
32.8
56.1
103.2
Director
Robin Allan4,5
Tony Durrant4
Notes:
1 The amounts of accrued pension under (a) and (c) represent the accrued pension entitlements of the Director as at the stated dates.
2 The values under (d) have been calculated by applying a capitalisation factor of 20 to the difference between amounts shown in (c) and (b) and are principally due to the
additional pension accrued over the year.
3 The values stated above correspond with the target level of final salary pension provision; in practice, the pension benefits for these Directors are principally established
through individual money purchase arrangements and salary supplements.
4 Members of the Scheme have the option to pay additional voluntary contributions; none of the Directors have elected to do so.
5 In addition to the current provision noted above, Robin Allan is entitled to a deferred pension under the Scheme in respect of service with the Company between September
1986 and November 1999.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Payments made by the Company in respect of pension benefits in relation to 2018 are summarised below:
Director
Robin Allan
Tony Durrant
Richard Rose
Pension plan
contributions
£’000s
0.0
0.0
10.0
Cash payments
made during 2018
£’000s
62.2
300.0
53.4
Total pension
benefits
paid by Company
£’000s
62.2
300.0
63.4
In respect of 2018, Tony Durrant and Robin Allan elected to receive the defined contribution element of their total pension entitlement in
cash. During 2017, a review was carried out for these Directors to assess the extent to which the payments already made were sufficient to
provide the accrued component of their total target pension. A payment was made in 2018 towards the shortfall for Tony Durrant.
Richard Rose receives a contribution to the defined contribution scheme and receives the remaining amount of his entitlement in cash.
Under the defined contribution scheme, Richard Rose's normal retirement age is 65.
Percentage change in CEO remuneration
The table below shows the percentage change in CEO remuneration, comprising salary, taxable benefits and annual bonus, and
comparable data for the average of all UK-based employees within the Company. The Company has chosen UK-based employees
as the comparator group for the Company as a whole, due to countries outside the UK having significantly different inflation rates.
Salary
Taxable benefits
Annual bonus2
Total
2018
£’000s
569.0
25.5
370.4
964.9
CEO
2017
£’000s
569.0
25.6
433.0
1,027.6
UK-based employees1
(average per capita)
% change
0%
(0.39%)
(14.46%)
(6.11%)
% change
4.16%
(1.04%)
(15.18%)
(1.41%)
Notes:
1 UK-based employees who were employed for the full year in both 2017 and 2018.
2 Includes cash bonus and amount deferred into shares (amounts above 50 per cent of salary are deferred into shares).
Relative importance of spend on pay
The table below shows the Company’s actual expenditure on shareholder distributions and total employee pay expenditure for the
financial years ending 31 December 2017 and 31 December 2018. Total shareholder distribution expenditure is composed of dividends and
share buybacks. The Company did not pay a dividend nor re-purchase shares for the financial years ending 31 December 2017 and 31
December 2018.
Remuneration paid to or receivable by all employees of the Group
Distributions to shareholders by way of dividend
Distributions to shareholders by way of share buyback
2018
US$ million
113.6
–
–
2017
US$ million
110.5
–
–
% change
2.81%
0%
0%
0
0
1
Premier Oil plc 2018 Annual Report and Financial Statements Comparison of Company performance
The chart below compares the value of £100 invested in Premier shares, including re-invested dividends, on 31 December 2008 compared to
the equivalent investment in the FTSE All-Share Oil & Gas Producers Index over the last ten financial years. The FTSE All-Share Oil & Gas
Producers Index has been chosen as it comprises companies who are exposed to broadly similar risks and opportunities as Premier.
10-year TSR performance
Value of £100 invested on 31 December 2008
TO BE UPDATED
(£)
300
250
200
150
100
50
0
31 Dec
2008
31 Dec
2009
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
FTSE All-Share Oil & Gas Producers Index
Premier Oil plc
£186
£34
31 Dec
2018
The table below shows the CEO single figure of remuneration for the past ten years and corresponding performance under the annual and
long-term incentives, as a percentage of maximum.
2009
2010
2011
2012
2013
20142
Simon Lockett
Simon Lockett
Simon Lockett
Simon Lockett
Simon Lockett
Simon Lockett
Tony Durrant
Tony Durrant
2015
Tony Durrant
2016
Tony Durrant
2017
2018 3 Tony Durrant
CEO single
figure of
remuneration
£’000s
2,884.6
4,041.4
3,827.3
2,728.2
1,002.7
680.3
428.7
1,040.4
1,404.3
1,474.3
1,577.4
Annual bonus
payout
as % of
maximum
85%
60%
55%
45%
24%
39% (and pro-rated)
40%
10%
66.5%
63.4%
54.3%
Equity Pool
as % of
maximum3
0%
100%
100%
0%
0%
0%
0%
0%
0%
0%
45.1%
Asset Pool
as % of
maximum1
100%
55%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Performance
Share Award
vesting as % of
maximum
N/A
N/A
100%
90%
0%
0%
0%
0%
0%
0%
75.1%
Matching Share
Award vesting
as % of
maximum
63%
100%
100%
66%
0%
0%
0%
0%
0%
0%
0%
Notes:
1 Following the introduction of the LTIP in 2009, the Asset Pool was replaced by Performance Share Awards. The last award under the Asset Pool had a performance period of
1 January 2008 to 31 December 2010. The introduction of the LTIP was disclosed in the Remuneration Report of the 2009 Annual Report and Financial Statements.
2 Figures shown for 2014 for Tony Durrant relate to the period during 2014 that he served as Chief Executive Officer: 25 June to 31 December 2014; and for Simon Lockett relate to
the period during 2014 that he served as Chief Executive Officer: 1 January to 25 June 2014.
3 Maximum opportunity for the 2016 Equity Pool was 50 per cent of salary.
1
0
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Implementation of Executive Director Remuneration Policy for 2019
For 2019, there will be a continued level of scale back of Long Term Incentive Restricted Share Awards and continued application of a
stretch relative TSR target for the Performance Share Awards. The Committee also determined that all decisions regarding Executive
Director remuneration should also apply to members of the senior management team.
Salary
The salaries of the Executive Directors are reviewed annually to ensure they remain appropriate. No salary increases have been awarded
to Executive Directors for 2019. The average salary increase (inclusive of promotions) across the Group’s UK operations is 3.46 per cent.
Director
Robin Allan
Tony Durrant
Richard Rose
Position
Director, North Sea and Exploration
Chief Executive Officer
Finance Director
Salary from
1 January 2018
£
353,750
569,000
353,750
Salary from
1 January 2019
£
353,750
569,000
353,750
Percentage
increase
£
0%
0%
0%
Pension, benefits and all-employee share plans
The Company will continue to offer Executive Directors pension, taxable benefits and tax-advantaged all-employee share plans for 2019 in
line with the Policy on pages 82 to 91.
Annual bonus
For 2019, the Executive Director annual bonus opportunity is up to 120 per cent of salary in line with the 2017 Remuneration Policy. Annual
performance will be assessed against a combination of corporate and personal targets with the maximum bonus opportunity for each set
of targets being 80 per cent and 20 per cent of the maximum bonus respectively. The Committee will consider carefully the oil market
outlook, the Company’s underlying performance and the outcome for 2019 in deciding whether and at what level to award bonuses for that
year. The specific 2019 corporate and personal objectives, along with threshold, target and stretch values, will be disclosed, to the extent
that they are not commercially sensitive, in the 2019 Directors’ Remuneration Report. Any bonus in excess of 50 per cent of salary will be
deferred in shares for three years. The table below summarises the criteria used to assess each target and the relative weighting of each:
2019 Corporate Targets
Strategic pillar
Focus on high quality assets
KPIs
Working interest
production
Target
Daily average production excl. Catcher
Daily average production from Catcher
Maintaining
financial strength
Liquidity, net debt,
operating cash flow
and operating costs
Financial covenant targets
Accounting net debt target
Opex and G&A targets
Operating safely
HSES KPIs
Lagging indicator targets
Leading indicator targets
Focus on high quality assets
Reserves and
resources
Tolmount East gross resource addition
Other gross un-risked resource additions
Delivery of Group strategy
Achievement of specified near-term strategic objective
Net asset value target in the existing portfolio
Zama appraisal programme target
Achievement of specified organisational objective
Weighting (% of maximum
corporate bonus opportunity)
10%
10%
15%
10%
10%
7%
7%
15%
5%
5%
6%
100%
Total
2019 Personal targets
2
0
1
Robin Allan:
Tony Durrant:
Richard Rose:
A combination of targets, including UK operational leadership and HSE improvements, Tolmount Main
project execution and delivery of the Group Exploration key performance indicators.
A combination of targets relating to execution of strategy, shareholder engagement, leadership,
organisational and
HSE improvements.
A combination of targets supporting the corporate KPIs and strategic financial planning activities.
Premier Oil plc 2018 Annual Report and Financial Statements 2017 Long-term incentive plan
The Committee has agreed to make awards to the Executive Directors under the terms of the 2017 Long Term Incentive Plan for 2019. The
awards will comprise Restricted Share Awards equivalent to 20 per cent of base salary representing 50 per cent of the maximum, and
Performance Share Awards equivalent to 175 per cent of base salary. In determining the level of awards, the Committee again took account
of market conditions. It is proposed that the awards will be made as soon as possible following the release of the Company's Full-Year
Results for 2018. Performance for these awards will be measured between 1 January 2019 and 31 December 2021. Performance conditions
will be as follows:
• Performance Share Awards: subject to a Performance Target based on the Company’s TSR performance relative to a comparator group of
international oil and gas sector peers. 25 per cent of the awards will vest for median TSR performance vs. the comparator group, with full
vesting for upper decile performance and straight-line vesting in between. This represents an additional stretch to upper decile from
upper quartile stated in the Remuneration Policy.
• Restricted Share Awards: subject to a financial underpin based on the ratio of net debt to EBITDA, as agreed with the Company’s lenders,
over the course of the performance period. If the performance underpin is achieved, Restricted Share Awards will vest in one third
increments on the third, fourth and fifth anniversary of the award date subject to continued employment and the Committee’s
assessment of underlying Company performance. No awards will vest unless the performance underpin is achieved.
Awards will be subject to malus and clawback provisions, and any awards vesting will be subject to a Holding Period such that the total
time horizon is five years.
Implementation of Non-Executive Director Remuneration Policy for 2019
Non-Executive Director fees were last increased with effect from 1 January 2013. During the year, the Committee reviewed the fees for the
Chairman and the Board reviewed the fees for Non-Executive Directors. No increases in fees were proposed. Non-Executive Director fees
for 2019 are as follows:
Fee type
Role
Total fee
Chairman
Other Non-Executive Directors Basic fee
Committee Chairmanship
Senior Independent Director
From
1 January 2018
£
169,600
53,000
10,600
10,600
From
1 January 2019
£
169,600
53,000
10,600
10,600
Percentage
increase
0%
0%
0%
0%
Exercise of Committee discretion
The table below illustrates how the Committee has exercised discretion in relation to long-term incentives and the bonus plan over the
four-year period ending 31 December 2018.
Year
2015
2016
2017
2018
Annual bonus
Total bonus outcome for 2015 reduced to 10%
(formulaic outcome ranged from 55.8% to 58.1%)
None
None
None
Long-term incentives
N/A
2009 Long Term Incentive Plan: Performance Share Awards
scaled back by 50% of maximum potential opportunity; Equity
Pool Awards vesting capped at 50% of base salary; Matching
Award removed.
2017 Long Term Incentive Plan: Restricted Share Awards and
Performance Share Awards scaled back by 50% of the maximum
potential opportunity;
2017 Long Term Incentive Plan: Restricted Share Awards scaled
back by 50% of maximum potential opportunity. Full vesting of
the Performance Share Awards requires Premier Oil TSR to be
upper decile relative to the TSR of comparators, as opposed to
upper quartile TSR.
As outlined above the Committee also exercised discretion in relation to the 2019 share awards.
1
0
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
Statement of Directors’ shareholding and scheme interests (audited)
The table below summarises the Directors’ interests in shares, including those held under outstanding LTIP, SAYE and SIP awards,
as at 31 December 2018. Further details of all outstanding awards are disclosed on pages 105 to 107.
Director
Robin Allan
Dave Blackwood
Anne Marie Cannon
Tony Durrant
Roy A Franklin
Jane Hinkley
Iain Macdonald
Richard Rose
Mike Wheeler
Owned outright at
31 December 20181
527,699
10,000
10,000
1,467,614
60,000
13,234
23,076
109,085
30,000
Deferred shares subject
to continued
employment at
31 December 20182
200,994
–
–
350,191
–
–
–
201,514
–
Unvested shares
subject to
performance at
31 December 20183
1,949,990
–
–
3,231,167
–
–
–
1,905,287
–
Unvested SAYE
options at
31 December 2018
42,857
–
–
42,857
–
–
–
42,857
–
Total share
interests at
31 December 2018
2,721,540
10,000
10,000
5,091,829
60,000
13,234
23,076
2,258,743
30,000
Notes:
1 Owned outright includes shares held by the Director and/or connected persons. This figure also includes shares held in the tax-advantaged Share Incentive Plan (‘SIP’) which
may be subject to forfeiture on leaving the Company, dependent upon the time for which they have been held.
2 Deferred Shares subject to continued employment comprise Deferred Bonus Awards. The awards are subject to malus and clawback in the event of a material misstatement of
the Company’s financial results, gross misconduct or material error in the calculation of performance conditions. The Committee may exercise clawback until the later of: (i)
one year from vesting, or (ii) the completion of the next audit after vesting.
3 Unvested shares subject to performance include Performance Share Awards held under the 2009 LTIP (2016-2018 cycle) and Performance Share Awards and Restricted Share
Awards held under the 2017 LTIP (2017-2019 cycle and 2018-2020 cycle). The performance period for the LTIP awards granted under the 2016-2018 cycle completed on 31 December
2018, 75.1 per cent of awards vested. See page 98 of the Annual Report on Remuneration for further details on performance criteria and achievement.
Formal shareholding guidelines exist which require the Executive Directors to retain no less than 50 per cent of the net value of shares
vesting under the Company’s long-term incentive arrangements until such time as they have achieved a holding worth 250 percent
of salary.
The graph below shows the value of Executive Directors’ shareholding and scheme interests as a percentage of salary, in accordance with
the shareholding guidelines, as at 31 December 2018.
Director Shareholding
Tony Durrant
Richard Rose
Robin Allan
0
50%
100%
150%
200%
250%
300%
Shares owned outright
Deferred Bonus Shares subject to continued employment
Shareholding requirement
Notes:
1 The valuation of shareholdings as at 31 December 2018 has been calculated using the volume weighted average price between 1 October 2018 and 31 December 2018 (88.96p)
4
0
1
Share price movements during 2018
The mid-market closing price of the Company’s shares on 31 December 2018 was 66.55p (31 December 2017: 76.25p). The intra-day trading
price of the Company’s shares during 2018 was between 143.60p and 55.60p.
Executive Director external appointments
Executive Directors are permitted to accept non-executive appointments outside the Company providing that the Board’s approval is
obtained. During the year, Tony Durrant served as an Advisory Committee Member of FlowStream Commodities Ltd, stepping down from
the position in December 2018. He received an annual fee of US$10,000 (2017: US$10,000) for his work as an Advisory Committee Member.
Robin Allan is Chairman of the Association of British Independent Oil Exploration Companies (‘BRINDEX’) and received no fee for this
role. Robin Allan is also a Board member of Oil & Gas UK for which he receives no fee.
Premier Oil plc 2018 Annual Report and Financial Statements Outstanding share awards
Annual bonus scheme – Deferred Bonus Awards
As at 31 December 2018 the following Deferred Bonus Awards were held in respect of the deferred element of the annual bonus awarded for
the years ending 31 December 2016 and 31 December 2017.
Director
Date of grant
Robin Allan
Tony Durrant
Richard Rose
12.04.17
15.03.18
12.04.17
15.03.18
12.04.17
15.03.18
Awards
held at
1 January
2018
77,357
–
77,357
142,574
–
142,574
72,437
–
72,437
Granted
Lapsed
Vested
Awards
held at
31 December
2018
Market price of
shares on date
of award1
Earliest
vesting date
–
123,637
123,637
–
207,617
207,617
–
129,077
129,077
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
77,357
123,637
200,994
142,574
207,617
350,191
72,437
129,077
201,514
65.85p
71.53p
65.85p
71.53p
65.85p
71.53p
12.04.20
15.03.21
12.04.20
15.03.21
12.04.20
15.03.21
1 The average of the closing prices of a Premier Oil share over the five dealing days immediately preceding the award date.
2009 Long Term Incentive Plan – Equity Pool Awards
As at 31 December 2018, one Equity Pool was outstanding, as follows:
Cycle
20161
Performance period
01.01.16 – 31.12.18
Starting market
capitalisation
£350m
Tony Durrant
6.00%
Robin Allan
4.25%
Richard Rose
4.25%
Outstanding Equity Pool allocation (% of Pool)
Notes:
1 The Committee determined on 4 March 2019 that the 2016 Equity Pool Award would vest. For further details see page 98.
2009 Long Term Incentive Plan – Performance Share Awards
In 2015, the Executive Directors were granted LTIP Performance Share Awards over shares with a value of 150 per cent of salary for the
CEO and 125 per cent of salary for the other Executive Directors. The grant of Performance Share Awards in 2016 was approved by the
Remuneration Committee in August 2016. Due to prolonged trading restrictions as a result of the ongoing refinancing of the Group’s debt,
the grant of the awards could not take place in 2016 and the awards were granted following the release of the Company’s 2016 results in
March 2017. During 2018, no awards were made under the 2009 Long Term Incentive Plan.
As at 31 December 2018, the Executive Directors had the following outstanding Performance Share Awards under the 2009 Long Term
Incentive Plan:
Director
Robin Allan
Tony Durrant
Richard Rose
Date of
grant
27.02.15
12.04.172
27.02.15
12.04.172
27.02.15
12.04.172
Awards
held at
1 January
2018
264,308
294,203
558,511
510,161
567,864
1,078,025
224,148
249,500
473,648
Granted
–
–
–
–
–
–
–
–
–
Lapsed
(264,308)
–
(264,308)
(510,161)
–
(510,161)
(224,148)
–
(224,148)
Awards
held at
31 December
20181
–
294,203
294,203
–
567,864
567,864
–
249,500
249,500
Vested
–
–
–
–
–
–
–
–
–
Market price
of shares
on date
of award
167.30p
66.50p
Performance
period
01.01.15 – 31.12.17
01.01.16 – 31.12.18
Earliest
vesting
date
01.01.18
01.01.19
167.30p
66.50p
01.01.15 – 31.12.17
01.01.16 – 31.12.18
01.01.18
01.01.19
1
0
5
167.30p
66.50p
01.01.15 – 31.12.17
01.01.16 – 31.12.18
01.01.18
01.01.19
Notes:
1 The Committee determined on 4 March 2019 that the 2016 Performance Share Awards would vest. For further details see page 98.
2 The 2016 Performance Share Awards were approved by the Committee in August 2016. The grant of the awards was postponed due to prolonged trading restrictions as a result
of the Company’s refinancing. The grants were made on 12 April 2017 following the release of the Company’s 2016 Final Results.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REMUNERATION REPORT CONTINUED
2017 Long Term Incentive Plan – Performance Share Awards
The 2017 LTIP was approved by shareholders at the 2017 Annual General Meeting and replaces the 2009 LTIP. Under the 2017 Policy,
Performance Share Awards may be granted up to 175 per cent of salary. This amount was scaled down to 87.5 per cent of salary for awards
granted to Executive Directors in 2017, but granted in full in 2018.
As at 31 December 2018, the Executive Directors held the following outstanding Performance Share Awards under the 2017 LTIP:
Director
Robin Allan
Tony Durrant
Richard Rose
Date of
grant
01.09.17
15.03.18
01.09.17
15.03.18
01.09.17
15.03.18
Awards
held at
1 January
2018
562,784
–
562,784
905,227
–
905,227
562,784
–
562,784
Granted
–
865,458
865,428
–
1,392,073
1,392,073
–
865,458
865,428
Lapsed
–
–
–
–
–
–
–
–
–
Awards
held at
31 December
2018
562,784
865,458
1,428,242
905,227
1,392,073
2,297,300
562,784
865,458
1,428,242
Vested
–
–
–
–
–
–
–
–
–
Market price
of shares on
date
of award
55.50p
71.53p
Performance
period
01.01.17 – 31.12.19
01.01.18 – 31.12.20
Earliest
vesting
date1
01.09.20
15.03.21
55.50p
71.53p
01.01.17 – 31.12.19
01.01.18 – 31.12.20
01.09.20
15.03.21
55.50p
71.53p
01.01.17 – 31.12.19
01.01.18 – 31.12.20
01.09.20
15.03.21
Notes:
1 Vested awards are subject to a Holding Period ending on 1 September 2022 for the awards granted in 2017 and 15 March 2023 for awards granted in 2018.
TSR comparator group constituents, by Performance Share Award
Company
Aker BP
Bankers Petroleum1
Beach Energy
Cairn Energy
DNO ASA
Energi Mega Persada
EnQuest
Etab. Maurel et Prom
Faroe Petroleum
Genel Energy
Gulf Keystone
Ithaca Energy1
2016
2017
2018
Company
2016
2017
2018
Lundin Petroleum
Marathon Oil
Noble Energy
Ophir Energy
Origin Energy2
Oryx Petroleum
Rockhopper Exploration
Santos
SOCO International
Tullow Oil
Notes:
1 The following companies delisted during the performance period for the 2016 Awards and were removed from the 2016 comparator group by the Remuneration Committee
during its final performance assessment:
• Bankers Petroleum (delisted in October 2016)
• Ithaca Energy (delisted in June 2017)
2 In August 2018 the Remuneration Committee resolved to remove Origin Energy from the comparator group following the sale of Origin’s upstream oil and gas assets to
Beach Energy.
6
0
1
Premier Oil plc 2018 Annual Report and Financial Statements 2017 Long Term Incentive Plan – Restricted Share Awards
Under the 2017 Directors’ Remuneration Policy, Restricted Share Awards may be granted up to 40 per cent of salary. This amount was
scaled down to 20 per cent of salary for awards granted to Executive Directors in 2017 and 2018. Further details of the Awards are set
out on page 99.
As at 31 December 2018, the Executive Directors had the following outstanding Restricted Share Awards under the 2017 Long Term
Incentive Plan:
Director
Robin Allan
Tony Durrant
Richard Rose
Date of
grant
01.09.17
15.03.18
01.09.17
15.03.18
01.09.17
15.03.18
Awards
held at
1 January
2018
128,636
–
128,636
206,909
–
206,909
128,636
–
128,636
Granted
–
98,909
98,909
–
159,094
159,094
–
98,909
98,909
Lapsed
–
–
–
–
–
–
–
–
–
Awards
held at
31 December
2018
128,636
98,909
227,545
206,909
159,094
366,003
128,636
98,909
227,545
Vested
–
–
–
–
–
–
–
–
–
Market price
of shares
on date
of award
55.50p
71.53p
Performance
period
01.01.17 – 31.12.19
01.01.18 – 31.12.20
Earliest
vesting
date
01.09.201
15.03.212
55.50p
71.53p
01.01.17 – 31.12.19
01.01.18 – 31.12.20
01.09.201
15.03.212
55.50p
71.53p
01.01.17 – 31.12.19
01.01.18 – 31.12.20
01.09.201
15.03.212
Notes:
1 Subject to the performance underpin and continued employment, one third of the total award vests on 1 September 2020, a further one third vests on 1 September 2021 and the
balance of the awards vests on 1 September 2022. Vested awards are subject to a Holding Period ending on 1 September 2022.
2 Subject to the performance underpin and continued employment, one third of the total award vests on 15 March 2021, a further one third vests on 15 March 2022 and the
balance of the awards vests on 15 March 2023. Vested awards are subject to a Holding Period ending on 15 March 2023.
All-employee schemes
The Executive Directors may also participate, on the same terms as all other eligible employees, in a Share Incentive Plan (‘SIP’) and a
Savings Related Share Option Scheme (‘SAYE Scheme’).
Executive Directors’ interests under the SAYE Scheme are shown below:
Director
Robin Allan
Tony Durrant
Richard Rose
Date of
grant
04.05.16
04.05.16
04.05.16
Exercisable
dates
01.06.19 – 30.11.19
01.06.19 – 30.11.19
01.06.19 – 30.11.19
Acquisition
price
per share
42.00p
42.00p
42.00p
Options
held at
1 January
2018
42,857
42,857
42,857
Granted
–
–
–
Exercised
–
–
–
Lapsed
–
–
–
Options
held at
31 December
2018
42,857
42,857
42,857
Share Incentive Plan
Shares held beneficially in this plan by the Executive Directors during the financial year were as follows:
Director
Robin Allan
Tony Durrant
Richard Rose
Shares held on
1 January 2018
32,768
22,313
15,466
Total Partnership
Shares purchased
in 2018 at prices
between
£0.685 and £1.420
1,569
1,570
1,884
Total Matching
Shares awarded
in 2018 at prices
between
£0.685 and £1.420
1,569
1,570
1,884
Shares held on
31 December 2018
35,906
25,453
19,234
Partnership and
Matching Shares
acquired between
1 January and
6 March 2019
1,088
1,088
1,304
1
0
7
For and on behalf of the Remuneration Committee
Jane Hinkley
Chairman of the Remuneration Committee
6 March 2019
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REPORT
The Directors present their Annual Report on the affairs of the Group, together with the audited Group financial statements and Auditor’s
Report for the year ended 31 December 2018. There are certain disclosure requirements which form part of the Directors’ Report and are
included elsewhere in this Annual Report. The location of information incorporated by reference into this Directors’ Report is set out on
page 110.
Dividend
No dividend is proposed in respect of the year ended 31 December 2018 (2017: nil).
Annual General Meeting
The Company’s next AGM will be held on Thursday 16 May 2019 at 11.00am. The Notice of the AGM, together with details of all resolutions
which will be placed before the meeting, accompanies this report and is also available online at www.premier-oil.com.
Directors
The Directors of the Company as at 6 March 2019 are shown on pages 60 to 63.
Articles of Association
The Company’s Articles of Association may only be amended by special resolution at a General Meeting of shareholders. The Company’s
Articles of Association contain provisions regarding the appointment, retirement and removal of Directors.
A Director may be appointed by an ordinary resolution of shareholders in a General Meeting following nomination by the Board or a
member (or members) entitled to vote at such a meeting. The Directors may appoint a Director during any year provided that the
individual stands for election by shareholders at the next AGM. Further detail regarding the appointment and replacement of Directors
is included in the Corporate Governance Report.
Subject to applicable law and the Company’s Articles of Association the Directors may exercise all powers of the Company. Details of the
Matters Reserved for the Board are set out on the Company’s website and summarised in the Corporate Governance Report on page 65.
Indemnification of Directors and insurance
During the financial year, the Company had in place an indemnity to each of its Directors and the Company Secretary under which the
Company will, to the fullest extent permitted by law and to the extent provided by the Articles of Association, indemnify them against all
costs, charges, losses and liabilities incurred by them in the execution of their duties. The indemnity was in force for all Directors who
served during the year. The Company also has Directors’ and Officers’ liability insurance in place.
Share capital
Details of the Company’s issued share capital, together with details of any movement in the issued share capital during the year, are shown
in note 20 to the consolidated financial statements on page 153. The Company has one class of Ordinary Shares which carries no right to
fixed income. Each share carries the right to one vote at General Meetings of the Company.
Subject to applicable law and the Company’s Articles of Association the Directors may exercise all powers of the Company, including the
power to authorise the issue and/or market purchase of the Company’s shares, subject to an appropriate authority being given to the
Directors by shareholders in a General Meeting and any conditions attaching to such authority. The current authority, approved at the
General Meeting held on 16 May 2018, for the allotment of relevant securities is for a nominal amount of up to (i) £31,999,485 and (ii) equity
securities up to a nominal amount of £63,998,971 less the nominal amount of any shares issued under part (i) of the authority.
In addition to the authority given at the 2018 AGM, at the General Meeting held on 15 June 2017, in connection with the Company’s
refinancing which was completed on 28 July 2017 shareholders authorised the Directors to allot Ordinary Shares in the Company
and to grant rights to subscribe for, or to convert any security into, Ordinary Shares in the Company up to a nominal amount of
£59,039,247.10. This authority is specific to the issue of shares pursuant to the terms of the Company’s refinancing. Further details are
contained in the Circular to Shareholders dated 30 May 2017, a copy of which can be accessed in the Shareholder Information section
of the Company’s website.
Furthermore, at the 2018 AGM, shareholders authorised the Directors to make market purchases up to a maximum of approximately 10 per
cent of the Company’s issued share capital (being £9,599,845 in nominal value) excluding treasury shares. Any shares purchased under this
authority may either be cancelled or may be held as treasury shares provided that the number of shares held does not exceed 10 per cent of
issued share capital. No shares were bought back during the year.
8
0
1
There are no specific restrictions on the size of a holding nor on the transfer of shares, both of which are governed by the general
provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the
Company’s shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are
set out in note 21 to the consolidated financial statements on page 154. The voting rights in relation to the shares held within the Employee
Benefit Trust are exercisable by the Trustee but it has no obligation to do so. Details of the number of shares held by the Employee Benefit
Trust are set out in note 20 on page 153. No person has any special rights of control over the Company’s share capital and all issued shares
are fully paid.
American Depositary Receipt programme
Premier Oil plc has a sponsored Level 1 American Depositary Receipt (‘ADR’) programme which BNY Mellon administers and for which it
acts as Depositary. Each ADR represents one Ordinary Share of the Company. The ADRs trade on the US over-the-counter market under
the symbol PMOIY.
Premier Oil plc 2018 Annual Report and Financial Statements Significant shareholdings
As at 6 March 2019, the Company had received notification from the institutions below, in accordance with Chapter 5 of the Disclosure and
Transparency Rules, of their significant holdings of voting rights (3 per cent or more) in its Ordinary Shares:
Name of shareholder
Goldman Sachs Group, Inc
Baillie Gifford & Co
BlackRock Inc
Dimensional Fund Advisors LP
Artemis Investment Management LLP
Aviva plc and its subsidiaries 1
AXA Investment Managers SA
Ameriprise Financial Inc
Date of notification
to the stock exchange
06.03.2019
04.01.2019
27.12.2018
13.07.2018
13.05.2015
27.04.2009
03.03.2017
20.01.2012
Notified number
of voting rights
59,463,574
41,626,147
41,414,912
38,917,945
25,451,951
3,933,529
23,907,981
24,666,346
Notified percentage
of voting rights1
7.28%
5.09%
5.07%
5.02%
4.98%
4.95%
4.68%
4.66%
Nature of holding
Indirect
Indirect
Indirect
Direct & Indirect
Direct & Indirect
Direct & Indirect
Indirect
Direct & Indirect
Note:
1
Interests shown for Aviva plc and its subsidiaries pre-date the Share Split in 2011.
Hedging and risk management
Details of the Group’s hedging and risk management are provided in the Financial Review. A further disclosure has been made in note 18
to the consolidated financial statements on pages 147to 151, related to various financial instruments and exposure of the Group to price,
credit, liquidity and cash flow risk.
Significant agreements
The following significant agreements will, in the event of a change of control of the Company, be affected as follows:
• Under the US$718,967,054 super senior revolving credit facility agreement between, among others, the Company, certain subsidiaries
of the Company and a syndicate of financial institutions, upon a change of control the commitments under the agreement would be
cancelled and all amounts owing would be immediately due and payable.
• Under the US$1,781,032,945 senior revolving credit facility agreement between, among others, the Company, certain subsidiaries of the
Company and a syndicate of financial institutions, upon a change of control the commitments under the agreement would be cancelled
and all amounts owing would be immediately due and payable.
• Under the £100 million and US$150 million term loan facilities between, among others, the Company, certain subsidiaries of the
Company and current lenders, upon a change of control, the commitments under the agreement would be cancelled and all amounts
owing would be immediately due and payable.
• The Group has outstanding retail bonds with a principal amount of £150 million which were issued under a £500 million Euro Medium
Term Notes programme. Upon a change of control, the bonds would become immediately redeemable, together with any accrued
interest.
• The Group has outstanding senior loan notes totalling €63.6million and US$335 million, which were issued to insurance companies
and funds predominantly based in the US. Upon a change of control, the entire unpaid principal amount of the notes would become
immediately prepayable, together with any accrued interest.
• The Company has an outstanding English-law governed term loan facility totalling US$130 million. Upon a change of control, the
commitments under the facility would be cancelled and all amounts owing would be immediately due and payable, together with
accrued interest
Political donations
No political donations were made during the year (2017: US$nil).
Significant events since 31 December 2018
Details of significant events since the balance sheet date are contained in note 27 to the financial statements on page 163.
1
0
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION DIRECTORS’ REPORT CONTINUED
Information set out in the Strategic Report
The Strategic Report set out on pages 1 to 55 provides a comprehensive review of the performance of the Company’s operations for the year
ended 31 December 2018 and the potential future developments of those operations. The Strategic Report also includes details of the
Company’s principal risks and uncertainties and research and development activities during the year. Information regarding the
Company’s policy applied during the year relating to the recruitment, employment, training, career development and promotion of staff
including employment of disabled persons is included within the Corporate Responsibility Review in the Strategic Report on pages 51 to 52.
In addition, information regarding the Company’s greenhouse gas emissions is also included in the Corporate Responsibility Review in the
Strategic Report on pages 49 to 50. In accordance with s414C(11) of the Companies Act 2006, the Directors have chosen to set out the
information outlined above, required to be included in the Directors’ Report, in the Strategic Report.
The Strategic Report and the Directors’ Report together include the ‘management report’ for the purposes of the FCA’s Disclosure &
Transparency Rules (DTR 4.1.8R).
Information set out elsewhere in this Annual Report
Information regarding the Company’s governance arrangements is included in the Corporate Governance Report and related Board
Committee reports on pages 56 to 107. These sections of the report are incorporated into this report by reference.
For the purposes of Listing Rule 9.8.4C R, the information required to be disclosed by Listing Rule 9.8.4 R can be found in the
following locations:
Listing Rule sub-section
Item
Location
9.8.4 (1)
9.8.4 (5)
Interest capitalised
Financial statements, note 5, page 136
Waiver of emoluments by a director
Directors’ Remuneration Report, page 95
Auditor
Each of the persons who is a Director at the date of approval of this Annual Report and Financial Statements confirms that:
• so far as the Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and
• the Director has taken all reasonable steps that he/she ought to have taken as a Director in order to make himself/herself aware
of any relevant audit information and to establish that the Company’s Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
By order of the Board
Andy Gibb
Interim Company Secretary
6 March 2019
0
1
1
Premier Oil plc 2018 Annual Report and Financial Statements STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable
law and regulations.
Group financial statements
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors are required to
prepare the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the
European Union (‘EU’) and Article 4 of the International Accounting Standards (‘IAS’) Regulation and have also chosen to prepare the
Parent Company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under
company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the Parent Company financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material
departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International Accounting Standard 1 – ‘Presentation of Financial Statements’ –
requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Company’s and Group’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them
to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website (www.premier-oil.com). Legislation in the United Kingdom governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors’ responsibility statement
We confirm to the best of our knowledge:
1.
2.
the Group financial statements, prepared in accordance with International Financial Reporting Standards, as adopted by the EU,
give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included
in the consolidation taken as a whole;
the Strategic Report includes a fair review of the development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face; and
3.
the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position and performance, business model and strategy.
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This responsibility statement was approved by the Board of Directors on 6 March 2019 and is signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC
For the year ended 31 December 2018
1. Our opinions and conclusions arising from our audit
Our opinion on the financial statements
In our opinion, the financial statements of Premier Oil plc (the Parent Company) and its subsidiaries (collectively, Premier):
• give a true and fair view of the state of Premier’s and of the Parent Company’s affairs as at 31 December 2018, and of Premier’s and the Parent
Company’s income for the year then ended;
• Premier’s financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRS’) as
adopted by the European Union (‘EU’);
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards Premier’s financial statements, Article 4
of the IAS Regulation.
Our opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and
• based on the work undertaken in the course of our audit:
• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
• the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
Our confirmations that we have nothing to report by exception, in relation to those matters where we are required so to report, are set out
in sections 8 and 9 below.
What we have audited
We have audited Premier Oil plc’s financial statements for the year ended 31 December 2018, which are included in the Annual Report
and comprise:
Premier
Parent Company
Consolidated Balance Sheet as at 31 December 2018
Balance Sheet as at 31 December 2018
Consolidated Statement of Income for the year then ended
Consolidated Statement of Comprehensive Income for the
year then ended
Consolidated Statement of Changes in Equity for the year then ended
Statement of Changes in Equity for the year then ended
Consolidated Statement of Cash Flows for the year then ended
Related Notes 1 to 28 to the Financial Statements,
including a summary of significant accounting policies
Related Notes 1 to 10 to the Parent Company Financial Statements
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and both IFRS as
adopted by the EU. The financial reporting framework that has been applied in the preparation of the Parent Company financial
statements is applicable law and United Kingdom Accounting Standards, including FRS 101 Reduced Disclosure Framework (United
Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISA (UK)’) and applicable law. Our responsibilities
under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report
below. We are independent of Premier and the Parent Company in accordance with the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the Financial Reporting Council’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained during the planning, execution and conclusion of our audit is sufficient and
appropriate to provide a suitable basis for our opinion.
3. Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the Annual Report, in relation to which ISA (UK) requires us to report
to you whether we have anything material to add or draw attention to:
• the disclosures in the Annual Report set out on pages 38 to 39 that describe the principal risks and how the risks are being managed
or mitigated;
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• the Directors’ confirmation set out on page 36 in the Annual Report that they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
• the Directors’ statement set out on pages 35 in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do
so over a period of at least twelve months from the date of approval of the financial statements;
• whether the Directors’ statement in relation to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
• the Directors’ explanation set out on page 41 in the Annual Report as to how they have assessed the prospects of the entity, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation
that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or assumptions.
Premier Oil plc 2018 Annual Report and Financial Statements 4. Overview of our audit approach
Updating our
understanding of
Premier’s business
and its environment
Our audit team has deep industry experience through working for many years on the audits of oil and gas companies. Our
audit planning started with updating our view on external market factors, for example geopolitical risk, the potential
impact of climate change and energy transition, commodity price risk and major trends in the industry. Building on this
knowledge, we updated our understanding of Premier’s strategy and business model. This was achieved through enquiry,
analytical procedures, observation and visiting Premier’s operating units, as well as the review of external data. This
understanding of Premier’s business and its environment informed our risk assessment procedures.
Identifying and
assessing the risks
of material
misstatement
Determination of
materiality
(Section 5)
We concluded that the following risks are to be downgraded or removed from our current year audit focus:
• Refinancing – due to the successful completion in July 2017, the accounting for the refinancing was no longer a
significant risk or key audit matter.
• Decommissioning – in the prior year we did not identify any material misstatements in decommissioning. As a result,
and due to the use of specialists across the business and the consistency in inputs year-on-year; we concluded that
decommissioning was no longer a significant risk; however, it remains an area of audit focus.
• Recoverability of oil and gas assets – with the improvement in oil prices in 2018 we were no longer of the view that there
was a high likelihood of a material error in the recoverability of oil and gas assets. The on-going risk will be covered by
our significant risk around the estimation of oil and gas reserve volumes. Considering the oil price environment in 2018,
our work also considered the potential for impairment reversals.
We have not identified any new significant risks in the current year. In summary, the significant and fraud risks for the
current year are as follows:
• estimation of oil and gas reserves and resources volumes;
• deferred tax asset recoverability;
• going concern and covenant compliance;
• revenue recognition; and
• management override.
Our response to key audit matters is detailed in Section 7.
When we established our audit strategy, we determined overall materiality for the financial statements. We considered
which earnings, activity or capital-based measure aligns best with the expectations of those charged with governance at
Premier and users of Premier’s financial statements. In so doing, we applied a ‘reasonable investor perspective’, which
reflected our understanding of the common financial information needs of the members of Premier as a group. We also
made judgements about the size of misstatements that would be considered material.
The levels set are as follows:
• Overall Materiality: US$16 million (2017: US$12 million);
• Performance Materiality: US$12 million (2017: US$6 million); and
• Reporting differences threshold: US$0.8 million (2017: US$0.6 million).
The increase in our planning materiality is primarily driven by higher oil realisations, resulting in higher earnings. The
increase in performance materiality from 50 per cent of overall materiality in 2017 to 75 per cent of overall materiality in
2018 is mainly due to our assessment of the likelihood of undetected misstatements on the basis of the results of our 2017
audit and our assessment of Premier’s overall control environment.
Determining the
scope of our audit
(Section 6)
Our scope is tailored to the circumstances of our audit of Premier and is influenced by our determination of materiality
and our assessed risks of material misstatement.
We reassessed our audit scope for 2018. The main changes were:
• Pakistan: specific scope procedures no longer required in respect to closing balance sheet (primarily decommissioning
estimation) given expected disposal;
• Indonesia: Kakap is no longer in scope following the sale in April 2018; and
• Mauritania: removal of revenue specific scope procedures following cessation of production in Q4 2017.
Identification of
Key Audit Matters
(Section 7)
We have identified the following key audit matters that, in our professional judgement, had the greatest effect on our
overall audit strategy, the allocation of resources in the audit and in directing the global audit team’s efforts:
• the estimation of oil and gas reserves, including reserves used in the calculation of depreciation, depletion and
amortisation, impairment testing and the assessment of the recoverability of deferred tax assets;
• recognition and measurement of deferred tax assets;
• going concern assessment and covenant compliance; and
• the recoverability of oil and gas assets.
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
For the year ended 31 December 2018
5. Our application of materiality
The scope of our work is influenced by our view of materiality. As we develop our audit strategy, we determine materiality at the overall
level and at the individual account level (referred to as our ‘performance materiality’ (see below).
Overall materiality
US$16 million
Performance materiality
US$12 million
Reporting threshold
US$0.8 million
Overall materiality
What we mean
Level set
Our basis for
determining
materiality for 2018
We apply the concept of materiality both in planning and performing our audit, as well as in evaluating the effect of
identified misstatements (including omissions) on our audit and in forming our audit opinion. For the purposes of
determining whether or not Premier’s financial statements are free from material misstatement (whether due to fraud or
error), we define materiality as the magnitude of misstatements that, individually or in the aggregate, could reasonably
be expected to influence the economic decisions of the users of these financial statements. We are required to establish a
materiality level for the financial statements as a whole that is appropriate in the light of Premier’s particular
circumstances.
Our overall materiality provides a basis for identifying and assessing the risk of material misstatement and determining
the nature and extent of audit procedures. Our evaluation of materiality requires professional judgement and necessarily
considers qualitative as well as quantitative considerations. It also considers our assessment of the expectations of those
charged with governance at Premier and users of Premier’s financial statements.
As required by auditing standards, we reassess materiality throughout the duration of the audit.
Group materiality
We set our preliminary overall materiality for Premier’s Consolidated Financial Statements at US$16 million (2017: US$12
million). We kept this under review throughout the year and reassessed the appropriateness of our original assessment in
the light of Premier’s results and external market conditions. Based on this review, we did not find it necessary to revise
our level of overall materiality.
Parent Company materiality
We set our preliminary overall materiality for the Parent Company at US$8 million (2017: US$8 million). Any balances in
the Parent Company financial statements that were relevant to our audit of the consolidated Group were audited using
an allocation of Group performance materiality.
Group materiality
Our assessment of overall materiality is US$16 million, which is 2 per cent (2017: 2 per cent) of EBITDA (excluding
non-recurring items). Our preliminary assessment of overall materiality was based on management’s budget. We
maintained our preliminary assessment of overall materiality as opposed to increasing the threshold for full year
actuals. We believe that EBITDA (excluding non-recurring items) provides us with a suitable basis for setting materiality
as this measure is a particular focus of shareholders, the basis of covenants included in the Group’s loan agreements and
a key performance indicator of the Group.
The non-recurring item reported by Premier in 2018 that impacted EBITDA was a gain on disposal of non-current assets
of US$42 million. The non-recurring item reported by Premier in 2017 that impacted EBITDA was a gain on disposal of
non-current assets of US$129 million.
Parent Company materiality
We determined materiality for the Parent Company to be US$8 million (2017: US$8 million), which is 0.5 per cent (2017: 0.5
per cent) of total assets. Total assets is an appropriate basis to determine materiality for an investment holding company
and 0.5 per cent is a typical percentage of total assets to use to determine materiality. Any balances in the Parent
Company financial statements that were relevant to our audit of the consolidated Group were audited using an allocation
of Group performance materiality.
Performance materiality
What we mean
Level set
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Having established overall materiality, we determined ‘performance materiality’, which represents our tolerance for
misstatement in an individual account. It is calculated as a percentage of overall materiality in order to reduce to an
appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall
materiality of US$16 million for Premier’s financial statements as a whole.
Once we determined our audit scope, we then assigned performance materiality to our various in-scope operating units.
Our in-scope operating unit audit teams used this assigned performance materiality in performing their Group audit
procedures. The performance materiality allocation is dependent on the size of the operating unit, measured by its
contribution of earnings to Premier, or other appropriate metric, and the risk associated with the operating unit.
On the basis of our risk assessment, our judgement was that performance materiality should be 75 per cent (2017: 50 per
cent) of our overall materiality, namely US$12 million (2017: US$6 million). In assessing the appropriate level, we consider
the nature, the number and impact of the audit differences identified in 2017 as well as the overall control environment.
The increase in performance materiality is mainly due to our assessment of the likely level undetected misstatements.
In 2018, the range of performance materiality allocated to operating units was US$3 million to US$8 million (2017: US$2
million to US$4 million).
Audit difference reporting threshold
What we mean
Level set
This is the amount below which identified misstatements are considered to be clearly trivial.
The threshold is the level above which we collate and report audit differences to the Audit and Risk Committee. We also
report differences below that threshold that, in our view, warrant reporting on qualitative grounds. We evaluate any
uncorrected misstatements against both the quantitative measures of materiality discussed above and in the light of
other relevant qualitative considerations in forming our opinion.
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences of more than
US$0.8 million (2017: US$0.6 million), as well as differences below that threshold that, in our view, warrant reporting on
qualitative grounds.
Premier Oil plc 2018 Annual Report and Financial Statements
6. Our scope of the audit of Premier’s financial statements
What we mean
Criteria for
determining
our audit scope
Selection of
in-scope
units
We are required to establish an overall audit strategy that sets the scope, timing and direction of our audit, and that
guides the development of our audit plan. Audit scope comprises the physical locations, operating units, activities and
processes to be audited that, in aggregate, are expected to provide sufficient coverage of the financial statements for us to
express an audit opinion.
Our assessment of audit risk and our evaluation of materiality determined our audit scope for each operating unit within
Premier which, when taken together, enabled us to form an opinion on the financial statements under ISA (UK). Our audit
effort was focused towards higher risk areas, such as management judgements and on operating units that are
considered significant based upon size, complexity or risk.
The factors that we considered when assessing the scope of the Premier audit, and the level of work to be performed at
the operating units that are in scope for Group reporting purposes, included the following:
• the financial significance of an operating unit to Premier’s earnings, total assets or total liabilities;
• the significance of specific risks relating to an operating unit: history of unusual or complex transactions,
identification of significant audit issues or the potential for, or a history of, material misstatements;
• the effectiveness of the control environment and monitoring activities, including entity-level controls;
• our assessment of locations that carry a higher than normal audit risk in relation to fraud, bribery or corruption; and
• the findings, observations and audit differences that we noted because of our 2017 audit.
We reassessed our audit scope for 2018 compared to 2017. We kept our audit scope under review throughout the year to
reflect changes in Premier’s underlying business and risks; however no significant changes were required.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate
quantitative coverage of significant accounts in the financial statements, of the 40 reporting components of the Group,
we selected 18 components covering entities within the United Kingdom, Vietnam, Indonesia, Brazil, Mexico, the Falkland
Islands, Pakistan and Mauritania, which represent the principal business units within the Group.
Of the 18 components selected, we performed an audit of the complete financial information of 8 components ('full scope
components'), which were selected based on their size or risk characteristics. For the remaining 10 components (‘specific
scope components’), we performed audit procedures on specific accounts within that component that we considered had
the potential for the greatest impact on the significant accounts in the financial statements either because of the size of
these accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 99 per cent (2017: 100 per cent) of the
Group’s EBITDA, 100 per cent (2017: 100 per cent) of the Group’s Total assets and 100 per cent (2017: 100 per cent) of the
Group’s Revenue.
For the current year, the full scope components contributed 98 per cent (2017: 97 per cent) of the Group’s EBITDA, 80 per
cent (2017: 85 per cent) of the Group’s Total assets and 97 per cent (2017: 97 per cent) of the Group’s revenue. The specific
scope components contributed 1 per cent (2017: 3 per cent) of the Group’s EBITDA, 20 per cent (2017: 15 per cent) of the
Group’s total assets and 3 per cent (2017: 3 per cent) of the Group’s revenue. The audit scope of these components may not
have included testing of all significant accounts of the component but will have contributed to the coverage of the Group.
Of the remaining 22 components, which together represent 1 per cent of the Group’s EBITDA, we performed other
procedures, including the following to respond to any potential risks of material misstatement to the consolidated
financial statements:
• test of consolidation journals, intercompany eliminations and foreign currency translation recalculations;
• enquiry of management in respect to any unusual transactions recorded in these components; and
• review of minutes of Board meetings held throughout the period.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
EBITDA
Total assets
Revenue
Full scope
Specific scope
98%
1%
Full scope
Specific scope
80%
20%
Full scope
Specific scope
97%
3%
Other procedures
1%
Other procedures
0%
Other procedures
0%
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Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
For the year ended 31 December 2018
Involvement with
local EY teams
The overall audit strategy is determined by the Senior Statutory Auditor, Gary Donald. We have separate component
teams in Aberdeen (United Kingdom), Ho Chi Minh (Vietnam) and Jakarta (Indonesia). Our audit procedures with respect
to the other components were carried out by the Group audit team. During 2018 Gary Donald visited Ho Chi Minh
(Vietnam) and Jakarta (Indonesia) to meet with local Ernst & Young (EY) teams and Premier local management. In
addition, Senior members of the Group team separately visited Aberdeen (United Kingdom), Ho Chi Minh (Vietnam) and
Jakarta (Indonesia). Senior members of the Group team therefore visited each component team during the period.
In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at
each of the components by us, as the Group audit engagement team, or by component auditors from other EY global
network firms operating under our instruction. For eight full scope components and one specific scope component where
the work was performed by component auditors, we determined the appropriate level of involvement to enable us to
determine that sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole.
The Group audit team interacted regularly with the EY component teams during each stage of the audit, were responsible
for the scope and direction of the audit process and reviewed key working papers. Site visits involved discussing the
audit approach with the component team and any issues arising from their work, meeting with local management,
attending planning and closing meetings, and reviewing key audit working papers addressing areas of risk. This, together
with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group
financial statements.
7. Our assessment of key audit matters
As Premier’s auditors, we are required to determine – from the matters communicated by us to the Audit and Risk Committee during the
year – those matters that required significant attention from us in performing our audit of Premier’s 2018 Consolidated Financial
Statements. In making this determination we took the following into account:
• the risks that we believed were significant to our audit and therefore required special audit consideration;
• areas of higher assessed risk of material misstatement that influenced our audit focus;
• significant audit judgements relating to areas in Premier’s Consolidated Financial Statements that involved significant management judgement,
including accounting estimates that we identified as having high estimation uncertainty;
• the effect on our audit of significant events or transactions that occurred during the period; and
• those assessed risks of material misstatement that had the greatest effect on the allocation of resources in the audit and directing the efforts of
the audit team.
On this basis, we have identified the following key audit matters that, in our professional judgement, were of most significance in our audit
of Premier’s 2018 Consolidated Financial Statements. These matters included those that had the greatest effect on: the overall strategy, the
allocation of resources in the audit and directing the efforts of the audit team. The key audit matters have been addressed in the context of
the audit of Premier’s Consolidated Financial Statements and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
The table below describes the key audit matters, a summary of our procedures carried out and our key observations that we communicated
to the Audit and Risk Committee.
Key observations communicated to the
Audit and Risk Committee
We reported to the Audit and Risk Committee
in the March 2019 meeting that, based on our
testing performed, we had not identified any
errors or factual inconsistencies between
Premier’s internal and external oil and gas
reserves and resource estimates that would
materially impact the financial statements
and that, as a result, we consider the internal
estimate appropriate.
Oil and gas reserves estimation
Risk
Refer to the Audit and Risk Committee Report
(page 74); Accounting policies (page 123); and
Note 10 of the Consolidated Financial
Statements (page 141).
At 31 December 2018, Premier reported 193.7
million barrels of oil equivalent of proved and
probable reserves. (2017: 301.8 million barrels of
oil equivalent).
The estimation and measurement of oil and gas
reserves impacts many material elements of
the financial statements including
depreciation, depletion and amortisation
(‘DD&A’), impairment, going concern,
decommissioning and deferred tax asset (‘DTA’)
recoverability. There is technical uncertainty in
assessing reserve quantities and there are
complex contractual arrangements that
determine Premier’s entitlement of reserves.
This risk has remained consistent with the
prior year.
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Our response to the risk
Our response was primarily performed by the
Group audit team, with input from our three
component audit teams based in Ho Chi Minh
(Vietnam), Jakarta (Indonesia) and Aberdeen
(United Kingdom). We performed the following
audit procedures with respect to management’s
estimation of oil and gas reserves:
• Confirmed our understanding of Premier’s
oil and gas reserves estimation process as
well as the control environment implemented
by management;
• Assessed the appropriateness of reliance on
management's internal and external reserve
estimators by performing procedures to
evaluate their objectivity and competency;
• Compared management's internal
estimations to those of the independent
external specialist and investigated all
significant variations;
• Investigated all material volume movements
from the prior period and lack of movement
where changes were expected based on our
understanding of operations and findings
from other areas of our audit;
• For contingent resource volumes not included
in the scope of the independent external
specialist’s procedures that have an impact
on the financial statements, we obtained an
understanding of the source data used by
management’s internal specialist in
generating its estimate. We corroborated the
appropriateness of source data based on
consistency with other areas of the audit; and
• Ensured reserve volumes were consistently
applied throughout all relevant accounting
processes including DD&A, impairment,
going concern, decommissioning and DTA
recoverability.
Premier Oil plc 2018 Annual Report and Financial Statements Key observations communicated to the
Audit and Risk Committee
We reported to the March 2019 meeting of
the Audit and Risk Committee that, based on
our testing performed, forecasted future
taxable profits underpinning the recognised
DTA are probable in accordance with
accounting standards and consistent with
those used for asset impairment testing and
the going concern assessment.
In particular, management's oil and gas price
assumptions are within the range of the views
of market participants and therfore
considered appropriate.
Deferred tax asset recoverability
Risk
Refer to the Audit and Risk Committee Report
(page 75), Accounting policies (page 123); and
Note 19 of the Consolidated Financial
Statements (page 152).
As at 31 December 2018, Premier recognised a
gross deferred tax asset of US$1,434 million
(2017: US$1,462 million).
The recognition of material deferred tax asset
balances is supported by forecast future
taxable profits, primarily in the UK, which are
underpinned by management’s assumptions
applied when forecasting future taxable
profits, including oil and gas price assumptions,
production profiles and cost forecasts.
In some cases, the utilisation of deferred tax
assets extends to the full life of the fields and
are reliant on cash flows to be derived from the
production of volumes currently classified as
contingent resources and not yet developed.
This risk has remained consistent with the
prior year.
Our response to the risk
Our response was performed by the Group and
Aberdeen component audit teams covering 100
per cent of the deferred tax balance. We
performed the following audit procedures in
respect to management’s DTA recoverability
assessment:
• Confirmed our understanding of Premier’s
DTA recoverability assessment process as
well as the control environment implemented
by management;
• Audited the appropriateness of management’s
forecasted oil and gas prices based on
comparison with the views of market
participants including consultants, brokers
and banks as well as the futures curve;
• Ensured the forecasts used by management
for assessing the recoverability of DTAs were
consistent with those used for assessing asset
impairment;
• Evaluated the reasonableness of tax planning
strategies applied in determining the
recoverability of deferred tax assets; and
• Assessed the likelihood of executing required
development activities in order to allow for
cash flows to be derived as forecast from
fields yet to commence production. Refer to
our response to oil and gas reserve estimation
for detail of procedures performed to test the
appropriateness of source data used in
generating resource estimates in respect to
such assets.
Going concern assessment and covenant compliance
Risk
Refer to the Audit and Risk Committee Report
(page 74), Accounting policies (page 122); and
Note 15 of the Consolidated Financial
Statements (page 145).
Premier’s ongoing covenant compliance is a key
consideration when considering the
appropriateness of adopting the going concern
basis of accounting.
Under management’s base case assumption, no
breach of covenants is forecasted throughout
the going concern period or the period of the
viability statement. However, in downside price
and production scenarios, a breach of one or
more of the financial covenants may arise in
the absence of mitigating actions.
This risk has remained consistent with the
prior year.
Key observations communicated to the
Audit and Risk Committee
We reported to the March 2019 meeting of the
Audit and Risk Committee that, based on our
testing performed, we believed that the going
concern assumption adopted in the 2018
financial statements is appropriate, based on
forecast covenant compliance headroom
calculated under management’s base case.
Management’s base case oil and gas price
assumptions applied throughout the going
concern period are consistent with those used
when assessing the recoverability of deferred
tax asset recoverability and testing for
impairment. These prices are within the range
of the views of market participants including
banks, brokers and consultants as well as
below the price at which futures are currently
being contracted.
We noted that under certain production and
oil price downside scenarios, covenants could
be breached during the going concern period;
however, we are satisfied that the going
concern assumption is appropriate based on
Premier’s base case assumptions as well as the
credibility of management’s assumptions in
respect to the ability to execute mitigating
actions in the required timeframe in downside
scenarios. Mitigating actions include asset
disposal options and oil price hedging.
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Our response to the risk
Our audit procedures to respond to the risk
associated with management’s going concern
assessment were performed by the Group and
Aberdeen component audit teams and
comprised the following:
• Confirmed our understanding of Premier’s
going concern assessment process as well as
the control environment implemented by
management;
• Tested the integrity of management’s going
concern model by auditing the changes in the
model from the prior year;
• Ensured the forecast incorporated in the
model was consistent with the budget
approved by the Board and assessed
historical forecasting accuracy through
forecast versus actual analysis;
• Audited the reasonableness of all key
assumptions, including oil and gas prices,
production profiles and cost forecasts, as well
as their consistency with other areas of the
audit including impairment assessments and
deferred tax asset recognition;
• Recalculated management’s forecast
covenant ratio compliance calculations to
attest that there were no breaches for each
covenant ratio throughout the going concern
period under management’s base case;
• Performed sensitivity analysis on the cash
flow forecasts to consider their impact on
forecast covenant compliance during the
going concern period. Our sensitivity analysis
included assuming oil price realisations at the
bottom of broker forecasts, being US$5.50/bbl
and US$12.90/bbl lower than managements
base case in 2019 and 2020 respectively, and
production downside of a high-margin field,
representing a 10 per cent fall in forecast
Group production; and
• Assessed the ability of management to
execute mitigating actions, as required, to
prevent a breach of covenants in downside
scenarios.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
Key observations communicated to the
Audit and Risk Committee
We reported to the March 2019 meeting of the
Audit and Risk Committee that, based on our
testing performed, we considered the current
period impairment reversal to be materially
stated. In particular, we concluded that there
was sufficient external evidence to support
the reasonableness of Premier’s oil and gas
price assumptions and that the impairment
discount rate adopted by management was
within the range of acceptable discount rates.
Production forecasts incorporated within
current period impairment tests were
consistent with the results of our testing
of reserves.
For the year ended 31 December 2018
Recoverability of oil and gas assets
Risk
Refer to the Audit and Risk Committee Report
(page 75); Accounting policies (page 122); and
Note 10 of the Consolidated Financial
Statements (page 141).
In the current period, management recorded a
net impairment reversal of US$35 million
(2017: net impairment charge of US$252 million).
Accounting standards require management
to assess at each reporting date whether
indicators of asset impairment exist.
Where indicators of impairment (or reversal)
exist, management must carry out an
impairment test.
Management prepare their tangible asset
impairment tests under the value-in-use
methodology. The models include a number of
accounting estimates and judgments including:
future oil and gas prices, discount rates,
inflation rates, production forecasts, operating
expenditures and capital expenditures for each
cash generating unit (‘CGU’). Changes to any of
these key inputs could lead to a potential
impairment or a reversal of impairment.
In the current period, the net impairment
reversal was because of changes in
decommissioning cost estimates. Therefore,
less judgement was required in auditing
management’s current period impairment
assessment when compared to the prior period.
However, given the pervasive impact of key
assumptions considered in management’s
impairment assessment, including oil and gas
prices, we identified the recoverability of oil
and gas assets as a key audit matter for our
current period audit.
Our response to the risk
Our response was performed by the Group
and Aberdeen component audit teams
covering 100 per cent of the current period
impairment reversal. Our procedures comprised
the following:
• Confirmed our understanding of Premier’s
impairment assessment process as well as
the control environment implemented
by management;
• Evaluated the completeness of management’s
assessment of the indicators of impairment or
reversal on both intangible and tangible oil
and gas assets through obtaining
corroborating evidence to support
management’s assessment;
• In conjunction with our EY valuations
specialists, we assessed the reasonableness
of management’s key assumptions, including
oil and gas prices, discount rates, and
inflation rate.
• Where an indicator of impairment or reversal
of an oil and gas property existed, we
obtained the underlying VIU model, tested
the model integrity and the appropriateness
of management’s assumptions in estimating
future cash flows. Where applicable,
assumptions were consistent with those
applied in management’s DTA recoverability
and going concern assessments.
In 2017, our auditors’ report included key audit matters in relation to audit transition, decommissioning provision estimation and
refinancing accounting. Following the completion of our initial audit, as well as the refinancing in the prior period, audit transition and
refinancing accounting key audit matters were not applicable for our current period audit. Based on knowledge of the decommissioning
provision estimation process generated during our prior period audit, as well as limited additional judgement applied when forming the
current period estimation, decommissioning provision estimation did not represent a key audit matter for our current period audit.
8. Other information
The other information comprises the information included in the Annual Report set out on pages 1 to 111 and 169 to 177 including the
Strategic Report, Governance and Additional Information sections, other than the financial statements and our auditors’ report thereon.
The Directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are
required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are
required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility to address specifically the following items in the other
information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the
following conditions:
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• Fair, balanced and understandable set out on page 111 – the statement given by the Directors that they consider the Annual Report and
financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess
Premier’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit and Risk Committee reporting set out on page 72 to 76 the section describing the work of the Audit and Risk Committee does not
appropriately address matters communicated by us to the Audit and Risk Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 111– the parts of the Directors’ statement
required under the Listing Rules relating to Premier’s compliance with the UK Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK
Corporate Governance Code.
Premier Oil plc 2018 Annual Report and Financial Statements 9. Matters on which we are required to report by exception
In the light of the knowledge and understanding of Premier and the Parent Company, and its environment obtained in the course of our
audit, we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the Parent Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
10. Responsibilities Of Directors
As explained more fully in the statement of Directors’ responsibilities set out on page 111, the Directors are responsible for the preparation
of the Consolidated Financial Statements and for being satisfied that they give a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing Premier and the Parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate Premier or the Parent Company or to cease operations, or have no realistic alternative but to do so.
11. Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISA (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
12. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
The objectives of our audit, in respect to fraud, are: to identify and assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through
designing and implementing appropriate responses; and to respond appropriately to fraud or suspected fraud identified during the audit.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity
and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant are those that relate to the reporting framework (IFRSs, Companies Act 2006, the UK Corporate Governance Code and Listing
Rules of the UK Listing Authority) and the relevant tax compliance regulations in the jurisdictions in which the Group operates. In addition,
we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and
disclosures in the financial statements and laws and regulations relating to health and safety, employee matters, environmental and bribery
and corruption practices.
• We understood how the Group is complying with those frameworks by making enquiries of management and with those responsible for
legal and compliance procedures. We designed audit procedures to identify non-compliance with such laws and regulations identified in the
paragraph above, including corroborating our enquiries through our review of Board minutes, papers provided to the Audit and Risk
Committee and correspondence received from regulatory bodies, and noted that there was no contradictory evidence.
• We assessed the susceptibility of the Group’s financial statements to material misstatement, including how fraud might occur by
incorporating data analytics and manual journal entry testing into our audit approach. Our journal entry audit procedures focused on
addressing the risk of management override of controls at all full and specific audit scope entities, as well as review scope entities that are not
dormant. Our audit procedures also covered post-closing year-end journal entries. We used our data analytics techniques to focus our testing
on higher risk manual journal entries, journal entries related to the debt covenants, in particular unusual account pairing impacting revenue
and completeness of costs, and other search criteria that could indicate management override or fraud. Data completeness checks were
carried out to ensure that the journal entry population was complete.
• Based on the results of our risk assessment we designed our audit procedures to identify non-compliance with such laws and regulations
identified above. Our procedures involved journal entry testing, with a focus on journals meeting our defined risk criteria based on our
understanding of the business, enquiries of legal counsel, Group management and all full and specific scope management.
• If any instance of non-compliance with laws and regulations were identified, these were communicated to the relevant local EY teams who
performed sufficient and appropriate audit procedures supplemented by audit procedures performed at the Group level. Where appropriate
we consulted our forensic specialists.
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A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
For the year ended 31 December 2018
13. Other matters we are required to address
Following the recommendation of the Audit and Risk Committee, we were re-appointed by Premier Oil plc’s Annual General Meeting
(AGM) on 16 May 2018, as auditors of Premier Oil to hold office until the conclusion of the next AGM of the Company, and signed an
engagement letter on 13 June 2017. Our total uninterrupted period of engagement is two years covering periods from our appointment
through to the period ending 31 December 2018.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to Premier or the Parent Company and we remain
independent of Premier and the Parent Company in conducting the audit.
Our audit opinion is consistent with our additional report to the Audit and Risk Committee explaining the results of our audit.
14. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Gary Donald (Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP
Statutory Auditor, London
6 March 2019
Notes:
1
The maintenance and integrity of the Premier Oil plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration
of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially
presented on the web site.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
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Premier Oil plc 2018 Annual Report and Financial Statements ACCOUNTING POLICIES
For the year ended 31 December 2018
General information
Premier Oil plc is a limited company incorporated in Scotland and listed on the London Stock Exchange. The address of the registered
office is Premier Oil plc, 4th Floor, Saltire Court, 20 Castle Terrace, Edinburgh, EH1 2EN. The principal activities of the Company and its
subsidiaries (the ‘Group’) are oil and gas exploration and production in the Falkland Islands, Indonesia, Pakistan, the United Kingdom,
Vietnam and Rest of the World.
These financial statements are presented in US dollars since that is the currency in which the majority of the Group’s transactions are
denominated.
Adoption of new and revised standards
In the current year the following new and revised Standards and Interpretations have been adopted, other than as disclosed below, none
of these have a material impact on the Group’s annual results.
• IFRS 9 Financial Instruments
• IFRS 15 Revenue from Contracts with Customers
• Clarifications to IFRS 15 Revenue from Contracts with Customers
• IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
• Amendments to IAS 40 Transfers of Investment Property
• Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
• Amendments to IAS 28 Investments in Associates and Joint Ventures – Clarification that measuring investees at fair value through
profit or loss is an investment-by-investment choice
• Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards – Deletion of short-term exemptions for
first-time adopters
IFRS 9 Financial Instruments
The overall impact on transition to IFRS 9 was an US$82 million increase in long-term debt and corresponding reduction in net assets. This
adjustment relates entirely to an adjustment to the Group’s accounting for its refinancing that completed in July 2017. On adoption of IFRS
9 on 1 January 2018, additional interest charges for facilities that were not deemed to be substantially modified have been expensed at the
point of completion of the refinancing. Under the previous accounting policies these additional interest charges had been expected to be
amortised to the income statement on an effective interest rate basis over the life of the facilities. Under IFRS 9, this would have increased
the interest charge recognised in 2017 by US$82 million, with a corresponding reduction in net assets at 31 December 2017. Going forward,
this reduces Premier’s forecast interest charges by c. US$20 million per annum. The impact on the current period balance sheet is to
increase long-term debt and reduce retained earnings by US$82 million. As permitted by IFRS 9 comparatives have not been restated.
For certain line items in the balance sheet the closing balance at 31 December 2017 as previously reported and the opening balance at 1
January 2018 therefore differ (see statement of changes in equity). The Group’s accounting policy has been revised to reflect the
requirements of IFRS 9. However, excluding the impact on the accounting treatment applied to the Group’s 2017 refinancing, the standard
has not had a significant impact.
IFRS 15 Revenue from Contracts with Customers
Premier has elected to apply the ‘modified retrospective’ approach to transition permitted by IFRS 15 under which comparative financial
information is not restated. Given the nature of Premier's oil marketing and gas sales arrangements, with control passing to the customer
upon transfer of physical possession, Premier principally satisfies its performance obligations at a point in time as opposed to over a period
of time. Therefore, the accounting of revenue under IFRS 15 did not have a material effect on the Group’s financial statements as at 1
January 2018 and so no transition adjustment has been made. The Standard has not had a material impact on the Group’s accounting
policy in respect to revenue as previously disclosed in the 2017 financial statements.
Revenue from contracts with customers for 2018 is presented in Note 1. Amounts presented for comparative periods in 2017 include
revenues determined in accordance with the Group’s previous accounting policies relating to revenue. The total amounts presented do not,
therefore, represent the revenue from contracts with customers that would have been reported for those periods had IFRS 15 been applied
using a fully retrospective approach to transition but the differences are not material.
At the date of approval of these financial statements, the following Standards and Interpretations which have not been applied in these
financial statements were in issue but not yet effective (and in some cases had not yet been adopted by the European Union):
• IFRS 16 Leases
• IFRS 17 Insurance Contracts
• IFRIC 23 Uncertainty over Income Tax Treatments
• Amendments to IFRS 2 - Classification and Measurement of Share-based Payment Transactions
• Amendments to IFRS 4 - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contract
• Amendments to IFRS 9 - Prepayment Features with Negative Compensation
• Amendments to IAS 28 - Long-term Interests in Associates and Joint Ventures
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• Annual Improvements (2015-2017 Cycle): IFRS 3 Business Combinations - Previously held interests in a joint operation
• Annual Improvements (2015-2017 Cycle): IFRS 11 Joint Arrangements - Previously held interests in a joint operation
• Annual Improvements (2015-2017 Cycle): IAS 12 Income Taxes - Income tax consequences of payments on financial instruments classified as equity
• Annual Improvements (2015-2017 Cycle): IAS 23 Borrowing Costs - Borrowing costs eligible for capitalisation
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION ACCOUNTING POLICIES CONTINUED
For the year ended 31 December 2018
Other than as disclosed below, the Directors do not expect that the adoption of the other Standards listed above will have a material effect
on the financial statements of the Group in future periods.
IFRS 16 Leases (‘IFRS 16’) was issued in January 2016 to replace IAS 17 Leases and is effective from 1 January 2019. IFRS 16 sets out the
principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases, with
limited exceptions, under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. Under IFRS 16, at the
commencement date of a lease, a lessee is required to recognise a liability to make lease payments (‘lease liability’) and an asset
representing the right to use the underlying asset during the lease term (‘right-of-use asset’). Lessees will be required to separately
recognise the interest expense associated with the unwinding of the lease liability and the depreciation expense on the right-of-use asset.
These costs will replace amounts previously recognised as operating expenditure in respect to an operating lease in accordance with IAS
17. In applying IFRS 16 for the first time the Group has applied the short-term lease practical expedient by not recognising lease liabilities in
respect to lease arrangements with a remaining lease term of less than 12 months as at 1 January 2019.
During 2018, the Group performed a detailed assessment of the impact of IFRS 16. The Group will adopt the modified retrospective
approach to adoption on 1 January 2019, measuring right-of-use assets at an amount equal to their respective lease liability on adoption,
with the cumulative effect of adopting the standard recognised at the date of initial application without restatement of comparative
information. IFRS 16 will have a material impact on the accounting treatment of our lease arrangements, with the most significant aspect
being the recognition of a lease liability and associated right-of-use-asset in respect to FPSO vessels on the Catcher, Chim Sáo and
Huntington assets.
The most judgemental matter in Premier’s adoption of IFRS 16 remains determining the appropriate accounting for a lease arrangement
entered into by a lead operator as a sole signatory for the lease of equipment that will be used in a joint operation. There is debate
throughout the sector as to whether such contracts are to be reflected gross (100 per cent) in the operator’s financial statements, or
according to each joint operation partner’s proportionate share of the lease. This issue was discussed in the context of IFRS 11 Joint
Arrangements in the September 2018 meeting of the IFRS Interpretations Committee (‘IFRIC’). The presence of a sub-lease between an
operator and other parties of the joint arrangement was not addressed by IFRIC. Given the nature and extent of comments raised in
response to IFRIC’s tentative agenda decision, it is expected that IFRIC will discuss the matter further during their March meeting. The
Group will re-assess the appropriate accounting treatment in respect to this matter based on the outcome of IFRIC’s meeting.
Based on our impact assessment analysis, if Premier were to adopt gross accounting and recognise a sub-lease whereby Premier has
entered into a lease arrangement on behalf of a joint operation as a sole signatory, the opening lease liability to be recognised on 1 January
2019 was US$908 million with an associated right of use asset of US$812 million and a net investment in sub-lease of US$96 million. The net
investment in sub-lease represents the share of lease liabilities of our joint operation partners on lease arrangements for which Premier
has entered into on behalf of the joint operation as sole signatory in its role as operator.
The recognition of interest expense and depreciation in respect to leases liabilities and right-of-use assets under IFRS 16 whilst being offset
by a reduction in operating expenditure charged to the income statement will result in an increase in Group EBITDA. For the purposes of
testing of the Group's financial covenants for the existing financing facilities, lease costs and associated liabilities will continue to be
accounted in accordance with IAS 17.
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the
European Union.
The financial statements are prepared under the historical cost convention except for derivative financial instruments that have been
measured at fair value, including the equity and synthetic warrants.
The financial statements have been prepared on the going concern basis. Further information relating to the use of the going concern
assumption, is provided in the ‘Going Concern’ section of the Financial Review as set out on page 35.
The principal accounting policies adopted are set out below.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries) made up to 31 December each year. Control is achieved when a company is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity.
The results of subsidiaries acquired or disposed of during the year are included in the income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by other members of the Group.
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All significant inter-company transactions and balances between Group entities are eliminated on consolidation.
Critical accounting judgements
• the application of the going concern basis of accounting (basis of preparation section above);
• carrying value of intangible exploration and evaluation assets (note 9 on page 140), in relation to whether commercial determination of an
exploration prospect had been reached;
• carrying value of property, plant and equipment (note 10 on page 142) regarding assessing assets for indicators of impairment;
• decommissioning costs (note 17 on page 146), relating to the timing of when decommissioning would occur; and
• tax and recognition of deferred tax assets (note 19 on page 152), relating to the extent to which future cash flows are included.
Premier Oil plc 2018 Annual Report and Financial Statements Key sources of estimation uncertainty
Details of the Group’s critical accounting estimates are set out in these financial statements and are considered to be:
• carrying value of property, plant and equipment (note 10 on page 141), where the key assumptions relate to oil and gas prices expected to be
realised, 2P production profiles and estimated future costs;
• decommissioning costs (note 17 on page 146, where the key assumptions relate to the discount and inflation rates applied, applicable rig rates
and expected timing of COP from each field;
• estimating the fair value of the equity and synthetic warrants recognised in the year (note 18 on page 149), where key assumptions relate to
expected timing of exercise and future share price volatility; and,
• tax and recognition of deferred tax assets (note 19 on page 152), where key assumptions relate to oil and gas prices expected to be realised, 2P
production profiles and estimated future costs.
Business combinations
Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is
measured at the aggregate of the fair values (at the acquisition date) of assets given, liabilities incurred or assumed, and equity
instruments issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as
incurred.
Where applicable, the consideration for the acquisition includes any asset or liability resulting from a contingent consideration
arrangement, measured at its acquisition date fair value. Subsequent changes in such fair values are adjusted against the cost of
acquisition where they qualify as measurement period adjustments (see below). All other subsequent changes in the fair value of
contingent consideration classified as an asset or liability are accounted for in accordance with relevant IFRSs with any gains or losses
recorded in the income statement, unless it is classified as equity.
The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised
at their fair value at the acquisition date, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance
with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
• liabilities or equity instruments related to the replacement by the Group of an acquiree’s share-based payment awards are measured in
accordance with IFRS 2 Share-based Payment; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations are measured in accordance with that Standard.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the
Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during
the measurement period (see below), or additional assets or liabilities are recognised to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date.
The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and
circumstances that existed as of the acquisition date, and is subject to a maximum of one year.
Goodwill
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is
measured as the excess of the sum of the consideration transferred over the net of the acquisition date amounts of the identifiable assets
acquired and the liabilities assumed.
If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration
transferred, the excess is recognised immediately in profit or loss as an excess of fair value over cost.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated to
each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication the unit may be impaired.
If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the
carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Interest in joint arrangements
A joint arrangement is one in which two or more parties have joint control. Joint control is the contractually agreed sharing of control of
an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing
control.
Most of the Group’s activities are conducted through joint operations, whereby the parties that have joint control of the arrangement have
the rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group reports its interests in joint operations
using proportionate consolidation – the Group’s share of the assets, liabilities, income and expenses of the joint operation are combined
with the equivalent items in the consolidated financial statements on a line-by-line basis.
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A joint venture, which normally involves the establishment of a separate legal entity, is a contractual arrangement whereby the parties
that have joint control of the arrangement have the rights to the arrangement’s net assets. The results, assets and liabilities of a joint
venture are incorporated in the consolidated financial statements using the equity method of accounting. During 2018, the Group did not
have any material interests in joint ventures.
Where the Group transacts with its joint operations, unrealised profits and losses are eliminated to the extent of the Group’s interest in the
joint operation.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION ACCOUNTING POLICIES CONTINUED
For the year ended 31 December 2018
Interests in associates
An associate is an entity over which the Group has significant influence, through the power to participate in the financial and operating
policy decisions of the investee, but which is not a subsidiary or a joint arrangement. The results, assets and liabilities of an associate are
incorporated in these financial statements using the equity method of accounting.
Assets held for sale
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs
to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sales
transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or
disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one year from the date of classification.
Discontinued operations
A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as
held for sale, and represents a separate major line of business or geographical area of operation. Discontinued operations are excluded from
the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the
statement of profit or loss.
Sales revenue and other income
Revenue from contracts with customers is recognised when or as the Group satisfies a performance obligation by transferring a promised
good or service to a customer. A good or service is transferred when the customer obtains control of that good or service. The transfer of
control of oil, natural gas, natural gas liquids, and other items sold by the Group usually coincides with title passing to the customer and
the customer taking physical possession. The Group principally satisfies its performance obligations at a point in time and the amounts
of revenue recognised relating to performance obligations satisfied over time are not significant. Under the Group’s joint operation
arrangements, revenue is recognised according to the actual liftings. However, where liftings do not match working interest or
entitlement interest, an adjustment is made to cost of sales representing the amount due to/from joint venture partners representing over/
underlift movements.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Oil and gas assets
The Company applies the successful efforts method of accounting for exploration and evaluation (‘E&E’) costs, having regard to the
requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources.
(a) Exploration and evaluation assets
Under the successful efforts method of accounting, all licence acquisition, exploration and appraisal costs are initially capitalised in
well, field or specific exploration cost centres as appropriate, pending determination. Expenditure incurred during the various
exploration and appraisal phases is then written off unless commercial reserves have been established or the determination process
has not been completed.
Pre-licence costs
Costs incurred prior to having obtained the legal rights to explore an area are expensed as they are incurred.
Exploration and evaluation costs
Costs of E&E are initially capitalised as E&E assets. Payments to acquire the legal right to explore, costs of technical services and
studies, seismic acquisition, exploratory drilling and testing are capitalised as intangible E&E assets.
Tangible assets used in E&E activities (such as the Group’s vehicles, drilling rigs, seismic equipment and other property, plant and
equipment used by the Company’s Exploration Function) are classified as property, plant and equipment. However, to the extent that
such a tangible asset is consumed in developing an intangible E&E asset, the amount reflecting that consumption is recorded as part of
the cost of the intangible asset. Such intangible costs include directly attributable overhead, including the depreciation of property,
plant and equipment utilised in E&E activities, together with the cost of other materials consumed during the exploration and
evaluation phases. E&E costs are not amortised prior to the conclusion of appraisal activities.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration licence/prospect are carried forward until the existence (or otherwise) of commercial
reserves has been determined subject to certain limitations, including review for indications of impairment. If commercial reserves
have been discovered, the carrying value, after any impairment loss, of the relevant E&E assets, is then reclassified as development and
production assets, once the project is deemed to be justified for development. If, however, commercial reserves have not been found,
the capitalised costs are charged to expense after conclusion of appraisal activities.
4
2
1
Premier Oil plc 2018 Annual Report and Financial Statements
(b) Oil and gas properties
Oil and gas properties are accumulated generally on a field-by-field basis and represent the cost of developing the commercial reserves
discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves
transferred from intangible E&E assets, as outlined in accounting policy (a) above.
The cost of oil and gas properties also includes the cost of acquisitions and purchases of such assets, directly attributable overheads,
finance costs capitalised, and the cost of recognising provision for future restoration and decommissioning.
Depreciation of producing assets
The net book values of producing assets (including pipelines) are depreciated generally on a field-by-field basis using the unit-of-
production method by reference to the ratio of production in the year and the related commercial (proved and probable) reserves of the
field, taking into account future development expenditures necessary to bring those reserves into production.
Producing assets are generally grouped with other assets that are dedicated to serving the same reserves for depreciation purposes,
but are depreciated separately from producing assets that serve other reserves.
(c) Impairment of oil and gas properties’ assets
An impairment test is performed whenever events and circumstances arising during the development or production phase indicate
that the carrying value of an oil and gas property may exceed its recoverable amount.
The carrying value is compared against the expected recoverable amount of the asset, generally by reference to the present value of
the future net cash flows expected to be derived from production of commercial reserves. The cash-generating unit applied for
impairment test purposes is generally the field, except that a number of field interests may be grouped as a single cash-generating unit
where the cash inflows of each field are interdependent.
Any impairment identified is charged to the income statement. Where conditions giving rise to impairment subsequently reverse, the
effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been
charged since the impairment.
(d) Acquisitions, asset purchases and disposals
Acquisitions of oil and gas properties are accounted for using the acquisition method when the assets acquired and liabilities assumed
constitute a business.
Transactions involving the purchase of an individual field interest, or a group of field interests, that do not constitute a business, are
treated as asset purchases irrespective of whether the specific transactions involve the transfer of the field interests directly or the
transfer of an incorporated entity. Accordingly, no goodwill and no deferred tax gross up arises, and the consideration is allocated to
the assets and liabilities purchased on an appropriate basis.
Proceeds on disposal are applied to the carrying amount of the specific intangible asset or oil and gas properties disposed of and any
surplus is recorded as a gain on disposal in the income statement.
(e) Decommissioning
Provision for decommissioning is recognised in full when the related facilities are installed. The amount recognised is the present
value of the estimated future expenditure. A corresponding amount equivalent to the provision is also recognised as part of the cost of
the related oil and gas property. This is subsequently depreciated as part of the capital costs of the production facilities. Any change in
the present value of the estimated expenditure is dealt with from the start of the financial year as an adjustment to the opening
provision and the oil and gas property. The unwinding of the discount is included as a finance cost.
Inventories
Inventories, except for petroleum products, are valued at the lower of cost and net realisable value. Petroleum products and underlifts and
overlifts of crude oil are measured at net realisable value using an observable year-end oil or gas market price, and included in inventories
and other debtors or creditors respectively.
Tax
The tax expense/credit represents the sum of the tax currently payable/recoverable and deferred tax movements during the year.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for
all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from any excess of fair value over cost, or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future.
1
2
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION ACCOUNTING POLICIES CONTINUED
For the year ended 31 December 2018
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profits will be available to allow all or part of the asset to be recovered. The Group reassesses its unrecognised
deferred tax asset each year taking into account changes in oil and gas prices, the Group’s proven and probable reserve profile and forecast
capital and operating expenditures.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based
on tax laws and rates that have been enacted or substantially enacted at the balance sheet date. Deferred tax is charged or credited in the
income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is
also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same tax authority and the Group intends to settle its current tax assets and
liabilities on a net basis.
Translation of foreign currencies
In the accounts of individual companies, transactions denominated in foreign currencies, being currencies other than the functional
currency, are recorded in the local currency at actual exchange rates as of the dates of the transactions. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are reported at the rates of exchange prevailing at the balance sheet date.
Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing
at the date when the fair value was determined. Any gain or loss arising from a change in exchange rate subsequent to the dates of the
transactions is included as an exchange gain or loss in the income statement. Non-monetary assets held at historic cost are translated at
the date of purchase and are not retranslated. On consolidation, the assets and liabilities of the Group’s overseas operations are translated
at exchange rates prevailing on the balance sheet date. Income and expense items are generally translated at the average exchange rates
for the year. Exchange differences arising, if any, are recognised as other comprehensive income or expense and are transferred to the
Group’s translation reserve. When an overseas operation is disposed of, such translation differences relating to it are recognised as income
or expense.
Group retirement benefits
Payments to defined contribution retirement benefit plans are charged as an expense as they fall due. Payments made to state-managed
retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the schemes are
equivalent to those arising in a defined contribution retirement benefit plan.
The Group operates a defined benefit pension scheme, which requires contributions to be made to a separately administered fund. The
cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at each balance
sheet date. Actuarial gains and losses are recognised immediately in the statement of comprehensive income.
The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as reduced
by the fair value of plan assets. Any asset resulting from this calculation is limited to the present value of available refunds and reductions
in future contributions to the plan.
Royalties
Royalties are charged as production costs to the income statement in the year in which the related production is recognised as income.
Leasing
Rentals payable for assets under operating leases are charged to the income statement on a straight-line basis over the lease term.
Financial instruments
Financial assets and financial liabilities are recognised in the Group’s balance sheet when the Group becomes a party to the contractual
provisions of the instrument.
Trade receivables
Trade receivables are stated at amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts.
Bank borrowings
Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including
premiums payable on settlement or redemption and direct issue costs, are accounted for on an accrual basis in the income statement using
the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in
which they arise.
Borrowing costs
Borrowing costs directly relating to the construction or production of a qualifying capital project under construction are capitalised and
added to the project cost during construction until such time as the asset is substantially ready for its intended use, i.e. when it is capable
of commercial production. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated
using a weighted average of rates applicable to relevant general borrowings of the Group during the period. All other borrowing costs are
recognised in the income statement in the period in which they are incurred.
6
2
1
Trade payables
Initial recognition of trade payables is at fair value. Subsequently they are stated at amortised cost.
Premier Oil plc 2018 Annual Report and Financial Statements Derivative financial instruments
(a) Classification of financial assets and financial liabilities
IFRS 9 requires the use of two criteria to determine the classification of financial assets: the entity’s business model for the financial
assets and the contractual cash flow characteristics of the financial assets. The Standard goes on to identify three categories of
financial assets - amortised cost; fair value through profit or loss (‘FVTPL’); and fair value through other comprehensive income
(‘FVOCI’). The accounting for the Group’s financial liabilities remains largely the same as it was under IAS 39. Similar to the
requirements of IAS 39, IFRS 9 requires contingent consideration liabilities to be treated as financial instruments measured at fair
value, with the changes in fair value recognised in the statement of profit or loss.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. It is determined by reference to quoted market prices adjusted for estimated transaction
costs that would be incurred in an actual transaction, or by the use of established estimation techniques such as option pricing models
and estimated discounted values of cash flows.
Under IFRS 9, embedded derivatives are no longer separated from a host financial asset. Instead, financial assets are classified based on
their contractual terms and the Group’s business model. The accounting for derivatives embedded in financial liabilities and in
non-financial host contracts has not changed from that required by IAS 39.
(b) Impairment
IFRS 9 mandates the use of an expected credit loss model to calculate impairment losses rather than an incurred loss model, and
therefore it is not necessary for a credit event to have occurred before credit losses are recognised. The new impairment model applies
to the Group’s financial assets and loan commitments. No changes to the impairment provisions were made on transition to IFRS 9.
The IFRS 9 impairment model requiring the recognition of ‘expected credit losses’, in contrast to the requirement to recognise
‘incurred credit losses’ under IAS 39, has not had a material impact on the Group’s financial statements.
Trade receivables are generally settled on a short time frame and the Group’s other financial assets are due from counterparties
without material credit risk concerns at the time of transition. For trade receivables the Group has used the simplified approach as
allowed under IFRS 9.
(c) Hedge accounting
The hedge accounting requirements of IFRS 9 have been simplified and are more closely aligned to an entity’s risk management
strategy. Under IFRS 9 all existing hedging relationships will qualify as continuing hedging relationships and the Group also intends
to apply hedge accounting prospectively to certain of its commodity price risk management activities for which hedge accounting was
not possible under IAS 39. This had no impact on the 2018 opening balance sheet.
Cash and cash equivalents
Cash comprises cash in hand and demand deposits.
Cash equivalents comprise funds held in term deposit accounts with an original maturity not exceeding three months.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair
value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares
that will eventually vest and adjusted for the effect of non market-based vesting conditions.
Fair value is measured by use of a Monte Carlo simulation model. The main assumptions are provided in note 21 on page 154.
Convertible bonds
The net proceeds received from the issue of convertible bonds are split between a liability element and an equity component at the date of
issue. The fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible debt. The
difference between the proceeds of issue of the convertible bonds and the fair value assigned to the liability component, representing the
embedded option to convert the liability into equity of the Group, is included in equity and is not re-measured. The liability component is
carried at amortised cost.
Issue costs are apportioned between the liability and equity components of the convertible bonds based on their relative carrying
amounts at the date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the prevailing market interest rate, at the time of issue, for
similar non-convertible debt to the liability component of the instrument. Any difference between this amount and the interest paid is
added to the carrying amount of the convertible bonds.
The Group’s convertible bonds were exercised during the year (see note 15)
1
2
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2018
Continuing operations
Sales revenues
Other operating (costs)/income
Costs of operation
Depreciation, depletion, amortisation and impairment
Exploration expense and pre-licence costs
Profit on disposal of non-current assets
General and administration costs
Operating profit
Interest revenue, finance and other gains
Finance costs, other finance expenses and losses
Loss on substantial modification
Profit/(loss) before tax from continuing operations
Tax (charge)/credit
Profit/(loss) for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit/(loss) after tax
Earnings/(loss) per share (cents):
From continuing operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted
Note
2018
US$ million
2017
US$ million
1
17
2
1
9
7
5
5
15
6
7
8
8
8
8
1,397.5
(1.2)
(500.0)
(358.4)
(35.2)
42.3
(14.0)
531.0
27.8
(400.6)
–
158.2
(53.1)
105.1
28.3
133.4
13.6
12.2
17.3
15.5
1,043.1
18.8
(455.4)
(667.8)
(17.1)
129.0
(16.8)
33.8
12.6
(329.0)
(83.7)
(366.3)
96.1
(270.2)
16.4
(253.8)
(52.6)
(52.6)
(49.4)
(49.4)
8
2
1
Premier Oil plc 2018 Annual Report and Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
Profit/(loss) for the year
Cash flow hedges on commodity swaps:
Gains/(losses) arising during the year
Add: reclassification adjustments for losses in the year
Cash flow hedges on interest rate and foreign exchange swaps:
Gains/(losses) arising during the year
Less: reclassification adjustments for (gains)/losses in the year
Tax relating to components of other comprehensive income
Exchange differences on translation of foreign operations
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
All comprehensive income is attributable to the equity holders of the parent.
Note
2018
US$ million
18
18
19
133.4
85.7
71.2
156.9
21.5
(11.4)
10.1
(33.8)
7.4
140.6
274.0
2017
US$ million
(253.8)
(25.6)
11.4
(14.2)
(33.9)
23.1
(10.8)
7.5
(4.9)
(22.4)
(276.2)
1
2
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CONSOLIDATED BALANCE SHEET
As at 31 December 2018
Non-current assets:
Intangible exploration and evaluation assets
Property, plant and equipment
Goodwill
Long-term receivables
Deferred tax assets
Current assets:
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
Total assets
Current liabilities:
Trade and other payables
Short-term provisions
Derivative financial instruments
Deferred income
Liabilities directly associated with assets held for sale
Net current assets
Non-current liabilities:
Long-term debt
Deferred tax liabilities
Deferred income
Derivative financial instruments
Long-term provisions
Total liabilities
Net assets
Equity and reserves:
Share capital
Share premium account
Other reserves
Note
2018
US$ million
2017
US$ million
9
10
10
11
19
11
18
12
7
13
17
18
14
7
15
19
14
18
17
20
26
812.6
2,245.6
240.8
159.8
1,434.1
4,892.9
12.5
282.3
127.4
244.6
55.2
722.0
1,061.9
2,381.0
240.8
160.8
1,461.5
5,306.0
13.5
340.6
14.5
365.4
96.6
830.6
5,614.9
6,136.6
(375.6)
(46.0)
(41.4)
(11.0)
(21.9)
(495.9)
226.1
(2,552.0)
(139.5)
(76.0)
(129.4)
(1,196.1)
(4,093.0)
(4,588.9)
1,026.0
154.2
491.7
380.1
1,026.0
(572.9)
(91.2)
(99.8)
(13.1)
(46.6)
(823.6)
7.0
(2,972.6)
(164.0)
(80.3)
(108.3)
(1,370.9)
(4.696.1)
(5,519.7)
616.9
109.0
284.5
223.4
616.9
The financial statements were approved by the Board of Directors and authorised for issue on 6 March 2019.
They were signed on its behalf by:
0
3
1
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
Premier Oil plc 2018 Annual Report and Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
At 1 January 2017
Issue of Ordinary Shares
Purchase of ESOP Trust shares
Provision for share-based payments
Incremental equity component of revised
convertible bonds
Loss for the year
Other comprehensive expense
At 31 December 2017
Adjustment on adoption of IFRS 91
At 1 January 2018
Issue of Ordinary Shares
Purchase of ESOP Trust shares
Provision for share-based payments
Conversion of convertible bonds
Profit for the year
Other comprehensive income
At 31 December 2018
Note:
1 As described in the Accounting Policies.
Attributable to the equity holders of the parent
Note
21
15
21
15
Share
capital
US$ million
106.7
2.3
Share
premium
account
US$ million
275.4
9.1
–
–
–
–
–
109.0
–
109.0
45.2
–
–
–
–
–
–
–
–
–
–
284.5
–
284.5
207.2
–
–
–
–
–
154.2
491.7
Other
reserves
US$ million
Total
US$ million
427.0
1.1
(0.2)
14.5
57.2
(253.8)
(22.4)
223.4
(82.0)
141.4
7.7
(1.5)
14.6
(56.1)
133.4
140.6
380.1
809.1
12.5
(0.2)
14.5
57.2
(253.8)
(22.4)
616.9
(82.0)
534.9
260.1
(1.5)
14.6
(56.1)
133.4
140.6
1,026.0
1
3
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2018
Net cash from operating activities
Investing activities:
Capital expenditure
Decommissioning pre-funding
Decommissioning expenditure
Proceeds from disposal of oil and gas properties
Net cash used in investing activities
Financing activities:
Issuance of Ordinary Shares
Net purchase of ESOP Trust shares
Proceeds from drawdown of long-term bank loans
Repayment of long-term bank loans
Debt arrangement fees
Interest paid
Net cash from financing activities
Currency translation differences relating to cash and cash equivalents
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Note
22
11
22
2018
US$ million
722.8
2017
US$ million
496.0
(279.8)
(17.8)
(72.7)
73.4
(296.9)
13.8
(1.5)
105.0
(415.3)
–
(228.7)
(526.7)
(20.0)
(120.8)
365.4
244.6
(275.6)
(16.7)
(25.7)
202.3
(115.7)
0.8
(0.2)
45.0
–
(86.0)
(223.7)
(264.1)
(6.7)
109.5
255.9
365.4
2
3
1
Premier Oil plc 2018 Annual Report and Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2018
1. Operating segments
The Group's operations are located and managed in five business units; namely the Falkland Islands, Indonesia,
Vietnam, the United Kingdom and the Rest of the World. The results for Pakistan are reported as a discontinued operation.
Some of the business units currently do not generate revenue or have any material operating income.
The Group is only engaged in one business of upstream oil and gas exploration and production.
Revenue:
Indonesia
Vietnam
United Kingdom
Rest of the World1
Total Group sales revenue
Other operating income - United Kingdom
Interest and other finance revenue
Total Group revenue from continuing operations
Group operating profit:
Indonesia
Vietnam
United Kingdom
Rest of the World1
Unallocated2
Group operating profit
Interest revenue, finance and other gains
Finance costs and other finance expenses
Loss on substantial modification
Profit/(loss) before tax from continuing operations
Tax
Profit/(loss) after tax from continuing operations
Profit from discontinued operations
Balance sheet
Segment assets:
Falkland Islands
Indonesia
Vietnam
United Kingdom
Rest of the World1
Assets held for sale
Unallocated2
Total assets
2018
US$ million
2017
US$ million
192.8
272.4
931.5
0.8
1,397.5
–
7.6
1,405.1
111.8
142.2
326.2
(29.6)
(19.6)
531.0
27.8
(400.6)
–
158.2
(53.1)
105.1
28.3
648.1
417.7
312.0
3,706.1
103.8
55.2
372.0
5,614.9
171.8
210.7
655.9
4.7
1,043.1
18.8
1.7
1,063.6
65.3
82.6
(86.4)
(5.0)
(22.7)
33.8
12.6
(329.0)
(83.7)
(366.3)
96.1
(270.2)
16.4
633.1
440.4
374.4
4,116.2
96.0
96.6
379.9
6,136.6
Notes:
1 Segmental income, assets, liabilities and capital additions for Mauritania have been included within the Rest of the World.
2
Unallocated expenditure, assets and liabilities include amounts of a corporate nature and not specifically attributable to a geographical segment. These items include
corporate general and administration costs, pre-licence exploration costs, cash and cash equivalents, mark-to-market valuations of commodity contracts and interest
rate swaps and options, convertible bonds, warrants and other long-term debt.
1
3
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
1. Operating segments continued
Liabilities:
Falkland Islands
Indonesia
Vietnam
United Kingdom
Rest of the World1
Liabilities directly associated with assets held for sale
Unallocated2
Total liabilities
Other information
Capital additions and acquisitions:
Falkland Islands
Indonesia
Pakistan
Vietnam4
United Kingdom4
Rest of the World1
Total capital additions and acquisitions
Depreciation, depletion, amortisation and impairment:
Indonesia
Vietnam
United Kingdom
Rest of the World1
Total DD&A and impairment (continuing operations)
Total DD&A and impairment (discontinued operations)3
2018
US$ million
2017
US$ million
(12.8)
(174.0)
(174.1)
(1,431.9)
(51.4)
(21.9)
(2,722.8)
(4,588.9)
15.1
24.5
4.1
(0.1)
(50.3)
37.2
30.5
46.6
55.6
254.8
1.4
358.4
–
(8.2)
(223.9)
(203.4)
(1,802.1)
(54.8)
(46.6)
(3,180.7)
(5,519.7)
12.9
7.4
10.5
20.2
444.3
25.3
520.6
57.2
64.5
542.9
3.2
667.8
7.3
Notes:
1 Segmental income, assets, liabilities and capital additions for Mauritania have been included within the Rest of the World.
2
Unallocated expenditure, assets and liabilities include amounts of a corporate nature and not specifically attributable to a geographical segment. These items include
corporate general and administration costs, pre-licence exploration costs, cash and cash equivalents, mark-to-market valuations of commodity contracts and interest
rate swaps and options, convertible bonds, warrants and other long-term debt.
3 Depreciation, depletion and amortisation for the Pakistan business unit was charged until 30 June 2017, which was the date of reclassification to an asset held for sale.
4 Includes revisions to decommissioning estimates in the year.
Out of the total Group worldwide sales revenues of US$1,397.5 million (2017: US$1,043.1 million), revenues of US$931.5 million (2017: US$655.9
million) arose from sales of oil and gas to customers located in the UK. Included within the total revenues were revenues of US$1,468.7
million (2017: US$1,054.4 million) from contracts with customers. This was offset by hedging losses of US$71.2 million (2017: US$11.3 million).
Included in assets arising from the United Kingdom segment are non-current assets (excluding deferred tax assets) of US$2,090.5 million
(2017: US$2,455.7 million) located in the UK. Included in depreciation, depletion, amortisation and impairment is a net impairment credit in
relation to the UK of US$35.2 million (2017: US$252.2 million net charge).
Revenue from three customers (2017: three customers) each exceeded 10 per cent of the Group’s consolidated revenue. Sales to two
customers in the UK amounted to US$454.7 million (2017: two customers US$361.7 million). Sales to one customer in Indonesia totalled
US$186.5 million (2017: one customer amounting to US$168.3 million).
4
3
1
Premier Oil plc 2018 Annual Report and Financial Statements 2. Costs of operation
Operating costs
Gas purchases
Stock overlift/underlift movement
Royalties
3. Auditors’ remuneration
Audit fees:
Fees payable to the Company's auditor for the Company's Annual Report
Audit of the Company's subsidiaries pursuant to legislation
Non-audit fees:
Other services pursuant to legislation - interim review
Other services1
2018
US$ million
2017
US$ million
487.5
9.6
(11.1)
14.0
500.0
438.4
5.5
1.3
10.2
455.4
2018
US$ million
2017
US$ million
0.7
0.3
1.0
0.2
0.1
0.3
0.6
0.3
0.9
0.2
0.4
0.6
Note:
1 Other services relate to fees payable to the Company’s auditors for the audit of the Company’s joint operations and other assurance services.
The Company has a policy on the provision of non-audit services by the auditor which is aimed at ensuring their continued independence.
This policy is available on the Group's website. The use of the external auditor for services relating to accounting systems or financial
statement preparations is not permitted, as are various other services that could give rise to conflicts of interest or other threats to the
auditor's objectivity that cannot be reduced to an acceptable level by applying safeguards.
4. Staff costs
Staff costs, including Executive Directors:
Wages and salaries
Social security costs
Pension costs:
Defined contribution
Defined benefit
2018
US$ million
2017
US$ million
94.3
8.0
9.3
2.0
113.6
94.0
6.8
6.7
3.0
110.5
Staff costs above are recharged to joint venture partners or capitalised to the extent that they are directly attributable to capital projects.
The above costs include share-based payments to employees as disclosed in note 21 on page 154.
Average number of employees during the year:
Technical and operations
Management and administration
2018
508
274
782
2017
531
258
789
1
3
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
5. Interest revenue and finance costs
Interest revenue, finance and other gains:
Short-term deposits and loans
Derivative gains
Exchange differences and other gains
Finance costs:
Bank loans, overdrafts and bonds
Payable in respect of convertible bonds
Payable in respect of senior loan notes
Long-term debt arrangement fees
Exchange differences and other costs
Other finance expenses:
Unwinding of discount on decommissioning provision
Derivative losses
Finance (expense)/income on deferred income
Gross finance costs and other finance expenses
Finance costs capitalised during the year
Note
18
17
18
14
2018
US$ million
2017
US$ million
7.6
20.1
0.1
27.8
(186.9)
(0.8)
(37.8)
(34.3)
(45.1)
(304.9)
(57.7)
(29.4)
(9.8)
(96.9)
(401.8)
1.2
(400.6)
1.7
10.9
–
12.6
(177.3)
(13.3)
(34.3)
(22.0)
(34.7)
(281.6)
(62.5)
(33.0)
6.8
(88.7)
(370.3)
41.3
(329.0)
The amount of finance costs capitalised was determined by applying the weighted average rate of finance costs applicable to the
borrowings of the Group of 7.6 per cent (2017: 7.3 per cent) to the expenditures on the qualifying assets.
6. Tax
Current tax:
UK corporation tax on profits
UK petroleum revenue tax
Overseas tax
Adjustments in respect of prior years
Total current tax
Deferred tax:
UK corporation tax
Overseas tax
Total deferred tax
Tax charge/(credit) on loss on ordinary activities
6
3
1
2018
US$ million
2017
US$ million
(23.2)
–
120.7
(6.9)
90.6
(13.5)
(24.0)
(37.5)
53.1
(0.8)
(8.2)
75.6
8.2
74.8
(146.2)
(24.7)
(170.9)
(96.1)
Premier Oil plc 2018 Annual Report and Financial Statements The tax charge of the year can be reconciled to the profit per the consolidated income statement as follows:
Group profit/(loss) on ordinary activities before tax
Group profit/(loss) on ordinary activities before tax at 44.7% weighted average rate (2017: 29.1%)
Tax effects of:
Income/expenses that are not taxable/deductible in determining taxable profit
Financing costs disallowed for UK supplementary charge
Non-deductible field expenditure
Tax and tax credits not related to profit before tax (mainly ring fence expenditure supplement)
Group relief
Unrecognised tax losses
Effect of change in foreign exchange
Adjustments in respect of prior years
Utilisation and recognition of tax losses not previously recognised
Effect of differences in tax rates
Recognition that decommissioning provision will unwind at 50%
Tax charge/(credit) for the year
Effective tax rate for the year
2018
US$ million
158.2
70.8
(8.7)
22.6
6.1
(46.1)
2.7
14.8
17.8
(31.2)
–
(0.4)
4.7
53.1
2017
US$ million
(366.3)
(106.6)
40.6
16.4
36.1
(69.9)
–
6.1
–
(3.2)
(0.8)
(0.5)
(14.3)
(96.1)
33.5%
26.2%
The UK deferred tax credit arises due to ring fence expenditure supplement and is offset by other items impacting deferred tax. The
overseas deferred tax credit arises on fixed asset balances.
The weighted average rate is calculated based on the tax rates weighted according to the profit or loss before tax earned by the Group in
each jurisdiction. The change in the weighted average rate year-on-year relates to the mix of profit and loss in each jurisdiction.
The future effective tax rate for the Group is impacted by the mix of jurisdictions in which the Group operates (with corporation tax rates
ranging from 19 per cent to 55 per cent), assumptions around future oil prices and changes to tax rates and legislation.
7. Discontinued operations, disposals and assets held for sale
2018
US$ million
2017
US$ million
Assets held for:
Pakistan business unit
Esmond Transportation System ('ETS')
Kakap field
Total assets classified as held for sale
Liabilities held for:
Pakistan business unit
Esmond Transportation System ('ETS')
Kakap field
Total liabilities classified as held for sale
55.2
–
–
55.2
(21.9)
–
–
(21.9)
52.2
27.0
17.4
96.6
(25.4)
(7.0)
(14.2)
(46.6)
1
3
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
7. Discontinued operations, disposals and assets held for sale continued
Disposals
During the year, Premier completed the previously announced sales of its interest in the Kakap field, its 30 per cent non-operated interest
in the Esmond Transportation System ('ETS') and its interest in the Babbage Area.
A net gain for these disposals has been recognised in the income statement for the year. The gain recognised has been partially offset by a
charge of US$5.6 million due to a write-off of a contingent consideration receivable from Kris Energy in relation to the Aceh disposal by
Premier in 2014.
Discontinued operations – Pakistan Business Unit
In April 2017, Premier announced it had reached agreement and signed a sale and purchase agreement with Al-Haj Energy Limited
(‘Al-Haj’) for the sale of Premier Oil Pakistan Holdings BV, which comprises Premier’s Pakistan business unit, for a cash consideration of
US$65.6 million. During the year, Al-Haj paid a deposit to Premier of US$10.0 million, on top of the US$25.0 million deposit received in 2017.
The disposal of the Pakistan business unit is expected to complete in 2019 and, as this is within 12 months of the balance sheet date, the
business unit continued to be classified as a disposal group held for sale in the year-end balance sheet.
The results of the disposal group which have been included as discontinued operations in the consolidated income statement
were as follows:
Revenue
Expenses
Profit before tax
Attributable tax credit/(charge)
Net profit for the period from discontinued operations
2018
US$ million
2017
US$ million
40.8
(15.0)
25.8
2.5
28.3
40.8
(22.4)
18.4
(2.0)
16.4
During the year to 31 December 2018, the Pakistan disposal group contributed US$29.0 million (2017 : US$16.8 million) to the Group’s net
operating cash flows and paid US$5.0 million (2017: US$6.8 million) in respect of investing activities. There were no financing cash flows in
either the current or the prior years.
The effect of the disposal group on segment results is disclosed in note 1.
The major classes of assets and liabilities comprising the disposal group classified as held for sale are as follows:
Property, plant and equipment
Long-term receivables
Deferred tax asset
Inventory
Trade and other receivables
Cash
Pakistan assets classified as held for sale
Trade and other payables
Long-term provisions
Pakistan liabilities classified as held for sale
Net assets of disposal group
2018
US$ million
2017
US$ million
27.6
0.2
1.9
8.2
16.8
0.5
55.2
(5.2)
(16.7)
(21.9)
33.3
23.3
0.4
0.8
9.0
17.8
0.9
52.2
(7.8)
(17.6)
(25.4)
26.8
Following completion of the disposal, Premier will retain a provision of US$16.4 million in relation to potential costs to the business unit
for the period of ownership by Premier prior to the disposal. This provision is not included in the discontinued operations assets and
liabilities in the table above.
8
3
1
Premier Oil plc 2018 Annual Report and Financial Statements 8. Earnings/(loss) per share
The calculation of basic earnings/(loss) per share is based on the profit/(loss) after tax and the weighted average number of Ordinary Shares in
issue during the year. Basic and diluted earnings/(loss) per share are calculated as follows:
Earnings/(loss)
Earnings/(loss) for the purpose of diluted earnings/(loss) per share on continuing operations
Profit from discontinued operations
Earnings/(loss) for the purposes of diluted earnings/(loss) per share on continuing
and discontinued operations
Number of shares (millions)
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
Effects of dilutive potential Ordinary Shares:
Contingently issuable shares (2017: anti-dilutive)
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
Earnings/(loss) per share from continuing operations (cents)
Basic
Diluted
Earnings per share from discontinued operations (cents)
Basic
Diluted
2018
US$ million
2017
US$ million
105.1
28.3
133.4
774.0
88.3
862.3
13.6
12.2
3.7
3.3
(270.2)
16.4
(253.8)
513.7
–
513.7
(52.6)
(52.6)
3.2
3.2
The inclusion of the contingently issuable shares in the current year produces diluted earnings per share for both continuing and
discontinued operations (2017: anti-dilutive). At 31 December 2018 there were 88.3 million potential Ordinary Shares in the Company
that are underlying the Company's equity warrants and share options that may dilute earnings per share in the future. These have
been included in the calculation of diluted earnings per share.
1
3
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
9. Intangible exploration and evaluation (‘E&E’) assets
Cost:
At 1 January 2017
Exchange movements
Additions during the year
Acquisition of subsidiaries
Exploration expense1
At 31 December 2017
Exchange movements
Additions during the year
Transfer to PP&E
Disposals
Assets classified as held for sale
Exploration expense1
At 31 December 2018
Total
US$ million
1,011.4
(0.9)
63.1
(0.5)
(11.2)
1,061.9
(5.6)
62.1
(274.2)
(1.4)
(0.6)
(29.6)
812.6
Note:
1 Expensed in the income statement with pre-licence expenses of US$5.6 million in 2018 (2017: US$5.9 million)
The amounts for intangible E&E assets represent costs incurred on active exploration projects. These amounts are written off to the
income statement as exploration expense unless commercial reserves are established or the determination process is not completed and
there are no indications of impairment. Assets written off in the year include costs incurred in Mexico on the Block 2 licence, the Sunbeam
prospect in the UK and Block 665 in Brazil.
The outcome of ongoing exploration, and therefore whether the carrying value of E&E assets will ultimately be recovered, is inherently
uncertain. To the extent that we have an active licence to continue to explore for resources and have an intention to continue exploration
activity, the exploration cost associated with the licence will remain capitalised as an E&E asset on the balance sheet. Once exploration
activity has completed and we have no further intention to explore the licence for resources, costs capitalised until that point will be
expensed and no further costs associated with the licence will be capitalised.
During the year, the costs associated with the Tolmount project were transferred to PP&E following project sanction in August. The
balance carried forward is predominantly in relation to the Group's prospects in the Falkland Islands and the non-operated Zama prospect
and Block 30 in Mexico.
0
4
1
Premier Oil plc 2018 Annual Report and Financial Statements
10. Property, plant and equipment
Cost:
At 1 January 2017
Exchange movements
Additions and changes in decommissioning during the year
Asset acquisition
Assets classified as held for sale
Disposals
At 31 December 2017
Exchange movements
Additions and changes in decommissioning during the year
Transferred from E&E
Assets classified as held for sale
Disposals
At 31 December 2018
Amortisation and depreciation:
At 1 January 2017
Exchange movements
Charge for the year
Net impairment charge
Assets classified as held for sale
Disposals
At 31 December 2017
Exchange movements
Charge for the year
Net impairment credit
Disposals
At 31 December 2018
Net book value:
At 31 December 2017
At 31 December 2018
Oil and gas
properties
US$ million
Other fixed
assets
US$ million
Total
US$ million
8,028.6
4.6
445.4
9.8
(489.6)
(409.4)
7,589.4
1.2
(33.5)
274.2
(4.1)
(19.6)
7,807.6
5,318.9
(0.3)
416.2
252.2
(434.6)
(332.1)
5,220.3
2.1
386.5
(35.2)
(5.5)
5,568.2
2,369.1
2,239.4
64.3
2.4
2.3
–
(1.7)
(0.6)
66.7
(2.1)
1.9
–
–
(9.2)
57.3
47.8
1.8
6.7
–
(0.9)
(0.6)
54.8
(1.6)
7.1
–
(9.2)
51.1
11.9
6.2
8,092.9
7.0
447.7
9.8
(491.3)
(410.0)
7,656.1
(0.9)
(31.6)
274.2
(4.1)
(28.8)
7,864.9
5,366.7
1.5
422.9
252.2
(435.5)
(332.7)
5,275.1
0.5
393.6
(35.2)
(14.7)
5,619.3
2,381.0
2,245.6
Finance costs that have been capitalised within oil and gas properties during the year total US$1.2 million (2017: US$41.3 million), at a
weighted average interest rate of 7.6 per cent (2017: 7.3 per cent).
Amortisation and depreciation of oil and gas properties is calculated on a unit-of-production basis, using the ratio of oil and gas production
in the period to the estimated quantities of proved and probable reserves on an entitlement basis at the end of the period plus production
in the period, on a field-by-field basis. Proved and probable reserve estimates are based on a number of underlying assumptions including
oil and gas prices, future costs, oil and gas in place and reservoir performance, which are inherently uncertain. Management uses
established industry techniques to generate its estimates and regularly references its estimates against those of joint venture partners or
external consultants. However, the amount of reserves that will ultimately be recovered from any field cannot be known with certainty
until the end of the field’s life.
1
4
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
10. Property, plant and equipment continued
Impairment charge
The impairment charge in the current year relates entirely to the Huntington asset in the UK. The impairment charge of US$20.5 million
was calculated by comparing the future discounted pre-tax cash flows expected to be derived from production of commercial reserves (the
value-in-use) against the carrying value of the asset. The future cash flows were estimated using the following oil price assumption:
US$60/bbl in 2019, US$65/bbl in 2020,US$70/bbl in 2021 and US$75/bbl in ‘real’ terms thereafter (2017: two years at forward curve, year three
at US$70/bbl followed by a long-term price of US$75/bbl (real)) and were discounted using a pre-tax discount rate of 9 per cent for the UK
assets (2017: 9 per cent) and 12.5 per cent for the non-UK assets (2017: 12.5 per cent). Assumptions involved in impairment measurement
include estimates of commercial reserves and production volumes, future oil and gas prices, discount rates and the level and timing of
expenditures, all of which are inherently uncertain.
The principal cause of the impairment charge being recognised in the year was as a result of an increase in the expected decommissioning
costs attributed to the asset. The prior year impairment charge was principally driven by a downgrade in 2P reserves on the Solan asset.
Reversal of previously recognised impairment charges
Under the requirements of IAS 36, if there is an indication that a factor that resulted in an impairment charge may have changed or
been reversed, then the previously recognised impairment charge may no longer exist or may have decreased. For a number of assets,
due to an increase in the near-term oil price assumption (based on the Dated Brent forward curve), we have reassessed the recoverable
amount of the asset to assess whether an increase in the recoverable amount (value-in-use) is indicative of a reversal of a previously
recognised impairment charge. The future cash flows were determined using the same assumptions as those used for the impairment
charge outlined above.
A reversal of impairment of US$55.7 million has been credited to the income statement for the year, which has been partially offset by the
impairment charge recognised. The impairment reversal relates entirely to Solan in the UK as a result of a reduction in the expected gross
decommissioning cost attributed to the asset. The recoverable amount of Solan at 31 December 2018 was US$171.4 million. The prior year
reversal of impairment was driven by a one year extension of COP on the Huntington asset.
Sensitivity
A 1 per cent increase in the discount rates used when determining the value-in-use for each oil and gas property would result in a reduction
in the net impairment reversal of approximately US$6.1 million. A US$5/bbl reduction in the long-term oil price (to US$70/bbl (real)) would
reduce the net impairment reversal by approximately US$19.5 million.
Goodwill
Goodwill of US$240.8 million has been specifically assigned to the Catcher field in the UK, which is considered the cash-generating unit for
the purposes of any impairment testing of this goodwill. The Group tests goodwill annually for impairment, or more frequently if there
are indications that goodwill might be impaired. The recoverable amounts are determined from value-in-use calculations with the same
key assumptions as noted above for the impairment calculations. The discount rate used is 9 per cent (2017: 9 per cent). The value-in-use
forecast takes into consideration cash flows which are expected to arise during the life of the Catcher field as a whole, currently expected
to be around 2026. This period exceeds five years but is believed to be appropriate as it is underpinned by estimates of commercial reserves
provided by our in-house reservoir engineers using industry standard reservoir estimation techniques. The headroom between the
recoverable amount and the carrying amount, including the goodwill, is US$166.8 million.
The key assumptions to which the calculation of value-in-use of the Catcher asset are discount rate, oil prices, forecasted recoverable
reserves and estimated future costs. No reasonably possible change in any of these key assumptions would cause the asset's carrying
amount to exceed its recoverable amount.
2
4
1
Premier Oil plc 2018 Annual Report and Financial Statements 11. Receivables
Trade and other receivables
Trade receivables
Other receivables
Prepayments
Tax recoverable
2018
US$ million
2017
US$ million
135.5
55.0
45.9
45.9
282.3
197.5
54.6
65.8
22.7
340.6
The carrying values of the trade and other receivables are equal to their fair value as at the balance sheet date.
Long-term receivables
Other long-term receivables
Decommissioning funding asset
Long-term employee benefit plan surplus
Note
24
2018
US$ million
2017
US$ million
111.1
48.3
0.4
159.8
97.6
62.7
0.5
160.8
Other long-term receivables include US$101.2 million in cash held in escrow accounts for expected future decommissioning expenditure in
Indonesia, Vietnam and Mauritania (2017: US$88.1 million).
The decommissioning funding asset relates to the Decommissioning Liability Agreement entered into with E.ON whereby E.ON agreed to
part fund Premier's share of decommissioning the Johnston and Ravenspurn North assets. Under the terms of the agreement, E.ON will
reimburse 70 per cent of the decommissioning costs between a range of £40 million to £130 million based on Premier's net share of the
total decommissioning cost of the two assets. This results in maximum possible funding of £63 million from E.ON. At 31 December 2018, a
long-term decommissioning funding asset of US$48.3 million has been recognised utilising the year-end US$/£ exchange rate and
underlying assumptions consistent with those used for the corresponding decommissioning provision.
12. Cash and cash equivalents
Cash at bank and in hand
Short-term deposits
Note
22
2018
US$ million
2017
US$ million
244.5
0.1
244.6
364.8
0.6
365.4
Included within cash at bank and in hand balances are partners' share of cash balances on our operated assets of US$7.6 million (2017:
US$51.8 million) and US$22.6 million (2017: US$16.4 million) held as security for the Mexican letters of credit.
13. Trade and other payables
Trade payables
Other payables
Accrued expenses
Tax payable
2018
US$ million
2017
US$ million
41.0
48.2
253.3
33.1
375.6
129.6
47.7
354.2
41.4
572.9
The carrying values of the trade and other payables approximates to their fair value as at the balance sheet date.
1
4
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
14. Deferred income
In June 2015, Premier received US$100 million from FlowStream in return for granting them 15 per cent of production from the Solan field
until sufficient barrels have been delivered to achieve the rate of return within the agreement. This balance is being released to the income
statement within revenue as barrels are delivered to FlowStream from production from Solan. The balance has reduced by
US$16.2 million during the year reflecting barrels delivered to FlowStream and a charge to finance costs of US$9.8 million.
The portion of the deferred income that is expected to be delivered to FlowStream within the next 12 months has been classified as a
current liability.
15. Borrowings
The Group’s loans are carried at amortised cost as follows:
Bank loans
Senior loan notes
Retail bonds
Convertible bonds
Total borrowings
Due within one year
Due after more than one year
Total borrowings
2018 US$ million
2017 US$ million
Carrying
value
1,846.7
538.1
190.5
–
Fees
(21.0)
-
(2.3)
-
Total
1,825.7
538.1
188.2
–
Carrying
value
2,165.0
541.6
202.5
180.5
2,575.3
(23.3)
2,552.0
3,089.6
Fees
(106.9)
-
(10.1)
-
(117.0)
–
2,552.0
2,552.0
Total
2,058.1
541.6
192.4
180.5
2,972.6
–
2,972.6
2,972.6
A maturity analysis showing the ageing profile of the total borrowings is shown in note 18.
Refinancing of all the above facilities completed in July 2017. On completion, a loss of US$83.7 million was recognised in relation to the
facilities that were deemed to be substantially modified in accordance with IAS 39. In addition, an adoption of IFRS 9 at 1 January 2018,
additional interest charges of US$82 million had to be recognised in 2017, with a corresponding reduction in net assets at 31 December 2017.
As permitted by IFRS 9 comparatives have not been restated (see Accounting Policy on page 121).
At the year-end, the Group’s principal credit facilities comprised:
• Bank loans: US$2.5 billion revolving and letter of credit facility (‘RCF’), US$150 million and £100 million term loans (together the ‘Term Loan’);
• Senior loan notes: US$335 million and €63.6 million of US Private Placement (‘USPP’) notes and US$130 million converted loan facility; and
• £150 million of retail bonds.
All of the above facilities mature in May 2021.
The Company has financing in US$, £ and €. The £ and € loans have been swapped into US$ at the original issue dates. In total, £250 million
and €60 million have been swapped into US$ using cross currency swap markets at an average exchange rate of US$1.64:£ and US$1.37:€
respectively. However, all liabilities in currencies other than US$ have been translated at the exchange rate prevailing at the year-end.
Convertible bonds
In January 2018, Premier invited convertible bondholders to exercise their exchange rights in respect of any and all of their bonds. 87.5 per
cent or US$205.8 million of the US$235.2 million bonds outstanding were accepted for early exchange with an incentive amount of US$50
per US$1,000 in principal of bonds. The exchange resulted in the issue of 231,882,091 Ordinary Shares, which included 7,578,343 incentive
shares. Completion of this offer, resulted in a remaining convertible bond liability of US$28.8 million.
Following this, in July 2018, the Group announced its intention to exercise the mandatory conversion option in the remaining outstanding
convertible bonds. The exercise of this option converted all the remaining US$28.8 million outstanding convertible bonds into
approximately 31.4 million new Ordinary Shares of Premier. This resulted in Premier's convertible bond liability being fully extinguished
in September 2018.
4
4
1
Premier Oil plc 2018 Annual Report and Financial Statements Financial covenants
Financial covenants are the same across all Group financings except for the £150 million retail bonds which have no financial covenants.
These financial covenants are tested on a quarterly (annualised) basis.
The financial covenants are as follows:
• Net debt/EBITDA cover ratio 5.0x at the end of 2018, before returning to 3.0x from the beginning of 2019.
• Interest cover ratio of 2.6x at the end of 2018 before increasing to 3.0x from the beginning of 2019.
• Covenant net debt (which includes issued letters of credit) to be less than US$2.95 billion at the end 2018. This covenant will not
be tested again.
At 31 December 2018, covenant net debt, which includes letters of credit and deducting partners' share of JV cash balances, was US$2.7
billion (2017: US$3.2 billion).
Capital management
The primary objective of the Group’s capital management policy is to ensure that it maintains healthy capital ratios in order to support
its business and increase shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in
economic conditions. No changes were made in the objectives, policies or processes during the years ended 31 December 2018 and
31 December 2017.
The Group monitors capital using a gearing ratio, which is net debt divided by net assets plus net debt. The Group’s policy is to target to
keep the long-term gearing ratio below 50 per cent. Net debt comprises interest-bearing bank loans, senior loan notes, retail bonds and
convertible bonds, less cash and short-term deposits.
Net debt (US$ million)
Net assets (US$ million)
Net assets plus net debt (US$ million)
Gearing ratio (%)
16. Obligations under leases
Minimum lease payments under operating leases recognised as an expense in the year
Outstanding commitments for future minimum lease payments under non-cancellable operating
leases, which fall due as follows:
Within one year
In two to five years
Over five years
2018
(2,330.7)
1,026.0
3,356.7
69.4
2017
(2,724.2)
616.9
3,341.1
81.5
2018
US$ million
223.0
2017
US$ million
170.3
225.4
511.2
265.4
1,002.0
203.8
509.4
142.6
855.8
Operating lease payments represent the Group's share of lease costs payable by the Group for FPSOs and for certain rentals of its office
properties, office equipment and motor vehicles.
1
4
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
17. Provisions
Decommissioning
Contingent consideration
Indonesia unfunded termination benefit provision
Long-term employee benefit plan deficit
Decommissioning costs:
Total provisions at 1 January
Revision arising from:
New provisions and changes in estimates
Paid/utilised
Liabilities reclassified to held for sale in the year
Disposals
Exchange differences
Unwinding of discount on decommissioning provision
Total provisions at 31 December
Reclassification of short-term provisions to current liabilities
Long-term provisions at 31 December
Note
24
2018
US$ million
1,214.5
10.1
16.8
0.7
1,242.1
2017
US$ million
1,432.1
10.3
19.0
0.7
1,462.1
Note
2018
US$ million
2017
US$ million
1,432.1
1,325.3
10
7
7
5
(101.1)
(74.2)
1.7
(30.8)
(70.9)
57.7
1,214.5
(46.0)
1,168.5
40.2
(42.3)
(22.7)
(46.8)
115.9
62.5
1,432.1
(91.2)
1,340.9
The decommissioning provision represents the present value of decommissioning costs relating to oil and gas interests in the UK,
Indonesia, Vietnam, Pakistan and Mauritania which are expected to be incurred up to 2038. These provisions have been created based on
Premier's internal estimates and, where available, operators estimates. Based on the current economic environment, assumptions have
been made which are believed to be a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly
to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future
market prices for the necessary decommissioning works required, which will reflect market conditions at the relevant time. Furthermore,
the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This in turn will
depend upon future oil and gas prices, which are inherently uncertain.
A discount rate of 4.6 per cent and an inflation rate of 2.5 per cent have been applied to all decommissioning estimates when determining
the net present value of the decommissioning provision. Rig rates used to determine the relevant part of the decommissioning cost
estimates are based on a rolling five-year average observed in the market place for similar types of rigs, except where decommissioning is
expected to occur in the near-term and then a spot price (or actual price received during a rig tender process) is used. The oil and gas price
assumptions used to determine the field life COP are consistent with those applied for the impairment assessment (see note 10).
Decommissioning provisions include expected future obligations for Ravenspurn North and Johnston assets in the UK. The first £63
million of decommissioning expenditure related to these assets is funded via a separate agreement with E.ON, see note 11.
Contingent consideration
The contingent consideration is the closing year-end fair value of the royalty stream payable to Chrysaor for the acquisition of 40 per cent
of the Solan asset in May 2015. The estimate of fair value of this contingent consideration includes unobservable inputs and is level 3 in
the IFRS 13 hierarchy and is held at fair value through profit and loss. The movement in fair value for the year was US$1.2 million charge
(2017: US$10.7 million income) and has been recognised within other operating costs.
Indonesia unfunded termination benefit provision
In Indonesia, the Group operates a Service, Severance and Compensation pay scheme under a Collective Labour Agreement with the local
workforce. In early 2003, the Government of Indonesia introduced a labour law which requires that on dismissal, companies are required
to make certain payments to employees that are dependent on numbers of years' service and salary. The ‘scheme’ effectively provides a
termination benefit to employees, but does not represent a defined benefit pension scheme.
The Company operates a defined termination benefit scheme, the cost of providing benefits is determined using the projected unit credit
method, with valuations being carried out at each balance sheet date. Gains and losses are recognised immediately. Past service cost is also
recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight line basis over the
average period until the benefits become vested. The provision recognised in the balance sheet represents the present value of the defined
benefit obligation as adjusted for unrecognised past service cost.
6
4
1
Premier Oil plc 2018 Annual Report and Financial Statements
18. Financial instruments
Financial risk management objectives and policies
The Group's principal financial liabilities, other than derivative financial instruments (derivatives), are comprised of accounts payable,
bank loans, retail bonds and senior loan notes. The main purpose of these financial instruments is to manage short-term cash flow and to
raise finance for the Group's capital expenditure programme. The Group has various financial assets such as accounts receivable and cash
and short-term deposits, which arise directly from its operations.
It is Group policy that all transactions involving derivatives must be directly related to the underlying business of the Group. The Group
does not use derivative financial instruments for speculative exposures.
The main risks that could adversely affect the Group's financial assets, liabilities or future cash flows are commodity price risk, cash flow
interest rate risk, foreign currency exchange risk, credit risk, liquidity and the Group's share price. The Group uses derivative financial
instruments to hedge certain of these risk exposures. The use of financial derivatives is governed by the Group's policies as approved by
the Board of Directors.
Derivative financial instruments
The Group uses derivatives to manage its exposure to oil and gas price fluctuations and to changes in interest rates and foreign currency.
Oil and gas price commodity hedging is undertaken using swaps, options, collar options, reverse collars, collar structures, hedges
embedded in long-term crude offtake agreements and selling forward using fixed price sales contracts. Oil is hedged using Dated Brent oil
price swaps and options. Indonesian gas is hedged using HSFO Singapore 180cst which is the variable component of the gas price and UK
gas is hedged by selling gas forward through fixed price contracts and through UK NBP gas swaps and options.
The Group's exposure to interest rates is managed by maintaining an appropriate mix of both fixed and floating interest rate borrowings
within its debt portfolio. However, given the very low level of fixed interest rates available relative to historical rates, a substantial portion
of the current drawings have been converted to fixed interest rates using the interest rate swap and option markets.
The Group has £ and € currency exposure as a result of its borrowings. These are managed through cross-currency swap arrangements.
As the Group reports in US dollars, since that is the currency in which the majority of the Group’s transactions are denominated, aside
from some of its borrowings, significant exchange rate exposures currently relate only to certain local currency (such as Pound sterling)
receipts and expenditures within individual business units. Exchange rate exposures are managed within approved policy parameters
utilising forward foreign exchange contracts and options.
Fair value hierarchy
The fair values of all derivative financial instruments are based on estimates from observable inputs and are all level 2 in the IFRS 13
hierarchy. Both the estimate of the Chrysaor contingent consideration (see note 17) and fair value of the warrants (see below) include
estimates based on unobservable inputs are level 3 in the IFRS 13 hierarchy.
As at 31 December 2018, the Group held the following financial instruments measured at fair value (excluding any primary financial
instruments such as cash and bank loans).
Assets measured at fair value
Financial assets at fair value through profit or loss:
Fair value of gas contract acquired from E.ON
Forward foreign exchange contracts
Gas forward sale contracts
Interest rate options
Interest rate swaps
Oil forward sale contracts
Oil put options
Total
2018
US$ million
2017
US$ million
–
–
23.4
1.1
0.9
102.0
–
127.4
9.1
0.6
–
–
4.6
–
0.2
14.5
1
4
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
18. Financial instruments continued
Liabilities measured at fair value
Financial liabilities at fair value through profit and loss:
Cross currency swaps1
Fair value of gas contract acquired from E.ON1
Forward foreign exchange contracts
Gas forward sale contracts
Oil forward sale contracts
Warrants
Total
Note:
1 Classified within non-current liabilities (2017: US$108.4 million).
Income statement
Fair value movements recognised in the income statement in the year:
Interest revenue, finance and other gains:
Change in fair value of embedded derivative within gas contract
Cross currency swaps
Interest rate swaps
Warrants
Finance costs:
Change in fair value of embedded derivative within gas contract
Cross currency swaps
Fixed price gas contracts acquired from E.ON
Forward foreign exchange contracts
Interest rate options
Interest rate swaps
Oil put options
Warrants
Statement of comprehensive income
Fair value movements recognised in the statement of comprehensive income for the year:
Cash flow hedges:
Commodity swaps – gas
Commodity swaps – oil
Cross currency swaps
Interest rate swaps
Unrealised exchange differences
Cash flow hedges on interest rate and foreign exchange swaps
8
4
1
2018
US$ million
125.6
3.8
2.4
0.6
6.6
31.8
170.8
2017
US$ million
108.4
–
3.8
–
36.1
59.8
208.1
2018
US$ million
2017
US$ million
–
–
–
20.1
20.1
(12.4)
(5.8)
(0.7)
(2.1)
(3.0)
(3.6)
(1.8)
–
(29.4)
2.0
4.3
4.6
–
10.9
–
–
(3.7)
(4.3)
–
–
(9.6)
(15.4)
(33.0)
2018
US$ million
2017
US$ million
23.4
133.5
156.9
(11.4)
–
(11.4)
21.5
10.1
–
(14.2)
(14.2)
28.2
(5.1)
23.1
(33.9)
(10.8)
Premier Oil plc 2018 Annual Report and Financial Statements Commodity price risk
Oil
At 31 December 2018, the Group had 6.3 million barrels (mmbbls) of Dated Brent oil hedged through forward sales for 2019 at an average
floor price of US$70.41/bbl. The forward sales have been designated as cash flow hedges and were assessed to be effective, with a fair
value movement of US$133.5 million credit (2017: US$14.2 million charge) in retained earnings.
During the year, forward oil sales contracts for 5.9 mmbbls matured generating a loss of US$71.2 million (2017: US$11.4 million loss). This
loss is a reduction to sales revenue.
During the year, the Group paid premiums of US$1.6 million to enter into oil option agreements for 0.7 mmbbls taking the total oil options
open in the year to 2.5 mmbbls at average price of US$56.4/bbl. All these options expired at year-end. Any premium paid relating to these
options has been expensed to the income statement.
These options are held at fair value through profit and loss and hedge accounting is not applied.
Included within physically delivered oil sales contracts are a further 1.8 mmbbls of oil that will be sold for an average fixed price
of US$54.9/bbl during 2019 as these barrels are delivered. As these instruments are physically settled they do not meet the definition of
financial instruments under IFRS 13 and are accounted for as they are delivered.
Gas
At the year-end date, 255,000 mt of HSFO, which drives the Group's gas pricing in Singapore, is subject to forward sales contracts for 2019
and 2020 at an average price of US$391.4/mt. All contracts have been designated as cash flow hedges and were assessed to be effective, with
a fair value movement of US$22.8 million credit in retained earnings.
As at 31 December 2018, the Group had forward gas sales contract of 115,000 therms at an average price of 65p/therm. This forward sales
contract has been designated as a cash flow hedge and was assessed to be effective, with a fair value movement of US$0.6 million credited
to retained earnings. During the year, the Group entered into forward gas sales of 100,000 mt at an average price of 48.2p/therm which
matured by the year-end generating a loss of US$2.0 million. This loss is a reduction to sales revenue.
Equity and synthetic warrants
During the year, 24.9 million equity warrants have been converted resulting in an allotment of 24.7 million shares. The closing fair value of
the open equity and synthetic warrants at 31 December 2018 was US$22.7 million and US$9.1 million respectively, giving a total of US$31.8
million after the exercise of warrants valued at US$7.8 million and resulting in a gain of US$20.1 million being recognised in the year.
The fair value of the warrants includes unobservable inputs and is level 3 in the IFRS 13 hierarchy. The key assumptions underpinning
the fair value relate to the expected future share price of the Company, US$:£ exchange rates and the expected date of exercise of the
warrants. The fair value has been determined using a Black-Scholes valuation model.
The equity warrants have an exercise price of 41.80 pence (2017: 42.75 pence) and are exercisable from their issuance until 31 May 2022, at
the option of the warrant holder, and are settled with ordinary shares of the Company. The synthetic warrants are cash settled by the
Group when certain future net debt and leverage ratio conditions are achieved, linked to the Group’s market capitalisation, and expire in
May 2021.
When determining the fair value of the equity and synthetic warrants, if the share price assumed increased/decreased by 10 per cent,
the closing total fair value recognised for the equity and synthetic warrants at the year-end would have increased/decreased by
US$5.2 million. Changes in the Company's share price is the main driver with regards to changing the fair value of the warrant
instruments.
1
4
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
18. Financial instruments continued
Commodity contract sensitivity analysis
The key variable which affects the fair value of the Group's hedging instruments is market expectations about future commodity prices.
An increase of 10 per cent in oil prices would decrease the mark-to-market gain of these instruments, and hence other comprehensive
income,by US$10.3 million. A decrease of 10 per cent in forward oil prices would increase the mark-to-market gain by US$10.3 million. An
increase of 10 per cent in gas prices would decrease the mark-to-market gain of these instruments, and hence other comprehensive income,
by US$2.4 million. A decrease of 10 per cent in forward gas prices would increase the mark-to-market gain by US$2.4 million.
Interest rate risk
At 31 December 2018, US$1.3 billion (2017: US$750 million) of the Group's long-term bank borrowings have been swapped from floating rate
to fixed rate. Of this US$300 million were interest rate swap contracts. The Group has agreed to exchange the difference between fixed
and floating interest amounts calculated on agreed notional principal amounts. These contracts matured early 2019.
During the year, the Group entered into US$1 billion interest rate options with a strike price 3.0 to 3.1 per cent. Such contracts enable the
Group to mitigate the risk of rising interest rates and the cash flow exposure on the issued variable rate debt held. These contracts will
mature by end 2020.
Foreign currency exchange risk
The majority of borrowings at year-end were denominated in US dollars to match the currency of the Group's assets. The Group has
issued £150.0 million retail bonds and £100 million term loan at a fixed exchange rate of US$1.64/£, senior loan notes of €25 million at
a fixed rate of US$1.33/€, and €35 million at a fixed rate of US$1.42/€ . All these amounts have been hedged under cross currency swaps into
US dollars.
In addition, to cover sterling exposures an amount of £236 million was purchased and matured with spot and forward contracts during the
year (2017: £290.5 million) to cater for its North Sea developments and operations.
Other financial instruments
Credit risk
Credit risk arises from the Group's trade receivables and its bank deposits.
The amount of receivables presented in the balance sheet is net of allowances for doubtful receivables, which were immaterial in 2018 and
2017. The Group does not require collateral or other security to support receivables from customers or related parties. The credit risk on
liquid funds and derivative financial instruments is limited because the counterparties are banks with at least single A credit ratings
assigned by international credit rating agencies.
An indication of the concentration of credit risk is shown in note 1, whereby the revenue from three customers each exceeded
10 per cent of the Group's consolidated revenue in 2018 (2017: three).
The age profile of the Group's trade and other receivables and trade and other payables as at 31 December, including the related
undiscounted interest amounts payable, was:
Less than
1 month
US$ million
2 to 3
months
US$ million
3 months
to 1 year
US$ million
1 to 5
years
US$ million
Over
5 years
US$ million
Total
US$ million
19.2
140.6
2018:
Long-term receivables
Trade and other receivables
Trade and other payables
Bank loans
Senior loan notes
Retail bonds
Total
2017:
Long-term receivables
Trade and other receivables
Trade and other payables
Bank loans
Convertible bonds
Senior loan notes
Retail bonds
0
5
1
Total
–
184.4
(44.7)
(60.2)
(0.5)
–
79.0
0.4
216.7
(146.2)
(3.6)
–
(0.3)
–
67.0
–
0.5
(1.8)
(52.0)
(11.9)
–
(65.2)
4.3
1.6
(4.9)
(8.8)
–
(10.8)
–
(18.6)
–
5.6
(42.7)
(233.8)
(37.7)
(12.7)
(321.3)
9.1
14.4
(25.1)
(99.9)
–
(33.8)
(13.2)
(148.5)
–
–
(1,809.2)
(609.0)
(212.7)
(2,611.7)
4.9
19.2
(1.1)
(2,516.1)
(237.9)
(643.9)
(234.1)
(3,609.0)
159.8
190.5
(89.2)
(2,155.2)
(659.1)
(225.4)
–
–
–
–
–
140.6
(2,778.6)
141.6
0.2
–
–
–
–
–
160.3
252.1
(177.3)
(2,628.4)
(237.9)
(688.8)
(247.3)
141.8
(3,567.3)
Premier Oil plc 2018 Annual Report and Financial Statements
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has approved an appropriate liquidity risk
management framework for the management of the Group's short, medium and long-term funding and liquidity management
requirements. The Group manages liquidity risk by maintaining adequate reserves, banking and borrowing facilities and by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities and future capital and
operating commitments.
Borrowing facilities
The Group has committed borrowing facilities of US$2,112.3 million (2017: US$2,335 million) and letters of credit facilities of US$450 million
(2017: US$450 million), in addition to the retail bonds and senior loan notes. The undrawn balance of the committed borrowing facilities as
at 31 December 2018 was US$265.6 million (31 December 2017: US$170 million).
The undrawn balance of the letter of credit facilities as at 31 December 2018 was US$89.3 million (2017:US$74.3 million).
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 31 December (excluding trade and other payables which are
interest free) was:
2018:
Bank loans
Senior loan notes
Retail bonds
Total
2017:
Bank loans
Convertible bonds
Senior loan notes
Retail bonds
Total
Fixed rate
US$ million
Floating rate
US$ million
Total
US$ million
1,300.0
408.2
190.5
1,898.7
750.0
237.9
411.6
202.5
546.6
130.0
–
676.6
1,415.0
–
130.0
–
1,602.0
1,545.0
1,846.6
538.2
190.5
2,575.3
2,165.0
237.9
541.6
202.5
3,147.0
Fixed rate
weighted
average
interest rate
%
6.21
9.20
6.50
4.95
2.50
7.65
6.50
The floating rate financial liabilities at 31 December 2018 comprised bank loans bearing interest at rates set by reference to US$ and £
LIBOR, exposing the Group to a cash flow interest rate risk.
Fair value of financial assets and financial liabilities
Where available, market values have been used to determine fair values. The estimated fair values have been determined using market
information and appropriate valuation methodologies. Values recorded are as at the balance sheet date, and will not necessarily be the amounts
that are realised. Non-interest bearing financial instruments, which include amounts receivable from customers and accounts payable, are
measured at amortised cost which, due to the short-term maturity, approximate to fair value.
The carrying values and fair values of the Group's non-derivative financial assets and financial liabilities (excluding current assets and current
liabilities for which carrying values approximate to fair values due to their short-term nature) are:
Primary financial instruments held or issued
to finance the Group’s operations:
Retail bonds
Convertible bonds
2018
Fair value
amount
US$ million
2018
Carrying
amount
US$ million
2017
Fair value
amount
US$ million
2017
Carrying
amount
US$ million
181.6
–
190.5
–
196.1
266.9
202.5
180.5
The fair values of the retail bonds and convertible bonds are determined by reference to quoted prices for each of the instruments. The fair
value of the bank loans and senior loan notes are considered to be materially the same as the amortised cost of the instruments.
1
5
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
19. Deferred tax
Deferred tax assets
Deferred tax liabilities
UK deferred corporation tax:
Fixed assets and allowances
Decommissioning
Tax losses and allowances
Investment allowance
Derivative financial instruments
Total UK deferred corporation tax
Overseas deferred tax1
Total
UK deferred corporation tax:
Fixed assets and allowances
Decommissioning
Tax losses and allowances
Investment allowance
Derivative financial instruments
Total UK deferred corporation tax
Overseas deferred tax1
Total
2018
US$ million
2017
US$ million
1,434.1
(139.5)
1,294.6
1,461.5
(164.0)
1,297.5
At
1 January 2018
US$ million
Exchange
movements
US$ million
(Charged)/
credited to
income
statement
US$ million
Charged to
retained
earnings
US$ million
Disposal of
assets
US$ million
At 31
December
2018
US$ million
(737.4)
476.9
1,639.8
71.2
10.9
1,461.4
(163.9)
1,297.5
(0.3)
(1.5)
(1.0)
(0.1)
(0.1)
(3.0)
–
(3.0)
133.0
(99.1)
(36.3)
6.7
9.2
13.5
24.0
37.5
–
–
–
–
(33.8)
(33.8)
–
(33.8)
(4.5)
0.5
–
–
–
(4.0)
0.4
(3.6)
(609.2)
376.8
1,602.5
77.8
(13.8)
1,434.1
(139.5)
1,294.6
At
1 January
2017
US$ million
Exchange
movements
US$ million
(Charged)/
credited to
income
statement
US$ million
Credited to
retained
earnings
US$ million
Assets held
for sale
US$ million
At
31 December
2017
US$ million
(719.6)
394.5
1,560.1
64.4
(0.7)
1,298.7
(187.3)
1,111.4
(0.6)
4.0
1.9
0.1
(0.5)
4.9
–
4.9
(21.8)
78.9
77.8
6.7
4.6
146.2
24.7
170.9
–
–
–
–
7.5
7.5
–
7.5
4.6
(0.5)
–
–
–
4.1
(1.3)
2.8
(737.4)
476.9
1,639.8
71.2
10.9
1,461.4
(163.9)
1,297.5
Note:
1 The overseas deferred tax relates mainly to temporary differences associated with fixed asset balances.
The Group's deferred tax assets at 31 December 2018 are recognised to the extent that taxable profits are expected to arise in the future
against which the UK ring fence tax losses and allowances can be utilised. In accordance with paragraph 37 of IAS 12 'Income Taxes', the
Group reassessed its deferred tax assets at 31 December 2018 with respect to UK ring fence tax losses and allowances. The corporate model
used to assess whether it is appropriate to recognise the Group's deferred tax losses and allowances was re-run, using an oil price
assumption of US$60/bbl in 2019, US$65/bbl in 2020, US$70/bbl in 2021 and US$75/bbl in 'real' terms thereafter and a gas price assumption
of forward curve for 3 years, followed by GBP57.4p/therm in 2022 'real' terms thereafter. These price assumptions are consistent with that
used when assessing the Group's underlying assets for impairment. The cash flows included in the corporate model are predominantly
derived from future revenue from UKCS assets which management consider to be probable to arise, including both existing producing
assets and certain future currently unsanctioned projects. The results of the corporate model concluded that it was appropriate to
continue to recognise the Group's deferred tax assets in respect of UK ring fence tax losses and allowances with the exception of US$25.2m
of losses relating to supplementary charge.
2
5
1
Premier Oil plc 2018 Annual Report and Financial Statements
In addition to the above, there are carried forward non-ring fence UK tax losses of approximately US$359.1 million (2017: US$330.8 million)
and overseas tax losses of US$154.8 million (2017: US$130.3 million) for which a deferred tax asset has not been recognised.
None of the UK tax losses (ring fence and non-ring fence) have a fixed expiry date for tax purposes.
No deferred tax has been provided on unremitted earnings of overseas subsidiaries, following a change in UK tax legislation in 2009 which
exempted foreign dividends from the scope of UK corporation tax, where certain conditions are satisfied.
20. Share capital
Ordinary Shares:
2018
12.5p shares
2018
£
2017
12.5p shares
2017
£
Authorised, called-up, issued and fully paid
817,069,925
102,133,741
525,045,801
65,630,725
The rights and restrictions attached to the Ordinary Shares are as follows:
Dividend rights: the rights of the holders of Ordinary Shares shall rank pari passu in all respects with each other in relation to dividends.
Winding up or reduction of capital: on a return of capital on a winding up or otherwise (other than on conversion, redemption or purchase
of shares) the rights of the holders of Ordinary Shares to participate in the distribution of the assets of the Company available for
distribution shall rank pari passu in all respects with each other.
Voting rights: the holders of Ordinary Shares shall be entitled to receive notice of, attend, vote and speak at any General Meeting of the
Company.
Issue of Ordinary Shares
During the year the Company issued 292,024,124 Ordinary Shares at a nominal value of 12.5 pence per share. This increased the share
capital of the Company by US$45.2 million (2017: US$2.3 million) to US$154.2 million (2017: US$109 million).
Purchase and cancellation of own shares
During 2018, none of the Company's Ordinary Shares were re-purchased or cancelled.
Own shares
At 1 January 2017
Purchase of ESOP Trust shares
Release of shares
At 31 December 2017
Purchase of ESOP Trust shares
Release of shares
At 31 December 2018
Total
US$ million
2.7
0.3
(1.2)
1.8
1.7
(1.3)
2.2
The own shares represent the net cost of shares in Premier Oil plc purchased in the market or issued by the Company into the Premier Oil
plc Employee Benefit Trust. This ESOP Trust holds shares to satisfy awards under the Group's share incentive plans. At 31 December 2018,
the number of Ordinary Shares of 12.5 pence each held by the Trust was 1,907,303 (2017: 796,147 Ordinary Shares of 12.5 pence each).
1
5
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
21. Share-based payments
The Group currently operates a Long Term Incentive Plan (LTIP) for all employees and a Share Incentive Plan and a Save As You Earn
Scheme for UK-based and expatriate employees only.
For the year ended 31 December 2018, the total cost recognised by the Company for equity-settled share-based payment transactions is
US$14.6 million (2017: US$14.5million). A credit of US$14.6 million has been recorded in retained earnings (2017: US$14.5 million) for all
equity-settled payments of the Company. Like other elements of remuneration, this charge is processed through the time-writing system
which allocates cost, based on time spent by individuals, to various entities within the Premier Oil plc Group. Part of this cost is therefore
recharged to the relevant subsidiary undertaking, part is capitalised as directly attributable to capital projects and part is charged to the
income statement as operating costs, pre-licence exploration costs or general and administration costs.
Details of the different share incentive plans currently in operation are set out below:
2009 Long Term Incentive Plan (‘2009 LTIP’)
The 2009 LTIP is comprised of the following three elements: Equity Pool Awards (‘EPA’), Performance Share Awards (‘PSA’) and Matching
Share Awards (‘MSA’):
• The Equity Pool Awards (‘EPA’) are funded by a per cent share of the growth in the Company’s equity value over a three-year performance
period. One per cent of the compound growth is credited to the equity pool at 10 per cent compound annual growth rate (‘CAGR’), with
maximum funding of 2.5 per cent at 20 per cent CAGR per annum.
• Participants receive a percentage share of the equity pool which vests, if the relevant performance criteria are met, in shares at the end of the
performance period.
• Performance Share Awards of up to 150 per cent of salary may be granted under the 2009 LTIP, which vest on three-year TSR relative to a
comparator group of oil and gas sector peers. 25 per of the award vest for median performance with full vesting for upper quartile
performance.
• 50 per cent of vested EPA and PSA shares are subject to compulsory deferral for a further three years for senior executives and eligible for a
discretionary Share Award.
Awards under the 2009 LTIP were approved by Premier’s Remuneration Committee in August 2016 and the awards were granted to
the Executive Directors and other members of senior management during the period August 2016 to April 2017 as a result of trading
restrictions applying to certain participants over that period. The Performance Period for the 2016 awards is the period 1 January 2016
to 31 December 2018.
As part of the April 2017 award, the EPA was capped at 50 per cent of salary and the PSA was scaled back by 50 per cent to 75 per cent, with
no matching awards.
The EPA and PSA elements of the above award have been fair valued by the Company using a Monte Carlo simulation model. The main
assumptions for the calculation are as follows::
Volatility
Risk free rate of interest
Correlation factor with comparator group
48%
1.7%
0.39
In March 2019, the Remuneration Committee determined that based on the performance achieved to 31 December 2018, the EPA and PSA
under the 2009 LTIP should vest. Further detail on the vesting outcome is described in the Directors' Remuneration Report page 98.
2017 Long Term Incentive Plan ('LTIP’)
The new Long Term Incentive Plan (‘LTIP’) was introduced in the prior year for Executive Directors and certain senior staff. This new LTIP
comprises two types of awards which support different elements of the Company's strategy.
• Performance Share Awards: vesting is subject to a Performance Target measured over a three year period from 1 January based on Total
Shareholder Return relative to a peer group of companies and aligns to longer-term strategic objectives.
• Restricted Share Award (‘RSA’) aligns to the primary objective of balance sheet recovery, independent of other performance objectives and
vesting of awards is subject to a financial underpin and continued employment.
Long-term alignment to shareholders interests is maintained with the introduction of a compulsory two-year Holding Period for both
Performance Share Awards and Restricted Share Awards ending on the fifth anniversary of the award date.
The RSA represents a fixed award equal in value of up to 40 per cent of salary. They vest subject to continued employment in one-third
annual increments over three, four and five years, subject to a holding requirement over the full five-year cycle from grant. This fixed
value award is being accrued at cost. The RSA granted in 2017 and 2018 have been scaled back by 50 per cent to 20 per cent.
4
5
1
Premier Oil plc 2018 Annual Report and Financial Statements
The following table shows the movement in the number of restricted shares awarded:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Outstanding as at 31 December
2018
million
1.2
1.0
(0.1)
2.1
2017
million
–
1.3
(0.1)
1.2
The PSA element of the 2017 LTIP award is fair valued by the Company using a Monte Carlo simulation model. The performance period
commences from 1 January of the year of grant. The movement in the number of shares and main assumptions for the calculation are as
follows:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Outstanding as at 31 December
Volatility
Risk free rate of interest
Correlation factor with comparator group
2018
million
5.7
8.1
(0.3)
13.5
82%
0.8%
0.30
2017
million
–
5.7
–
5.7
83%
0.2%
0.32
Premier Value Share Plan (‘PVSP’)
The broader employee population participates in the Premier Value Share Plan (‘PVSP’), which forms part of the 2017 LTIP. The PVSP is
made up of two awards, Base Awards and Multiplier Awards. Under the PVSP, annual awards of time-vesting restricted shares and
three-year performance-vesting shares may be made, with performance-vesting shares subject to achievements or Premier's delivery
of long-term shareholder return.
PVSP awards have been granted to employees in 2016, 2017 and 2018 and these will vest in 2019, 2020 and 2021 respectively. Owing to the
prevailing business environment, the multiplier element of the PVSP (Multiplier Award) was removed from both the 2016 and 2017 awards,
resulting in each employee receiving in effect a fixed award at the end of the vesting period (Base Award). However, the 2018 award
included the multiplier based on a pre-scale back Base Award. The value of the Base Award is set at a fixed percentage of each employee's
salary and the number of shares awarded is fixed according to the average closing price of a Premier Oil share over the five dealing days
immediately preceding the award date: 75 pence for 2016 awards, 55 pence for 2017 awards, and a weighted average price of 72 pence for 2018
awards. All these Base Awards were scaled back by 50 percent.
Included in the below table are an immaterial number of cash settled shares which are revalued using the year-end share price.
The following table shows the movement in the number of shares awarded under the PVSP scheme Base Award:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Outstanding as at 31 December
2018
million
13.9
6.8
(1.0)
19.7
2017
million
5.7
8.4
(0.2)
13.9
During the year, 13.6 million PVSP multiplier shares were awarded of which 0.4 million were forfeited. These were fair valued by the
Company using a Monte Carlo simulation model at point of grant. The main assumptions for the calculation are as follows:
Volatility
Risk free rate of interest
Correlation factor with comparator group
No shares were exercised or lapsed during the year.
79– 82%
0.7–0.9%
0.29–0.30
1
5
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
21. Share-based payments continued
Share Incentive Plan
Under the Share Incentive Plan employees are invited to make contributions to buy partnership shares. If an employee agrees to buy
partnership shares the Company currently matches the number of partnership shares bought with an award of shares (matching shares),
on a one-for-one basis. After three years the employee has the right to receive their original contributions plus the shares awarded in
either cash or shares of the Company, at the employees option. The amount owed by the Company to employees under this scheme is
deemed to be insignificant.
Save As You Earn (‘SAYE’) scheme
Under the SAYE eligible employees with six months or more continuous service can join the scheme. Employees can save to a maximum
of £500 per month through payroll deductions for a period of three or five years, after which time they can acquire shares at up to a
20 per cent discount.
Outstanding at 1 January (million)
Granted during the year
Lapsed during the year
Exercised during the year1
Outstanding as at 31 December
2018
Weighted
average
exercise
price
£0.46
£0.79
£0.64
£0.69
£0.46
Options
5.3
0.3
(0.4)
–
5.2
2017
Weighted
average
exercise
price
£0.45
£0.62
£0.61
£0.42
£0.46
Options
5.4
0.5
(0.5)
(0.1)
5.3
Note:
1 43,490 Ordinary Shares with a nominal value of £29,999 were issued under the Group's share option scheme during the year (2017: 99,937).
The weighted average share price as at the date of exercise for share options exercised during the year was £1.06.
The options outstanding at 31 December 2018 had a weighted average exercise price of £0.46 and a weighted average remaining
contractual life of 1.3 years.
The fair value of the options granted during the year was determined using the Black-Scholes valuation model and is not material.
6
5
1
Premier Oil plc 2018 Annual Report and Financial Statements 22. Notes to the cash flow statement
Profit/(loss) before tax for the year
Adjustments for:
Depreciation, depletion, amortisation and impairment
Other operating costs/(income)
Exploration expense
Provision for share-based payments
Interest revenue and finance gains
Finance costs and other finance expenses
Profit on disposal of non-current assets
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash generated by operations
Income taxes paid
Interest income received
Net cash from continuing operating activities
Net cash from discontinued operating activities
Net cash from operating activities
Movement in JV cash
Total net cash from operating activities
Analysis of changes in net debt:
a) Reconciliation of net cash flow to movement in net debt:
Movement in cash and cash equivalents
Proceeds from drawdown of long-term bank loans
Repayment of long-term bank loans
USPP make whole adjustment
Adjustment to revised fair value of convertible bonds
Conversion of convertible bonds
Non-cash movements on debt and cash balances (predominantly foreign exchange)
Reduction in net debt in the year
Opening net debt
Closing net debt
b) Analysis of net debt:
Cash and cash equivalents
Borrowings
Total net debt
2018
US$ million
158.2
2017
US$ million
(366.3)
358.4
1.2
29.6
10.8
(27.8)
400.6
(42.3)
888.7
1.2
72.6
(93.0)
869.5
(128.8)
7.5
748.2
29.0
777.2
(54.4)
722.8
667.8
(18.8)
11.2
8.6
(12.6)
412.7
(129.0)
573.6
(1.2)
(182.0)
136.6
527.0
(69.6)
1.1
458.5
16.8
475.3
20.7
496.0
Note
2018
US$ million
2017
US$ million
(120.8)
(105.0)
415.3
–
–
181.9
22.1
393.5
(2,724.2)
(2,330.7)
244.6
(2,575.3)
(2,330.7)
15
109.5
(45.0)
–
(41.3)
58.6
5.5
(46.3)
41.0
(2,765.2)
(2,724.2)
365.4
(3,089.6)
(2,724.2)
1
5
7
The carrying amounts of the borrowings on the balance sheet are stated net of the unamortised portion of the refinancing fees of
US$23.3 million (2017: US$117.0 million) and the impact of the IFRS 9 adjustment.
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
23. Capital commitments and guarantees
At 31 December 2018, the Group had capital commitments on exploration and development licences totalling US$121.5 million (2017:
US$207.1 million).
In addition, the Group had issued letters of credit for future decommissioning liabilities totalling £288.1 million, US$22.6 million held as
security for the Mexican letters of credit and a performance bond for the Indonesia Andaman licence of US$0.6 million, totalling US$389.1
million (2017: US$398 million).
24. Group pension schemes
Balance sheet
UK funded pension scheme
Total surplus in balance sheet
UK unfunded pension scheme
Total liability in balance sheet
2018
US$ million
2017
US$ million
0.4
0.4
0.5
0.5
2018
US$ million
2017
US$ million
0.7
0.7
0.7
0.7
Unfunded pensions
The Group is paying an unfunded pension to a former Director in the UK in regard to which annual increases and a reversionary spouse's
pension apply on the same basis as to pensions paid under the Scheme.
On the same actuarial basis as used to assess the Scheme's pension costs, the present value as at 31 December 2018 of the future payments
projected to be made in respect of UK unfunded pensions is US$0.7 million (2017: US$0.7 million).
Funded pensions
The Group operates a defined benefit pension scheme in the UK - The Premier Oil plc Retirement and Death Benefits Plan ('the Scheme’)
primarily inflation-linked annuities based on an employee’s length of service and final salary. The Scheme was closed to new members
(aside from the provision of insured death in service benefits) in 1997 and a new scheme, providing benefits on a defined contribution basis,
was started. Both schemes are funded by the payment of contributions to separately administered trust funds.
The disclosures set out below are based on calculations carried out as at 31 December 2018 by a qualified independent actuary. The figures
have been prepared in compliance with IAS 19 'Employee Benefits'.
The Scheme's assets are held in a separate trustee-administered fund to meet long-term pension liabilities to past and present employees.
The Trustee of the Scheme is required to act in the best interest of the Scheme's beneficiaries. The appointment of members of the Trustee
Board is determined by the trust documentation.
The liabilities of the defined benefit Scheme are measured by discounting the best estimate of future cash flows to be paid out of the
Scheme using the projected unit credit method. This amount is reflected in the surplus or the deficit in the balance sheet. The projected
unit credit method is an accrued benefits valuation method in which the Scheme liabilities make allowance for the projected earnings.
The liabilities set out in this note have been calculated using membership data current as at 31 December 2018. The results of the
calculations and the assumptions adopted are shown below.
As at 31 December 2018, contributions are payable to the Scheme by the Group at the rates set out in the schedule of contributions signed
by the trustees on 19 January 2018. Under this schedule, the Company contributes on a monthly basis at the rate of 30 percent of the
aggregate of members' pensionable salaries.
8
5
1
Premier Oil plc 2018 Annual Report and Financial Statements
Principal assumptions
The principal actuarial assumptions at the balance sheet date were:
Discount rate
RPI inflation
CPI inflation
Rate of increase in salaries
Rate of increase in pensions in payment: LPI (max 5%)
Mortality
Proportion married
Withdrawals
Cash commutation
Life expectancy of male aged 65 now
Life expectancy of male aged 65 in 20 years
Life expectancy of female aged 65 now
Life expectancy of female aged 65 in 20 years
At 31 December
2018
At 31 December
2017
2.8% pa
3.2% pa
2.2% pa
3.2% pa
3.1% pa
2.4% pa
3.2% pa
2.2% pa
3.2% pa
3.1% pa
S2PA Light CMI_2017 1.25%
Long-Term plus one-year age rating
S2PA Light CMI_2016 1.25%
Long-term plus one-year age rating
80%
No allowance
80%
No allowance
75% of maximum tax free cash
75% of maximum tax–free cash
22.2
23.4
23.2
24.7
22.3
23.6
23.3
24.7
Asset breakdown
The major categories of Scheme assets as a percentage of total Scheme assets are:
Equities
Gilts
Corporate bonds
Cash
Total
Reconciliation of funded status and amount recognised in balance sheet
Fair value of Scheme assets
Present value of defined benefit obligation
Surplus
Unrecognised amount due to effect of IFRIC 141
Surplus
At 31 December
2018
At 31 December
2017
40.0%
29.2%
30.5%
0.3%
100.0%
51.4%
24.2%
24.0%
0.4%
100.0%
At 31 December
2018
US$ million
At 31 December
2017
US$ million
(41.4)
28.9
(12.5)
12.1
(0.4)
(46.3)
32.4
(13.9)
13.4
(0.5)
Note:
1
The trustees have certain rights to grant benefit increases to members and accordingly it has been concluded the Group does not have an unconditional right to the
surplus by way of a refund.
Statement of amount recognised in the income statement
Current service cost
Net interest on the net defined benefit liability/(asset)
Total
2018
US$ million
2017
US$ million
0.2
–
0.2
0.2
–
0.2
1
5
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
24. Group pension schemes continued
Reconciliation of defined benefit obligation
Opening present value of defined benefit obligation
Service cost
Interest cost
Actuarial gains from changes in demographic assumptions
Actuarial (gains)/losses from changes in financial assumptions
Changes due to experience adjustments
Benefits paid
Currency translation effects
Closing defined benefit obligation
Reconciliation of fair value of assets
Opening fair value of Scheme assets
Interest income
Return on assets less interest income
Contributions by employer
Benefits paid
Currency translation effects
Closing fair value of Scheme assets
Actual return on Scheme assets
Statement of amount recognised in other comprehensive income
(Gain)/loss from changes in the financial assumptions for value of Scheme liabilities
(Gain)/loss from changes in the demographic assumptions for value of Scheme liabilities
Changes due to experience adjustments
Return on assets (excluding amounts included in net interest on the net defined benefit liability)
Change in the effect of the asset ceiling excluding amounts included in net interest on the net defined
liabiity
Currency translation effect
Other comprehensive income
Statement of amount recognised in profit and loss and other comprehensive income
Amount recognised in profit and loss
Other comprehensive income
Total comprehensive income
0
6
1
2018
US$ million
2017
US$ million
32.4
0.2
0.8
(0.2)
(1.7)
0.3
(0.9)
(2.0)
28.9
29.5
0.2
0.8
(0.5)
0.1
0.1
(0.7)
2.9
32.4
2018
US$ million
2017
US$ million
46.3
1.1
(2.6)
0.1
(0.9)
(2.6)
41.4
(1.5)
39.0
1.1
2.8
0.1
(0.7)
4.0
46.3
3.9
At 31 December
2018
US$ million
At 31 December
2017
US$ million
(1.7)
(0.2)
0.3
2.6
(1.6)
0.6
–
0.1
(0.5)
0.1
(2.8)
4.2
(1.1)
–
At 31 December
2018
US$ million
At 31 December
2017
US$ million
0.2
–
0.2
0.2
–
0.2
Premier Oil plc 2018 Annual Report and Financial Statements Sensitivity of balance sheet at 31 December 2018
The results of the calculations are sensitive to the assumptions used. The balance sheet position revealed by IAS 19 calculations must be
expected to be volatile, principally because the market value of assets (with significant exposure to equities) is being compared with a
liability assessment derived from corporate bond yields.
The below table shows the sensitivity of the IAS 19 balance sheet position to small changes in some of the assumptions. Where one
assumption has been changed all the other assumptions are kept as disclosed above.
Discount rate less 0.1% p.a
RPI inflation and linked assumptions plus 0.1% pa
Members living one year longer than assumed
Revised
(surplus)/deficit
US$ million
Change from
disclosed
(surplus)/deficit
US$ million
(12.1)
(12.2)
(11.5)
0.4
0.3
1.0
Projected components of pension costs for period to 31 December 2019
Because of the significant volatility in investment markets, it is difficult to project forward the IAS 19 figures for the next year with
confidence. The following projections should therefore be treated with caution. Assumptions implicit in the following projections are:
• The interest on the defined benefit liability/(asset) from 31 December 2018 is 2.8% p.a
• Contributions to the Scheme will continue throughout 2019 in accordance with the current Schedule of Contributions in place at the date of
signing this report; and
• There will be no changes to the terms of the Scheme.
The amounts recognised in the components of pension expense are:
Current service cost
Interest on defined benefit liability/(asset)
Net actuarial (gain)/loss recognised
Total
2019
US$ million
0.1
–
–
0.1
Defined contribution scheme
The Group operates a defined contribution retirement benefit scheme. The only obligation of the Group with respect to the retirement
benefit scheme is to make specified contributions. Payments to the defined contribution scheme are charged as an expense as they fall
due. The total cost charged to income of US$9.3 million (2017: US$6.7 million) represents contributions payable to these schemes by the
Group at rates specified in the rules of the Scheme.
1
6
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
25. Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note.
Directors and executive remuneration
The remuneration of Directors during the year is set out below.
Further information regarding the remuneration of individual directors is provided in the audited part of the Remuneration Report.
Short-term employee benefits
Post-employment benefits
Other long-term benefits: share-based payments
26. Other reserves
At 1 January 2017
Issue of Ordinary Shares
Purchase of ESOP Trust shares
Provision for share-based payments
21
Incremental equity component of revised
convertible bonds
Transfer between reserves
Loss for the year
Other comprehensive expense
At 31 December 2017
Adjustment on adoption of IFRS 96
At January 2018
Issue of Ordinary Shares
Purchase of ESOP Trust shares
Provision for share-based payments
21
Conversion of convertible bonds
Transfer between reserves
Profit for the year
Other comprehensive income
At 31 December 2018
2018
US$ million
2017
US$ million
3.3
0.6
1.4
5.3
3.1
1.8
0.1
5.0
Retained
earnings
US$ million
Merger
reserve1
US$ million
Note
Capital
redemption
reserve2
US$ million
Translation
reserve3
US$ million
Hedge
reserve4
US$ million
Equity
reserve5
US$ million
Total
US$ million
109.7
374.3
8.1
(82.7)
12.6
5.0
427.0
1.1
(0.2)
14.5
–
4.8
(253.8)
–
(123.9)
(82.0)
(205.9)
7.7
(1.5)
14.6
–
1.3
133.4
–
–
–
–
–
–
–
–
374.3
–
374.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8.1
–
8.1
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.9)
(87.6)
-
(87.6)
–
–
–
–
–
–
7.4
(50.4)
374.3
8.1
(80.2)
–
–
–
–
–
–
(17.5)
(4.9)
–
(4.9)
–
–
–
–
–
–
133.2
128.3
–
–
–
57.2
(4.8)
–
–
57.4
–
57.4
–
–
–
(56.1)
(1.3)
–
–
–
1.1
(0.2)
14.5
57.2
–
(253.8)
(22.4)
223.4
(82.0)
141.4
7.7
(1.5)
14.6
(56.1)
–
133.4
140.6
380.1
Notes:
1 In 2012 the provisions of the Companies Act 2006 relating to Merger Relief (s612 and s613) were applied to the Encore plc acquisition. The non-statutory premium arising
on shares issued by Premier as consideration has been recognised in the merger reserve.
2 The capital redemption reserve represents the nominal value of shares transferred following the Company’s purchase of them.
3 The translation reserve is used to record unrealised exchange differences arising from the translation of the financial statements of entities within the Group that
have a functional currency other than US Dollars.
4 The hedging reserve is used to record unrealised movements in the Group's hedging instruments.
5 This balance represents the equity component of the convertible bonds which has been fully exercised in the year. The transfer between reserves relates to the
non-cash interest on the convertible bonds, less the amortisation of the issue costs that were charged directly against equity.
6 Refer to the Accounting Policies for detail of the IFRS 9 adjustment.
2
6
1
Premier Oil plc 2018 Annual Report and Financial Statements
27. Subsequent events
Assets held for sale
In February 2019, Premier received a further US$5 million cash deposit from Al-Haj in relation to the disposal of the Pakistan
business unit. This brought the total cash deposit received by Premier to date of US$40 million, against the headline consideration
of US$65.6 million.
Debt reduction
Subsequent to year-end, in January 2019, a further US$100.3 million of the RCF debt facility was cancelled by Premier, which will result in
reduced commitment fee costs for the Group in 2019.
28. Investments
Joint ventures
During 2018, the Group completed the sale of its 49 per cent interest in Premco Energy Projects Company LLC, a company registered in the
United Arab Emirates, to its joint venture partner. There was no gain or loss on the sale.
Subsidiary undertakings
At 31 December 2018, the Group had investments in the following 100 per cent owned subsidiaries.
Principal subsidiaries
Name of company
Business and area of operation
Registered office address
Premier Oil Group Holdings Limited1
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Group Limited
Intermediate holding company, UK
4th Floor, Saltire Court, 20 Castle Terrace,
Edinburgh, EH1 2EN
Premier Oil Finance (Jersey) Limited1
Convertible bond issuing company, Jersey
IFC 5, St Helier, JE1 1ST, Jersey
Premier Oil Holdings Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Overseas BV
Intermediate holding company, Netherlands
Premier Oil UK Limited
Exploration, production and development, UK
Atrium Building, 8th Floor, Strawinskylaan 3127, 1077 ZX,
Amsterdam, Netherlands
4th Floor, Saltire Court, 20 Castle Terrace,
Edinburgh, EH1 2EN
Premier Oil E&P Holdings Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil E&P UK Limited
Exploration, production and development, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil E&P UK EU Limited
Exploration, production and development, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil E&P UK Energy Trading
Limited
Gas trading company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Natuna Sea BV
Exploration, production and development, Indonesia Atrium Building, 8th Floor, Strawinskylaan 3127, 1077 ZX,
Amsterdam, Netherlands
Premier Oil Andaman Limited
Exploration, production and development, Indonesia 23 Lower Begrave Stree, London, SW1W 0NR
Premier Oil Pakistan Holdings BV
Intermediate holding company, Netherlands
Atrium Building, 8th Floor, Strawinskylaan 3127, 1077 ZX,
Amsterdam, Netherlands
Premier Oil Pakistan Exploration Limited Exploration, production and development, Pakistan 23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Pakistan Kadanwari Limited Exploration, production and development, Pakistan 190 Elgin Avenue, George Town, Grand Cayman, KY1-9005
Premier Oil Pakistan Kirthar BV
Exploration, production and development, Pakistan Atrium Building, 8th Floor, Strawinskylaan 3127, 1077 ZX,
Amsterdam, Netherlands
Premier Oil Vietnam Offshore BV
Exploration, production and development, Vietnam Atrium Building, 8th Floor, Strawinskylaan 3127, 1077 ZX,
Amsterdam, Netherlands
Premier Oil (Vietnam) Limited
Exploration, production and development, Vietnam Commerce House, Wickhams Cay 1, Road Town, Tortola,
VG1110
Premier Oil Exploration and Production
Limited
Exploration, production and development, Falkland
Islands
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil do Brasil Petróleo e Gás Ltda Exploration, production and development, Brazil
Premier Oil Exploration and Production
Mexico S.A
Exploration, production and development, Mexico
Rua Lauro Müller, 116 - Sala 2006, Torre, Botafogo,
Rio de Janeiro, 22.290-906
Calle Montes Urales, 424, Oficina 03-110 y 03-117
Lomas de Chapultepec V Sección. Miguel Hidalgo,
Ciudad de México, 11000
Note:
1 Held directly by Premier Oil plc. All other companies are held through a subsidiary undertaking.
1
6
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
Other subsidiaries
Name of company
EnCore (NNS) Limited
EnCore (VOG) Limited
EnCore CCS Limited
EnCore Gas Storage Limited
EnCore Natural Resources Limited
EnCore North Sea Limited
EnCore Oil and Gas Limited
EnCore Oil Limited
FP Mauritania A BV
Business and area of operation
Registered office address
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Decommissioning activities, Mauritania
FP Mauritania B BV
Decommissioning activities, Mauritania
Premier Exploration Services Private Limited Dormant
Premier Oil (EnCore Exploration UK) Limited Dormant
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
507 Bhikaiji Cama Bhawan, Bhikaiji Cama Place,
New Delhi, 110 066
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil (EnCore Petroleum) Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Aberdeen Services Limited
Service company, UK
Premier Oil and Gas Services Limited
Service company, UK
Premier Oil B Limited
Dormant
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Bukit Barat Limited
Exploration, production and development, Indonesia
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Buton BV
Premier Oil CCS Limited
Premier Oil Congo (Marine IX) Limited
Premier Oil Exploration (Mauritania)
Limited
Dormant
Dormant
Dormant
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
23 Lower Belgrave Street, London, SW1W 0NR
IFC 5, St Helier, JE1 1ST, Jersey
Decommissioning activities, Mauritania
IFC 5, St Helier, JE1 1ST, Jersey
Premier Oil Exploration and Production
(Iraq) Limited
Dormant
Premier Oil Exploration Limited
Dormant
Premier Oil Exploration ONS Limited
Dormant
Premier Oil Far East Limited
Service company, Singapore
Premier Oil International Holding BV
Intermediate holding company, Netherlands
Premier Oil Investments Limited
Dormant
23 Lower Belgrave Street, London, SW1W 0NR
4th Floor, Saltire Court, 20 Castle Terrace,
Edinburgh, EH1 2EN
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Mauritania B Limited
Decommissioning activities, Mauritania
IFC 5, St Helier, JE2 3RT, Jersey
Premier Oil Mexico Holdings Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil ONS Limited
Premier Oil Pacific Limited
Dormant
Dormant
Premier Oil Pakistan Offshore BV
Dormant
Premier Oil Philippines BV
Premier Oil Red Sea Limited
Premier Oil Tuna BV
Premier Oil Ventures Limited
Premier Oil Vietnam 121 Limited
Premier Oil Vietnam North BV
Premier Oil West Tuna Limited
Premier Overseas Holdings Limited
XEO Exploration plc
4
6
1
Dormant
Dormant
Exploration, production and development, Indonesia
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
23 Lower Belgrave Street, London, SW1W 0NR
36/F, Tower Two, Time Square, 1 Matheson Street,
Causeway Bay, Hong Kong
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
23 Lower Belgrave Street, London, SW1W 0NR
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil plc 2018 Annual Report and Financial Statements COMPANY BALANCE SHEET
As at 31 December 2018
Non-current assets:
Investments in subsidiaries
Long-term employee benefit plan surplus
Long-term receivables
Total non-current assets
Current assets:
Other receivables
Total current assets
Current liabilities:
Trade and other payables
Net current liabilities
Non-current liabilities:
Borrowings
Long-term employee benefit plan deficit
Derivative financial instruments
Net assets
Equity and reserves:
Share capital
Share premium account
Retained earnings
Other reserves
Note
2018
US$ million
2017
US$ million
3
7
4
4
5
6
7
9
565.5
0.4
1,288.6
1,854.5
0.5
0.5
(35.8)
(35.3)
(188.2)
(0.7)
(54.2)
(243.1)
1,576.1
154.2
491.7
547.8
382.4
1,576.1
565.5
0.5
955.4
1,521.4
0.7
0.7
(61.6)
(60.9)
(192.4)
(0.7)
(41.1)
(234.2)
1,226.3
109.0
284.5
388.2
444.6
1,226.3
Profit for the year ending 31 December 2018 was US$84.8 million (2017: US$15.3 million)
The financial statements of Premier Oil plc (registered number SC234781) were approved by the Board of Directors and authorised for issue
on 6 March 2019.
They were signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
1
6
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2018
At 1 January 2017
Issue of Ordinary Shares
Net purchase of ESOP Trust shares
Profit for the financial year
Provision for share-based payments
Movement in cash flow hedges
Derecognition of equity component of
modified convertible bonds
Recognition of equity component of
revised convertible bonds
Conversion of convertible bonds
At 31 December 2017
IFRS 9 adjustment
1 January 2018
Issue of Ordinary Shares
Net purchase of ESOP Trust shares
Profit for the financial year
Provision for share-based payments
Movement in cash flow hedges
Conversion of convertible bonds
At 31 December 2018
Share
capital
US$ million
Note
Share
premium
account
US$ million
Profit and
loss account
US$ million
Merger
reserve
account
US$ million
Capital
redemption
reserve
US$ million
Equity
reserve
US$ million
Total
US$ million
2
2
106.7
2.3
275.4
9.1
–
–
–
–
–
–
–
109.0
–
109.0
45.2
–
–
–
–
–
–
–
–
–
–
–
–
284.5
–
284.5
207.2
–
–
–
–
–
354.0
374.3
8.1
62.1
1,180.6
1.1
(0.2)
15.3
14.5
1.6
–
–
1.9
388.2
(7.0)
381.2
7.7
(1.5)
84.8
14.6
(1.2)
62.2
–
–
–
–
–
–
–
–
374.3
–
374.3
–
–
–
–
–
–
–
–
–
–
–
–
–
8.1
–
8.1
–
–
–
–
–
–
–
–
–
–
12.5
(0.2)
15.3
14.5
1.6
(62.1)
(62.1)
64.1
(1.9)
62.2
–
62.2
–
–
–
–
(62.2)
64.1
–
1,226.3
(7.0)
1,219.3
260.1
(1.5)
84.8
14.6
(1.2)
–
154.2
491.7
547.8
374.3
8.1
–
1,576.1
6
6
1
Premier Oil plc 2018 Annual Report and Financial Statements NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2018
1. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the
definition of a qualifying entity under Financial Reporting Standard 100 ('FRS 100') issued by the Financial Reporting Council. These
financial statements have been prepared in accordance with FRS 101 'Reduced Disclosure Framework'.
As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to
accounting standards issued but not yet effective or implemented, share-based payment information, financial instruments, capital
management, presentation of comparative information in respect of certain assets, presentation of a cash flow statement and certain
related party transactions.
The financial statements have been prepared on a going concern basis. Further information relating to the going concern assumption is
provided in the Financial Review on page 35.
Where required, the equivalent disclosures are given in the Group's consolidated financial statements. Key sources of estimation
uncertainty disclosure are provided in the Accounting Policies and in relevant notes to the Group consolidated financial statements as
applicable. Details of the Company's share-based payment schemes are provided in note 21 of the Group consolidated financial statements
on page 154.
The financial statements have been prepared on the historical cost basis except for the remeasurement of certain financial instruments to
fair value. The principal accounting policies adopted are the same as those set out on pages 121 to 127 to the Group consolidated financial
statements except as noted below.
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
2. Profit for the year
As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the
year. The Company reported a profit for the financial year ended 31 December 2018 of US$84.8 million (2017: US$15.3 million).
Other comprehensive expense for the year was US$1.2 million (2017: US$1.6 million income).
The auditors' remuneration for audit and other services is disclosed in note 3 to the Group consolidated financial statements on page 135.
3. Fixed asset investments
Cost and net book value:
At 1 January
Additions
At 31 December
2018
US$ million
565.5
–
565.5
A list of all investments in subsidiaries held at 31 December 2018, including the name and type of business, the country of operation and the
country of incorporation or registration, is given in note 28 to the Group consolidated financial statements.
4. Receivables
Long term receivables: amounts falling due after more than one year
Amounts owed by subsidiary undertakings
2018
US$ million
1,288.6
2017
US$ million
955.4
The amounts owed by subsidiary undertakings falling due after more than one year comprise a loan which bears interest based on LIBOR. This
loan is denominated in US dollars and falls due for repayment in 2021.
Other receivables: amounts falling due within one year
Amounts owed by subsidiary undertakings
Prepayments
The carrying values of the Company's debtors approximate their fair value.
2018
US$ million
2017
US$ million
0.4
0.1
0.5
0.7
–
0.7
1
6
7
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
For the year ended 31 December 2018
5. Trade and other payables
Derivative financial instruments – warrants
Accruals
2018
US$ million
2017
US$ million
31.8
4.0
35.8
59.8
1.8
61.6
The carrying values of the Company's creditors approximate their fair value.
In the prior year the company issued 89.1 million equity warrants and 21.4 million synthetic warrant of which 13.9 million equity warrants
were exercised in the prior year and a further 24.9 million equity warrants were exercised by year-end. Further details on the warrants are
disclosed in notes 18 of the Group consolidated financial statements..
6. Borrowings
Retail bonds
2018
Fair value
amount
US$ million
181.6
2018
Carrying
amount
US$ million
190.5
2017
Fair value
amount
US$ million
196.1
2017
Carrying
amount
US$ million
202.5
In December 2013, the Company put in place a £500.0 million Euro Medium Term Notes (‘EMTN’) program under which it has issued £150.0
million UK retail bonds (the bonds). The bonds have been listed on the Official List of the UK Listings Authority and admitted to trading
on the London Stock Exchange's regulated market and the electronic Order Book of Retail Bonds (‘ORB’). The bonds initially had a fixed
coupon of 5.00 per cent and maturity of seven years. Post refinancing the fixed coupon increased to 6.5 per cent with the maturity
extended to 2021.
The carrying value of the retail bonds are stated in the Company balance net of the unamortised portion of the debt arrangement fees of
US$2.3 million (2017: US$10.1 million) and the impact of the IFRS 9 adjustment.
The liability has been translated at the exchange rate prevailing at the year-end.
7. Long-term employee benefit plan
Defined benefit schemes
The Company operates a defined benefit scheme in the UK - The Premier Oil plc Retirement and Death Benefits Plan (‘the Scheme’).
Further details of the Scheme are disclosed in note 24 of the Group consolidated financial statements on page 158.
Defined contribution schemes
The Company operates a defined contribution retirement benefit scheme. Further details of this scheme are provided in note 24 of the
Group consolidated financial statements on page 161.
8. Commitments and guarantees
At the year-end date the Company, together with certain subsidiary undertakings, had jointly guaranteed the Group's borrowing facilities.
These consist of the following:
• Bank loans: US$2.5 billion revolving and letter of credit facility (‘RCF’), US$150 million and £100 million term loans (together the ‘Term Loan’);
• Senior loan notes: US$335 million and €63.6 million of US Private Placement (‘USPP’) notes and US$130 million converted loan facility; and
• £150 million of retail bonds;
All of the above facilities mature in May 2021.
9. Share capital and share premium
Further detail of these items are disclosed in note 20 of the Group consolidated financial statements on page 153.
10. Dividends
No dividend is proposed for the year ended 31 December 2018 (2017: nil).
8
6
1
Premier Oil plc 2018 Annual Report and Financial Statements
UK GOVERNMENT PAYMENT REPORTING
EUAD – Basis of preparation
The Reports on Payments to Governments Regulations (‘UK
Regulations’) came into force on 1 December 2014 and require UK
companies in the extractive sector to publicly disclose payments
made to governments in the countries where they undertake
extractive operations. The aim of the regulations is to enhance the
transparency of the payments made by companies in the extractive
sector to host governments in the form of taxes, bonuses, royalties,
fees and support for infrastructure improvements. The regulations
implement Chapter 10 of EU Accounting Directive (2013/34/EU)
(‘EU Directive’).
The UK Regulations have an effective date of 1 January 2015, and
this section of the Annual Report is in line with the EU Directive
and the UK Regulations. This basis of preparation provides an
explanation of the payments that we are disclosing.
The payments disclosed are based on where the obligation for the
payment arose: payments levied at a project level have been
disclosed at a project level and payments levied at a corporate level
have been disclosed on that basis.
Within the UK Regulations, a project is defined as being the
operational activities which are governed by a single contract,
licence, lease, concession or a similar legal agreement. The Company
undertakes extractive activities in different types of fiscal
petroleum regimes and therefore the types of payments disclosed
vary from country to country. For the purposes of our reporting, for
the UK and Pakistan we have classified each individual concession/
licence as a project, whereas for Indonesia and Vietnam each PSC
arrangement has been classified as a project.
All of the payments disclosed in accordance with the EU Directive
have been made to National Governments, either directly or
through a Ministry or Department, or to a national oil company,
who have a working interest in a particular licence. For projects
where we are the operator we have disclosed the full payment made
on behalf of the project; where we have a non-operated interest we
have not disclosed payments made on our behalf by another party.
In line with the UK Regulations, where a payment or a series of
related payments do not exceed US$109,220 (£86,000), they have not
been disclosed. Where the aggregate payments made in the period
for a project or country are less than US$109,200 we have not
disclosed the payments made for this project or country.
Our total economic value distributed to all stakeholders can be
found on page 55 of the Annual Report.
Reporting currency – Payments disclosed in this report have been
disclosed in US dollars, consistent with the rest of the 2018 Annual
Report. Where actual payments have been made in a currency
other than US dollars, they have been translated using the
prevailing exchange rate when the payment was made.
Production entitlements in barrels – Includes non-cash royalties
and state non-participating interest paid in barrels of oil or gas out
of the Group’s working interest share of production in a licence.
The figures disclosed are on a cash paid liftings basis.
Income taxes – This represents cash tax calculated on the basis
of profits including income or capital gains and taxes on production.
Income taxes are usually reflected in corporate income tax returns.
The cash payment of income taxes occurs in the year in which the
tax has arisen or up to one year later. Income taxes also include
any cash tax rebate received from the government or revenue
authority during the year. Income taxes do not include fines and
penalties. In accordance with the UK Regulations, payments made
in relation to sales, employee, environmental or withholding taxes
have not been disclosed.
Dividends – This includes dividends that are paid in lieu of
a production entitlement or royalty. It does not include any
dividends paid to a government as an ordinary shareholder.
Royalties – This represents cash royalties paid to governments
during the year for the extraction of oil or gas. The terms of the
royalties are described within our PSCs and can vary from project
to project within one country. Export duties paid in kind have
been recognised within the royalties category. The cash payment
of royalties occurs in the year in which the tax has arisen.
Bonus payments – This represents any bonus paid to governments
during the year, usually as a result of achieving certain milestones,
such as a signature, discovery or production bonuses.
Licence fees – This represents licence fees, rental fees, entry fees
and other consideration for licences and/or concessions paid for
access to an area during the year (with the exception of signature
bonuses which are captured within bonus payments).
Infrastructure improvement payments – This represents
payments made in respect of infrastructure improvements for
projects that are not directly related to oil and gas activities
during the year. This can be a contractually obligated payment
in a PSC or a discretionary payment for building/improving local
infrastructure such as roads, bridges and ports.
1
6
9
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION UK GOVERNMENT PAYMENT REPORTING CONTINUED
2018 European transparency directive disclosure
Licence/
company level
CE-M-665-R11
Total Brazil
Sea Lion
Total Falkland Islands
Natuna Sea Block A
Kakap
Total Indonesia
Block 11
Block 13
Total Mexico
Bhit/Badhra
Kadanwari
Zamzama
Qadipur
Corporate
Total Pakistan
Babbage
RN
Johnston
Rita
Huntington
Brenda
Catcher
Tolmount
Corporate
Total UK
Chim Sáo
Corporate
Total Vietnam
Country
Brazil
Falkland
Islands
Indonesia
Mexico
Pakistan
United
Kingdom
Vietnam
Total Group
2018 European transparency directive disclosure
Country
Brazil
Falkland
Islands
Indonesia
Mexico
Pakistan
United
Kingdom
Vietnam
Government
National Petroleum Agency
Total Brazil
Falkland Island Government –
Department of Mineral Resources
Total Falkland Islands
SKK Migas
Directorate General of Taxes
Total Indonesia
Fondo Mexicano del Petróleo para la
Estabilización y el Desarrollo (FMP)
Servicio de Administración Tributaria (SAT)
Total Mexico
Federal Board of Revenue
Directorate General of Petroleum
Concession
Total Pakistan
HM Revenue & Customs
Department of Energy and Climate Change
Total UK
Petro Vietnam
HCM Tax Department
Vung Tau Customs office
Total Vietnam
Production
entitlements
bbls (‘000)
–
–
Production
entitlements
US$ (‘000)
–
–
Income
taxes
US$ (‘000)
–
–
Royalties
(cash only)
US$ (‘000)
–
–
Dividends
US$ (‘000)
–
–
Bonus
payments
US$ (‘000)
–
–
–
–
4,777
–
4,777
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
294,951
–
294,951
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
947
1,084
403
1,198
–
3,632
–
–
–
–
–
–
–
–
–
–
–
24,851
24,851
28,483
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
450
–
450
450
56,685
1,314
57,999
–
–
–
–
–
–
–
2,487
2,487
–
–
–
–
–
–
–
–
(3,988)
(3,988)
–
87,294
87,294
143,792
1,004
–
1,004
5,781
64,477
–
64,477
359,428
Licence
fees
US$ (‘000)
166
166
400
400
–
–
–
399
399
798
–
–
–
–
–
–
413
727
256
175
253
180
723
903
–
3,630
–
–
–
4,994
Production
entitlements
bbls (‘000)
–
–
Production
entitlements
US$ (‘000)
–
–
Income
taxes
US$ (‘000)
–
–
Royalties
(cash only)
US$ (‘000)
–
–
Dividends
US$ (‘000)
–
–
Bonus
payments
US$ (‘000)
–
–
Licence
fees
US$ (‘000)
166
166
–
–
4,777
–
4,777
–
–
–
–
294,951
–
294,951
–
57,999
57,999
–
–
–
–
–
–
–
–
–
1,004
–
–
1,004
–
–
–
–
–
–
–
–
–
64,477
–
–
64,477
–
–
–
2,487
–
2,487
(3,988)
–
(3,988)
–
87,294
–
87,294
–
–
–
–
–
–
–
–
–
3,632
3,632
–
–
–
–
14,352
10,499
24,851
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
450
–
–
450
450
400
400
–
–
–
321
477
798
–
–
–
–
3,630
3,630
–
–
–
–
4,994
Infrastructure
improvement
payments
US$ (‘000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Infrastructure
improvement
payments
US$ (‘000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$ (‘000)
166
166
400
400
351,636
1,314
352,950
399
399
798
947
1,084
403
1,198
2,487
6,119
413
727
256
175
253
180
723
903
(3,988)
(358)
64,927
112,145
177,072
537,147
Total
US$ (‘000)
166
166
400
400
294,951
57,999
352,950
321
477
798
2,487
3,632
6,119
(3,988)
3,630
(358)
64,927
101,646
10,499
177,072
537,147
Total Group
5,781
359,428
143,792
28,483
0
7
1
Premier Oil plc 2018 Annual Report and Financial Statements FIVE YEAR SUMMARY
Financials
Sales revenues
Profit/(loss) before tax
Net profit/(loss) for the year after tax
Cash flow from operating activities
Shareholders’ funds
Net debt
Per share statistics:
Revenue per share
Earnings/(loss) per share – basic
Earnings/(loss) per share – diluted
Cash flow from operating activities per share
Reserves per share – year-end
Issued Ordinary Shares – average
Operations:
Production (working interest basis)
Proved and probable reserves
(working interest basis)
Employees (average) – UK
– Overseas
Key indices:
Realised average oil price
Average exchange rates
Closing exchange rates
(US$ million)
(US$ million)
(US$ million)
(US$ million)
(US$ million)
(US$ million)
(cents/share)
(cents/share)
(cents/share)
(cents/share)
(boe/share)
(million)
(kboepd)
(mmboe)
(number)
(number)
(US$/bbl)
(US$/£)
(US$/£)
Note:
1 From all operations (continuing and discontinued) unless otherwise stated.
20181
1,438.3
184.0
133.4
777.2
1,026.0
(2,330.7)
20171
1,083.9
(347.9)
(253.8)
475.3
616.9
2016
983.4
(390.6)
122.6
431.4
809.1
2015
1,067.2
(829.4)
(1,103.8)
809.5
734.8
2014
1,629.4
(384.0)
(210.3)
924.3
1,872.2
(2,724.2)
(2,765.2)
(2,242.2)
(2,122.2)
185.8
17.3
15.5
100.4
0.25
774.0
80.5
193.7
230
552
67.9
1.34
1.27
211.0
(49.4)
(49.4)
92.5
0.59
513.7
75.0
301.8
237
552
52.9
1.29
1.35
192.5
24.0
23.7
84.5
0.69
510.8
71.4
353.3
242
559
44.1
1.36
1.23
208.9
(216.1)
(216.1)
158.5
0.65
510.8
57.6
331.9
263
608
52.6
1.53
1.47
312.2
(40.3)
(40.3)
177.1
0.47
521.9
63.6
243.3
242
698
98.2
1.65
1.56
1
7
1
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION
OIL AND GAS RESERVES
Working interest reserves as at 31 December 2018
Working interest basis
Falkland Islands
Indonesia
Pakistan
UK
Vietnam
Total
Oil
and
NGLs
mmbbls
Oil
and
NGLs
mmbbls
Gas
Bcf
Oil
and
NGLs
mmbbls
Gas
Bcf
Oil
and
NGLs
mmbbls
Gas
Bcf
Oil
and
NGLs
mmbbls
Gas
Bcf
Oil
and
NGLs
mmbbls
Gas
Bcf
Oil,
NGLs
and gas
mmboe
Gas4
Bcf
Group proved plus probable reserves:
At 1 January 2018
126.46
43.83
1.48
199.43
0.08
51.21
68.99
144.38
19.17
26.55
216.18 465.40 301.84
Revisions1
Discoveries and
extensions2
Acquisitions and
divestments3
Production
At 31 December 2018
(126.46)
(43.83)
0.07
(6.60)
(0.01)
(4.26)
12.01
262.76
2.87
2.16
(111.52) 210.23
(68.74)
–
–
–
–
–
–
–
–
–
–
(0.40)
(7.40)
–
–
–
–
–
–
-
(43.91)
–
–
–
–
–
–
–
(0.40)
(51.31)
(9.87)
(0.12)
(24.67)
(0.02)
(12.06)
(12.95)
(21.07)
(4.42)
(5.45)
(17.51)
(63.25)
(29.55)
1.03
160.76
0.05
34.89
68.05
342.16
17.62
23.26
86.75 561.07
193.68
Total Group developed and undeveloped reserves:
Proved on production
Proved approved/
justified for development
Probable on production
Probable approved/
justified for development
At 31 December 2018
–
–
–
–
–
–
–
–
–
–
0.48
94.81
0.04
26.01
34.32
65.03
16.09
20.74
50.93 206.59
90.38
0.36
49.01
–
–
–
0.01
–
8.88
12.46
16.39
138.96
23.95
0.19
1.03
16.94
160.76
–
–
4.88
114.22
0.05
34.89
68.05
342.16
0.03
1.48
0.02
17.62
0.49
1.61
0.42
23.26
12.85 188.46
17.88
34.44
48.96
23.99
5.09
131.58
30.35
86.75 561.07
193.68
Notes:
1
The most significant revisions in the year relate to Sea Lion and Tolmount. Sealion has been reclassified from Reserves (Justified for Development) to Contingent
Resources (Development Pending) to align with the new SPE-PRMS Standards issued in June 2018.The booking of the Tolmount Main field as 2P reserves reflects the
sanction of the project in 2018.
2 The Zama discovery in Mexico is classified as contingent resource and does not appear in this table.
3 Divestment of Babbage (UK) and Kakap (Indonesia).
4 Proved plus probable gas includes 96.3 Bcf of fuel gas reserves (2017: 95 Bcf).
Premier Oil plc categorises petroleum resources in accordance with the June 2018 SPE/WPC/AAPG/SPEE/SEG/SPWLA/EAGE Petroleum
Re-source Management System (‘SPE PRMS’). Proved and probable reserves are based on operator, third party reports and internal
estimates and are defined in accordance with the Statement of Recommended Practice (‘SORP’) issued by the Oil Industry Accounting
Committee (‘OI-AC’), dated July 2001.
The Group provides for amortisation of costs relating to evaluated properties based on direct interests on an entitlement basis, which
incorporates the terms of the PSCs in Indonesia and Vietnam. On an entitlement basis reserves were 181.5 mmboe as at 31 December 2018
(2017: 284.9 mmboe). This was calculated at year-end 2018, using the following oil price assumption: US$60/bbl in 2019, US$65/bbl in 2020,
US$70/bbl in 2021 and US$75/bbl in ‘real’ terms thereafter (2017: Dated Brent forward curve for 2018 and 2019, US$70/bbl in 2020 and US$75/
bbl in ‘real’ terms thereafter).
2
7
1
Premier Oil plc 2018 Annual Report and Financial Statements WORLDWIDE LICENCE INTERESTS
As at 6 March 2019
Licence
Brazil
CE-M-661
CE-M-665_R11
CE-M-717_R11
Falkland Islands
Blocks
CE-M-661
CE-M-665
CE-M-717
PL003a
PL003b
PL004a
PL004b
PL004c
PL032
PL033
Indonesia
Andaman II
14/14 (part) & 14/19 (part)
14/14 (part) & 14/19 (part)
14/15 (part), 14/20, 15/11 (part) & 15/16 (part)
14/15 (part)
14/15 (part)
14/5, 14/10
15/1 (part) & 15/6 (part)
Andaman II
Natuna Sea Block A
Natuna Sea Block A
Tuna Block
Operator
Premier
equity
Unit interest
(if applicable)
Associated fields
/discoveries
Total
Premier
Premier
Rockhopper
Rockhopper
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
30.00
50.00
50.00
4.50
4.50
36.00
36.00
36.00
60.00
60.00
40.00
28.67
65.00
Pecem
Isobel Deep
Beverley; Casper South; Zebedee
Casper North; Sea Lion
Anoa; Gajah Baru; Naga; Pelikan
Kuda Laut; Singa Laut
Chinguetti EEA
Petronas
8.12
Chinguetti
Tuna Block
Mauritania
PSC B
Mexico
Mexico Block 2
Mexico Block 7
Mexico Block 11
Mexico Block 13
Mexico Block 30
Pakistan
2
7
11
13
30
D&PL No.140/PAK/2000 Kirthar
D&PL No.150/PAK/2002
2667-1 (Dadu)
D&PL No.160/PAK/2003 Kirthar
D&PL No.161/PAK/2003
Bolan
D&PL No.84/PAK/92
Tajjal
D&PL No.85/PAK/93
Qadirpur
United Kingdom
P077
P087
P111
P164
P185
P188
P201
P201
P213
P233
22/12a (Nelson Field (NELS))
22/7a (Nelson Field (NELS))
22/25a (Merganser down to 3300 metres
(MERG))
205/26a (ALL)
15/22 (Rest of Block (Non-Palaeocene
Formation) (A))
22/30b (Area A - Elgin Field (ELGN))
16/21a Balmoral & Glamis Field Areas
(BALMO), Rest of Block (Exploration Area)
(REST), Stirling Field Area (STIRL); and 16/21d
Balmoral & Glamis Field Areas (BALMO), Rest
of Block (Exploration Area) (REST)
Shell
Premier (Shell
for field)
Premier (Shell
for field)
Premier
Nexen
Total
Premier
16/21d (Brenda Field Area (above 7500 feet) (A)) Premier
16/26a (Area P - Caledonia Field Area (P-CAL)) Premier
15/25a (ALL)
Premier
Talos
Talos
Premier
Premier
DEA
ENI
Orient
ENI
Mari
ENI
OGDCL
10.00
25.00
100.00
100.00
30.00
6.00
9.38
6.00
3.75
15.79
4.75
50.00
46.50
65.99
100.00
50.00
5.20
85.00
100.00
100.00
70.00
Zama
Bhit
Zamzama
Badhra
Zarghun South
Kadanwari
Qadirpur
Nelson
Nelson
Merganser
Solan
Blackhorse
1.66
1.66
7.92
5.20
Balmoral: 78.12
Stirling: 68.68
Elgin; Franklin
Balmoral; Glamis; Stirling
Brenda
Caledonia
Nicol
1
7
3
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION WORLDWIDE LICENCE INTERESTS CONTINUED
As at 6 March 2019
Licence
Blocks
United Kingdom Continued
Operator
Premier
equity
Unit interest
(if applicable)
Associated fields
/discoveries
P264
P344
P362
P380
P380
P452
P452
P454
P611
P666
P686
P748
P752
P766
P771
P1042
P1114
P1330
P1430
P2070
P2305
P2453
P2454
Vietnam
Block 12W
23/26d (Scoter Field Area (A))
Premier (Shell
for field)
100.00
12.00
Scoter
16/21b & 16/21c (Balmoral Field Area (BALM))
and 16/21c (Stirling Field (STIR))
Premier
29/5b (ALL)
Total
43/26a (Rave (RAVE A)) and (Rave (Rave B))
Perenco
43/26a (Residual Area excluding Ravenspurn
North (RESID)
Premier
44/23a (Caister Field (AREA AA)
ConocoPhillips
44/23e (ALL (D))
44/29b (Orca Field Area (B))
44/24a (ALL) and 44/30a (ALL)
22/30c (ALL) and 29/5c (ALL)
43/27a (ALL)
29/2c (ALL)
29/4d (ALL)
44/21b (ALL)
44/22c (ALL)
15/25b (ALL)
22/14b (ALL)
42/28d (ALL)
28/9a (ALL)
28/4a (ALL)
42/28c (ALL)
28/9c (ALL)
28/9d (ALL)
12W
Premier
Neptune
Neptune
Total
Premier
CNR
Total
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Balmoral: 78.12
Stirling: 68.68
5.20
28.75
50.11
23.47
Orca: 23.47
5.20
50.11
74.00
74.00
44.20
5.20
35.94
72.22
40.00
79.00
42.67
42.67
5.20
42.22
40.00
18.57
68.31
76.00
100.00
100.00
50.00
50.00
54.00
50.00
50.00
54.00
53.13
Balmoral; Stirling
Franklin
Ravenspurn North
Johnston
Caister
Hunter
Orca
Minke; Orca
Elgin; Franklin; West Franklin
Johnston
Kyle
Glenelg
Rita
Rita
Brenda
Huntington
Tolmount
Burgman; Carnaby; Catcher;
Varadero
Laverda
Greater Tolmount
Bonneville
Laverda
Chim Sáo; Dua
4
7
1
Premier Oil plc 2018 Annual Report and Financial Statements mmbbls
mmboe
mmscfd
MSA
mscf
million barrels
million barrels of oil equivalent
million standard cubic feet per day
Matching Share Awards
thousand standard cubic feet
mt
MTC
ORB
PSA
PSC
PVSP
RWDC
RSA
SAYE
SIP
Tcf
te
TRIR
TSR
USPP
2P
metric tonne
Medical treatment cases
Order Book of Retail Bonds
Performance Share Awards
production sharing contract
Premier Value Share Plan
Restricted work day cases
Restricted Share Award
Save As You Earn
Share Incentive Plan
Trillion cubic feet
Tonnes
total recordable injury rate
total shareholder return
US Private Placement
Proved and probable reserves
GLOSSARY
ALARP
AGM
bbl
BBtud
Bcf
BCG
BMS
boe
as low as reasonably practicable
Annual General Meeting
barrel
billion British thermal units per day
billion cubic feet
Boston Consulting Group
Business Management System
barrels of oil equivalent
boepd
barrels of oil equivalent per day
bopd
BRINDEX
barrel(s) of oil per day
The Association of British Independent Oil
Exploration Companies
CAGR
CGU
CSR
DD&A
DRR
DTA
EBITDA
E&E
EMTN
EPA
ETS
ExCo
FEED
FPSO
FVOCI
FVTPL
GHG
GRI
GSA
HiPoR
HSES
HSFO
IAS
IFRS
IFRIC
IOGP
IPIECA
ISA
IVC
kbopd
kboepd
KPI
LOPC
LTIP
LWDC
compound annual growth rate
cash generating unit
Corporate social responsibility
Depreciation, depletion and amortisation
Directors’ Remuneration Report
deferred tax asset
Earnings before interest, tax, depreciation
and amortisation
Exploration and evaluation
Euro Medium Term Notes
Equity Pool Awards
Esmond Transportation System
Executive Committee
front end engineering and design
floating production, storage and offtake vessel
fair value through other comprehensive income
fair value through profit or loss
greenhouse gases
Global Reporting Initiative
Gas Sales Agreement
High Potential Incident Rate
health, safety, environment and security
High Sulphur Fuel Oil
International Accounting Standard
International Financial Reporting Standard
IFRS Interpretations Committee
International Association of Oil and Gas Producers
International Petroleum Industry Environmental
Conservation Association
Individual Savings Account
Investor Code
thousand barrels of oil per day
thousand barrels of oil equivalent per day
key performance indicator
loss of primary containment
Long Term Incentive Plan
Lost day work cases
1
7
5
Premier Oil plc 2018 Annual Report and Financial StatementsSTRATEGIC REPORTGOVERNANCE REPORTFINANCIAL STATEMENTSADDITIONAL INFORMATION GLOSSARY CONTINUED
Non-IFRS measures
The Group uses certain measures of performance that are not specifically defined under IFRS or other generally accepted accounting
principles. These non-IFRS measures are EBITDAX, Operating cost per barrel, DD&A per barrel, net debt and liquidity and are defined
below.
EBITDAX
Earnings before interest, tax, depreciation, amortisation, impairment, exploration spend and other one-off items. In the current year
it also excludes the gain on disposal recognised in the income statement. This is a useful indicator of underlying business performance.
Operating cost per barrel
Operating costs for the year divided by working interest production. This is a useful indicator of ongoing operating costs from the Group’s
producing assets.
DD&A per barrel
Depreciation and amortisation of oil and gas properties for the year divided by working interest production. This is a useful indicator
of ongoing rates of depreciation and amortisation of the Group’s producing assets.
Net debt
The net of cash and cash equivalents and long-term debt recognised on the balance sheet. This is an indicator of the Group’s indebtedness
and capital structure.
Liquidity
The sum of cash and cash equivalents on the balance sheet, and the undrawn amounts available to the Group on our principal facilities,
including letters of credit facilities, less our JV partners’ share of cash balances. This is a key measure of the Group’s financial flexibility
and ability to fund day-to-day operations.
Each of the above non-IFRS measures are presented within the Financial Review with detail on how they are reconciled to the statutory
financial statements.
6
7
1
Premier Oil plc 2018 Annual Report and Financial Statements SHAREHOLDER INFORMATION
Registrar
All enquiries concerning your shareholding
should be directed to Link Asset Services:
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Telephone: UK: 0871 664 0300 (calls cost
12p per minute plus your phone company’s
access charge).
If you are outside the United Kingdom,
please call +44 (0)371 664 0300. Calls outside
the United Kingdom will be charged at the
applicable international rate.
Lines are open 9.00am – 5.30pm Monday
to Friday, excluding public holidays in
England and Wales.
Email: shareholderenquiries@linkgroup.co.uk
Share portal
As a shareholder you have direct access
to an online share portal operated by Link
Asset Services at www.premier-oil-shares.com.
You can access the share portal with your
Investor Code (‘IVC’) which can be found on
your share certifi cate. The portal provides a
range of services, free of charge, to help you
to administer your shareholding quickly
and effi ciently by allowing you to:
• check your share balance;
• change your address details;
• choose to receive electronic shareholder
communications;
• set up or amend a dividend mandate so
dividends can be paid directly to your
bank account; and
• buy and sell Premier Oil plc shares using
the dealing service operated by Link
Share Deal.
Further details regarding
all aspects of shareholder
information can be found
on our website,
www.premier-oil.com
Designed and produced by SampsonMay
Telephone: 020 7403 4099
www.sampsonmay.com
Dividends Dividend history
Details of dividend payments made are
included within the Shareholder Information
section of the Investors area of the
Company website: www.premier-oil.com.
Tax on dividends up to April 2016
For any dividends paid up to April 2016,
shareholders would have received a tax
voucher showing a 10 per cent ‘tax credit’
representing the tax that has already been
paid by the Company on profi ts generated.
This 10 per cent tax credit can be off set
against any UK income tax due on dividend
income. For more information on the UK
dividend tax credit, please visit the HMRC
website: www.gov.uk/tax-on-dividends.
Tax on dividends from April 2016
From 6 April 2016 the dividend ‘tax credit’
was replaced by a new ‘dividend allowance’
in the form of a 0 per cent tax rate on the
fi rst £5,000 of dividend income per year.
UK residents will pay tax on any dividends
received over the £5,000 allowance at the
following rates:
• 7.5 per cent on dividend income within
the basic rate band
• 32.5 per cent on dividend income within
the higher rate band
• 38.1 per cent on dividend income within
the additional rate band
Dividends received on shares held in an
Individual Savings Account (‘ISA’) will
continue to be tax free.
E-communications
Shareholders have the option to receive
communications including annual reports
and notices of meetings electronically. This
is a faster, more environmentally friendly
and, for Premier Oil plc, a more cost-
eff ective way for shareholders to receive
annual reports and other statutory
communications as soon as they are
available. For every shareholder that
actively registers their email address
online, Premier Oil plc has pledged to
donate £1 to Pure Leapfrog’s carbon
off se(cid:28) ing programme which supports
carbon reduction projects in Africa,
India and other developing countries
(www.pureleapfrog.org).
To register for this service, please visit the
share portal: www.premier-oil-shares.com.
You will need your Investor Code (‘IVC’) which
can be found on your share certifi cate. Once
registered, Premier Oil plc will communicate
with you via email rather than post.
Shareholder security
Shareholders are advised to be cautious
about any unsolicited fi nancial advice,
including off ers to buy Premier Oil plc
shares at infl ated prices, or off ers of free
reports about Premier. More information
can be found at www.fca.org.uk/consumers/
scams and in the Shareholder Information
section of the Investors area of the
Company website: www.premier-oil.com.
American Depositary Receipt programme
Premier Oil plc has a sponsored Level 1
American Depositary Receipt (‘ADR’)
programme which BNY Mellon administers
and for which it acts as Depositary. Each
ADR represents one Ordinary Share of
the Company. The ADRs trade on the US
over-the-counter market under the symbol
PMOIY. When dividends are paid to
shareholders, the Depositary converts
such dividends into US dollars, net of fees
and expenses, and distributes the net
amount to ADR holders.
Registered Depositary Receipt holders
can trade, access account balances and
transaction history, fi nd answers to
frequently asked questions and download
commonly needed forms online at
www.adrbnymellon.com. To speak directly
to a BNY Mellon representative, please call
1-888-BNY-ADRS (1-888-269-2377) if you are
calling from within the United States. If
you are calling from outside the United
States, please call 001-201-680-6825.
You may also send an email inquiry to
shrrelations@cpushareownerservices.com
or visit the website at
www.computershare-na.com/bnym_adr.
Printed by Park Communications on FSC®
certifi ed paper.
Park is an EMAS certifi ed company and its
Environmental Management System is certifi ed
to ISO 14001.
100% of the inks used are vegetable oil based,
95% of press chemicals are recycled for further
use and, on average 99% of any waste associated
with this production will be recycled.
1
7
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This document is printed on Edixion Offset,
a paper containing 100% Environmental Chlorine
Free (ECF) virgin fi bre sourced from well-
managed, responsible, FSC® certifi ed forests
and other controlled sources.
This is a certifi ed CarbonNeutral® publication.
Emissions generated during the manufacture and
delivery of this product have been measured and
reduced to net zero through a verifi ed carbon
offsetting project via The CarbonNeutral
Company. This is in accordance with The
CarbonNeutral Protocol, the global leading
standard for carbon neutrality.
Premier Oil plc 2018 Annual Report and Financial Statements
Registered Office
Premier Oil plc
4th Floor
Saltire Court
20 Castle Terrace
Edinburgh
EH1 2EN
Registered No. SC234781
Head Office
Premier Oil plc
23 Lower Belgrave Street
London
SW1W 0NR
Tel: +44 (0)20 7730 1111
Email: premier@premier-oil.com
Full contact details for all of our
advisers are available on the Company
website: www.premier-oil.com