Unlocking
greater value
2019 Annual Report and Financial Statements
Year to 31 December
Our purpose
To play our role in meeting the world’s
energy needs through the safe, reliable and
sustainable development of hydrocarbons
whilst meeting the needs of society for
effective governance and delivering value
for our shareholders.
Our strategy and
business model
P12
Sustainability review
A commitment to responsible
and sustainable business
P24
Stakeholder
engagement
P16
premier-oil.com
Premier Oil
@PremierOilplc
STRATEGIC REPORT
01 – 57
58 – 116
117 – 174
175 – 184
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
01 Chairman’s foreword
02 CEO’s year in review
10 Market overview
12 Our strategy and business model
14 Key performance indicators
16 Stakeholder engagement
18 Business units review
24 Sustainability review
46 Financial review
50 Risk management
54 Principal risks
Audit and Risk Committee report
58 Chairman’s introduction
62 Board of Directors
66 Corporate governance report
74
77 Nomination Committee report
79
Directors’ remuneration report
113 Directors’ report
116 Statement of Directors’
responsibilities
175 UK Government payment reporting
178 Five year summary
179 Oil and gas reserves
180 Worldwide licence interests
182 Glossary
184 Shareholder information
117 Independent auditors’ report
126 Accounting policies
134 Consolidated income statement
135 Consolidated statement
of comprehensive income
136 Consolidated balance sheet
137 Consolidated statement
of changes in equity
138 Consolidated cash flow statement
139 Notes to the consolidated
financial statements
171 Company balance sheet
172 Company statement of
changes in equity
173 Notes to the Company
financial statements
Chairman’s foreword
Premier is an independent upstream oil and gas
company with a long history of operating and executing
production and development projects. We maintain
exposure to upside value from successful exploration
and accretive acquisitions.
Our strategy comprises four pillars all of which enable
us to deliver our purpose:
• To operate in a safe and responsible manner.
• To focus on high quality assets with commercially
advantaged positions.
• To secure access to capital and financial liquidity.
• To maintain an effective organisation sustained
by the right people.
Premier again delivered a strong operational and
financial performance in 2019, resulting in record
free cash flows for the Group. We took material steps
to commercialise our reserve and resource base and
added to our exploration acreage position. We have also
strengthened our commitment to minimising our carbon
footprint to ensure the future success of the business.
ROY A FRANKLIN
Chairman
“ I would like to thank all of our
stakeholders for their work and
commitment to the Company,
and our shareholders for their
continued support.”
Production
Operating cash flow
Net debt
Reserves & resources
78.4kboepd
(2018: 80.5kboepd)
US$1,080m
(2018: US$976m)
US$1.99bn
(2018: US$2.33bn)
847mmboe
(2018: 867mmboe)
Premier Oil plc 2019 Annual Report and Financial Statements 01
ADDITIONAL INFORMATIONFINANCIAL STATEMENTSGOVERNANCE
CEO’S YEAR IN REVIEW
Exceeding our targets
“ We are reducing our debt faster
than anticipated and, at the same
time, continue to invest selectively
at the right level of participation
in new projects and exploration
for future growth.”
TONY DURRANT
Chief Executive Officer
02 Premier Oil plc 2019 Annual Report and Financial Statements
Revenue by region
US$1,597m
3
4
2
1
1. United Kingdom
2. Vietnam
3. Indonesia
4. Pakistan
76%
12%
11%
1%
Activities during 2019
Full-year production of
78.4 kboepd, underpinned by
Catcher outperformance and
high operating efficiency
BIG-P first gas achieved on
schedule and below budget
Tolmount project on schedule;
Tolmount East appraisal success
Heads of Terms agreed for
Sea Lion and Tuna farm out
Attractive acreage captured:
Andaman Sea position
increased; entry into Alaska
Net debt reduced by over
US$300 million to less than
US$2 billion
Strengthened commitment
to minimising the Group’s
carbon footprint
US$327m
Record free cash
flow generation
US$164m
Increased profitability
0
Recordable injuries at
all Premier-operated
offshore facilities
UK production
(kboepd)
54
47
40
2017
2018
2019
Introduction
2019 was another year of strong operational
and financial delivery by Premier with
significant progress made against the
Company’s strategic objectives.
Commodity prices were slightly weaker
during 2019 driven by global trade tensions
and ongoing concerns about the balance
of supply and demand. Despite this, the
Group reported record free cash flows and
increased net profits.
Production
Group production averaged 78.4 kboepd
(2018: 80.5 kboepd), at the upper end of market
guidance. This was driven by exceptionally
high uptime across the portfolio and
outperformance from Premier’s operated
flagship Catcher Area in the UK, which
reached cash payback in October.
Production by
business unit (kboepd)
2019
2018
Indonesia
Pakistan1
United Kingdom
Vietnam
Total
11.5
1.3
54.2
11.4
78.4
13.2
5.3
46.8
15.2
80.5
Increased tax-advantaged production from
the UK offset lower output from the Group’s
Asian assets. This change in production
mix, together with higher price realisations,
continued tight cost control and prudent
management of capital investment, resulted
in increased cash margins year on year.
1 Sold on 26 March 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 03
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CEO’S YEAR IN REVIEW CONTINUED
In South East Asia and the UK, Premier’s
two core producing areas, the teams
have continued to mature and execute
incremental investment opportunities to
increase the reserves and field life of the
Group’s assets. In December, Premier
achieved first gas from its operated Bison,
Iguana and Gajah Puteri (‘BIG-P’) fields,
increasing deliverability from the Natuna
Sea Block A Production sharing contract
(‘PSC’) and enabling the Group to meet
increased Singapore demand for its
Indonesian gas. The safe and successful
execution of BIG-P on schedule and below
budget builds on Premier’s track record of
project delivery.
In the UK, a significant amount of activity
is planned for 2020. This includes the
drilling of a third producer on the Solan
field West of Shetland, the development of
two Catcher Area satellites in the Central
North Sea together with a Varadero infill
well, and infill drilling at Ravenspurn
North in the Southern Gas Basin. These
investments have high returns and quick
payback periods and will help boost
production in the second half of 2020
and early 2021.
Growth projects
The Premier-operated Tolmount
development is on track for first gas
by the end of 2020 and underpins the
Group’s medium-term production profile.
As a conventional platform serving four
wells tied back to an established onshore
terminal, Tolmount requires modest capital
expenditure and will have low production
costs, ensuring the project’s robust
economics. Premier has also partnered with
infrastructure group Kellas Midstream,
who will partially fund and own the
Delivering in
the right way
GHG intensity of the
Group’s operated assets
materially reduced
This was driven by increased
production from Catcher, which
has a very low annual GHG
intensity, and a strengthened
commitment to minimising the
Group’s carbon footprint. In
2019, the Group successfully
trialled the OPT PB3 PowerBuoy®
(‘PB3’), a wave-powered intelligent
monitoring system on the
Huntington field. The PB3 has
demonstrated its ability to
harness wave energy to
power site-monitoring systems,
designed for the protection of
subsea infrastructure following
FPSO sailaway.
infrastructure element of the development. 19.5kgCO2e/boe
Record low Group GHG intensity
04 Premier Oil plc 2019 Annual Report and Financial Statements
The Group’s positive view of the upside
within the Greater Tolmount Area was
confirmed with the successful Tolmount
East appraisal well in October which, as
well as extending plateau production from
the Tolmount Area, unlocks the potential
development of the Mongour discovery to
the north. Further potential exists at the
nearby prospect, Tolmount Far East and to
the south and west of the Tolmount field.
Premier has continued to optimise its level
of participation in its future development
projects. In the Falkland Islands, Premier
has signed a Heads of Terms with Navitas
Petroleum to farm in for a 30 per cent
interest in the Group’s fully appraised
250 mmbbls (gross) Sea Lion project. This
marks a significant step forward for the Sea
Lion development with Navitas Petroleum
sharing the pre-first oil funding and
bringing additional sources of senior
debt financing to the project. In Indonesia,
Premier has signed a Heads of Terms with
Zarubezhneft to farm in for a 50 per cent
interest in its operated Tuna PSC. The new
investor will carry Premier for its share of
a two-well appraisal campaign targeted to
commence in 2020.
Exploration within a disciplined capital
framework remains a key part of Premier’s
business model and 2019 saw the Group
continue to capture highly-prospective
international acreage in proven basins.
Premier deepened its position in the
emerging Andaman Sea gas play, an area
which has significant long-term potential,
and also entered the Alaska North Slope.
Premier’s first well in Alaska, which
spudded post period-end, is targeting an
accumulation of over 1 billion barrels of
oil-in-place (gross).
Free cash flow through the cycle remains
a prerequisite for the Group and Premier
will remain disciplined and selective in the
projects it progresses, realising value from
part or full disposal of development assets
where appropriate. In August, Premier
initiated a sales process for its stake in the
Zama field offshore Mexico, following the
successful appraisal of the field earlier in
the year. Premier expects those discussions
to reach conclusion later in 2020 once the
unitisation process with the neighbouring
block is further advanced.
Improving our
HSES performance
Premier is committed to continually
seeking ways to improve its HSES
performance.
In 2019, the Group conducted its first
Company-wide HSES survey to gather
feedback from its workforce and to help
shape the Group’s strategy. Premier also
held its second Global HSE Day, with
coordinated visits by senior management
to every Premier location worldwide with
the whole Company taking time out to
focus on HSES.
READ MORE P31
Achieving industry-leading levels of
operational efficiency, whilst adhering
to the highest health, safety and
environmental standards.
Tolmount project
on schedule
Improved operating
efficiency
Tolmount, with its platform
to be powered by a gas
micro-turbine rather than a
diesel generator, will have a
low GHG intensity and, once
on-stream, will improve the
Group’s carbon footprint.
Premier is also considering
using wind power to power
the facilities in the future.
Premier will always
prioritise spend on
asset integrity and safe
operations. Together
with a continued focus
on optimising well
delivery and facilities
uptime, this resulted
in record operating
efficiency for the Group.
50kboepd
Tolmount gross
plateau rates
93%
Record Group
operating efficiency
Premier Oil plc 2019 Annual Report and Financial Statements 05
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CEO’S YEAR IN REVIEW CONTINUED
Optimising
assets to realise
additional value
BIG-P first gas
Safe delivery of first gas
from BIG-P on time and
significantly below budget
is further evidence of
Premier’s ability to
execute full cycle projects
from exploration through
to production. BIG-P
increases Natuna Sea
Block A’s deliverability,
enabling Premier to meet
increased Singapore
demand for its gas.
52%
2019 GSA1 market share
Chim Sáo continues
to outperform
expectations
During 2019, Premier undertook four
well intervention campaigns to maximise
recovery from the Chim Sáo field.
Further well intervention work is planned
for 2020 and preparations are also
underway for a two-well infill programme.
READ MORE P21
06 Premier Oil plc 2019 Annual Report and Financial Statements
Catcher reserves
upgrade
Premier has upgraded its
Catcher Area reserves for
the second consecutive year
following excellent reservoir
performance and the
maturation of additional
production infill well targets.
Estimated total recoverable
reserves from the Catcher
Area are now 15% higher
than at sanction.
10mmboe
Gross Catcher reserve upgrade
Significant
opportunities exist
within the Group’s
producing portfolio
to increase reserves
and extend field life.
Tolmount East
successful drill
The commercial discovery
at Tolmount East in
October adds significant
value to our UK portfolio.
The success at Tolmount
East unlocks the potential
development of the
Mongour discovery to the
north which is expected
to be developed with
Tolmount East.
160-300Bcf
Gross Tolmount East resource
including Mongour (P50-P10)
These acquisitions, once completed, will
materially increase the Group’s UK reserves
and resources. They are materially value
accretive and in line with the Group’s stated
strategy of acquiring cash-generative assets
in the UK North Sea, where Premier has
strong operating capability and considerable
tax assets. It is expected that the final
consideration will be fully funded from
the proceeds of the new equity issuance.
Finance
During 2019, the Group generated
US$327.4 million of positive free cash flow
which was directed towards debt reduction
and further strengthening the balance sheet.
At year-end 2019, net debt was US$1.99 billion
bringing total debt reduction since October
2017 to over US$900 million, significantly
ahead of the Group’s forecasts. This is
primarily due to operational outperformance,
supplemented by non-core asset disposals.
The Group has also announced the proposed
extension of the maturities of its credit
facilities to 2023. By the end of 2021, the
Group will have benefitted from more than
12 months of production from Tolmount
and the acquired UK assets will have been
fully integrated into the business. Premier
believes that this, together with its balance
sheet benefitting from two further years of
debt reduction, will put the Company in a
strong position to refinance the business
with a more conventional, and lower cost,
debt structure.
Reserves and resources
As at 31 December 2019, the Group’s proved
and probable (‘2P’) reserves, on a working
interest basis, were 175 mmboe (2018:
194 mmboe) and total 2P and 2C resources
were 847 mmboe (2018: 867 mmboe).
2P
reserves
and 2C
resources
(mmboe)
2P
reserves
(mmboe)
194
(28)
15
(5)
1751
867
(28)
16
(8)
847
1 January 2019
Production
Net additions, revisions,
discoveries
Disposals,
relinquishments
31 December 2019
1 Due to rounding, total 2P reserves does not
correspond to the sum of the individual line items.
The reduction in 2P reserves is driven by
the impact of 2019 production and the sale
of the Pakistan business, partially offset
by a 15 mmboe upward revision in the
Group’s 2P reserves, principally related to
the Catcher Area and Natuna Sea Block A.
Premier now anticipates a higher overall
recovery from the Catcher Area, following
excellent reservoir performance and
maturation of production infill well targets.
In Indonesia, strong performance from the
Gajah Baru Upper Arang reservoir and
maturation of incremental projects in the
Anoa field resulted in increased Natuna
Sea Block A’s 2P reserves. The Group’s 2C
resources were broadly flat year on year.
Premier also seeks to increase its reserve
and resource base through acquisitions.
Post period-end, the Group announced the
proposed acquisitions of the Andrew Area
and Shearwater assets from BP and an
additional 25 per cent interest in its operated
Tolmount Area from Dana Petroleum.
Premier Oil plc 2019 Annual Report and Financial Statements 07
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CEO’S YEAR IN REVIEW CONTINUED
Priorities for 2020
Deliver 2020 production
guidance of 70-75 kboepd
and maintain high Group
operating efficiency
Deliver first gas from
Tolmount on schedule
and below budget;
sanction Tolmount East
Complete Zama disposal
and Sea Lion and Tuna farm
downs; secure senior financing
structure for Sea Lion
Successfully appraise the
Malguk-1 discovery in Alaska
and drill first exploration
well in Brazil
Execute UK acquisitions
and related funding
Deliver debt reduction and
position for future refinancing
The Court Schemes of Arrangement
(the ‘Schemes’) required to implement the
announced acquisitions, related funding
arrangements and extension of the Group’s
credit facilities commenced post year-end.
The requisite majority of Premier’s creditors
approved the Schemes in February and the
court sanction hearing is scheduled to
commence on 17 March 2020.
Environmental, Social and Governance (‘ESG’)
A company’s success is not only measured
in terms of financial performance, but
also in terms of environmental and social
performance. It is the Group’s highest
priority to continue to operate all of its assets
in a safe and responsible manner, to ensure
the safety of its workforce and to minimise
the potential risk to the environment. In
2019, Premier recorded no serious injuries,
no spills and reduced its carbon footprint,
achieving a historic low greenhouse gas
(‘GHG’) intensity at its operated assets.
Premier recognises the urgent need to
respond to climate change and the key
role the energy industry needs to play in
addressing the environmental challenges
faced by society today. As such, Premier
has committed to ensuring that all of its
operated projects will be developed on a
carbon neutral basis in respect of Scope 1 and
Scope 2 emissions. We can therefore commit,
based on expected future profiles, that
Premier will be more than 65 per cent carbon
neutral by 2025 and 100 per cent by 2030.
Investing
selectively for
future growth
Sea Lion equity
interest optimised
Premier is committed
to optimising its equity
interest in its projects.
In 2019, Premier launched
a formal farm down
process of its Sea Lion
project which resulted in
Navitas signing a Heads
of Terms to farm in for
a 30 per cent equity
interest in the project.
250mmbbls
Gross Sea Lion
Phase 1 resource
08 Premier Oil plc 2019 Annual Report and Financial Statements
Investing in our
staff forum initiative
In 2019 we launched our new staff forum
initiative to support effective two-way
communication between employees and
management. Local staff forums have
been established at each of our business
units, and we held our first Annual Group
Staff Forum in November 2019. This
event was attended by representatives
from across the business and provided
an opportunity for our Executive and
Non-Executive Directors to engage with
the workforce.
READ MORE P68
A well balanced portfolio of projects
at various stages of maturity
underpinning the Group’s future
growth profile.
Andaman Sea
position enhanced
In 2019, Premier
expanded its position
in the Andaman Sea,
farming into two new
licences, which offer
significant organic
growth opportunities
for the Group’s existing
Indonesian business in
the longer term.
2
New blocks in the
Andaman Sea
Low Carbon by
Design, Carbon
Neutral by
Commitment
Premier has committed
that all operated projects
will be developed on a
net zero emissions basis,
in respect of Scope 1
and Scope 2 emissions.
This will be achieved by
minimising emissions at
source, supplemented
by nature-based
carbon offsets.
100%
2030 Group production
will be carbon neutral
Outlook
In the first quarter of 2020, oil prices have
fallen significantly due to fears over the
spread of COVID-19 and the impact this may
have on global demand for oil. The current
volatile macro environment serves to
highlight the importance of the business
being sustainably free cash flow positive and
ensuring that future growth can be funded
through the commodity price cycle without
compromising the balance sheet. The
Group’s immediate priority remains to
reduce its debt levels and covenant leverage
ratio towards 1x, a process which will be
accelerated by the acquisition of the UK
assets announced post period-end. At
the same time, Premier will continue to
maintain its capital discipline, investing
selectively in new international projects
and exploration to create material value for
all of its stakeholders over the longer term.
Board changes
As announced separately, Premier is pleased
to announce that Elisabeth Proust will join
the Company’s Board as an independent
Non-Executive Director and member of the
Health, Safety, Environment and Security
Committee and Nomination Committee
with effect from 1 April 2020.
Elisabeth has a strong technical and
operational background and joins the Board
after a distinguished career within Total’s
upstream business.
Robin Allan, Director, North Sea and
Exploration, will be leaving the Board
at the close of the Group’s Annual
General Meeting in May. Robin will
continue to work for Premier on a part-time
consultancy basis, with a particular focus
on ESG matters and Premier’s response to
the climate change agenda.
Tony Durrant
Chief Executive Officer
Premier Oil plc 2019 Annual Report and Financial Statements 09
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT MARKET OVERVIEW
The external
environment
in which we
operate
Premier GHG intensity kgCO2e/boe
40
30
20
10
0
2015
2016
2017
2018
2019
IEA 2019 Energy Outlook
2017 actual
5
4
1
3
2
1. Oil
2. Gas
3. Coal
4. Renewables
5. Nuclear
2040 sustainable development scenario
(in a Paris-compliant world)
4
5
3
1
2
1. Oil
2. Gas
3. Coal
4. Renewables
5. Nuclear
32%
22%
27%
14%
5%
23%
25%
12%
31%
9%
We recognise the urgent need for
companies to respond to climate change
and we are committed to playing our part
in addressing the environmental challenges
we all face today:
• In June 2019, Premier established a
Climate Change Committee and aligned
its Climate Change Policy with the
recommendations from the Task Force
on Climate-related Financial Disclosures
(‘TCFD’).
• Premier has formalised a comprehensive
asset-by-asset review to identify projects
to reduce carbon emissions.
• Premier has made a commitment that all
operated projects will be developed on a
net zero emissions basis.
• Premier has focused its targets on
reducing GHG emissions and is pleased
to be able to report that the GHG intensity
of the Group’s operated assets was at a
record low of 19.5kgCO2e/boe in 2019,
down from 31.2kgCO2e/boe in 2014.
THE IMPORTANCE OF CLIMATE CHANGE
Climate change is a concern to all of us
and we recognise the need to meet ever-
increasing demand for affordable, reliable
and safe energy, whilst at the same time
reducing emissions of carbon dioxide.
Countries are under increased pressure to
take action to deliver their emission targets
and, in June 2019, the UK became the first
major economy to pass net zero emission
targets into law. All businesses are under
increased pressure from their stakeholders
to take action to manage their carbon
footprint and some investors are divesting
from companies that are not making
sufficient progress in this regard.
It is clear that the oil and gas industry
has a key role to play in meeting the world’s
energy needs for the foreseeable future;
it is equally clear that gas is needed as
a transition fuel. Perhaps less well
understood is the fact that the oil and gas
industry has the skills and assets to permit
the reinjection of carbon dioxide into the
earth’s strata, removing it permanently
from the atmosphere. This is known as
carbon capture and storage and is an aspect
that will enable energy to be provided in a
clean net zero manner in the future.
At Premier we have been working diligently
to reduce our emissions and we are
committed to the UK Government’s target
of net zero by 2050. We have worked hard
to improve operational efficiencies in all of
our facilities and to cease flaring and stop
methane emissions wherever possible.
10 Premier Oil plc 2019 Annual Report and Financial Statements
COMMODITY PRICES
In 2019, Brent averaged US$63.1/bbl
compared to Premier’s average realised
price of US$68.1/bbl post hedging.
Crude oil prices 2019 (US$/bbl)
Annual average
hedged oil price
Protection from
oil volatility
through hedging
80
75
70
65
60
55
50
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Summary
2019 saw Brent range-bound between US$60-70/bbl,
despite some short-term volatility driven by supply disruption
events. Despite the COVID-19 outbreak in early 2020, the IEA
continues to forecast an increase in global oil demand in 2020.
UK gas prices weakened in 2019 and are expected to remain
low in 2020 driven by high LNG imports and a warmer than
expected winter before recovering in 2021 and beyond,
consistent with stronger future prices.
Our response
Premier looks to reduce the volatility in its revenues and
protect against any adverse commodity price movements
through a rolling hedging programme, whilst retaining some
upside to any potential medium-term rally in prices.
Opportunity
For 2020, the Company has hedged approximately 26 per cent
of its oil production at an average price of US$64/bbl, and
37 per cent of its UK gas production at an average price of
54p/therm. In addition, the Company has hedged a substantial
proportion of its 2020 Indonesian gas production.
FOREIGN EXCHANGE RATES
EQUITY MARKETS
CORPORATE ACTIVITY
INVESTMENT AND COSTS
Summary
Summary
Summary
Summary
The US$/£ exchange rate
was volatile throughout 2019,
primarily driven by Brexit
developments.
Despite reaching a ten-year low
in August, sterling ultimately
ended 2019 four per cent
higher at US$1.33/£.
Our response
The Company has sterling
exposure through its UK
operations which it actively
manages through forward
hedging, helping to protect
against market volatility.
Premier also has £250 million of
sterling debt which was hedged
by cross-currency swaps at the
time the arrangements were
put in place.
Opportunity
Premier actively manages its
foreign exchange exposure,
capitalising on any short-term
fluctuations.
Despite macro headwinds
(Brexit, trade tensions and
recessionary fears), global
equity markets performed
well over 2019.
The FTSE All-World Index
gained 24 per cent with
notable performances by
the US (+29 per cent) and
China (+36 per cent).
Our response
Further progress was made
reinstitutionalising Premier’s
shareholder register. As at
year-end 2019, Premier was
the largest FTSE 250 E&P
with an equity value in excess
of £816 million.
Opportunity
Post year-end, the Company
took advantage of the positive
backdrop, announcing its
intention to equity fund three
proposed acquisitions.
The number of global M&A
transactions in the sector
reduced significantly in 2019
due to lower activity in North
America.
However, the North Sea M&A
market remained buoyant as
majors continued to divest assets.
2019 saw a modest pick-up
in activity in the sector with
a number of high-profile field
start-ups, but investment
activity still remains muted
compared to 2010-2014
levels. Premier has yet to
see significant inflation in
industry costs.
Our response
Our response
Premier closely controls its
costs and aims to enter into
long-term leases and turnkey
development contracts and
infrastructure partnerships
to ensure the Company is
protected against any potential
future cost inflation and cost
over-runs.
Opportunity
Premier is the operator of the
majority of its assets which
provides the Group with strong
control over future expenditure
programmes and the ability to
flex its discretionary spend in
the event of another downturn
in the commodity price.
Premier continues to seek to
monetise its non-core assets,
while selectively reviewing new
opportunities for growth.
In March 2019, the Company
completed the disposal of
its Pakistan business and
launched the sale process
for its 25 per cent interest in
Block 7 which contains the
Zama field (Mexico).
Premier also enhanced its
exploration portfolio, adding new
acreage in Indonesia and Alaska,
and post period-end, announced
its intention to acquire
cash-generative UK assets.
Opportunity
The current environment
provides the opportunity
to acquire cash-generative
assets in the UK and to access
acreage internationally.
Premier Oil plc 2019 Annual Report and Financial Statements 11
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT OUR STRATEGY AND BUSINESS MODEL
Our purpose
To play our role in meeting the world’s energy needs through the safe, reliable
and sustainable development of hydrocarbons whilst meeting the needs of society
for effective governance and delivering value for our shareholders.
DELIVERY OF OUR PURPOSE
Our strategy comprises four pillars all of which contribute towards delivering
our purpose and set us apart as a world-class independent.
1
2
3
4
OUR FOUR STRATEGIC PILLARS
To operate
in a safe and
responsible
manner
Premier will never knowingly
compromise its health, safety
or environmental standards
in pursuit of its operational
objectives. The Group will
seek to ensure the safety of
everyone in its operations and
to minimise its environmental
impact. Premier will act with
integrity and honesty, striving
for continuous improvement
across all aspects of its
business, assured by rigorous
risk management processes.
To focus on high
quality assets
with commercially
advantaged
positions
Premier is a full cycle E&P
company maintaining a
robust and diverse portfolio
of material operated assets
across multiple geographies,
and hydrocarbon types, to
provide scale and to diversify
risk. The Group seeks to grow
our portfolio both through
impactful E&A in proven
hydrocarbon basins and
selective M&A.
To secure access
to capital and
financial liquidity
To maintain
an effective
organisation
sustained by
the right people
Premier seeks to balance the
use of available cash between
debt reduction, investment in
existing assets and growth. The
Group seeks to deliver returns
for shareholders through share
price appreciation. Premier will
actively manage its investment
programmes, employ hedging
and use lease and infrastructure
models to free up capital in
order to maintain acceptable
financial ratios and liquidity.
Premier will seek to
attract and retain high
quality employees through
challenging and satisfying
employment, and through
effective reward, retention,
and development policies.
Each business unit will have
the necessary skills and
competencies to stand alone
but with functional support
provided by corporate
specialists.
ROY A FRANKLIN
Chairman
BARBARA JEREMIAH
Chairman of the Remuneration
Committee
“ Premier has established a clear purpose, vision and core
values that complement and support the Board’s strategy.
These values are at the heart of all of Premier’s activities,
with good corporate governance providing a sound
framework to embed them throughout the organisation.”
“ Our new Remuneration Policy links performance measures
to Premier’s strategic pillars and business goals, within
a simplified and transparent framework.”
READ MORE
Chairman’s introduction P58
READ MORE
Directors’ remuneration report P79
12 Premier Oil plc 2019 Annual Report and Financial Statements
How we create value
Our business model is to license or acquire high quality assets according to prevailing
market conditions. Premier targets its exploration activity in under-explored emerging
plays in proven hydrocarbon provinces. The Group then develops its discovered resources,
right-sizing its investment in assets to suit its risk appetite and its financial circumstances.
INPUTS
CORE ACTIVITIES
OUTPUTS
Operational
Premier seeks to maximise
the value of its high quality
portfolio, safely managed
by its operating teams and
functional experts, through
high operating efficiency,
effective cost management
and pursuit of investment
opportunities in and
around its existing assets.
READ MORE
Business units review P18
Financial
Managing the Group’s
risks, access to capital
and strict financial
discipline are critical
to the business.
All of its operations
are carried out
against a background
of rigorous corporate
governance.
READ MORE
Financial review P46
Societal
Premier’s focus on
the relationships
with its partners,
employees and the
communities in which
it operates enables
the Group to maintain
its social and legal
licence to operate.
READ MORE
Sustainability review P24
x p l o re & acquire
E
We are a
full cycle E&P
company
P
r
o
d
u
c
e
p
D evelo
Growth of production
portfolio, and an increase
in reserves and resources.
– Increased production
and reserves
– Portfolio growth
– Safe operations
78.4kboepd
Group production
Growth of net asset value
via increased income and
cash flow.
– Increased operating
cash flow
– Debt reduction
– Selective reinvestment
US$1,080m
Operating cash flow
Opportunities for Premier’s
people, partners and the
communities in which the
Group operates.
– Motivated employees
– Improved relationships
– Enhanced reputation
US$1,049m
Total economic distribution
Premier Oil plc 2019 Annual Report and Financial Statements 13
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT KEY PERFORMANCE INDICATORS
Measuring our performance
Operational
Ahead of expectations,
strong production
performance was
supported by record
high operating
efficiency.
Working interest production kboepd
Reserves and resources mmboe
2019
2018
2017
78.4
80.5
75.0
2019
175
672
2018
194
673
2017
302
600
847 2P reserves
867
902
2C resources
Objective
2019 progress
Objective
2019 progress
Premier aims to maximise
production from its
existing asset base and,
over time, to deliver
production growth.
– Group production
of 78.4 kboepd
– Group operating
efficiency >90%
– First gas from BIG-P
– Formal government
approval of Catcher
North and Laverda
developments
Premier aims to grow
its reserve and resource
base through a combination
of successful exploration
and selective acquisitions.
– Upward revision in 2P
reserve estimates at
the Catcher Area and
Natuna Sea Block A
– Premier upgraded
its Zama resource
estimates following
the successful 2019
appraisal campaign
Financial
Strong cash flow
generation has enabled
the Group to materially
reduce its debt while
continuing to invest for
long-term growth.
Covenant leverage ratio
Operating cash flow1 US$ million
2019
2018
2017
2.3x
3.1x
6.0x
2019
2018
2017
1,080.0
975.8
584.3
Objective
2019 progress
Objective
2019 progress
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.
– Covenant leverage
ratio (covenant net
debt/EBITDAX)
reduced to 2.3x
(2018: 3.1x)
– Increased EBITDAX
of US$1,230 million,
up c.13%
Premier aims to maximise
cash flow from operations
to maintain financial
strength, meet its debt
obligations, invest in the
future of the business and
deliver long-term returns
to shareholders.
– Improved cash margins
due to increased UK
oil production
– Catcher reached cash
payback in October
– Strong operating cash
flow generated by the
Group’s Asian assets
driven by high uptime
and tight cost control
Societal
Premier remains
committed to behaving
responsibly and
conducting its business
with integrity in
everything it does.
Total recordable injury rate (‘TRIR’)
Process safety events – IOGP Tier 1 and Tier 2
2019
2018
2017
1.04
2.65
1.47
2019
2018
2017
2
2
1
Objective
2019 progress
Objective
2019 progress
Premier is committed to
managing its operations
in a safe and reliable
manner to prevent major
accidents and to provide
a high level of protection
to its employees and
contractors.
– No recordable injuries
at any of Premier’s
offshore operated
facilities, supply bases
and offices worldwide
Premier aims to maintain
the highest standards of
operational integrity to
prevent any release of
hazardous material from
primary containment.
– In 2019, there was one
Tier 1 Process Safety
Event relating to an oil
release at Catcher and
one Tier 2 Process
Safety Event relating to
a gas release at Catcher
1 2018 and 2017 restated for the impact of IFRS 16.
14 Premier Oil plc 2019 Annual Report and Financial Statements
Strategic pillars
1 To operate in a safe and responsible manner
2 To focus on high quality assets with commercially advantaged positions
3 To secure access to capital and financial liquidity
4 To maintain an effective organisation sustained by the right people
READ MORE
P50
Risk management
Principal risks
P54
Directors’ remuneration report P79
Operating costs US$/boe
2019
2018
2017
11.4
9.8
12.5
Objective
2019 progress
Premier aims to minimise
costs from operations
without compromising on
health, safety and integrity.
– Operating costs of
US$18/boe, of which
US$11/boe related to
field opex and US$7/boe
to FPSO lease costs
– Low cost base
supported by high
operating efficiency
Relevant strategic pillars
1
2
4
Associated risks
– Production and development delivery and
decommissioning execution
– Exploration success and reserves addition
Net debt US$ billion
ROCE %
Relevant strategic pillars
2019
2018
2017
1.99
2.33
2.72
2019
2018
5
3
(8)
2017
2
3
Objective
2019 progress
Objective
2019 progress
Associated risks
Premier aims to reduce
the absolute level of its
net debt to address the
imbalance in its capital
structure, to ensure
compliance with its
financial covenants and
to provide the Company
with future financial
flexibility.
– Net debt reduced from
US$2.3 billion to less
than US$2 billion
– Record free cash flow
generation of over
US$320 million
– Net debt reduced by
over US$900 million
since October 2017
Premier is focused
on effective capital
and balance sheet
management, and quality
of earnings through
driving operational and
technical efficiencies.
– Increased operating
cash flows from high
operating efficiency,
higher realised sales
prices and tight cost
control
– Record free cash flow
utilised to repay debt,
with capex focused on
highest return projects
– Commodity price volatility
– Access to capital
GHG intensity – operated assets kgCO2e/boe
2019
2018
2017
19.5
23.1
26.1
Objective
2019 progress
Premier is committed to
proactively taking steps
to address the Group’s
impact on society and
in particular to minimise
the climate impact of
its activities.
– Greenhouse gas
intensity of the
Group’s operating
assets at a record low
– Commitment to
ensuring that all
operated projects will
be developed on a net
zero emissions basis
(Scope 1 and Scope 2)
Relevant strategic pillars
1
4
Associated risks
– Health, safety, environment and security
– Climate change
Premier Oil plc 2019 Annual Report and Financial Statements 15
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT STAKEHOLDER ENGAGEMENT
Growing our stakeholder value
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
which can then be factored in to the Board
decision-making process.
The disclosure on the following two pages, together with
the table on pages 70 and 71, describes how the Directors
have had regard to the matters set out in section 172(1)(a)
to (f) and forms the Directors’ statement required under
section 414CZA of the Companies Act 2006. Information
regarding our assessment of environmental and
community issues associated with our operations,
including how we maximise our positive impacts and
minimise the negative impacts, can be found in the
Sustainability Review on page 24.
Shareholders
Lenders
Governments
& regulators
Why is it important to engage?
Premier seeks to develop an investor base
of long-term holders. By ensuring that our
strategy and objectives are well understood by
shareholders, we maintain continued access to
long-term capital providers who are supportive
of the sustainable success of the business.
What issues are important to them?
• Sustainable financial and
operational performance
• Capital allocation
• Remuneration structure
• ESG performance
How do we engage?
There is regular dialogue between both institutional
and retail investors through meetings, presentations
and conferences. Over 200 meetings were held with
current and prospective investors during 2019 with
the Chief Executive Officer and Finance Director
primarily responsible for engagement. For more
information, please see page 73.
2019 highlights
• Continued growth in long-term institutional
shareholder base
• Over 200 meetings held during 2019
• Shareholder consultation on a new
Remuneration Policy
Why is it important to engage?
The upstream oil and gas industry is a capital
intensive business. By maintaining supportive
relationships with our lending group, we can
ensure access to long-term debt finance that
enables us to invest in high quality projects that
generate sustainable long-term cash flows.
What issues are important to them?
• Sustainable financial and
operational performance
• Capital allocation
• Covenant compliance
• Refinancing plan
How do we engage?
Following the restructuring of our main
credit facilities in 2017, Premier has a number of
well-established channels for engagement with
lenders, including: monthly reporting, quarterly
covenant compliance updates and in-depth
technical presentations for key projects or
investments that require lender approval.
2019 highlights
• US$399m of debt repayment during 2019 with
net debt of US$1.99bn at 31 December 2019
• Covenant compliance throughout 2019 and
a year-end leverage ratio of 2.3x
• Ongoing engagement regarding an ‘amend
and extend’ of existing facilities
Why is it important to engage?
With a diverse global portfolio, forging strong
and positive relationships with our host
governments and local regulatory authorities
is vital to maintaining our licence to operate.
We believe that the strength of these
relationships allows us to make a sustainable
and beneficial contribution to the countries
in which we have operations.
What issues are important to them?
• Work programmes and budgets
• ESG performance
• Decommissioning arrangements
How do we engage?
In our South East Asia Business Units the
production sharing contracts (‘PSCs’), to which
Premier is a party, set out formal arrangements
for engaging with host governments on a variety
of issues. This is supplemented by more regular
contact with appropriate departments at a
working level for day-to-day operational
activities. In the UK, Premier engages regularly
with the Oil & Gas Authority and the Health
and Safety Executive.
2019 highlights
• Approval of Catcher North and Laverda field
development plans
16 Premier Oil plc 2019 Annual Report and Financial Statements
Joint venture
partners
Why is it important to engage?
Sharing of risk is a fundamental component
of our industry and by maintaining good
relationships with our joint venture partners,
we can ensure that maximum value can be
extracted from our operations in a safe and
sustainable manner.
What issues are important to them?
• Operational performance
• Work programmes and budgets
• ESG performance
How do we engage?
A regular programme of operating and technical
committee meetings (‘OCMs’ and ‘TCMs’)
ensures that there is an open dialogue with our
partners that allows for ideas to be exchanged
and collaboration to be fostered. Where we are
operator, we seek to ensure that all partners
are aligned around common objectives for a
particular asset to ensure that we can maintain
safe and reliable operations.
2019 highlights
• Approval of Catcher North and Laverda field
development plans
• Life of field plan agreed for Balmoral
Workforce
Suppliers
Customers
Why is it important to engage?
Our current and future success is underpinned
by our ability to engage, motivate and retain our
workforce. Creating the right environment for
employees wherein their contribution is valued
and listened to helps to ensure that we can
deliver on a shared set of objectives.
What issues are important to them?
• Group strategy
• Development and progression
• Corporate culture
• Reward
How do we engage?
During 2019, the Group Staff Forum was
constituted in order to provide a vehicle for the
workforce to raise key issues with the Board.
This Forum is made up of representatives from
across the Group who – via local staff forums –
are responsible for gathering the views of
employees to be raised at the Group Staff Forum.
2019 highlights
• First Group Staff Forum held
with Board members and local representatives
• Town hall meetings held to provide updates on
operational performance and strategy
• Further progress on implementing actions
from 2018 employee engagement survey
Why is it important to engage?
Our supply chain is a key component
of our day-to-day operations. We are dependent
on our suppliers delivering on time and on
budget to ensure that our projects generate
maximum value. Through collaborative working
relationships, we aim to deliver mutual value
and a sustained commitment from our suppliers.
How do we engage?
Supplier relationship management is ultimately
the responsibility of each individual contract
owner to ensure that value over and above the
scope of the contract is realised. Engagement
takes place at a working level with suppliers,
with regular meetings at a more senior level for
our tier 1 contractors.
What issues are important to them?
• Contractual terms
• Pipeline of future projects
• Contract management strategy
2019 highlights
• Contracts tiered across the Group based on
risk and spend
• Roll out of a contract management tool to
support active engagement with suppliers
• Agreed contract management deliverables
for tier 1 and 2 contracts
Why is it important to engage?
Premier sold to in excess of 30 global customers
during 2019. Our diverse grades are sold via a
mixture of spot market sales and term sale
agreements, with long-term gas sales agreements
in place in Indonesia to deliver gas into Singapore.
Through regular and open dialogue with our
customers, we are able to achieve competitive
prices for our oil and gas whilst ensuring our
operations continue to run smoothly.
What issues are important to them?
• Robust and safe lifting operations
• Crude oil and gas quality
• Reliability of supply and timing of delivery
• Financial capability
How do we engage?
Premier has an in-house marketing department
responsible for all of the Company’s global crude
oil, NGL and North Sea gas sales. The marketing
team manages the entire sales process from the
negotiation of lifting and shipping agreements
through to pricing negotiation and offtake logistics.
2019 highlights
• Strong differentials achieved
• Average premium to Brent of US$ 1.84/bbl
across global crude sales
• 126 liftings during 2019 (2018: 120)
Premier Oil plc 2019 Annual Report and Financial Statements 17
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT BUSINESS UNITS REVIEW
UK
Premier achieved record production
from its UK assets of 54.2 kboepd
in 2019. This 16 per cent increase
on the prior year was driven by
a full-year contribution from the
Catcher Area at increased rates.
First gas from Premier’s operated
Tolmount project, which is
scheduled to come on-stream
by year-end 2020, will help sustain
the Group’s UK production at over
50 kboepd, before any contribution
from the proposed UK acquisitions.
Catcher Area
Production from the Catcher Area
exceeded expectations during 2019
averaging 33.6 kboepd (net, Premier 50 per
cent operated interest), underpinned by
exceptionally high operating efficiency
and reservoir outperformance.
The Catcher Area FPSO continues to
produce beyond sanctioned plateau rates
supported by excess well deliverability. This
resulted in the Group again increasing its
Catcher Area recoverable reserves. Premier
is also working with the FPSO provider and
its joint venture partners to increase oil rates
on a short-term trial basis. The Catcher Area
achieved a low GHG intensity during 2019,
benefitting from the high plant uptime
and the new build FPSO with modern gas
recovery and treatment systems.
Premier received formal approval of the
development of the Catcher North and
Laverda fields in August. The requisite
contracts have been placed and fabrication
of the flexibles and umbilicals is underway.
Catcher North and Laverda, together with the
Varadero infill well, which will also be drilled
during 2020, will help offset natural decline as
the existing Catcher Area production wells
come off plateau. Development drilling is
scheduled to start in May 2020 with first oil
scheduled for the first quarter of 2021.
The Group continues to work up additional
well targets within and around the Catcher
Area to maximise economic recovery.
Two Burgman infill production wells are
under evaluation for 2021 with long lead
items ordered and the rig contracting process
underway. The 4D seismic to be acquired
during 2020 will further calibrate Premier’s
existing reservoir models, help high grade
future opportunities and provide better
imaging of the potential oil-bearing reservoirs
beyond the existing discoveries to evaluate
near-field tie-back opportunities.
Other UK producing assets
2019 production from the Elgin-Franklin Area,
which is the UK’s largest producing field,
averaged 6.0 kboepd (net, Premier 5.2 per cent
interest), ahead of expectations. Production
was supported by well intervention
campaigns and infill drilling, including
the F12 well, which was placed on-stream in
December. Further infill drilling is planned
for 2020, including the F5 well, which is
expected to be drilled in the second quarter
Solan
Shetland
Islands
Premier interests
Producing oil fields
Pipeline interests
54.2kboepd
Record net production
Orkney
Islands
UK
SCOTLAND
Aberdeen
Catcher Area
Kyle
Balmoral Area
Huntington
>90%
Operating efficiency
US$13/boe
Elgin/Franklin
Operating cost
ENGLAND
Tolmount
CMS
75km
18 Premier Oil plc 2019 Annual Report and Financial Statements
Growing production
(kboepd)
54
47
40
2017
2018
2019
and tied into production before year-end.
In addition, post period-end the joint venture
partners approved a four-well stimulation
campaign to take place in 2020 to help
improve production performance from
the existing wells.
Production from Premier’s operated
Solan field averaged 3.5 kboepd (Premier
100 per cent interest), slightly ahead of
forecast and driven by excellent plant
operating efficiency. Preparations continued
throughout 2019 for the drilling of a new
Solan production well (P3) which will boost
production from the central part of the
reservoir and extend field life. The well is
expected to spud in March 2020 with first
oil anticipated in the third quarter of 2020.
Premier has reached agreement with Baker
Hughes to align payment with milestone
dates, reducing Premier’s cash outlay prior
to the completion of the well. On the
successful completion of the P3 well, excess
gas will be used to replace diesel as a fuel
for power generation on the facility.
Active well management at the
Premier-operated Huntington field
underpinned high uptime from the facility
with production averaging 5.8 kboepd
(Premier 100 per cent interest). Post
period-end, water cut in the highest
producing well increased. This prompted
Premier to submit a draft decommissioning
programme for the removal of the leased
Huntington FPSO from the field to the
Secretary of State for Business, Energy and
Industrial Strategy in February 2020. Premier
expects that the last Huntington cargo will be
lifted from the field in April 2020. Since 2016,
when Premier became operator, the field has
outperformed expectations, with proactive
reservoir management resulting in the
deferral of cessation of production and
reserve upgrades over the last few years.
During 2019, Premier installed the Ocean
Power Technologies (‘OPT’) PowerBuoy®
(‘PB3’) for trial on the Huntington field.
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
The PB3 has demonstrated its ability to
harness wave energy to power site-monitoring
systems designed for the protection of subsea
infrastructure following FPSO sailaway.
Premier intends to work with the Oil and Gas
Technology Centre and OPT to further
develop the system for future use during the
decommissioning phases of the Group’s assets.
Premier’s operated Balmoral Area delivered
1.3 kboepd (net, Premier 79.2 per cent
interest) during the period. Production
was impacted by the failure of the Brenda
multi-phase-pump, partially offset by the
restart of the B29 well in April.
In 2019, production from Ravenspurn North
averaged 1.2 kboepd (net, Premier 28.7 per
cent interest). Uptime from the field
improved significantly following the
summer shut down, averaging in excess of
95 per cent. The Borr Prospector-5 jack up rig
has been contracted to drill two horizontal
wells on Ravenspurn North, commencing
in March 2020. The wells will access gas in
undrained areas of the field with the aim of
extending field life and derisking further
infill opportunities.
Production from the Kyle field, which is
exported via the Petrojarl Banff FPSO,
averaged 1.4 kboepd (net, Premier 40 per cent
interest). The Kyle joint venture partners
are working closely with the Banff owners
towards the safe and cost efficient
decommissioning of the Kyle facilities,
with sailaway of the Petrojarl Banff FPSO
anticipated in the summer of 2020.
UK unit field operating costs were stable at
US$13/boe (2018: US$13/boe) while lease costs
reduced to US$8/boe (2018: US$10/boe). This
reflects a full year of production at increased
rates from the Catcher FPSO offsetting
natural decline on more mature, fixed cost
assets such as Huntington and Kyle.
The Greater Tolmount Area
The Premier-operated Tolmount development
is on schedule for first gas before year-end
2020 and is tracking below budget.
Construction and fit-out of the platform in
Rosetti’s yard continued during 2019. Jacket
roll up was achieved in December and final
welding and riser installation is nearing
completion. The fit out of all major topsides
equipment packages has been substantially
completed and final piping, electrical
installation and pre-commissioning
continues ahead of platform sailaway,
which is scheduled for late-April 2020.
Saipem continue to progress the offshore
pipeline work scope on behalf of the joint
venture partners. The offshore pre-anchor
route survey was concluded in November and
coating of the linepipe was completed post
period-end. Onshore, the shaft from cliff top
to beach level has been constructed and
preparations are underway for the beach
crossing. Laying of the 20 inch gas export
pipeline is planned for the summer of 2020.
The Easington terminal works are also
progressing and the installation of the
pre-assembled units commenced post
period-end.
Preparations for the 2020 development
drilling campaign are well underway. All long
lead items have been ordered and contracts
placed. The first of the four development wells
is expected to spud in the second quarter of
2020 after the jacket is installed. There is also
a plan to drill a fifth well at the end of the
programme to improve overall recovery from
the field. Premier continues to expect first gas
before year-end, with Tolmount adding 20-25
kboepd (net, Premier 50 per cent interest) to
Group production once on plateau.
In October 2019, Premier announced the
success of the Tolmount East well in an
undrilled area four kilometres east of the
Tolmount gas field. Premier is undertaking
FEED studies for both platform and subsea
concepts to develop the Tolmount East gas
field via the Tolmount infrastructure. Premier
plans to select the optimal field development
concept during the second quarter of 2020.
Final product from the 3D seismic acquired
across the Greater Tolmount Area in 2019 is
expected in April 2020 and will further inform
the concept select decision. Project sanction
of Tolmount East is targeted for the second
half of the year and will be brought on-stream
to ensure Tolmount infrastructure is kept at
full utilisation.
The success at Tolmount East unlocks the
potential development of the Mongour
discovery to the north which is expected
to be developed with Tolmount East. Total
resource at Tolmount East, including
Mongour, is 160-300 Bcf (P50 to P10).
These estimates will be further refined
as FEED progresses and the processing
of the 3D seismic data is completed and
integrated into the evaluation.
There is considerable upside within the
Greater Tolmount Area. The success at
Tolmount East with the new 3D seismic
survey reduces the uncertainty of the
Tolmount Far East prospect which Premier
is currently maturing ahead of drilling in
2022. Further potential also exists to the
south and west of the Tolmount field.
Proposed UK acquisitions
Post period-end, Premier announced the
proposed acquisitions of the Andrew Area
and Shearwater assets from BP and an
additional 25 per cent interest in its operated
Tolmount Area from Dana Petroleum.
The acquisitions provide Premier with
material operated interests in the Andrew
Area and a non-operated interest in
Shearwater, a significant production and
infrastructure hub in the Central North Sea.
Both the Andrew Area and the Shearwater
field add mid-life production with material
upside potential through production
optimisation, incremental developments
and field life extension projects. The
Tolmount acquisition enables Premier to
deepen its position in one of its core UK
development assets which has significant
upside and, as outlined above, is on track
for first gas by the end of 2020.
Combined with existing assets, the
proposed acquisitions add cash-generative,
rising production out to 2024 with pro forma
2019 UK production in excess of 75 kboepd
and no decommissioning security burden.
All of the proposed acquisitions are
expected to have completed by the end
of the third quarter of 2020.
Premier Oil plc 2019 Annual Report and Financial Statements 19
BUSINESS UNITS REVIEW CONTINUED
Indonesia
Premier’s Indonesian Business
Unit generated material positive
net cash flows, after ongoing
capital expenditures on the BIG-P
development. Safe delivery of
BIG-P first gas on schedule and
below budget is testament to the
team’s strong project execution
skills and supports the Company’s
long-term gas sales contracts
into Singapore.
Production and development
Production from the Premier-operated
Natuna Sea Block A averaged 11.5 kboepd
(net, Premier 28.7 per cent interest)
(2018: 12.9 kboepd). The slight reduction on
2018 reflects weaker Singapore demand
during the second and third quarters of
2019 with Singapore customers substituting
cheaper spot LNG for Natuna Sea
pipeline gas.
Singapore demand for Premier’s
Indonesian gas strengthened into
year-end with production from Natuna
Sea Block A averaging 16.1 kboepd (net
to Premier) in December, as the price of
Natuna Sea Block A pipeline gas and spot
LNG converged. This strong production
has continued into 2020 with Natuna Sea
Block A production averaging 15.6 kboepd
(net to Premier) to the end of February
with Singapore demand significantly
above take or pay levels.
Premier’s Indonesian gas pricing is driven
by HSFO prices. In light of the impending
implementation of IMO 2020 legislation,
Premier hedged a significant proportion
of its 2020 Indonesian gas entitlement
production at c.US$9/mmscf, significantly
above current spot prices.
GSA1
GSA2
Gross gas deliveries
under GSA1 and
GSA2 (BBtud)
Anoa, Pelikan,
Bison, Gajah Puteri
Gajah Baru,
Naga, Iguana
Kakap
Total
2019 2018 2019 2018
147 153
–
–
–
–
–
4
147 157
55
–
55
80
–
80
Premier sold an average of 202 BBtud (gross)
(2018: 233 BBtud) from its Natuna Sea Block
A fields to Singapore under its two Gas Sales
Agreements (GSA1 and GSA2) during 2019.
Gross liquids production from the Natuna
Sea Block A averaged 1.4 kbopd in 2019.
Singapore demand for Indonesian gas under
GSA1 averaged 285 BBtud (2018: 292 BBtud),
slightly ahead of take or pay levels.
11.5kboepd
Net production
Premier interests
Producing oil & gas fields
Export pipeline
THAILAN
CAMBODIA
99%
Operating efficiency
US$8/boe
Operating cost
Andaman I
Andaman II
South Andaman
VIETNAM
Ho Chi
Minh City
Vung Tau
NCS Pipeline
Chim Sáo
Gas Export
12W Chim Sáo / Dua
I
N
D
O
T N A M
V I E
A Y
M A
L
S I A
Tuna
discoveries
N
E
S
I
A
MALAYSIA
Natuna Sea
Block A
WNTS to
Singapore
540km
SUMATRA Singapore
200km
Premier’s Natuna Sea Block A fields dedicated
to GSA 1 – Anoa, Pelikan, Bison and Gajah
Puteri – delivered 147 BBtud (gross) (2018:
153 BBtud), capturing 52 per cent (2018: 52 per
cent) of GSA1 deliveries, above Natuna Sea
Block A’s contractual share of 51 per cent.
Premier’s Natuna Sea Block A fields dedicated
to GSA2 – Gajah Baru, Naga and Iguana –
delivered 55 BBtud (2018: 80 BBtud), in line
with take or pay levels.
During 2019, Premier successfully executed
a series of high value investments aimed at
boosting deliverability from Natuna Sea
Block A. Premier achieved first gas from
its operated BIG-P project in December, on
schedule and significantly below budget.
With further production history, Premier
expects BIG-P recoverable reserves to
increase to in excess of the 93 Bcf (gross)
estimated at sanction. This is as a result of
the successful three-well drilling campaign
in 2019 which encountered additional
productive sands. Natuna Sea Block A
deliverability was also boosted by a
successful perforation of an Anoa West
Lobe well in May and the tie-in of a Gajah
Baru infill well in December.
Further intervention activities are planned
for 2020 to maximise gas delivery from the
Natuna Sea Block A fields and preparations
are underway for a 2021 rig campaign which
will include Anoa well workovers and
side-tracks, infill drilling on the Pelikan
field and an appraisal well to test the
northern flank of the producing Anoa field.
Exploration and appraisal
During 2019, Premier continued to progress
its operated Tuna discoveries, which are
estimated to contain 100 mmboe (gross) and
are located in the Natuna Sea close to the
Indonesian and Vietnamese maritime
boundary.
In December, Premier signed a Heads
of Terms with Zarubezhneft, a Russian
company with upstream interests primarily
in Vietnam, to farm in for a 50 per cent
non-operated interest in the Tuna PSC.
A farm down agreement is expected to
be signed by the end of the first quarter
of 2020. Under the farm down agreement,
Zarubezhneft will carry Premier for its share
of a two-well appraisal campaign which is
planned for 2020. It is anticipated that, post
completion and receipt of government
approval, Premier will retain operatorship
and a 50 per cent interest in the Tuna PSC.
In January 2020, Premier was awarded a
one-year extension to the exploration period
of the Tuna PSC to allow for appraisal drilling
to take place and the subsequent submission
of a Plan of Development to the Indonesian
Government by March 2021.
Elsewhere in Indonesia, Premier expanded
its acreage position in the South Andaman
Sea during 2019, farming in for a 20 per cent
interest in South Andaman and Andaman
I PSCs. A 3D seismic acquisition programme
across parts of the Andaman Sea blocks was
completed during the first half of 2019. The
fast track data was received in September
and confirmed the prospective nature of the
acreage with the fully-processed seismic data
across all three blocks to be delivered in the
first quarter of 2020. Premier plans to drill its
first well in the Andaman Sea on its operated
Andaman II licence in the first half of 2021.
Premier’s Andaman Sea position has the
potential to deliver multi-TCF of gas and adds
a potentially material gas play to the Group’s
Indonesia portfolio.
20 Premier Oil plc 2019 Annual Report and Financial Statements
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
Vietnam
Premier’s operated Chim Sáo
field delivered a robust production
performance in 2019. Together with
continued low operating costs, this
resulted in the asset generating
over US$80 million of free cash
flow. A two-well infill programme
is being planned for 2021 to help
offset natural decline from the
existing production wells with
regulatory approvals in progress.
Production from the Premier-operated
Block 12W, which contains the Chim Sáo
and Dua fields, averaged 11.4 kboepd (net,
Premier-operated 53.1 per cent interest)
(2018: 15.2 kboepd) and was ahead of
expectations. The reduction on the prior
year reflects natural decline from the
11.4kboepd
Net production
95%
US$9/boe
Operating efficiency
Operating cost
existing wells partially offset by active
reservoir management and ongoing well
intervention activities.
2019 saw four well intervention campaigns
aimed at maximising the ultimate recovery
from the Chim Sáo field. This included
improved utilisation of gas lift across the
Chim Sáo well stock and the perforation of
new zones within existing wells. Further
well intervention work is planned for 2020
to help slow natural decline and optimise
offtake from the Chim Sáo field. Preparations
are also underway for a two-well infill
programme scheduled for 2021. Premier
is currently seeking regulatory approvals
for the programme ahead of going out for
tender for a rig.
Chim Sáo cargoes were well bid, especially
in the second half of the year, with an
average premium to Brent of more than
US$4.70/bbl realised for cargoes lifted
during 2019. Demand for Chim Sáo crude
continued to strengthen post period-end
with January to April 2020 loading
cargoes sold at an average premium to
Brent of US$7.20/bbl.
Field operating costs were US$9/boe
(2018: US$5/boe), significantly below budget
driven by production outperformance.
Falkland Islands
Premier interests
Oil discovery
Sea Lion
Atlantic
Ocean
The Premier-operated Sea
Lion Phase 1 project has been
substantially derisked from a
technical and cost perspective and,
post period-end, Navitas Petroleum
agreed to farm in for a 30 per cent
interest in the project. The Group’s
focus is now on securing senior
debt support for the project.
The 530 mmbbls (gross) Sea Lion project,
which will be developed over two phases,
represents a material opportunity for
the Group.
Sea Lion Phase 1 will develop 250 mmbbls
(gross) using a conventional FPSO and
subsea well development scheme, similar
to Premier’s operated Catcher development.
FEED has been completed and the
development concept further optimised
with the addition of a drill centre to the
south and the well count increased to
29 wells (20 producers, eight water injectors
and one gas injector). 12 wells will be drilled
pre-first oil supporting ramp up to plateau
production rates of 85 kboepd (gross).
Premier continues to benefit from a
collaborative relationship with its Tier 1
supply chain companies. All of the key
service and supply contracts, including for
the provision of the FPSO, drilling rig, well
services, flexible flowlines and risers,
FALKLAND
ISLANDS
50km
Stanley
subsea production systems and SURF
installation, are being finalised in
preparation for their execution as the
project approaches sanction decision.
The Environmental Impact Statement
was updated in 2019 to reflect further
project optimisation and was issued for
public consultation in the Falkland
Islands, which concluded post period-end.
The Environmental Impact Statement
will be submitted along with the Field
Development Plan (‘FDP’) for government
approval as part of the project
sanction process.
Premier has made a public commitment
that all operated projects will be developed
on the basis that they will be net zero in
respect of Scope 1 and Scope 2 emissions.
A number of engineering features have
been designed into the Sea Lion project
using best-available technology to
minimise emissions at source. It is
anticipated that these will be supplemented
by carbon offsets to ensure net zero
emissions from Sea Lion is achieved.
During 2019, Premier launched a farm
down process to bring in an additional
equity partner into the Sea Lion project to
optimise the Group’s level of participation
in the development. In January 2020,
Premier and Rockhopper agreed a
detailed Heads of Terms with Navitas
Petroleum to farm in for a 30 per cent
interest in Sea Lion. Finalisation of a farm
out agreement is expected during the first
half of 2020 with completion subject to
regulatory and lender approval. Together
with the vendor funding for the project
by the contractors and the senior debt
financing component, this reduces
Premier’s share of pre-first oil capex from
c.US$500 million to below US$300 million
spread over the project investment period.
The critical path item to sanction remains
securing senior debt support for the
project. In 2019, Premier completed a
Preliminary Information Memorandum
supported by a comprehensive set of
independent expert reports on the
project. These formed the basis for the
financing guarantee application process
for the senior debt component of the
project financing. While engagement
with senior debt providers is constructive,
feedback received highlights the need
for Premier to complete its announced
corporate actions and extension of its
credit facilities to provide certainty over
its medium- to long-term funding position
before financial guarantees for the project
can be provided.
Premier Oil plc 2019 Annual Report and Financial Statements 21
BUSINESS UNITS REVIEW CONTINUED
Exploration activities
Beaufort
Sea
Premier interests
Premier options
Prudhoe
Bay
NORTH SLOPE
ALASKA
CANADA
TAPS Pipeline/
Dalton Highway
500km
Area A
Area C
Area B
Arctic
National
Wildlife
Refuge
ALASKA
20km
During 2019, Premier’s exploration
teams continued to invest
selectively in its international
exploration portfolio within
strict budgetary constraints.
The Group’s focus remains on
underexplored but proven
provinces which have the potential
to develop into new business units
over the medium term.
ALASKA
2019 saw a new country entry for Premier,
with the Group farming in for a 60 per
cent interest in the conventional Area A
Icewine project in the Alaska North Slope.
Area A contains the Malguk-1 discovery
drilled by BP in 1991. This well discovered
but never tested 251 feet of light oil pay in
turbidite sands in the Torok formation,
within the emerging Brookian play where
a number of developments are currently
underway. Premier estimates an
accumulation of more than 1 billion
barrels (gross) of oil-in-place. The Charlie-1
(Malguk-1 appraisal) well spudded post
period-end on 2 March and is currently
drilling ahead. Premier plans to flow test
the well with the results expected in
April. On successful completion of the
work programme, Premier will have the
option to assume operatorship and to
opt-in to Icewine Area B or C.
>4bn
Barrels discovered in Brookian
play (Alaska) since 2013
60%
Premier interest in
Area A, Alaska
22 Premier Oil plc 2019 Annual Report and Financial Statements
SURINA
GUYAN
FRENCH
GUIANA
CEARÁ
BASIN
BRAZIL
BOLIVIA
PARAGUAY
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
South
Atlantic
Ocean
2
,
0
0
0
m
1
,
0
0
0
m
1
0
0
m
CE-M-661
Premier interests
Oil discovery
3
,
0
0
0
m
3
,
0
0
0
m
1,0
2
,
0
0
0
m
0
0
m
Pecem Discovery
CE-M-717
BRAZIL
40km
BRAZIL
In Brazil, much of 2019 was spent preparing
for Premier’s first in-country exploration
well on its operated Block 717 (Premier 50
per cent interest) in the offshore Ceará
basin. Premier has contracted the Valaris
DS-9 drillship to drill a well targeting the
stacked Berimbau/Maraca prospect.
Berimbau is the higher risk, high value
prospect with a Pmean to P10 gross
unrisked resource estimate of 230-450
mmbbls. Maraca is a lower risk prospect
and is estimated to contain 85-165 mmbbls
(Pmean-P10) of gross unrisked resource.
The well is expected to spud in the third
quarter of 2020.
Elsewhere in the Ceará basin, on Block 661
(Premier 30 per cent non-operated interest),
the joint venture successfully obtained an
initial term licence extension through to
November 2021.
Having fully evaluated the prospectivity
on Block 665 (Premier 50 per cent operated
interest), Premier and its joint venture
partner unanimously decided to relinquish
the licence in April 2019.
100-600mmbbls
P90-P10 gross resource targeted at
Berimbau/Maraca
BURGOS
BASIN
Block 11
Block 13
MEXICO
Mexico City
100km
Premier interests
Oil discovery
U.S.A.
BURGOS
BASIN
SURESTE
BASIN
MEXICO
750km
Gulf of
Mexico
SURESTE
BASIN
Block 7
Block 30
Zama
MEXICO
The Talos-operated Block 7 Zama appraisal
campaign successfully completed in July,
on schedule and below budget, and
comprised two appraisal wells and a
vertical side-track, which was flow tested.
A comprehensive set of data was acquired
and demonstrated reservoir properties at
the upper end of expectation. This resulted
in Premier increasing its gross resource
estimate of the Zama structure to
670-810-970 mmboe (P90-P50-P10).
In June, the Block 7 joint venture
partnership agreed the main elements of
a full field development plan to maximise
overall recovery from the Zama field. The
Zama field will be developed using two
offshore processing, drilling and
accommodation platforms, together with
a floating, storage and offloading vessel
and oil export by tankers. FEED is now
underway with submission of the FDP for
government approval expected in the third
quarter of 2020. FDP approval is subject to
conclusion of the unitisation of the field
between Block 7 and the neighbouring
block (Pemex 100 per cent interest).
Unitisation discussions are progressing as
per the Mexican regulatory process, which
is in line with international best practice.
If the Block 7 partners and Pemex cannot
reach agreement, then an independent
expert will be appointed in the second
quarter of 2020 to determine the initial tract
participation of the Zama field as per the
process detailed in the Government-
approved Pre-unitisation Agreement.
Following the successful appraisal of the
Zama field, Premier initiated a sales process
for its interest in Block 7. Discussions with
interested parties are ongoing and are
expected to conclude once the unitisation
process is further advanced.
Premier retains exposure to exploration
upside in Mexico through its other
offshore licence interests, each of which
has the potential to deliver material
future value for Premier. A 3D seismic
survey acquisition across Block 30
(Premier 30 per cent interest) was
completed in July. The data is now being
processed to delineate the full extent of
the Wahoo and Cabrilla prospects, as well
as to mature other prospectivity on the
Block. Drilling is targeted for 2021.
Premier’s exploration plan for its 100 per
cent operated Burgos Blocks 11 and 13 was
approved by CNH in July, triggering the
start of the four-year initial term for these
licences. Reprocessing of the existing
3D seismic across Premier’s Burgos
blocks is ongoing and regional play
fairway analysis has identified a deeper
play in the Cretaceous and Jurassic
carbonates that provides additional
upside to that previously identified in
the Oligocene-Miocene clastic play.
810-970mmboe
P50-P10 Zama resource (gross)
Premier Oil plc 2019 Annual Report and Financial Statements 23
SUSTAINABILITY REVIEW
A commitment to responsible
and sustainable business
Premier is committed to behaving responsibly
and conducting our business with honesty and
integrity in everything we do.
Beyond this, we recognise that sustainability
is also about maintaining the profitable growth
of our business to deliver ongoing benefits to
our stakeholders – including our employees,
shareholders, customers, business partners,
local communities and host countries.
2
Process safety LOPC
Tier 1 & Tier 2 events
US$1,049m
Total economic distribution
149
Greenhouse gas emission intensity
Tonnes CO2e per thousand tonnes
of production
1.04
1.92
Total recordable injury rate (‘TRIR’)
Per million man hours
Energy intensity
GJ per tonne of production
Employment of nationals
94%
Of employees
89%
Of senior management
24 Premier Oil plc 2019 Annual Report and Financial Statements
STRATEGIC REPORT
Our approach to the following
key areas of sustainability is
explained throughout this chapter:
A. Principles, frameworks and standards:
page 26
B. Materiality:
page 28
C. Material issues:
page 29
GO ONLINE
To see our online
Sustainability
Report 2019.
Third-party assurance
As part of the third-party assurance process undertaken
for our online Sustainability Report 2019, 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
page 28 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.
GO ONLINE
The ERM CVS assurance statement can be viewed
on our website.
Premier Oil plc 2019 Annual Report and Financial Statements 25
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
SUSTAINABILITY REVIEW CONTINUED
A.
Principles, frameworks and standards
Our strong track record
of responsible behaviour
and effective sustainability
performance is underpinned
by our values, Group policies
and management systems –
as well as relevant external
principles and standards.
OUR APPROACH
Our approach is guided by our overarching
Sustainability Policy, which, amongst other
commitments, requires Premier to act with
respect for people, communities and the
environment. We are also guided by a range
of supporting policies, as summarised in our
Non-Financial Information Statement below.
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
sustainability objectives.
HOW SUSTAINABILITY IS GOVERNED
Our Sustainability 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 2019, 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:
• HSES, overseen by the Chief Executive
Officer (‘CEO’).
NON-FINANCIAL INFORMATION STATEMENT
• Climate change strategy, overseen by the
CEO and guided by the newly established
Climate Change Committee.
• Risk management, overseen by the Group
Audit and Risk Manager.
• Human resources, overseen by the Group
Human Resources Director.
• Legal and regulatory compliance, ethical
behaviour and human rights, overseen by
the Group General Counsel.
• Financial reporting and tax, overseen by
the Finance Director.
We aim to comply with sections 414CA and 414CB of the Companies Act. The table and cross-references below aim to help stakeholders
better understand our approach to key non-financial matters. This builds on our existing non-financial reporting under a range of
external frameworks – including the Global Reporting Initiative (‘GRI’), CDP and the UN Sustainable Development Goals (‘SDGs’) – as
well as our longstanding participation in both the FTSE4Good Index and the UN Global Compact (‘UNGC’).
REPORTING
REQUIREMENT
INTERNAL POLICIES
AND STANDARDS
EXTERNAL FRAMEWORKS
AND STANDARDS
Environmental matters
– Health, Safety, Environment
and Security (‘HSES’) Policy.
– Climate Change Policy.
Employees
Human rights
– People Policy.
– Sustainability Policy.
– Business Ethics Policy.
– Human Rights Statement.
– Global Code of Conduct.
– Human Rights Statement.
INFORMATION ON
OUR BUSINESS IMPACTS
AND OUTCOMES
– Environment: p34-39.
– ISO 14001 (environmental) and OHSAS 18001
(occupational health and safety) management
system standards.1
– International Association of Oil & Gas
Producers (member).
– Global Reporting Initiative (‘GRI’) Standards.
– N/A.
– Employees: p40-42.
– Voluntary Principles on Security
– Society: p43-45.
and Human Rights.
– United Nations Guiding Principles
on Business and Human Rights.
Social matters
Anti-corruption and
anti-bribery
– Community Investment Statement.
– Tax Policy.
– The Code.
– Business Ethics Policy.
– Group-wide Dealing Policy.
– Whistleblowing Procedure.
Our business model
– N/A.
– N/A.
– N/A.
– N/A.
Our principal risks
and uncertainties
Non-financial key
performance indicators
– N/A.
– Risk Management Policy.
– ISO 31000 risk management
system standard.2
– N/A.
– Community relations: p43.
– Society: p43-45.
– Governance and
business ethics: p30.
– Our strategy and
business model: p12-13.
– Risk management: p50-53.
– Principal risks: p54-57.
– Throughout.
1 Both standards are applied to all Premier-operated production assets and our drilling operations. Premier is in the process of transitioning our OHSAS 18001
certification to the ISO 45001 by 2021, under our three-year Group HSES Strategy.
2 Premier’s Risk Management Policy and Risk Management Standard apply the principles set out in the ISO 31000 risk management system standard.
26 Premier Oil plc 2019 Annual Report and Financial Statements
Living our values
Our values underpin our behaviours and activities,
complement and support our strategy, and are
also reflected in our policies and procedures.
At the centre of these values is creativity which
sits at the heart of everything we do.
With the foundations of the Company built on
professionalism and respect, our spirit comes
from our tenacity and dynamism.
SPIRIT
Tenacity
Professionalism
CREATIVITY
Dynamism
Respect
FOUNDATION
Strategic response to our
organisational review
Relevant strategic pillars:
2
4
During the year, we took steps to address
the outcomes of an independent
organisational review that was
undertaken in the second half of 2018.
The review was commissioned by
Premier’s Board of Directors in 2018 to
assess and strengthen our governance
and organisational structures, core
business processes and corporate culture.
Key actions to address the outcomes of the
review included (among other measures):
• The initial rollout of our updated
Strategy, in combination with the
development of new strategic priorities
for each of our business units.
• A project to improve the effectiveness
of our Business Management System
(‘BMS’), with a focus on simplifying the
content and reducing the volume of the
documentation controlled on the system.
GO ONLINE
To find out more, see ‘Section 2:
Our approach’ in our online
Sustainability Report 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 27
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
SUSTAINABILITY REVIEW CONTINUED
B.
Materiality
systems, access controls and safeguards;
culture and awareness; and our response
and recovery measures.
In addition, the previous issues of ‘Resource
use’ and ‘Climate change and GHGs’ were
redefined as ‘Water use’ and ‘Energy
transition and climate change’, respectively.
The redefined issue of ‘Energy transition
and climate change’ includes Premier’s own
energy use (previously bundled under
‘Resource use’) which is closely linked to
the ongoing management of our climate
change impacts.
In addition, this new issue more accurately
reflects the strategic, long-term nature of
the climate change challenge facing the
industry and society more broadly.
Our annual materiality
assessment helps us to identify
and prioritise our most significant
sustainability issues.
MATERIALITY ASSESSMENT
In line with the Global Reporting
Initiative (‘GRI’) Standards, our
sustainability reporting is structured
around our most material sustainability
issues. This assessment process draws on
our existing risk assessment process and
stakeholder engagement activity – as
well as specific research, analysis and
stakeholder interviews.
To find out more about our structured
materiality assessment process, see ‘Section
3: Defining our material issues’ in our online
Sustainability Report 2019.
MATERIAL ISSUES
The outcomes of this assessment are
displayed on the sustainability materiality
matrix below. Presentation of an issue as
‘non-material’ on this matrix does not mean
it is not important or that it is not being
SUSTAINABILITY MATERIALITY MATRIX
managed, but only that its impact is not of
sufficient significance for it to be addressed
in detail in this report or in our online
Sustainability Report 2019.
PRINCIPAL CHANGES
The principal changes in material and
non-material issues resulting from our 2019
assessment include the following:
• Increased impact of ‘Energy transition
and climate change’ reflecting growing
investor and other stakeholder focus on
the issue as well as Premier’s enhanced
energy and carbon management efforts
in 2019 (see ‘Section 4: Environment
and climate change’ in our online
Sustainability Report 2019).
• Increased impact of ‘Cyber security’,
which remains a non-material issue –
reflecting ongoing instances of
cyber-attack against multinational
companies, including within the oil and
gas industry. In 2019, we continued to
strengthen our cyber security stance –
including the ongoing enhancement of
our policies, standards and procedures;
h
g
H
i
s
r
e
d
l
o
h
e
k
a
t
s
n
o
t
c
a
p
m
I
w
o
L
02
03
05
04
06
11
10
13
08
09
12
07
14
17
16
18
15
22
19
20
21
23
24
Material issues
01 Process safety and asset integrity
02 Emergency preparedness
01
03 Energy transition and climate change
04 Occupational health and safety
05 Value generation and distribution
06 Effluents and waste
07 Public policy and government relations
08 Responsible supply chain management
09 Decommissioning
10 Workforce
11 Employee engagement
12 Governance and ethics
13 Environmental management
14 Human rights
Non-material issues
15 Cyber security
16 Learning and development
17 Biodiversity
18 General grievance mechanisms
19 Community impacts
20 Customer impacts
21 Water use
22 Product responsibility
23 Child/forced labour
24 Market behaviour
Arrows indicate key shifts in our
material issues in 2019.
Low
Impact on Premier Oil
High
28 Premier Oil plc 2019 Annual Report and Financial Statements
C.
Material issues
The following section provides an overview of our most significant (or ‘material’)
sustainability issues. It sets out why these issues are material to Premier, how they
are managed and the outcomes of our management efforts.
OUR APPROACH TO THE UN SUSTAINABLE DEVELOPMENT GOALS
The UN Sustainable Development Goals (‘SDGs’) offer businesses and governments a comprehensive,
internationally-agreed framework to pursue and support meaningful development. In 2019, we reviewed
our approach to the SDGs to identify – and focus our efforts on – those Goals where we can make the most
meaningful contribution. This includes both maximising our positive impacts on the achievement of the
SDGs, as well as minimising any of our negative impacts. The figure below sets out the three SDGs identified
by this review, as well as our related material issues and key performance indicators (‘KPIs’).
Target 7.3
By 2030, double the global
rate of improvement in
energy efficiency
Target 8.8
Protect labour rights and promote safe
and secure working environments for
all workers, including migrant workers,
in particular women migrants, and
those in precarious employment
Target 13.1
Strengthen resilience and adaptive
capacity to climate-related hazards
and natural disasters in all countries
Related material issues
Related material issues
Related material issues
– Energy transition and climate change.
– Occupational health and safety.
– Energy transition and climate change.
– Environmental management.
– Process safety and asset integrity.
KPI & performance
Energy efficiency
1.92
GJ per thousand tonnes
of production
– Emergency preparedness and response.
– Human rights.
– Diversity and inclusion.
KPIs & performance
Non-compliance with
Global Code of Conduct
0
Cases recorded
Lost time injury frequency
1.04
Injuries per million man hours
KPI & performance
GHG intensity
149
tonnes CO2e per thousand
tonnes of production
Focus areas
Focus areas
Focus areas
– Improving energy efficiency
at our North Sea assets.
– Our new diversity and inclusion road map.
– Global CEO HSES awards.
– Global HSE day.
– Our new Climate Change Policy
and Strategy.
– Integrating climate change into our
governance and investment practices.
READ MORE
Environment P34-39
READ MORE
Health, safety and security P31-33
Employees P40-42
READ MORE
Environment P34-39
Premier Oil plc 2019 Annual Report and Financial Statements 29
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Governance and business ethics
• Charitable and political donations.
Why this issue is material
Premier is committed to conducting its
activities to the highest ethical standards,
and in compliance with all applicable laws
and regulations. This is vital to maintaining
the trust of our stakeholders – including
host governments and societies, current
and potential investors, and our business
partners. It also helps protect our
reputation and supports our current and
future success. We therefore uphold and,
where feasible, strengthen 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’.
POLICIES
Our Business Ethics Standard supports our
overall Sustainability 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, 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.
• Whistleblowing.
• Prevention of the facilitation of tax evasion.
• The proper recording of transactions and
the application of relevant accounting
and reporting standards.
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 (including all of our
Executive and Non-Executive Directors) 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
which fall within the stated threshold are
subject to our Supply Chain Contractor Due
Diligence Process. This involves an online
business ethics questionnaire, which
identifies potential issues of concern,
triggering (where relevant) a bespoke full
due diligence process. The process enables
us to effectively manage identified risks,
which may include appropriate mitigations,
before contracts are executed.
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.
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).
For more information on how we
implement the Code, see ‘Section 9:
Business ethics’ in our online Sustainability
Report 2019.
OUTCOMES
Key indicators – Governance and business ethics
MATERIAL
ISSUE
PREMIER
OIL METRIC
Governance
and ethics
Significant legal sanctions in relation
to business ethics.
Disciplinary actions or dismissals for
breaches of the Code.
New members of our workforce3
receiving induction training
on the Code.
Existing members of our workforce3:
– Assigned refresher training on
the Code.
– Completed training4.
3 ‘Workforce’ includes both employees and contractor personnel.
4 As of March 2020.
2019
2018
2017
0
0
0
2
0
0
100% 100% 100%
100%
93%
100%
99%
100%
95%
30 Premier Oil plc 2019 Annual Report and Financial Statements
OUR PERFORMANCE
IN 2019
During 2019, no significant legal sanctions
were imposed on Premier.
There were no confirmed cases of non-compliance
with the Code in 2019.
All new members of our workforce received
induction training, which addresses all aspects
of the Code, including anti-bribery.
As of March 2020, 93% of our workforce had completed
the training assigned to them in 2019. We will closely
monitor completion of this training throughout 2020.
integrity key performance indicators (‘KPIs’)
to drive continuous improvement. In 2019,
we revised our Process Safety and Asset
Integrity Performance Reporting Standard
to enhance the effectiveness of the process
safety KPIs that help support major
accident hazard management. We also
introduced an additional leading KPI to
the suite of KPIs that are linked to Board
remuneration to improve Board visibility
over process safety.
Health, safety and security
Why this issue is material
There are a range of potential hazards
involved in offshore oil and gas operations.
Therefore, it is vital 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.
• Corporate reputation.
Our most significant health, safety and
security issues are:
• Process safety and asset integrity.
• Occupational health and safety.
• Emergency preparedness.
• Workforce and asset security.
Premier has identified ‘health, safety,
environment and security’ as a principal
risk.
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.
• Ensure the safety and security of
everyone affected by our operations.
For more information on our HSES Policy,
see ‘Section 5: Health, safety and security’
in our online Sustainability Report 2019.
HOW WE IMPLEMENT OUR POLICY
Process safety and asset integrity
Our HSES Management System defines
our objectives and minimum requirements
for process safety and asset integrity across
all operations. In addition, it sets out the
responsibilities, verification and validation
required to provide assurance that these
have been met.
We apply a system of Process Safety and
Asset Integrity Performance Reporting at
all of our operated assets. In addition, each
of our business units track a suite of leading
and lagging process safety and asset
Global CEO HSES awards
Relevant strategic pillars:
1
In 2019, we continued to run our annual
Global CEO HSES awards programme.
This recognises outstanding safe
behaviours, environmental leadership
and innovation across the organisation.
The Offshore Installation Manager at
our Balmoral asset received the ‘Best
Individual’ award for demonstrating
leadership in putting employee safety
and asset integrity above operational
and financial considerations. The ‘Best
Team’ award went to the operations
team at our Gajah Baru asset in
Indonesia. This was in recognition of the
asset recording over two million hours
without any loss of primary containment
events, lost time injuries or high
potential incidents.
GO ONLINE
To find out more, see ‘Section 5:
Health, safety and security’ in our
online Sustainability Report 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 31
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SUSTAINABILITY REVIEW CONTINUED
Global HSE Day
Relevant strategic pillars:
1
In June 2019, we ran our second Global
HSE Day, following the success of our
first Group-wide event in 2017. During
the day, Premier’s CEO launched our new
‘Life Saving Rules’ via video link across all
our business units. The nine Life Saving
Rules are designed to help address the
most critical hazards across our
operations. They replace our previous
17 Golden Rules of Safety and were
selected following a consultation with
our global workforce.
GO ONLINE
To find out more, see ‘Section 5:
Health, safety and security’ in our
online Sustainability Report 2019.
Response Lead to oversee the emergency
response capabilities and competencies
across our business units. We also revised
our Crisis and Emergency Response
Standard, introducing a range of new
expectations on emergency drills and
exercises.
Workforce and asset security5
We undertake security assessments for our
employees and assets. These assess the
latent risks posed by their location, as well
as analysing recent incidents. We apply a
formal travel risk management process
when any employee travels abroad. As such,
visitors to higher risk locations (e.g. Brazil
and Mexico) are supported by in-depth
travel risk assessments and guidance, as
well as enhanced physical security and
evacuation precautions where appropriate.
For more information on our approach to
health, safety and security, see ‘Section 5:
Health, safety and security’ in our online
Sustainability Report 2019.
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.
Emergency preparedness
Our HSES Management System also helps
minimise 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 of 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.
Finally, we retain the services of industry
leading oil spill recovery companies to support
our response plans and on-site response
capabilities in the event of a major incident.
In 2019, we established a new dedicated
position for a Group Crisis and Emergency
5 No significant security incidents directly affected
our personnel in 2019.
Occupational health and safety
Our HSES Policy is implemented through
our HSES Management System. The system
is comprised of a comprehensive set of
standards and procedures, which form
part of Premier’s Business Management
System (‘BMS’).
We apply the HSES 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 plan to transition
our OHSAS 18001 certification to the ISO
45001 by 2021, as part of the implementation
of our three-year Group HSES Strategy.
To drive continual improvement, we
regularly review and update our HSES
Management System 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, we implement a workforce health
surveillance programme to identify
potential early indications of work-related
32 Premier Oil plc 2019 Annual Report and Financial Statements
OUTCOMES
Key indicators – Health and safety
MATERIAL
ISSUE
Occupational
health and
safety
Process
safety
and asset
integrity
HSES
management
PREMIER
OIL METRIC
Fatalities*
Lost work day cases (‘LWDC’)*
Restricted work day cases (‘RWDC’)*
Medical treatment cases (‘MTC’)*
2019
2018
2017
0
2
3
3
0
9
1
7
0
3
0
6
Total recordable injury rate (‘TRIR’)6*
1.04
2.65
1.47
High Potential Incidents (‘HiPo’)
8
9
4
High Potential Incident Rate (‘HiPoR’)7*
1.04
1.40
0.65
Man hours worked (million)
7.7
6.4
6.1
Process safety events (IOGP Tier 1)*
Process safety events (IOGP Tier 2)*
1
1
0
2
HSES Audit Actions Close Out Rate
89%
92%
0
1
−
HSES Leadership Site Visits
51
35
18
OUR PERFORMANCE
IN 2019
We reduced our Total Recordable Injury Rate (‘TRIR’) to
1.04 (from 2.65 in 2018) as well as reducing our High
Potential Incident Rate (‘HiPoR’) to 1.04 (from 1.40 in 2018).
No recordable injuries were recorded at Premier
operated sites during the year.
This decrease reflects strong safety performance
improvements across our operated sites in South East Asia
and at the Solan asset in the UK and a significantly improved
performance at the Balmoral asset, following extensive work
by onshore and offshore teams in the UK Business Unit
to enhance our safety culture. These efforts were
supported by our second Global HSE Day, which took
place in June 2019 (see ‘Focus area: Global HSE Day’).
During 2019, we reported one Tier 1 LOPC process
safety event and one Tier 2 LOPC process safety event.
Both events occurred on the Catcher Floating Production
Storage and Offloading (‘FPSO’).
We initiated the reporting on HSES Audit Actions Close Out
Rate in 2018. Our 2019 target was 90%.
We conduct routine leadership site visits across our business
units. We exceeded our 2019 target of 35 visits.
* Data for 2019 assured by ERM CVS
6 Per million man hours.
7 Per million man hours.
Global workforce
engagement in
HSES survey
Relevant strategic pillars:
1
4
In 2019, we launched our first global
workforce engagement in HSES survey
to identify and address gaps in HSES
engagement and culture across the
organisation. The survey methodology
adopts a ‘Step Change in Safety’
maturity model.
This will enable Premier to identify the
steps needed to achieve a level of HSES
engagement maturity whereby our
employees are not just routinely
engaged on HSES, but actively lead
engagement efforts.
GO ONLINE
To find out more, see ‘Section 5:
Health, safety and security’ in our
online Sustainability Report 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 33
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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 the health of 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:
• Energy transition and climate change.
This includes the management of
greenhouse gas (‘GHG’) emissions
associated with energy consumption and
flaring at our facilities as well as our
broader management of physical and
transitional climate change risks.
• 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.
POLICY
As set out in our HSES Policy, we are
committed to minimising our environmental
impacts to a level that is ‘as low as
reasonably practicable’ (‘ALARP’). We will
never compromise our environmental
standards to meet our operational objectives.
In 2019, we launched our revised Climate
Change Policy, which builds on our
previous Carbon Policy and continues to
support the ambitions of the Paris
Agreement. The Policy commits us to
taking a proactive approach to climate
change. This includes setting climate
change objectives as well as demonstrating
how we meet these objectives over time.
See pages 34 to 38 as well as our Climate
Change Policy for more information.
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
activities. The assessments address our:
• Physical impacts.
• Ecosystem impacts.
• 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.
In line with our HSES Management System
requirements, we also undertake ongoing
Our new Climate Change
Policy and Strategy
Relevant strategic pillars:
1
2
3
In our new Climate Change Policy, Premier commits
to ensuring all of our operated projects will be
developed on a carbon neutral basis in respect
of Scope 1 and Scope 2 GHG emissions. We can
therefore commit, based on expected future
profiles, that Premier will be more than 65 per cent
carbon neutral by 2025 and 100 per cent by 2030.
This commitment will be delivered through the
implementation of our new Climate Change Strategy,
which provides a roadmap for minimising our GHG
emissions through two workstreams: ‘Low Carbon
by Design’ and ‘Carbon Neutral by Commitment’.
Our new Climate Change Strategy also incorporates
the recommendations of the Task Force on
Climate-related Financial Disclosures (‘TCFD’).
The implementation of both the policy and strategy
will be overseen by our dedicated Climate Change
Committee, which was established in 2019.
GO ONLINE
To find out more, see ‘Section 4:
Environment and climate change’ in
our online Sustainability Report 2019.
34 Premier Oil plc 2019 Annual Report and Financial Statements
Integrating climate change
into our governance and
investment practices
Relevant strategic pillars:
1
3
We integrated climate change into our Executive
Directors’ Annual Bonus Framework (effective from
2020). We also updated our corporate investment
guidelines to help integrate climate change analysis
into our investment decision-making processes.
More specifically, this included:
• Climate scenario analysis: Stress testing our
portfolio under a 2 degree global temperature
rise scenario to support our ongoing efforts to
align with the TCFD recommendations.
• Carbon emissions pricing: Integrating a single
flat base case for carbon pricing to capture
carbon costs in the economics of all future
investment decisions, irrespective of whether
carbon tax legislation applies to the jurisdiction.
These measures form part of our broader
efforts to deliver our new Climate Change
Policy and Strategy.
GO ONLINE
To find out more, see ‘Section 4:
Environment and climate change’ in
our online Sustainability Report 2019.
monitoring to assess the environmental
impact of our activities throughout the
lifecycle of our projects.
For more information on how we manage
our environmental impacts see 'Section 4:
Environment and climate change' in our
online Sustainability Report 2019.
Energy transition and climate change
Premier Oil is committed to carrying out
all that we do efficiently and responsibly,
and we understand the need to limit GHGs.
As global energy demand grows, the world
must support the twin objectives of
limiting climate change and the associated
effects of global warming, while providing
affordable energy to a growing global
population. In this context, Premier will
continue to play a role in helping to meet
global energy demand through the efficient
and responsible extraction of oil and gas.
At the same time, we are implementing a
range of measures to manage the GHG
emissions as well as the physical and
transitional climate change risks
associated with our activities.
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 GHG intensity.
• The application of carbon pricing
throughout the lifecycles of all new
and existing projects.
To this end, we:
• 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.
• 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’).
• Integrate carbon pricing and scenario
analysis into decision-making across our
asset portfolio.
• Collaborate with industry and other
associations on climate change
adaptation and mitigation strategies,
including the development of a
framework to support the oil and gas
industry in working towards a target
of net zero GHG emissions.
Where possible, we also seek to reduce our
indirect emissions, for example, through
the reduction of unnecessary air travel by
using video conferencing.
Premier Oil plc 2019 Annual Report and Financial Statements 35
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Our approach to the energy
transition and climate change
Governance
We established a comprehensive
climate-related risk governance
framework that extends from the
Board of Directors, through executive
and senior management to the working
levels in each of our business units.
Activities and achievements in 2019
– Revised and reissued our Climate Change Policy.
– Established a Climate Change Committee that reports
to the Executive Committee on emerging climate
change policies, risks, technologies, emerging best
practices and stakeholder expectations.
Metrics and targets
We use key metrics and targets to
measure and monitor our performance
and progress in managing climate-related
risks and opportunities in line with our
strategy and risk management process.
Activities and achievements in 2019
– Achieved a continual improvement in our GHG
intensity target: 9% reduction from 2018.
– Achieved an improved CDP score: from D (2018)
to B (2019).
Plans for 2020
– Link climate change to executive pay (effective
from 2020).
– Strengthen climate change oversight and dialogue
across the Board, Premier’s business leaders and
staff with a Board HSES Committee and new ESG
advisory workstreams.
– Monitor existing and emerging carbon markets and
drive new-technology initiatives and projects that can
reduce carbon emissions.
Plans for 2020
– Establish individual GHG emission reduction plans
and targets for all assets across Premier’s portfolio,
including carbon minimisation and nature-based
offsetting initiatives, to support the target of net
zero Scope 1 and 2 emissions by 2030, based on
expected future profiles.
– Assess costing options associated with GHG
reduction pathways and initiatives that support
Premier’s target of net zero by 2030.
Our new Climate Change Policy
sets out our commitment to ensure
all of our operated projects will be
delivered on a carbon neutral basis
in respect of Scope 1 and Scope 2
GHG emissions.
To achieve this, we will:
– Identify and pursue opportunities to
minimise our carbon footprint and GHG
emissions within our operations.
– Invest, to the extent that we cannot
reduce all of our Scope 1 and 2 GHG
emissions, in nature-based carbon-offset
projects, principally forestry, within our
operating geographies.
– Establish time-bound targets that support
the ambitions of the Paris Agreement.
36 Premier Oil plc 2019 Annual Report and Financial Statements
GOVERNANCE
FINANCIAL STATEMENTS
ADDITIONAL INFORMATION
As the world transitions to a low carbon future, fossil fuels will continue to hold a significant
share of the global energy mix – accounting for nearly half of primary energy demand in 20508.
As an independent exploration and production company, we will continue taking steps to
manage our greenhouse gas emissions and to operate our assets more efficiently – while
turning hydrocarbon resources into energy to drive economic transformation. In support of
this, we have aligned our efforts with the four pillars of the TCFD9, as set out below.
Strategy
Our objectives are to manage
climate-related risk, optimise
opportunities and equip the Company
to respond to changes in key regulatory
and technological uncertainties.
Activities and achievements in 2019
– Revised and reissued our Climate Change Strategy,
to align with the TCFD recommendations.
– Incorporated carbon pricing into our corporate
investment guidelines.
Plans for 2020
– Collaborate with industry partners (e.g. OGUK,
BRINDEX, Indonesian Petroleum Association) to define
climate change strategies for the oil and gas industry.
– Establish a framework for investing in nature-based
offsetting in our geographies, and create mechanisms
for the governance, audit and reporting of
offsetting programmes.
– Maintain dialogue with the TCFD and other relevant
regulatory and advisory institutions, such as the
Committee for Climate Change, DBEIS, the OGA,
and OGUK.
Risk management
We utilise an integrated management
system approach to identify, assess,
characterise and manage climate-related
risks. This system links directly to the
enterprise risk management (‘ERM’) process.
Activities and achievements in 2019
– Revised our ERM Risk Register to further integrate
physical and transitional climate change risks into
the ERM process.
Plans for 2020
– Continue to monitor emerging climate change risks
and develop related risk management practices.
– Strengthen existing climate change risk assessment
and management processes for new and existing
facilities, to include a review by type of risk
(e.g. sea level, storms, temperature, permafrost)
and take into account the lifespan of the projects
and their capacity to adapt.
– Communicate with internal and external
– Identify, manage and mitigate the
stakeholders in a transparent manner all of
our climate change-related performance
and our associated governance, risk
management and target-setting.
– Integrate carbon pricing and scenario
analysis into decision-making across our
asset portfolio, to test the robustness of
our strategy.
physical and transitional climate change
risks associated with our activities.
– Collaborate with industry and other
associations on climate change adaptation
and mitigation.
8 IEA World Energy Outlook 2019.
9 Recommendations of the Task Force on Climate-related Financial Disclosures (Final Report, 2017).
Premier Oil plc 2019 Annual Report and Financial Statements 37
STRATEGIC REPORT SUSTAINABILITY REVIEW CONTINUED
Assessing our environmental
and social impacts at the
Sea Lion project
Relevant strategic pillars:
1
Sea Lion has the potential to be a transformational
project for Premier Oil, our partners and the
Falkland Islands more broadly.
In 2019, we undertook a series of revisions to our
initial Environmental Impact Assessment (‘EIA’),
which collectively help improve the project’s
environmental profile. These include the
implementation of direct offloading for crude
from the FPSO vessel and the integration of a flare
recovery mechanism. In addition, we completed a
Social Impact Assessment (‘SIA’) and developed
strategies to ensure the non-competing use of
natural resources (such as water and electricity) as
well as to support the availability of housing and
access to local healthcare and education for our
employees.
GO ONLINE
To find out more, see ‘Section 4:
Environment and climate change’ in
our online Sustainability Report 2019.
We define and 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. In 2019,
we undertook a revision of our climate
change risk classification and management
processes to support their alignment with
the TCFD recommendations and other
international best practice frameworks.
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 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 will adapt our future
carbon emissions strategy accordingly.
For more information about how related
physical risks are managed, please see
pages 31 to 33 (‘Health, safety and security’),
and, for related regulatory risks, please see
page 56 (‘Host government: political and
fiscal risks’ and ‘Commodity price
volatility’).10
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.
38 Premier Oil plc 2019 Annual Report and Financial Statements
Our offshore production operations, which
discharge water to the sea, are not located
in any protected areas.
In addition, we collect hazardous and
non-hazardous waste materials from our
global drilling and production operations.
We dispose of these materials 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.
10 During 2019, 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.
OUTCOMES
Key indicators – Environment11
MATERIAL
ISSUE
Climate
change
and GHGs
PREMIER
OIL METRIC
Total Scope 1 GHG emissions
(thousand te CO2e)12*
Total Scope 2 GHG emissions
(te CO2e)13*
GHG intensity (tonnes CO2e per
thousand tonnes of production)*
Energy consumption
(GJ/te of production)
2019
2018
2017
976
1,193
946
983
773
877
149
164
183
1.92
2.03
2.3
Effluents
and waste
Unplanned hydrocarbon released
to the sea (te)*
0.02
0.4
1.9
Hydrocarbon in produced
water (ppm-wt)*
15.1
12.2
10.6
Waste materials produced (te)*
7,314
5,982
5,810
Spending on environmental
protection measures (US$m)
5.8
7.1
7.1
OUR PERFORMANCE
IN 2019
The decrease in 2019 Scope 1 GHG emissions from
our operated and drilling operations is predominantly
due to improved plant stability and reduction in flaring
at the Huntington asset; reduction in flaring at the
Chim Sáo asset; lower diesel usage at our Catcher
asset and fuel gas demand across our Indonesia
assets; and the sale of our Babbage asset in late 2018.
The increase in 2019 Scope 2 emissions is largely
accounted for by extending the scope of reporting
to include all our supply bases in South East Asia.
In 2019 we recorded seven hydrocarbon spills releasing a
combined total of 0.02 tonnes that reached the environment.
None of these hydrocarbon spills are considered significant.
The increase in 2019 was caused by an increase in oil in
produced water at our Indonesia asset due to well
workover campaigns and periodic flushing of produced
water treatment equipment across all our assets.
This included 6,549 tonnes of hazardous waste and
765 tonnes of non-hazardous waste.
This included US$1.4m on waste disposal, emissions
treatment and remediation and US$4.4m on
prevention and environmental management.
* Data for 2019 assured by ERM CVS.
11 Our environmental performance reporting is aligned with IPIECA reporting guidance and the GRI Sustainability Reporting Standards.
12 Calculations of Scope 1 emissions 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.
13 Scope 2 calculations are based on emission factors supplied by the UK Department for Business, Energy and Industrial Strategy (‘BEIS’) (2019 values). These are
lower than the emission factors used for Scope 2 calculations in 2018, which were based on BEIS (2015 values). For operations outside the UK, country-specific data
published by the International Energy Agency (‘IEA’) were used.
Improving energy efficiency
at our North Sea assets
Relevant strategic pillars:
1
Premier has identified and implemented
a series of energy efficiency and energy
saving initiatives across our North Sea
assets. In 2019, this included installing a
wave-powered device, the Ocean Power
Technologies PB3 PowerBuoy®, to monitor
and guard subsea equipment prior to
decommissioning and well abandonment
activities at our Huntington field. This
provides an alternative to conventional
diesel-powered guard vessels and delivers
significant reductions in primary energy
consumption at the field.
GO ONLINE
To find out more, see ‘Section 4:
Environment and climate change’ in
our online Sustainability Report 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 39
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
SUSTAINABILITY REVIEW CONTINUED
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 contractor personnel. Any
failure in this regard has the potential to
undermine our operational capabilities,
management effectiveness and, ultimately,
our long-term profitability. In this context,
Premier provides a working environment
that offers equal opportunities, safe
working conditions, competitive terms of
employment and quality learning and
development experiences.
Key issues in this regard include:
• Workforce profile.
• Employee engagement.
Premier has identified employee attraction,
retention and succession as principal risks
under the principal risk ‘organisational
capability’.
POLICIES
Our overall management of employee
issues is guided by our Sustainability
Policy, Business Ethics Policy, Human
Rights Statement and the Code.
In 2019, we also implemented a new
Flexible Working Policy for our UK
workforce. This provides increased
flexibility in relation to core working hours,
occasional remote working and time off in
lieu. The new policy was implemented in
response to feedback gathered via our 2018
Employee Engagement Survey as well as
our new staff forum initiative as detailed
in the following case studies.
For more information on our human
resource policies see ‘Section 6: Employees’
in our online Sustainability Report 2019.
HOW WE IMPLEMENT OUR POLICIES
Our day-to-day management of human
resource (‘HR’) matters is supported by our
Human Resources Management System,
which forms part of our Group-wide
Business Management System (‘BMS’).
It includes a range of Human Resources
Standards (i.e. high-level guidance documents)
to help us achieve an appropriate balance
between consistent corporate policy and
flexible, local-level requirements.14
In 2019, we simplified these Standards as
part of a Group-wide effort to improve the
BMS. This resulted in the development of
new HR Standards relating to:
• HR Emergency Response.
• Employee Engagement.
• HR Information Systems
and Management.
• Learning and Development.
• Organisational Design and
Workforce Planning.
• Performance Management.
• Resourcing.
• Reward.
• Talent Management.15
• Global Mobility.
For more information on how we manage
our employees see ‘Section 6: Employees’
in our online Sustainability Report 2019.
Our new Diversity
and Inclusion roadmap
Relevant strategic pillars:
4
In 2019, Premier Oil rolled out the first phase
of a new Diversity and Inclusion (‘D&I’)
roadmap. This included a range of measures
to strengthen our D&I management
practices across the following areas:
– Policy and procedure.
– Training.
– Supply chain.
– Recruitment.
In November 2019, our ongoing progress
in this area was recognised when we were
named as one of the three finalists in the
Diversity and Inclusion category of the
2019 OGUK Awards. We plan to evolve
our D&I roadmap further in 2020.
GO ONLINE
To find out more, see 'Section 6:
Employees' in our online
Sustainability Report 2019.
14 Premier complies with all local labour laws, including those related to working hours and overtime.
15 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.
40 Premier Oil plc 2019 Annual Report and Financial Statements
Addressing the outcomes
of our employee
engagement survey
Relevant strategic pillars:
4
During the year, Premier took steps to
analyse and address the outcomes of our
Group-wide employee engagement
survey. The survey was carried out in 2018
to further develop our understanding of
employee views and levels of satisfaction
across the business.
In 2019, we conducted several follow-up
employee workshops to help contextualise
the survey findings and inform appropriate
management actions. This resulted in the
development and rollout of targeted
management action plans across several
corporate functions and business units.
We plan to undertake a further employee
engagement survey in 2020 to continue
building our understanding of employee
views across the organisation, and to
monitor the progress of related
management responses.
GO ONLINE
To find out more, see ‘Section 6:
Employees’ in our online Sustainability
Report 2019.
Workforce profile
We prioritise the employment of suitably
qualified nationals whenever possible, and
support this aim by investing in their skills,
knowledge and experience. We also aim
to ensure that the nationals we employ
can access opportunities across our
organisation, helping support their
professional development as well as
the success of our business.
We treat people fairly, equally and
without prejudice, irrespective of gender,
race, nationality, age, disability, sexual
orientation or any other discriminatory
attributes. This is reflected in our Equal
Opportunities and Diversity Policy, which
we revised and updated in 2019. The Policy
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.
For more information on our workforce
profile see ‘Section 6: Employees’ in our
online Sustainability Report 2019.
Employee engagement
Premier encourages open communication
between employees and managers on an
ongoing basis. We keep employees informed
about wider Company issues16 via a number
of communication channels, including:
• Our new staff forum initiative (see Focus
area: Our new staff forums).
• Regular team meetings.
• Larger-scale town hall staff meetings at
each business unit, attended by visiting
members of the Executive Committee and
senior management.
• Messages from our Chief Executive
Officer and business unit managers.
• The Company intranet and regular email
communications.
• 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 issues.17
In 2019, we also took steps to respond to the
outcomes of our 2018 Group-wide employee
engagement survey as detailed in the
opposite case study.
16 Where relevant, this includes information about economic and financial factors affecting the Company’s performance.
17 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 2019 Annual Report and Financial Statements 41
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
SUSTAINABILITY REVIEW CONTINUED
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 66.8 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.
Our new staff forums
Relevant strategic pillars:
4
In 2019, we launched our new staff forum
initiative across our business units. This
forms part of our broader efforts to meet
the employee engagement provisions of
the updated UK Corporate Governance
Code18. It also aims to support effective
two-way communication, feedback and
idea sharing between our employees
and management.
Under the initiative, each of our business
units host local staff forums which meet
throughout the year to share feedback and
ideas, while a Group Staff Forum is held on
an annual basis. This provides a structured
mechanism for employees to share their
views with the Board of Directors.
GO ONLINE
To find out more, see ‘Section 6:
Employees’ in our online
Sustainability Report 2019.
OUTCOMES
Key indicators – Employees
MATERIAL
ISSUE
PREMIER
OIL METRIC
2019
2018
2017
OUR PERFORMANCE
IN 2019
Workforce
profile
Number of employees:
– At end of year
– Turnover during the year
77019
37
767
43
The size of our workforce was predominantly stable in 2019, reflecting
our continued efforts to protect jobs where possible, our low turnover
rate and our focus on recruiting only for roles of high importance.
783
51
Gender balance of total
employee workforce:
– Male
– Female
Gender balance at senior
management level:20
– Male
– Female
572
198
577
190
595
188
102
12
102
13
99
12
7
2
2
Gender balance at Board level:21
– Male
– Female
7
3
Employee
engagement
Number of Group-wide employee
engagement surveys
None
7
2
2
Percentage of employees receiving
performance reviews
99
99
98
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 2019, we implemented several initiatives to support
diversity and inclusion across the Company, with a
particular focus on enhancing gender diversity.
In 2019, we conducted several employee workshops to
help contextualise the findings of the 2018 Group-wide
employee engagement survey. This resulted in the
development and rollout of management action plans
across several corporate functions and business units.
In 2019, 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.
18 Effective from 1 January 2019.
19 This represents the actual employee count on 31 December 2019.
20 Senior management is defined as Grade 5 and above.
21 Some members of our Board are also part of senior management and are therefore not included in these figures.
42 Premier Oil plc 2019 Annual Report and Financial Statements
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.
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.
With the exception of Mexico, all our
operations have established community
engagement and investment programmes.
Under these programmes, we invest
in a range of community projects to
help deliver sustainable social, economic
and environmental benefits for local
communities and their host governments.
We also invest in community projects to
help deliver sustainable social, economic
and environmental benefits for local
communities and their host governments.
To find out more about our community
investment activities, including details on
projects implemented in 2019, see ‘Section 8:
Community relations’ in our online
Sustainability Report 2019.
Community relations
Why this issue is material
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 for new onshore operations
in the future.
We are careful to minimise our negative
impacts on local communities, if they do
occur22. We also seek to maximise our
positive community impacts – including
through the delivery of our community
investment activities.
POLICY
Premier’s Community Investment Policy
governs our approach to building and
maintaining robust relations with local
communities. Among 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.
• 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.
OUTCOMES
Key indicators – Community relations
MATERIAL
ISSUE
PREMIER
OIL METRIC
Value
generation
and
distribution
Community
investment
spend (US$m)
2019
2018
2017
0.68
0.74
0.74
OUR PERFORMANCE
IN 2019
With the exception of Mexico, all
our operations have established
community engagement and
investment programmes.
Society
Why this issue is material
Premier does not operate in isolation. 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. In this context,
we strive to avoid and/or minimise our
potential negative impacts and to maximise
our positive impacts across a range of
issues. This includes our commitment
to delivering economic value to society;
cooperating transparently and
constructively with host governments;
decommissioning our late-life assets in a
responsible manner; and respecting the
human rights of stakeholders across society,
including our employees, contractors,
suppliers and local communities.
Key issues in this regard are:
• Value generation and distribution.
• Public policy and government relations.
• Decommissioning.
• Human rights.
• Responsible supply chain management.
Premier has identified ‘host government:
political and fiscal risks’ as a principal risk.
POLICIES
Premier’s interactions with stakeholders
across society are governed by several policies.
Most notably, this includes our Sustainability
Policy, Risk Management Policy, Tax Policy,
Human Rights Statement and the Code. We
implement these policies through our
associated management systems.
Our policies require us to (among other
commitments):
• Engage with stakeholders in our efforts
to respect and promote the fundamental
rights set out in the Universal Declaration
of Human Rights.23
• Act transparently with all stakeholders
in full respect of the rule of law.
• Contribute to the development goals of
host countries.
• Support the socio-economic sustainability
and well-being of communities through
local procurement and other engagement
with local business.
• Not engage in artificial tax avoidance
arrangements.
22 No material impacts of this nature took place in 2019. 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.
23 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 2019 Annual Report and Financial Statements 43
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT SUSTAINABILITY REVIEW CONTINUED
HOW WE IMPLEMENT OUR POLICIES
Value generation and distribution
We believe that we can most effectively
generate longer-term value 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.
• Use contractors based in our host countries,
where they can meet our HSES, operational
and performance 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 the Country-by-
Country Reporting (‘CBCR’) template
developed by the Organisation for Economic
Co-operation and Development (‘OECD’).
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.
To find out more about our generation and
distribution of value – including our tax
management – see ‘Section 8: Society’ in
our online Sustainability Report 2019.
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 the Code and Premier’s other
applicable policies.
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 sector24.
To find out more about our approach to
public policy and government relations –
including details on key public policy issues
– see 'Section 8: Society' in our online
Sustainability Report 2019.
Decommissioning
We have developed a clear strategy to
decommission our operated assets in a
sequential, safe and efficient manner. This
includes the application of learnings and
progressive improvements as we move
through the decommissioning portfolio.
Our activities in this respect are managed
by our experienced in-house team, and
guided by our HSES Policy and standards.
Wherever possible, and commercially
feasible, we continually strive to delay the
cessation of production at our assets.
At present, the Caledonia Field is Premier’s
only operated production field that has
been declared inactive.25 However, we have
17 open-water subsea wells that have been
declared inactive and will be plugged and
abandoned in a safe and efficient manner,
as part of our other Decommissioning
Programmes.
We are in the process of developing full
Decommissioning Programmes for the
Greater Balmoral Area, Caledonia and
Huntington Fields, some of which were
submitted for public consultation and
regulatory approval during the course of
the year. Decommissioning work at our
Hunter and Rita Fields commenced in April
2019 and is being undertaken by our joint
venture partners. Cessation of Production
dates for all of these production assets
(except Caledonia, which was suspended
in 2010) remain under review.
To find out more about our decommissioning
activities see ‘Section 8: Society’ in our online
Sustainability Report 2019.
Human rights
Premier’s Human Rights Policy – which is
based on international human rights norms
– is implemented through our Human
Rights Management System. It sets out
how to:
• Embed human rights.26
• Conduct risk assessments.
• Develop action plans.
• Carry out implementation and
monitoring.
• Audit and review compliance and
performance.
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. The
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 also 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.
24 These include, for example, the Association of British Independent Oil Exploration Companies (‘BRINDEX’), the Falkland Islands Petroleum Licensees Association
(‘FIPLA’) and the Indonesian Petroleum Association (‘IPA’).
25 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 as well as
other chemicals and disconnected from production assets, prior to decommissioning).
26 Including the core Conventions of the International Labour Organization.
44 Premier Oil plc 2019 Annual Report and Financial Statements
Responsible supply chain management
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.
All new contractors undergo an initial
risk-based HSES assessment via
pre-qualification, bidding and/or
negotiation. Any that we assess to be ‘high
risk’ are subject 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.
To find out more about our approach to
human rights see 'Section 8: Society’ in
our online Sustainability Report 2019.
OUTCOMES
Key indicators – Society
MATERIAL
ISSUE
PREMIER
OIL METRIC
Value
generation and
distribution
Economic value distributed
(US$m)27, 28
Public policy
and government
relations
Value of political donations and
contributions (US$)
Human rights
Identified violations of our
Human Rights Policy (by
Premier and its employees)
Significant negative human
rights or labour rights impacts
identified by our supply chain
SCIMITAR supply chain
management system
Relevant strategic pillars:
4
In 2019, Premier developed and launched
a new data-driven contract management
system called SCIMITAR (‘Supply Chain
Management Interactive Technology for
Analytics & Reporting’).
Among other features, SCIMITAR enables
contract teams in different business units
to more efficiently network with each other.
This includes HSES contracting teams who
can use the enhanced networking platform
to identify the HSES criticality related to
the scope of work and review the HSES
requirements within the overall contracting
process. Similarly, it helps legal contracting
teams to establish whether a contract
should be subject to relevant human rights
due diligence reviews.
Finally, the new system will help drive the
speed, efficiency and cost-effectiveness of the
contract management process within Premier
Oil and also help to embed networked
contracting across the organisation.
GO ONLINE
To find out more, see ‘Section 8:
Society’ in our online Sustainability
Report 2019.
2019
2018
2017
1,049
1,026
923
OUR PERFORMANCE
IN 2019
Throughout 2019 we continued to generate significant
levels of economic value, much of which was distributed
to stakeholders throughout our host societies.
0
0
0
0
0
0
0
0
0
We made no political donations or contributions in 2019.
All of our interactions with host governments and regulators
were conducted in line with our Global Code of Conduct.
No violations were identified in 2019. This reflects our ongoing
human rights due diligence efforts, as well as the offshore and
relatively remote nature of our operated activities.
No significant negative human rights or labour rights impacts
were identified in our supply chain during 2019. All new
material contracts are now subject to our Supply
Chain Contractor Due Diligence Process.
27 i.e. operating costs, royalties, staff costs, dividends, finance costs, corporate income tax payments and community investments.
28 In 2019, Premier paid US$61.2 million 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.
Premier Oil plc 2019 Annual Report and Financial Statements 45
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
FINANCIAL REVIEW
A step up in cash flow
and profit after tax
Increased profit
Increased operating cash flow
US$164m
Net profit
US$1,080m
Operating cash flow
Low and stable cost base
Increased free cash flow
US$11.4/boe
Operating cost
US$327m
Free cash flow
Strengthening balance sheet
US$341m
Reduction in net debt
2.3x
Covenant leverage ratio
(Net debt/EBITDA)
BUSINESS PERFORMANCE
Production averaged 78.4 kboepd in 2019
(2018: 80.5 kboepd), which, coupled with
improved crude differentials, higher post
hedged realisations and a higher oil vs gas
mix, resulted in total revenue from all
operations of US$1,597 million compared
with US$1,438 million in 2018.
EBITDAX for the period from continuing
operations was US$1,230 million, an
increase of US$139 million compared
to the prior period EBITDAX of US$1,091
million, once lease expenses have been
added back following the implementation
of IFRS 16. The increased EBITDAX, on a
like-for-like basis, is due primarily to
improved realised oil prices post hedging
and a higher oil vs gas production mix with
underlying costs remaining broadly stable
due to tight cost control.
Business performance
(continuing operations)
Operating profit
Add: DD&A
Add: Exploration and
new venture costs
Less: Profit on disposal
of non-current assets
EBITDAX as reported
1,230.0
2019
US$
million
455.0
757.9
2018
US$
million
531.0
358.4
21.3
35.2
(4.2)
–
(42.3)
882.3
208.7
1,230.0
1,091.0
In addition, we have reduced net debt to
US$1,989.8 million, following strong cash
flow generation in the year.
INCOME STATEMENT
Production and commodity prices
Group production on a working interest
basis averaged 78.4 kboepd compared to
80.5 kboepd in 2018. Production is at the
upper end of guidance previously given but
is slightly lower than prior year due to the
disposal of the Pakistan Business Unit,
which completed in March 2019, and natural
decline in other fields. This was partially
offset by high operational efficiency across
the asset portfolio and the increased
contribution from Catcher. Average
entitlement production for the period
was 73.9 kboepd (2018: 73.8 kboepd).
Premier realised an average oil price for
the year of US$66.3/bbl (2018: US$67.9/bbl).
Including the effect of oil swaps which
settled during 2019, the realised oil price
was US$68.1/bbl (2018: US$63.5/bbl). Premier
benefitted from improving differentials for
its crude oil sales relative to the underlying
Brent oil price.
In the UK, average natural gas prices
achieved were 42 pence/therm (2018: 57
pence/therm), which included 24.5 million
therms which were sold under fixed price
master sales agreements. Gas prices in
Singapore, linked to high sulphur fuel oil
RICHARD ROSE
Finance Director
“ Improved realised oil
prices, combined with
high operational efficiency,
resulted in record revenue
and net profit, allowing
the Group to significantly
reduce net debt.”
Revenue from all operations
US$1,597m
2018: US$1,438 million
2019
2018
1,597
1,438
EBITDAX
US$1,230m
2018: US$1,091 million1
2019
2018
1,230
1,0911
1 Restated for the impact of IFRS 16.
Add: lease expenses
EBITDAX adjusted for
lease expenses1
46 Premier Oil plc 2019 Annual Report and Financial Statements
(‘HSFO’) pricing and in turn, therefore, linked
to crude oil pricing, averaged US$10.2/mscf
(2018: US$11.2/mscf).
Realised prices
2019
2018
Oil price (US$/bbl)
post hedging
UK natural gas
(pence/therm)
Singapore HSFO
(US$/mscf)
68.1
63.5
42
57
10.2
11.2
Total revenue from all operations (including
Pakistan) increased to US$1,596.5 million
(2018: US$1,438.3 million). From continuing
operations (excluding Pakistan), sales
revenue increased to US$1,584.7 million
from US$1,397.5 million for the prior year.
COST OF OPERATIONS
Cost of operations comprise operating
costs, changes in lifting positions, inventory
movement and royalties. Cost of operations,
which now exclude lease expenses
following the adoption of IFRS 16, for the
Group was US$342.8 million for 2019,
compared to US$291.3 million for 2018, once
lease costs of US$208.7 million are removed
from the prior period.
Operating costs
Continuing operations
Less: lease expenses
Discontinued operations
(Pakistan)
Operating costs
Operating cost per barrel
(US$ per barrel)
2019
US$
million
2018
US$
million
322.6
–
2.4
325.0
487.5
(208.7)
9.5
288.3
11.4
9.8
Lease expenses in 2019 were US$196.4
million, giving a lease cost per barrel of
US$6.9, which is broadly consistent
year on year.
The increase in absolute operating costs
reflects additional payments made to reflect
high uptime 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. Operating costs
per barrel, excluding lease costs, are expected
to be c.US$15/bbl in 2020 reflecting lower
year-on-year production rather than any
increase in underlying operating costs.
Amortisation and
depreciation
Total DD&A
DD&A per barrel
(US$ per barrel)
2019
US$
million
2018
US$
million
742.9
386.5
26.4
13.2
Total depreciation has increased year-on-year
due to DD&A charges of US$223.0 million
recognised on right-of-use assets now
recorded on the balance sheet as property,
plant and equipment following the adoption
of IFRS 16 on 1 January 2019. The DD&A
charge reflects the positive impact of the
revised Catcher reserves estimates. Included
within the depreciation charge for the year
are charges of US$30.5 million related to an
increase in the Group’s UK decommissioning
provisions for assets which are carried at nil
book value. The increase is driven by a
reduction in the discount rate used to
determine the net present value of the
decommissioning provision following the
reduction in US treasury rates observed in
2019 and not by any material change in the
underlying decommissioning cost estimates.
EXPLORATION EXPENDITURE
AND NEW VENTURES
Exploration expense and new venture
costs amounted to US$21.3 million (2018:
US$35.2 million), primarily related to work
performed on potential new licences and
acquisitions. After recognition of these
expenditures, the exploration and evaluation
assets remaining on the balance sheet at
31 December 2019 amount to US$934.0
million, principally for the Sea Lion asset,
our share of the Zama prospect and Block 30
in Mexico and the Tuna PSC in Indonesia.
GENERAL AND ADMINISTRATIVE
EXPENSES
Net G&A costs fell to US$9.0 million from
US$14.0 million in 2018.
FINANCE GAINS AND CHARGES
Net finance gains and charges of
US$352.5 million have reduced compared
to the prior year (US$372.8 million). An
increase in finance costs due to lease
liabilities recognised on adoption of IFRS 16
has been broadly offset by a reduction in
the unwinding of the decommissioning
provision due to the change in discount rate
and mark-to-market gains on open hedging
instruments. Cash interest expense in
the period was US$251.9 million (2018:
US$228.7 million), reflecting the timing of
Revolving Credit Facility (‘RCF’) rollovers.
Cash interest expense is expected to fall in
2020 on an underlying basis reflecting
reduced net debt, excluding the impact of
any amendment fees relating to the proposed
amendment and of our existing facilities.
TAXATION
The Group’s total tax credit for 2019 from
continuing operations is US$52.5 million
(2018: charge of US$53.1 million) which
comprises a current tax charge for the
period of US$51.1 million and a non-cash
deferred tax credit for the period of
US$103.6 million.
The total tax credit represents an
effective tax rate credit of 51.2 per cent
(2018: charge of 33.5 per cent). The effective
tax rate for the year is primarily impacted
by ring fence expenditure supplement
claims in the UK during the year
(US$88.1 million credit). For the Group’s
principal UK North Sea operating
subsidiary, 2019 represented the final ring
fence expenditure supplement claim. After
adjusting for this the underlying Group tax
charge for the period is US$35.6 million and
an effective tax rate of 34.7 per cent.
The Group has a net deferred tax asset
of US$1,426.2 million at 31 December 2019
(2018: US$1,294.6 million).
PROFIT AFTER TAX
Profit after tax is US$164.3 million
(2018: US$133.4 million) resulting in a
basic earnings per share of 19.9 cents
from continuing and discontinued operations
(2018: 17.3 cents). The profit after tax in the year
is driven principally by the increased sales
revenue and the Group’s tax loss position in
the UK, partially offset by the increase in lease
related costs in the income statement
following implementation of IFRS 16 on
1 January 2019.
CASH FLOWS
Cash flow from operating activities was
US$1,080.0 million (2018: US$777.2 million)
after accounting for tax payments of
US$61.2 million (2018: US$128.8 million) and
before the movement in joint venture cash
balances in the period of US$28.7 million.
The increase is driven by increased
production and revenue in the period and
due to US$204.5 million of lease cash costs
(net) in 2019 recorded as financing and not
operating cash flows.
Capital expenditure in 2019 totalled
US$241.4 million (2018: US$279.8 million).
Capital expenditure
Fields/development
projects
Exploration and
evaluation
Other
Total
2019
US$
million
2018
US$
million
101.7
234.3
136.9
2.8
241.4
43.6
1.9
279.8
The development expenditure mainly
relates to the BIG-P development in
Indonesia and the Tolmount project in
the UK. The largest part of the E&E capital
expenditure in the period was the appraisal
drilling for the Zama project in Mexico.
In addition, cash expenditure for
decommissioning activity in the period
was US$35.3 million (2018: US$72.7 million).
Further to this, US$9.9 million of cash was
funded into long-term abandonment
accounts for future decommissioning
activities (2018: US$17.8 million).
Total development and E&E expenditure
in 2020 is estimated at US$410 million
principally related to development drilling
on Tolmount, Catcher and Solan and
exploration and appraisal activities in
Alaska, Brazil, Mexico and Indonesia.
Decommissioning spend is estimated at
US$60 million reflecting the recent decision
to cease production at Huntington,
although the impact on full-year cash flow
generation is offset by the assumption that
Huntington would have generated negative
operating cash flow in 2H 2020.
DISCONTINUED OPERATIONS,
DISPOSALS AND ASSETS HELD FOR SALE
The Group completed the sale of its
Pakistan business to the Al-Haj Group
in March 2019. In total Premier received the
full consideration of US$65.6 million for the
sale including deposits and completion
payments paid by the buyer and net cash
flows collected by Premier since the
Premier Oil plc 2019 Annual Report and Financial Statements 47
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT FINANCIAL REVIEW CONTINUED
economic date of the transaction. The
Pakistan Business Unit results for the
current and prior periods are presented
as a discontinued operation.
BALANCE SHEET POSITION
Net debt
Net debt at 31 December 2019 amounted
to US$1,989.8 million (31 December 2018:
US$2,330.7 million), with cash resources
of US$198,1 million (31 December 2018:
US$244.6 million). The maturity of all
of Premier’s facilities is May 2021. During
the year, Premier made debt repayments
of US$399.7 million. Further, the Group
cancelled US$333.8 million of its RCF
debt facility.
Premier retains significant cash at
31 December 2019 of US$151.0 million and
undrawn facilities of US$398.2 million,
giving liquidity of US$549.2 million
(31 December 2018: US$569.6 million) when
excluding cash of US$47.1 million held on
behalf of joint venture partners or as
security for letters of credit.
Subsequent to the year-end, in January
2020, a further US$129.5 million of the
Group’s RCF debt facility was cancelled
by Premier, which will result in reduced
commitment fee costs for the Group
in 2020.
PROVISIONS
The Group’s decommissioning provision
increased to US$1,303.4 million at
31 December 2019, up from US$1,214.5 million
at the end of 2018. The increase is driven by
a reduction in the discount rate used to
determine the net present value of the
decommissioning provision, following
the reduction in US treasury rates
observed in 2019 and not by any material
change in the underlying decommissioning
costs estimates.
NON-IFRS MEASURES
The Group uses certain measures of
performance that are not specifically
defined under IFRS or other generally
accepted accounting principles. These
non-IFRS measures used within this
Financial Review are EBITDAX, Cash
margin, Free cash flow, Operating cost
per barrel, DD&A per barrel, Net debt and
Liquidity, and are defined in the glossary.
IMPACT ON KEY FINANCIAL METRICS
ON ADOPTION OF IFRS 16 LEASES
A new IFRS standard on leases came into
effect on 1 January 2019. The impact on
key financial metrics for the period is
shown below.
US$ million
Balance sheet at
31 December 20191
Fixed assets
Net investment
in sublease
Lease liabilities
Impact of
IFRS 16
588.0
75.7
(732.5)
Impact of
IFRS 16
UK gas
US$ million
Income statement
for 20192
Costs of production
DD&A
Net finance costs
Net impact on profit
after tax
Cash flow for 20193
Operating cash flow
Net lease payments
(within financing
and investing)
Free cash flow
196.4
223.0
44.7
Decrease
Increase
Increase
71.3
Decrease
204.5
Increase
204.5
Nil
Increase
1. Balance sheet
Following the adoption of IFRS 16,
US$588.0 million of right-of-use assets,
US$75.7 million of net investment in
sublease and US$732.5 million of lease
liabilities have been included in the Group
balance sheet as at 31 December 2019. All of
these were previously classified as operating
leases as the Group did not have any finance
leases under IAS 17. Lease liabilities are now
presented separately on the Group balance
sheet, as both current and non-current
liabilities, do not form part of finance debt
and are not included in net debt under the
terms of the Group’s financing facilities.
2. Income statement
Charges to the income statement due
to the adoption of IFRS 16 have increased by
US$71.3 million. This represents an increase
in depreciation and finance costs recognised
on right-of-use assets and lease liabilities,
which are partially offset by the absence of
operating lease expenses within costs of
production. EBITDAX, as previously defined,
has increased due to the absence of
operating lease expenses within costs of
production. For the purposes of covenant
calculations, lease expenses continue to be
included within costs of production.
3. Cash flow
In prior years, operating lease payments
were presented as operating cash flows.
Lease payments are now classified as
financing cash flows which has caused
operating cash flows to increase. There
were US$204.5 million of lease payments
(net) included within financing and
investing cash flows for 2019, that would
previously have been reported within
operating cash flows before the adoption
of IFRS 16.
FINANCIAL RISK MANAGEMENT
Commodity prices
Premier continued to take advantage of the
improved oil price environment observed
at times in 2019 to increase its hedging
position to protect free cash flows and
covenant compliance.
The Group’s current hedge position is as
follows:
Oil
Swaps / forwards
2020 1H 2020 2H
Volume (mmbbls)
Average price (US$/bbl)
3.4
64
1.3
63
Swaps / forwards
/ options
2020
1H
2020
2H 2021
2022
Volume
(million therms)
Average price
(p/therm)
35
55
28
52
89
64
421
421
1 2021 average price is a mixture of swap and option
floor pricing; whilst 2022 is average option floor
pricing only. Excludes impact of deferred option
premiums.
Indonesia gas
Swaps / forwards
2020 1H 2020 2H
Volume (HSFO kte)
Average price (US$/te)
126
382
126
340
At 31 December 2019, the fair value of the
open oil and gas instruments above was an
asset of US$29.2 million (31 December 2018:
asset of US$119.3 million), which is expected
to be released to the income statement
during 2020 and 2021 as the related barrels
are lifted or therms delivered.
During 2019, expiration of forward oil swaps
resulted in a net credit of US$35.9 million
(2018: charge of US$71.2 million) which has
been included in sales revenue for the year.
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 gain of US$6.2 million on
its outstanding foreign exchange contracts
(2018: loss of US$17.2 million). The Group
currently has £150.0 million of 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:€.
The fair value of the cross currency
swap liability at 31 December 2019 is
US$123.6 million, which is split between
current and long-term liabilities
(2018: liability of US$125.6 million).
INTEREST RATES
The Group has various financing
instruments including senior loan notes,
UK retail bonds, term loans and revolving
credit facilities. Currently, approximately
73 per cent of total borrowings is fixed
or capped using interest rate options.
On average, the effective interest rate on
drawn funds for the period, recognised in
the income statement, was 8.2 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 2019, US$2.3 million
of cash proceeds were received
48 Premier Oil plc 2019 Annual Report and Financial Statements
(net to Premier) in relation to settled
insurance claims (2018: US$1.4 million).
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 assumed
an oil price of US$65/bbl in 2020 and 2021
respectively and production in line with
prevailing rates. In January 2020, the Group
publicly announced the agreement it had
reached to undertake the following corporate
actions (together the ‘Corporate Actions’):
• an amend and extend (‘A&E’) of all of the
Group’s financing facilities, including
extension of maturity from May 2021 to
November 2023;
• the proposed acquisition of a 25 per cent
working interest in Tolmount from Dana
and interests in Andrew and Shearwater
from BP (together the ‘Acquisitions’ or the
‘Acquired Assets’);
• entering into a US$300 million bridge
facility to partly finance the Acquisitions
(the ‘Bridge Facility’). Based on current
forecasts we do not expect to utilise the
Bridge Facility; and,
• raising equity from shareholders via
a combination of a placing and a rights
issue (the ‘Equity Raise’), which is fully
underwritten.
The above actions are expected to
be approved via a court scheme of
arrangement in March 2020. Assuming
approval is obtained, the Group will request
that shareholders approve the Equity Raise
and Acquisitions in Q2 2020. In February
2020, more than 75 per cent of the Group’s
creditors voted to support the Group’s
scheme of arrangement. Accordingly,
management expect the above Corporate
Actions to be approved and completed in Q3
2020. The expected completion of the
Corporate Actions is reflected in the base
case forecast. However, as sanction of the
scheme of arrangement is subject to court
approval, and particularly given the scheme
is currently being opposed by one creditor,
approval is not yet certain.
At 31 December 2019, the Group continued
to have significant headroom on its
financing facilities and cash on hand. The
Group has run downside scenarios, where
oil and gas prices are reduced by a flat
US$10/bbl throughout the going concern
period and where total Group production is
forecast to reduce by 10 per cent. In the
downside scenarios applied to the base case
forecast, individually and in combination,
there would be no forecast covenant breach
during the 12 month going concern
assessment period.
In addition, the Group has run downside
scenarios where the Corporate Actions do
not complete either because of a rejection of
the scheme by the court or due to rejection
by shareholders. In the event that the
Corporate Actions do not complete, and
applying the base case assumptions to
Premier’s existing assets, the forecasts
show that the Group will have sufficient
financial headroom for the 12 months from
the date of approval of the 2019 Annual
Report and Accounts, even if the Corporate
Actions do not complete. However, if the
Corporate Actions do not complete and
downside price and/or production scenarios
materialise, in the absence of any
mitigating actions, a breach of one or more
of the financial covenants during the 12
month going concern assessment period
would arise and the Group’s financing
facilities would be classified as current
liabilities in subsequent reporting periods.
This potential breach could be mitigated by
asset disposals, such as the Group’s interest
in the Zama prospect, as well as further
hedging activity or deferral of expenditure.
Currently, due to fears over the spread of
COVID-19 and the impact this may have on
global demand for oil, oil prices have fallen
to levels not seen since early 2016 and below
the sensitised case above. If oil prices were
to remain at these levels, and the Corporate
Actions described above did not complete,
the Directors believe that the mitigating
actions identified above would prevent a
breach from occurring.
Based on management’s expectation that
completion of the Corporate Actions is
probable, and considering the downside
scenarios run, including the Corporate
Actions not completing, the Directors have
a reasonable expectation that the Company
has adequate resources to continue in
operational existence for the foreseeable
future. Therefore, the Directors continue to
adopt the going concern basis of accounting
in preparing these consolidated financial
statements.
In the remote scenario whereby the
Corporate Actions do not complete,
there is a sustained fall in the oil price,
and management is unable to deliver any
mitigating actions, in the event of a forecast
covenant breach, management have every
expectation that either a covenant waiver
or forbearance from the required number
of lenders would be received, which would
avoid an acceleration of repayment of the
Group’s financing facilities during the going
concern period.
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:
• Commodity price volatility.
• Access to capital.
• Production and development delivery,
and decommissioning execution.
• Joint venture partner alignment and
supply chain delivery.
• Climate change.
• Organisational capability.
• Exploration success and reserves addition.
• Health, safety, environment and security.
• Host government: political and fiscal risks.
Further information detailing the way
in which these risks are mitigated can
be found on pages 54 to 57 and is also
provided on the Company’s website
www.premier-oil.com.
Richard Rose
Finance Director
Premier Oil plc 2019 Annual Report and Financial Statements 49
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT RISK MANAGEMENT
Identifying and evaluating our risks
IAIN MACDONALD
Chairman of the Audit and Risk Committee
“ The Company
reviews the risks
facing the business
on a regular basis.”
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 emerging and principal
risks facing the Company, including those
that would threaten its business model,
future performance, solvency or liquidity.
A description of the principal risks, together
with an overview of how such risks are being
managed or mitigated, is set out on pages 54
to 57. In addition, the procedures to identify
emerging risks are set out below.
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.
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 follows a comprehensive framework
for risk management based on ISO 31000
guidelines. The Company’s Audit and Risk
function is responsible for administering
the risk management framework and its
continued improvement. The framework
is illustrated here.
Scope and 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 then analysed and
evaluated 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.
50 Premier Oil plc 2019 Annual Report and Financial Statements
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Principal risks
Governance
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SIGNIFICANT RISKS DURING 2019
SIGNIFICANT RISKS IN 2020
– Oil price weakness and volatility.
– Further oil and gas price weakness and volatility.
– Potential underperformance of new Catcher asset.
– Failure to complete acquisitions and refinancing.
– Failure to maintain schedule of Tolmount project.
– Failure of Catcher asset to deliver over the medium term.
– Inability to fund existing and planned growth projects.
– Failure to realise full value from Tolmount project and
– Breach of banking covenants if oil prices fall or assets
Greater Tolmount Area.
underperform.
– Inability to fund existing and planned growth projects.
– Negative drilling results from key appraisal assets.
– Failure to realise full value from corporate actions.
– Timing and uncertainty of decommissioning liabilities.
– Impact of climate change.
– Continued ability to maintain core competencies.
– Timing and uncertainty of decommissioning liabilities.
– Political and security instability in countries of current
– Continued ability to maintain core competencies.
and planned activity.
– Political and security instability in countries of current
– Rising costs if oil prices recover could limit access
and planned activity.
to service providers.
– Rising costs if oil prices recover could limit access to
service providers.
GROUP RISK MANAGEMENT FRAMEWORK
Premier has a comprehensive approach to risk management. A systematic process to identify, assess,
treat, 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.
Top-down
Oversight and overall responsibility from the Board at a Group level
Establish context
Establish Company’s
business objectives
and risk appetite
Monitor & review
Regularly review risk
status and treatment
effectiveness
Record & report
Report assessed risks,
treatment measures
and actions arising
Communicate & consult
Communicate with
stakeholders to ensure
awareness and
understanding
Bottom-up
Ongoing identification, assessment and treatment of risk across our business
Premier Oil plc 2019 Annual Report and Financial Statements 51
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT RISK MANAGEMENT CONTINUED
Risk treatment
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.
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.
Risk visualisation models are widely used
to facilitate the identification of appropriate
risk reduction measures.
During 2019, Premier launched a
Company-wide project to improve and
simplify the design and content in the BMS.
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 treatment
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, to identify emerging
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. On
a regular basis, the Executive Committee
monitors the most important risks facing
the Company. In addition during 2019, the
Board met twice to review the risks to the
Company, including emerging risks, and
the procedures in place to identify them.
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 and procedures for each
function and business unit involved in
carrying out the Company’s business.
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.
52 Premier Oil plc 2019 Annual Report and Financial Statements
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Principal risks
Governance
P54
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In addition, the Group would have to attempt
to renegotiate the A&E agreement to extend
the maturity of debt facilities beyond May
2021, and would in all likelihood have to
propose another scheme of arrangement to
give effect to such an agreement. The success
of achieving an agreed extension is not
within the Group’s control.
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 and the
expectation that the announced Corporate
Actions will complete. Therefore, on the
basis that the Corporate Actions do complete,
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.
Viability Statement
In accordance with provision 31 of the
UK Corporate Governance Code (2018), 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 2023, 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; and
• all of the Group’s current borrowing
facilities are available until May 2021.
However, as announced in January 2020,
the Group has reached agreement with a
majority of its creditors to amend the terms
of its financing facilities and extend their
maturity until November 2023. The Board
expects the amended terms to be approved
through a scheme of arrangement.
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$65 in 2020 and
2021, US$70 in 2022, and US$70 (in real
terms) thereafter (adjusted for the
Group’s hedging programme);
• the extension of the maturity of the
Group’s financing facilities until
November 2023 in line with the terms
agreed with a majority of the Group’s
lenders and announced in January 2020;
• the Group’s existing financial covenants
have been used to assess covenant
compliance throughout the period,
which is consistent with the terms
agreed under the proposed extension of
the Group’s facilities to November 2023;
• completion in Q3 2020 of the acquisition of
an additional 25 per cent working interest
in the Tolmount asset and the acquisition
of working interests in the Shearwater
and Andrew assets from BP, announced
in January 2020; and
• the completion of the previously
announced equity raise in Q2 2020.
Sensitivities have been 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. In addition, the Board has assessed a
scenario whereby the proposed acquisitions,
equity raise and debt maturity extension
(together referred to below as the ‘Corporate
Actions’) do not complete.
Review of principal risks
The Group’s principal risks and uncertainties,
set out in detail on pages 54 to 57, 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 its financial covenants.
The Group’s key financial covenants are
a Net Debt/EBITDA ratio and EBITDA/
Interest ratio and are both set at 3.0x. The
Group has run downside scenarios, where
oil and gas prices are reduced by a flat
US$10/bbl throughout the Forecast
Period, and where total production
volumes are forecast to reduce by
10 per cent. In the individual and combined
downside scenarios, the Group has sufficient
headroom within its financial covenants.
In the event that the scheme of arrangement
to authorise the Corporate Actions is not
approved, and the Corporate Actions therefore
do not complete, if there was a sustained
reduction in either the assumed oil and gas
prices realised or the levels of production
achieved, it is possible that, in the absence
of any mitigating actions by management
(which are not entirely within management’s
control), a forecast covenant breach may arise
towards the end of 2020. Currently due to
fears over the spread of COVID-19 and the
impact this may have on global demand for
oil, oil prices have fallen to levels not seen
since early 2016. If oil prices were to remain at
these levels, and the Corporate Actions above
did not complete, there is a heightened risk of
a breach in the Group’s leverage ratio.
Potential mitigating actions could include
further non-core asset disposals, additional
hedging activity or deferral of expenditure.
Premier Oil plc 2019 Annual Report and Financial Statements 53
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT PRINCIPAL RISKS
Managing our principal risks
Operational risks
Production and development delivery and decommissioning execution
Risk detail
• Uncertain geology, reservoir and well performance.
• 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.
How is it managed?
• Effective management systems in place governing
geoscience, reservoir and well engineering, and production
operations activities. These include rigorous production
forecasting and reporting, field and well performance
monitoring and independent reserves auditing.
• Effective management systems in place governing project
execution, including contracting strategy, cost controls,
project team competency and functional oversight.
• Long-term development planning to ensure timely
and cost-effective 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.
Joint venture partner alignment and supply chain delivery
Risk detail
• Major operations and projects in the oil and gas industry 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.
How is it managed?
• Due diligence and regular engagement with partners
in joint ventures in both operated and non-operated
operations and projects.
• Defined management system for management of
non-operated ventures.
• Assure contracted dutyholders comply with local statutory
requirements (e.g. UK Safety Case Regulations 2015).
• Pursue strategic acquisition opportunities, where
appropriate to gain a greater degree of influence and control.
• Due diligence of supply chain providers, including diligence
of financial solvency, anti-bribery and corruption controls,
and controls to prevent facilitation of tax evasion.
• Contractor performance management programme being
implemented for major contracts to manage contractual
performance and delivery, including periodic audit of the
effectiveness of their management systems.
• Long-term development planning to ensure timely and
cost-effective access to key oilfield services.
54 Premier Oil plc 2019 Annual Report and Financial Statements
Organisational capability
Risk detail
• The capability of the organisation may be inadequate for Premier
to deliver its strategic objectives.
• The capability of the organisation is a function of its structure and the
deployment and strength of its personnel.
• 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 not be fit for purpose or
sufficiently complied with to be effective.
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Risk management
Governance
P50
P58
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 and simplification of the Business
Management System and related controls appropriate to the
size and market position of the Company.
• Continued deployment of contingent labour through a
mature cost-effective Managed Service Provider (‘MSP’)
model to rapidly respond to the peaks and troughs of labour
demand in a volatile environment.
• Staff forums providing a mutual communication forum
between staff, management and the Board to address
employee matters.
• Continued focus on Diversity & Inclusion across the Group.
• Embedded Talent Management and Succession Planning process.
• Complete implementation of recommendations emerging
from externally facilitated organisation health check
conducted end 2018.
• Organisational capability and risk oversight further enhanced
by global functional review under new operating charter.
Exploration success and reserves addition
Risk detail
• Premier may fail to identify and capture new acreage and resource
How is it managed?
• Focus on proven petroleum systems underpinned by
opportunities to provide a portfolio of drillable exploration
prospects and future development projects.
• Specific exploration programmes may fail to add expected resource
and hence value.
• Lender controls may reduce ability to capture and execute the
exploration programme.
world-class source rocks and identify technical or political
discontinuities that we can exploit using our preferred
evaluation workflows to create a competitive advantage.
• Continuous improvement in exploration management
system with strong functional oversight.
• Manage exploration portfolio to maintain alignment with
strategic growth and spend targets.
• Maintain new ventures activity and appropriate resourcing.
Premier Oil plc 2019 Annual Report and Financial Statements 55
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT PRINCIPAL RISKS CONTINUED
Financial risks
Commodity price volatility
Risk detail
• Oil and gas prices are affected by global supply and demand and
How is it managed?
• Oil and gas price hedging programmes to underpin
can be subject to significant fluctuations.
• Supply factors that influence these include the pace of new oil
our financial strength and protect our capacity to fund
future developments and operations.
and gas developments, operational issues, natural disasters, adverse
weather, political and security instability, conflicts and actions by
major oil-exporting countries.
• Company investment guidelines that ensure our
investment opportunities are robust to downside
price scenarios.
• Demand factors that influence these include economic conditions,
climate change regulations and the pace of transition to a low
carbon economy.
• Price fluctuations can affect our business assumptions, our ability
to deliver on our strategy and our access to capital.
Sustainability risks
Health, safety, environment and security
Risk detail
• Significant asset integrity, process safety or wells incident
How is it managed?
• Comprehensive HSES management systems in place including:
on operated asset.
– HSES auditing and reporting with a focus on the
• Significant incident arising from natural disaster, pandemic,
identification and management of major accident hazards.
social unrest or other external cause.
• Consequences may include injury, loss of life, environmental
– Valid Safety Cases on all operated assets.
– Robust crisis management and emergency response
damage and disruption to business activities.
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.
Host government: political and fiscal risks
Risk detail
• Premier operates or maintains interests in some countries where
How is it managed?
• Premier strives to be a good corporate citizen globally,
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.
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 Sustainability Policy and
• Consequences may also include threats to the safe operation
Global Code of Conduct.
of Company facilities.
• Monitoring and adherence 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.
56 Premier Oil plc 2019 Annual Report and Financial Statements
Access to capital
Risk detail
• Sufficient funds may not be available to finance the business
and fund existing operations and planned growth projects.
• Current Amend and Extend to debt facilities not agreed by the
courts leading to renegotiations with lenders which may have
adverse consequences on the Group’s ability to refinance.
• Volatile credit markets, lender appetite and investor sentiment
may impact ability to either refinance debt at maturity and/or
raise equity on attractive terms.
• Breach of delegated authority.
• Financial fraud.
How is it managed?
• Strong financial discipline through an established finance
management system that ensures the Company 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.
• Proactive engagement with equity markets, banks and lenders
to maintain access to capital markets through the cycle.
• An insurance programme to reduce the potential impact
of the physical risks associated with exploration and
production activities. This includes business interruption
cover 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.
Climate change
Risk detail
• Adverse investor and stakeholder sentiment towards oil and gas
sector impacting investability.
• Cost to comply with climate change related operational regulations
and disclosure requirements.
How is it managed?
• Premier is proactively taking steps to address the impact on
society of its operations. We set time-bound climate change
objectives consistent with Paris Agreement targets and also
demonstrate how we meet those objectives over time, specifically:
• Longer-term disruption to Premier’s projects and operations as a
result of changing weather patterns and more frequent extreme
weather events.
• Longer-term reduction in demand for oil and gas products due
to the pace of commercial deployment of alternative energy
technologies and shifts in consumer preference for lower
greenhouse gas emission products.
– Board-owned Climate Change Policy with strategy
implementation monitored by an Executive Climate
Change Committee.
– Setting of corporate goals and annual targets within Group
corporate scorecard and business unit KPIs.
– Physical and transitional climate change risks associated
with our activities are identified and actively managed.
– We are committed to ensuring that all new projects sanctioned
by us will deliver net zero emissions, through our Low Carbon
Projects by Design initiative, supplemented where necessary
by investments to offset emissions using carbon credits.
– We are undertaking a comprehensive asset-by-asset review
during 2020 identifying projects to reduce carbon emissions
within our operations and throughout our supply chain.
– Carbon pricing and scenario analysis is integrated into
investment decision-making.
– Climate change performance and supporting processes with
stakeholders are communicated in a transparent manner.
– Dialogue with shareholders and lenders on climate
change actions.
– Collaboration with industry and other associations on
climate change adaptation and mitigation, including a
framework by which the industry works towards a target
of net zero greenhouse gas emissions.
– Promote investability though positive recognition
in the annual FTSE4Good and CDP climate change
reporting submissions.
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.
Tony Durrant
Chief Executive Officer
4 March 2020
Premier Oil plc 2019 Annual Report and Financial Statements 57
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CHAIRMAN’S INTRODUCTION
Successfully
delivering
our strategy
“ Premier has established
a clear purpose, vision
and core values that
complement and support
the Board’s strategy.
These values are at the
heart of all of Premier’s
activities, with good
corporate governance
providing a sound
framework to embed
them throughout the
organisation.”
ROY A FRANKLIN
Chairman
How we stand today...
Where we are heading...
Dear shareholder,
Board composition
number of Directors
as at 4 March 2020
Board composition
number of Directors anticipated
as at 13 May 2020
1
1
5
3
2
6
Chairman
Executive Directors
Non-Executive Directors
1
3
5
Chairman
Executive Directors
Non-Executive Directors
1
2
6
Gender diversity
number of Directors
as at 4 March 2020
2
Gender diversity
number of Directors anticipated
as at 13 May 2020
3
7
6
Male
Female
7
2
Male
Female
6
3
58 Premier Oil plc 2019 Annual Report and Financial Statements
I am pleased to report that 2019 was a
year of strong operational and financial
performance for your Company, with debt
levels materially reduced. Our operational
and financial rigour has enabled us to
invest selectively in our portfolio for future
growth and we look forward to Tolmount
coming on-stream later this year as well
as drilling our first well in Alaska, a
potentially transformational well for
Premier. On 7 January we announced the
proposed acquisitions of the Andrew Area
and Shearwater assets from BP and the
acquisition of an additional 25 per cent
interest in the Premier-operated Tolmount
Area from Dana; all this alongside the
proposed extension of our existing credit
facilities out to November 2023. We also
announced the proposed farm-out of part
of our Sea Lion project and Tuna assets.
Your Chief Executive Officer sets out
further information regarding these
exciting projects, which are set to
further strengthen the financial
position of your Company and position
us well for the future, on pages 2 to 9.
Having completed my second full year as
Chairman, I remain impressed by the level
of hard work and dedication shown by the
Group’s management and employees. Our
new Group Staff Forum has enriched Board
level engagement with the workforce and
I look forward to further developing these
relationships in the year ahead. I firmly
believe that we are now in a much
improved position from which to create
value for all of our stakeholders over the
medium and longer term.
Our governance framework
Premier has established a clear purpose,
vision and core values that complement
and support the Board’s strategy. These
values are at the heart of all of Premier’s
activities, with good corporate governance
providing a sound framework to embed
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.
Board focus during 2019
During 2019, our focus on debt reduction
has continued, enabled by strong oil and
gas production of 78.4 kboepd, disciplined
cost control, and resultant free cash flow
generation; our net debt reduced by over
US$340m during the year to US$1.99bn.
Strong performance from our Catcher Area
has delivered production rates of 67.2 kboepd
(gross) and almost 100 per cent operating
efficiency, with project cash payback
reached just 22 months after first oil. First
gas was achieved from BIG-P (Indonesia),
delivered on schedule and significantly
below budget, and formal approval of
Catcher Area satellites has been received
with first oil targeted for early 2021. The
Tolmount development is on schedule for
first gas by the end of 2020, forecast to
add net 20-25 kboepd to Group production.
We have had a significant commercial
discovery at Tolmount East and
development planning is already well
advanced with project sanction targeted
for 2020 2H. A rig has been contracted to
appraise the Malguk-1 discovery (Alaska
North Slope) targeting more than 250
mmbbls (gross) of recoverable resources,
with results expected in the second quarter
of 2020. I would like to pay tribute to all
those involved in the successes outlined
above and you will see how these underpin
our Remuneration Policy implementation
on pages 97 to 112.
As outlined above, we have also continued to
examine growth opportunities both from
within our own portfolio and by acquisition.
Our announcement in January 2020
regarding proposed acquisitions, deals
relating to our Sea Lion and Tuna projects
and the extension of existing credit facilities,
reflect the early stage output of these work
streams. As we move forward on these
projects we are well positioned to create
further value for all of our stakeholders over
the medium and longer term.
Notwithstanding the successes outlined
above, in today’s world, the way in which
we deliver our projects is of the utmost
importance both in terms of the health,
safety and security of our staff and
stakeholders, and the impact of our
operations on the environment. Social
and environmental values, such as climate
change, equality, diversity and inclusion,
OUR GOVERNANCE FRAMEWORK: COMPLIANCE OVERVIEW
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 also ensures
that the Company’s risk
management procedures enable
effective identification and
management of emerging risks.
READ MORE P50
Shareholder engagement
Regular dialogue takes place with
institutional investors, retail
investors and analysts at meetings,
presentations and conferences.
Consultation on a new Remuneration
Policy commenced in autumn 2019
and concluded during the first
quarter of 2020.
READ MORE P73
Remuneration
A new Remuneration Policy
has been designed to ensure
alignment with our immediate
and long-term strategic objectives
and will be put to shareholders for
approval at the 2020 Annual General
Meeting. Details of how the current
Policy has been implemented
during the year are included in the
Directors’ Remuneration Report.
READ MORE P79
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.
READ MORE P62
Effectiveness
The Board has a diverse range of
skills, knowledge and experience.
Barbara Jeremiah was appointed
during the year and Elisabeth
Proust was appointed following
the year-end with effect from
1 April 2020. 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.
A detailed induction programme
was undertaken by Barbara
Jeremiah during 2019 and will be
undertaken by Elisabeth Proust
during 2020.
An internal Board evaluation
was undertaken during 2019 to
review Board and Committee
performance in a structured
manner. Outcomes and actions
were agreed for onward focus
during 2020.
READ MORE P72
Premier Oil plc 2019 Annual Report and Financial Statements 59
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CHAIRMAN’S INTRODUCTION CONTINUED
LIVING OUR VALUES
Our values underpin our behaviours and activities, complement
and support our strategy, and are also reflected in our
policies and procedures.
At the centre of these values is creativity which sits at the
heart of everything we do.
With the foundations of the Company built on professionalism
and respect, our spirit comes from our tenacity and dynamism.
SPIRIT
Tenacity
Professionalism
CREATIVITY
Dynamism
Respect
FOUNDATION
Tenacity
Premier has the courage and
determination to succeed where
others may falter or lose their nerve.
Respect
We believe that our ability to
succeed depends on the quality
and resilience of our relationships.
Creativity
Premier is a creative business,
with a pioneering spirit that thrives
on fresh challenges and ideas.
Dynamism
Premier is a can do, fast forward
company that seeks to outpace
its rivals in turning opportunities
to its advantage.
Professionalism
Commercial acumen, technical
expertise, business integrity and
pride in ‘getting it right’ represent
the cornerstones of our business.
60 Premier Oil plc 2019 Annual Report and Financial Statements
ethics and privacy are now at the forefront
of great minds running successful
companies. For Premier, the need to
respond to the climate change agenda,
whilst also addressing other governance
issues, has now become urgent. Your Board
has established a new Health, Safety,
Environment and Security Committee to
ensure regular focus on these issues at the
highest level. The Committee will be
chaired by Dave Blackwood and I look
forward to reporting to you on the
activities of the Committee in next year’s
report. For now, I will focus on the
environmental issues and how we intend
to respond from where we stand today.
We strive to describe the environmental
impact of our business as clearly as possible
in our online Sustainability Report 2019.
However, transparent disclosure is just the
beginning. As an oil and gas producer, it is
imperative that we minimise the climate
impact of our activities. During 2020,
Premier will seek to do so, by a
comprehensive asset-by-asset review
identifying projects to reduce our carbon
emissions. Further, we have committed to
ensuring that all new projects sanctioned
by us will deliver net zero emissions,
through direct design features
supplemented where necessary by
investments to offset emissions using
carbon credits. The oil and gas industry has
been at the forefront of energy supply and
economic development and now must play
its part in addressing the environmental
challenges which society faces. With this in
mind, I am pleased to report that, although
Robin Allan will be standing down from the
Board at the 2020 AGM, he will then work
for Premier on a part-time consultancy
basis, primarily to focus on ESG initiatives
working with both our Climate Change
Committee and the Health, Safety,
Environment and Security Committee.
One of our most important stakeholders is
our workforce. During 2019, a new Group
Staff Forum met for the first time, with
representatives from each of our business
units, providing direct access to, and
discussion with, members of our Board.
The Forum will meet each year, with less
formal visits from Board members to
business units in between times, to ensure
first hand understanding of our workforce,
the issues they face and to allow our Board
members to gain a real sense of the culture
of the Company. Further details regarding
the Forum's activities can be found on
pages 42 and 68.
On 4 March 2020, the Board approved
the appointment of Elisabeth Proust
to the Board with effect from 1 April 2020.
Elisabeth will stand for election at the
Annual General Meeting on 12 May 2020.
Elisabeth brings with her a wealth of
technical and operational experience,
particularly in the North Sea, which will
enable her to make a valuable contribution
to our Board and Committees.
Further details regarding the appointment
process for Elisabeth can be found in the
Nomination Committee Report on page 78.
Robin Allan has also confirmed his
intention not to stand for re-election
at the AGM in May 2020. I would like to
express my sincere thanks to Robin for his
significant contribution to the Board since
his appointment in 2003. I am pleased that
he will continue working for Premier on a
part-time consultancy basis to provide
significant strength in our ongoing work
on climate change.
Diversity and inclusion
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 and our wider approach to diversity
and inclusion throughout Premier can be
found on page 78.
Engagement with our shareholders
During 2019 and the first quarter of 2020,
both Barbara Jeremiah and I engaged with
shareholders representing over 50 per cent
of shares in issue, along with voting
advisory bodies, to listen to feedback
regarding the current Remuneration Policy
and its implementation, and to formulate
our new Remuneration Policy. Much
engagement has taken place, internally
and externally, to arrive at a new Policy
which we believe aligns the interests of
management with stakeholders’ interests.
Shareholders will be asked to approve the
new Remuneration Policy at the AGM on
12 May 2020.
Last year I explained that an externally
facilitated ‘health check’ of the business had
been commissioned 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. The Nomination
Committee has been pivotal in overseeing
the outcomes and implementation of
recommendations arising from that review.
Work will continue into 2020 as we refresh
our corporate culture and values, enhance
communication of strategy with our
workforce and simplify our Business
Management System and procedures.
2018 UK Corporate Governance Code
This year we report on our compliance with
the UK Corporate Governance Code (the
'Code'), published in July 2018. Much work
has been undertaken since the Code was
published to ensure that Premier has an
appropriate governance framework in place
to reflect the updated Code. The Board and
its Committees have focused on workforce
and stakeholder engagement, culture,
succession, diversity and remuneration.
Further details about some of the actions
and initiatives that have been taken and
are ongoing to ensure compliance with
the Code can be found in the Nomination,
Remuneration and Audit and Risk
Committee Reports.
Board and Committee effectiveness
The Board and its Committees conducted an
internal review of effectiveness during 2019.
The review continued to look at themes
emerging from the external evaluation
carried out in 2018 by Lintstock Limited.
One-to-one interviews were held between
the Chairman and each Board member and
between the Senior Independent Director
and each Director in order to review the
Chairman’s performance.
Further details about the evaluation
process and the actions arising can be
found on page 72.
Board changes
Jane Hinkley, the Company’s former Senior
Independent Director and Remuneration
Committee Chair, stood down from the
Board on 31 December 2019, having served
on the Board since 2010. Anne Marie
Cannon took on the role of Senior
Independent Director with effect from
1 January 2020. Further details regarding
the Nomination Committee's process for
the appointment of Anne Marie to this role
can be found on page 78. Barbara Jeremiah
joined the Board as an independent
Non-Executive Director and successor to
Jane as Remuneration Committee Chair
during 2019.
Board focus during 2020
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
Compliance statement
This Governance section, together with
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 July 2018
(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 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 61
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT BOARD OF DIRECTORS
BOARD TENURE AS AT 4 MARCH 2020
ROY A FRANKLIN
Chairman
Board tenure
2 years 6 months
Current external roles
Chairman 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 and Deputy
Chairman of Equinor
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 46 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.
Committee membership
Chair of Nomination Committee
Independent
Yes1
1 Chairman was independent on appointment.
62 Premier Oil plc 2019 Annual Report and Financial Statements
TONY DURRANT
Chief Executive Officer
Board tenure
14 years 8 months
Current external roles
Not applicable
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 transactions in the upstream
sector and, since joining Premier as
Finance Director in 2005, has been
instrumental in transforming Premier’s
portfolio from producing 33.3 kboepd
to one that is currently producing circa
78.4 kboepd. Now with nearly 15 years’
experience at Premier, including over
five 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.
Committee membership
Nomination Committee
Independent
Not applicable
RICHARD ROSE
Finance Director
Board tenure
5 years 6 months
Current external roles
Not applicable
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.
Committee membership
None
Independent
Not applicable
ROBIN ALLAN
Director, North Sea and Exploration
Board tenure
16 years 3 months
Current external roles
Chairman of The Association of British
Independent Oil Exploration Companies
(‘BRINDEX’)
Board member of Oil & Gas UK
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
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.
Committee membership
None
Independent
Not applicable
Premier Oil plc 2019 Annual Report and Financial Statements 63
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT BOARD OF DIRECTORS CONTINUED
BOARD TENURE AS AT 4 MARCH 2020
ANNE MARIE CANNON
Senior Independent
Non-Executive Director
DAVE BLACKWOOD
Non-Executive Director
Board tenure
6 years 1 month
Current external roles
Deputy Chair of Aker BP ASA
Non-Executive Director of Aker
Energy AS
Non-Executive Director and Chairman
of the Remuneration Committee of
STV Group plc
Senior Advisor at PJT Partners
Past roles
Non-Executive Director of Aker ASA
Various roles at J Henry Schroder
Wagg, Shell UK E&P and Thomson
North Sea
Executive Director at Hardy Oil and
Gas and British Borneo
Senior Adviser to the natural resources
group at Morgan Stanley
Board contribution
Anne Marie has over 37 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.
Committee membership
Audit and Risk Committee
(3 March 2020 onwards)
Nomination Committee
Remuneration Committee
Independent
Yes
BARBARA JEREMIAH
Non-Executive Director
Board tenure
10 months
Current external roles
Senior Independent Director of
The Weir Group plc
Non-Executive Director of
Aggregko plc
Non-Executive Director of
Russel Metals Inc.
Board contribution
Barbara has a wealth of strategic and
commercial experience obtained in the
strongly cyclical environment of the
resources sector, which in addition to her
experience chairing the Aggreko plc
remuneration committee and being a
member of the Weir and Russel Metal
remuneration committees, enable her to make
a valuable contribution to the Board and as
Chair of the Remuneration Committee.
Past roles
Non-Executive Director of
Allegheny Technologies Inc.
Chairman of Boart Longyear Limited
Committee membership
Chair of Remuneration Committee
Health, Safety, Environment & Security
Committee (3 March 2020 onwards)
Executive Vice President of Alcoa Inc
Nomination Committee
Non-Executive Director
of EQT Corporation
Independent
Yes
Board tenure
2 years 7 months
Current external roles
Senior Adviser 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
Director of Aberdeen City and Shire
Economic Future (‘ACSEF’)
Board contribution
Dave has over 44 years’ experience in
the oil and gas sector, including seven
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 invaluable to the
Board as it monitors current projects
and assesses potential ones.
Committee membership
Chair of Health, Safety,
Environment & Security Committee
(3 March 2020 onwards)
Audit and Risk Committee
Nomination Committee
Remuneration Committee
(until 3 March 2020)
Independent
Yes
64 Premier Oil plc 2019 Annual Report and Financial Statements
IAIN MACDONALD
Non-Executive Director
Board tenure
3 years 10 months
Current external roles
Non-Executive Director and Chairman
of the Audit Committee at SUEK JSC
Non-Executive Director of The
Workforce Development Trust
Non-Executive Director of Well North
Enterprises CIC
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 and 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.
Committee membership
Chair of Audit and Risk Committee
Nomination Committee
Independent
Yes
RACHEL RICKARD
Company Secretary
Rachel joined Premier in January 2014 and was appointed
Company Secretary in May 2015.
She is a Fellow of the Chartered Governance Institute 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.
MIKE WHEELER
Non-Executive Director
Board tenure
2 years 7 months
Current external roles
Chairman of Glitnir
Non-Executive Director and
Chairman of the Audit Committee
of Sunseeker International
Director of Manufacturing Capital Limited
Past roles
Chairman of Citadel Securities Europe
and Chairman of its 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
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
Audit and Risk Committee
Nomination Committee
Remuneration Committee
Senior Adviser/Non-Executive Chairman
of Close Brothers Corporate Finance
Independent
Yes
Senior Adviser to BDO
Non-Executive Chairman of Vantis plc
Non-Executive member of the Audit
Committee of the Institute of
Financial Services
Premier Oil plc 2019 Annual Report and Financial Statements 65
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
CORPORATE GOVERNANCE REPORT
Introduction
This Corporate Governance Report,
together with sections of the Strategic
Report, sets out how the Company has
applied the main Principles of the 2018 UK
Corporate Governance Code (the ‘Code’). It
is the Board’s view that the Company has
complied in full with all of the Provisions
of the Code during 2019. Our approach to
applying the key principles of the Code is
summarised below together with cross
references to other sections of the 2019
Annual Report and Financial Statements
(the ‘Annual Report’) where appropriate.
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 and
emerging risks are actively monitored, with
health, safety, environment and security
(‘HSES’) borne in mind at all times. To this
end, the Board constituted a new HSES
Committee in early 2020 and will report on
its activities in next year’s Annual Report.
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 50 to 52 of the Risk
Management section of the Strategic
Report and on pages 74 to 76 of the
Audit and Risk Committee Report.
How the Board operates
The Board has a structured agenda for
the year ensuring all relevant matters are
considered, with sufficient time allowed for
discussion. The programme is structured to
include: strategic issues (both setting the
strategy and reviewing its execution);
corporate targets and budget approval;
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 if
necessary 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 panel opposite.
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.
Following the year-end, a new
HSES Committee was constituted.
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.
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 them 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 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.
As at 4 March 2020.
Roy A Franklin
Chairman
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
Robin Allan
Director, North Sea
and Exploration
Dave Blackwood
Independent
Non-Executive Director
Anne Marie Cannon
Senior Independent
Non-Executive Director
Barbara Jeremiah
Independent
Non-Executive Director
Iain Macdonald
Independent
Non-Executive Director
Mike Wheeler
Independent
Non-Executive Director
Rachel Rickard
Company Secretary
66 Premier Oil plc 2019 Annual Report and Financial Statements
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, Chief Commercial and Technical
Officer; Mike Fleming, Group HR Director;
Andy Gibb, Group General Counsel; Dean
Griffin, Head of Exploration; Stuart Wheaton,
Chief Operating Officer; Bassem Zaki,
Business Development Manager; and Rachel
Rickard, Company Secretary. In addition to
formal monthly ExCo meetings, the ExCo
holds fortnightly meetings with Premier’s
Country Managers and, in the alternate
weeks, there is a fortnightly meeting with
functional heads which includes, in addition
to ExCo members, the Group HSE Manager,
Group Financial Controller and additional
members of the exploration team.
Performance review meetings are also
held throughout the year 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.
MATTERS RESERVED FOR THE BOARD
Corporate strategy
Corporate governance
– Overall direction and strategy of the business.
– Oversight of the Group’s operations and
review of performance.
– Purpose and values.
– Major changes in organisation structure.
– New country and/or business entry.
– Acquisition and/or disposal of interests.
Shareholder communication
– Approval of half-year and full-year results
announcements and trading updates.
– Management of relationships and dialogue
with shareholders.
– Approval of the Company’s Annual Report
and Financial Statements.
Risk management and internal control
– Determination of the appropriate level
of risk exposure for the Company.
– Recognising high impact business risks
and approving risk mitigating strategies.
– Monitoring effectiveness of internal control
systems including finance, operations,
HSES and asset integrity and undertaking
an annual assessment thereof.
– The Group’s corporate governance and
compliance arrangements.
– Undertaking an annual evaluation of
Board and Committee performance.
– Workforce engagement.
– Assessing and maintaining Premier’s
culture and alignment with its purpose,
values and strategy.
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.
Succession planning and appointments
– Appointment and removal of Directors and
the Company Secretary.
– Appointment and removal of the
Company’s brokers and advisers.
Audit and Risk Committee
Iain Macdonald (Committee Chairman)
Dave Blackwood
Anne Marie Cannon
Mike Wheeler
Responsibilities
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.
READ MORE P74
Nomination Committee
Roy A Franklin (Committee Chairman)
Dave Blackwood
Anne Marie Cannon
Tony Durrant
Barbara Jeremiah
Iain Macdonald
Mike Wheeler
Responsibilities
Considers Board and Committee structure, composition and
succession planning and oversees succession planning and
development of senior management. It also leads Board-level
engagement with the Company’s workforce and assesses and
monitors the Company’s culture in order to ensure its alignment
with the Company’s purpose, values and strategy.
READ MORE P77
Remuneration Committee
Barbara Jeremiah (Committee Chairman)
Anne Marie Cannon
Mike Wheeler
Responsibilities
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.
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.
READ MORE P79
Business
units
Projects
Functional
oversight
(London)
Premier Oil plc 2019 Annual Report and Financial Statements 67
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CORPORATE GOVERNANCE REPORT CONTINUED
To enable meaningful and regular dialogue
between the workforce and the Board, a
Group Staff Forum has been established.
This Forum enables representatives from
the local forums to engage with Executive
and Non-Executive Directors and to enable
Board members to develop a deeper
understanding of key workforce challenges
and opportunities. At the same time, it also
provides the opportunity for the Board to
share its strategic direction, ideas and
relevant experience directly with staff
(as appropriate).
The inaugural Group Staff Forum was held
in November 2019 at our corporate office in
London. Prior to the event, each local forum
representative was offered presentation
skills training to support them in delivering
their feedback to Board members. In
addition to the local representatives,
the event was attended by the Chairman,
two Non-Executive Directors, the Chief
Executive Officer, representatives from
HR and an external facilitator.
The Forum discussed a number of
topics including:
– communication of strategy;
– information flows and knowledge
sharing;
– standards and procedures;
– succession planning;
– staff development and training;
– performance management;
– corporate culture; and
– flexible working.
The staff forum initiative will continue
throughout 2020 and beyond to help
maintain a consistent channel of
communication for responding to
the feedback and ideas of Premier’s
employees.
Group Staff Forum
Relevant strategic pillars:
1
2
4
In 2019, the Group launched a new staff
forum initiative across each business unit
and in the Corporate Head Office. This
initiative forms part of the Company’s
broader effort to meet the employee
engagement provisions of the 2018 UK
Corporate Governance Code. The
initiative also aims to support effective
two-way communication, feedback and
idea sharing between our employees,
management and the Board.
Local staff forums were established in
each of the business units comprising
employee and Company representatives
who meet throughout the year to share
feedback and ideas. The local forums
help ensure that all employees have a
voice in enhancing the Premier working
experience and addressing issues that
have implications for the Company’s
ability to attract, engage, develop and
retain talent within the organisation. In
addition, they support the development
of shared understanding between staff
and the Board of Directors to promote
closer alignment between corporate
strategy and staff engagement.
68 Premier Oil plc 2019 Annual Report and Financial Statements
POSITION
ROLE AND RESPONSIBILITIES
Chairman
of the Board
Chief Executive
Officer
Senior
Independent
Director
Non-Executive
Directors
– The Chairman’s role is part-time and he is a Non-Executive Director. The Chairman’s primary responsibility is the leadership of the Board,
showing objective judgement and promoting a culture of openness and debate, and 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, openness and effectiveness of the Board/Executive relationship. This is effected through meetings, as well as
contact with other Board members, the workforce, shareholders, joint venture partners, host governments and other stakeholders.
– The Chairman also has responsibility, in conjunction with the Company Secretary, for ensuring that all Directors are aware of their duties
and able to perform them, and for addressing any weaknesses revealed by the annual performance evaluation.
– The Chairman ensures, through the Nomination Committee which he chairs, that the Board Committees are appropriately structured
and that their membership is periodically reviewed so as not to over-burden individual Directors.
– 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.
– 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. The Chief Executive Officer 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.
– 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, upon the recommendation of the Remuneration Committee,
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. The remuneration of the Non-Executive Directors and the Chairman is the responsibility of the
Board and the Remuneration Committee respectively.
– 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 and the Committees, through their chairmen, 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.
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.
The Disclosure Committee assists
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.
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.
As indicated in last year’s report, during 2019,
the development of the BMS focused on
simplification and the creation of a consistent
and distinctive ‘Premier way of doing things’.
while reviewing Premier’s asset portfolio
and allocation of capital. Against a backdrop
of ever-increasing focus on ESG issues such
as carbon intensity, the Board approved a
Climate Change Policy which was published
during the summer, and also resolved to
include climate change among the Group’s
principal risks (see pages 50 to 57).
Board activity during the year
In 2019, the Board continued to concentrate
on reducing indebtedness through high
operating efficiency from Premier’s producing
portfolio, assisted by the completion of the
sale of the Pakistan business at the beginning
of the year. The Board continues to monitor
the delivery of the Tolmount gas project,
sanctioned in 2018 and due on-stream in 2020,
and was encouraged by the significant
commercial discovery at Tolmount East.
The Board has constituted an HSES
Committee which will regularly consider
these subjects in more detail and will report
back to the Board, which retains overall
responsibility for these matters. The
Committee will be chaired by Dave
Blackwood and will include two additional
Non-Executive Directors as members.
Regular attendees will include the Chief
Executive Officer, Chief Technical Officer
and Group HSES Manager.
One of the action points arising from the
2018 Board evaluation exercise was to spend
more time on exploring strategic options.
In early 2019, the Board held a Strategy Day
to consider financial, organisational and
sustainability issues and how Premier
should position itself in relation to each. The
feedback from this was considered in detail
by management during the first half of 2019
Following the externally facilitated
organisational ‘health check’ carried
out in 2018, the Board and the Nomination
Committee regularly reviewed the progress
of the action plan to address the points
raised (see also the Nomination Committee
Report on page 77).
Premier Oil plc 2019 Annual Report and Financial Statements 69
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT CORPORATE GOVERNANCE REPORT CONTINUED
The following table shows some of the areas
reviewed by the Board during the year
SUBJECT
Shareholder and lender engagement
– Considered feedback from lenders regarding the Group’s proposed acquisitions in the UK North Sea, announced in January 2020.
– Received and discussed feedback from roadshows/presentations to investors by the Chief Executive Officer and Finance Director.
– The Remuneration Committee Chairman met major institutional shareholders and shareholder representative bodies to discuss the
votes at the 2019 AGM and obtain feedback for consideration in the preparation of the 2020 Remuneration Policy.
Corporate strategy
– Reviewed the Company’s strategic options.
– Reviewed and discussed monthly reports from the Company’s business units on the status of agreed objectives to deliver corporate strategy.
– Reviewed potential acquisition opportunities and subsequently approved the proposed UK North Sea acquisitions referred to above.
– Approved the commencement of a process to market the Group’s interest in the Zama field for sale.
– Approved the entry into exploration acreage in the Andaman Sea and a farm-in to exploration blocks on the Alaskan North Slope.
Finance and expenditure
– Regularly reviewed the status of the Group’s banking covenants and hedging arrangements.
– Considered proposals for a future refinancing of the Group’s debt facilities.
– Reviewed and approved the 2020 annual budget.
– Reviewed and approved the Company’s Annual Report and Financial Statements for the year ended 31 December 2018.
– Reviewed and approved the Group’s insurance arrangements.
– Reviewed and approved the Group’s Tax Policy.
HSES and risk management
– Annual review and discussion, with the Group Audit and Risk Manager, of the Group’s risk profile and, in particular, the Group’s principal and emerging risks.
– Reviewed 2019 corporate HSES KPIs and HSES plan.
– Reviewed and discussed HSES performance.
– Received reports from the Audit and Risk Committee on the effectiveness of the Group’s risk management and internal control systems.
– Reviewed the Group’s risk management and internal control framework.
Corporate governance
– Reviewed compliance against the 2018 Code.
– Reviewed the schedule of matters reserved for the Board.
– Conducted an internal evaluation of the Board and its Committees.
– In consultation with the Nomination Committee, reviewed the independence of Non-Executive Directors.
Sustainability
– 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 Sustainability review.
– Approved the Group’s Climate Change Policy and Strategy.
Succession planning and appointments
– Monitored progress against the Company’s succession plan for Non-Executive Directors.
– Reviewed proposals from management on the Group’s leadership and organisational structure.
Employees
– Reviewed and approved proposals for awards to the wider employee population under the Company’s share award schemes.
– Engaged with the workforce (via the Group Staff Forum – see pages 42 and 68 for more information) in accordance with the 2018 UK Corporate Governance Code.
BOARD ACTIVITY DURING THE YEAR
The Board held six scheduled meetings during the year and update conference calls were held between the scheduled meetings.
Details of the number of Board meetings held and individual attendance by Directors are shown below:
6
Board
meetings
5
Board
update calls
Board
update
call
Board
meeting
Board
meeting
Board
update call
Board
meeting
Jan ‘19
Feb ‘19
Mar ‘19
Apr ‘19
May ‘19
Jun ‘19
4
Management
presentations
Management
presentations
AGM
Management
presentations
70 Premier Oil plc 2019 Annual Report and Financial Statements
CROSS REFERENCE
STRATEGIC PILLARS
STAKEHOLDER CONSIDERATIONS
RELEVANT
– Lender engagement activity (see page 16)
– Shareholder engagement activity (see page 73)
– Directors’ Remuneration Report (see pages 79 to 112)
– The Company’s strategy and business model
(see pages 12 and 13)
– CEO’s year in review (see pages 2 to 9)
– Financial review (see pages 46 to 49)
– Financial statements (see pages 117 to 174)
– Risk management (see pages 50 to 53)
– Principal risks (see pages 54 to 57)
– Sustainability review (see pages 24 to 45)
– The Governance section (see pages 58 to 116)
– Nomination Committee Report (see pages 77 and 78)
– Directors’ Remuneration Report (see pages 79 to 112)
– The Governance section (see pages 58 to 116)
3
1
2
3
4
3
1
1
2
3
4
1
2
3
4
4
1
4
Shareholders and Lenders
– Capital allocation
– Financial performance
Shareholders
– Remuneration structure
Shareholders and Lenders
– Capital allocation
– Financial performance
Shareholders and Lenders
– Financial performance
Customers
– Financial capability
Governments & regulators and Joint venture partners
– Mexico FDP approval and unitisation process
Shareholders, Governments & regulators and Joint venture partners
– Risk management and internal control
– ESG performance
Workforce
– Health and safety of workforce
Shareholders and Governments & regulators
– Risk management and internal control
– Board effectiveness
– ESG performance
– Risk management and internal control
Workforce
– ESG performance
Shareholders and Workforce
– Board effectiveness
– Development and progression
Workforce
– Development and progression
– Reward
– Corporate culture
– Sustainability review (see pages 24 to 45)
Shareholders, Governments & regulators and Joint venture partners
Strategic pillars
1 To operate in a safe and responsible manner
2 To focus on high quality assets with commercially advantaged positions
3 To secure access to capital and financial liquidity
4 To maintain an effective organisation sustained by the right people
SUBJECT
Shareholder and lender engagement
– Considered feedback from lenders regarding the Group’s proposed acquisitions in the UK North Sea, announced in January 2020.
– Received and discussed feedback from roadshows/presentations to investors by the Chief Executive Officer and Finance Director.
– The Remuneration Committee Chairman met major institutional shareholders and shareholder representative bodies to discuss the
votes at the 2019 AGM and obtain feedback for consideration in the preparation of the 2020 Remuneration Policy.
Corporate strategy
– Reviewed the Company’s strategic options.
– Reviewed and discussed monthly reports from the Company’s business units on the status of agreed objectives to deliver corporate strategy.
– Reviewed potential acquisition opportunities and subsequently approved the proposed UK North Sea acquisitions referred to above.
– Approved the commencement of a process to market the Group’s interest in the Zama field for sale.
– Approved the entry into exploration acreage in the Andaman Sea and a farm-in to exploration blocks on the Alaskan North Slope.
Finance and expenditure
– Regularly reviewed the status of the Group’s banking covenants and hedging arrangements.
– Considered proposals for a future refinancing of the Group’s debt facilities.
– Reviewed and approved the 2020 annual budget.
– Reviewed and approved the Company’s Annual Report and Financial Statements for the year ended 31 December 2018.
– Annual review and discussion, with the Group Audit and Risk Manager, of the Group’s risk profile and, in particular, the Group’s principal and emerging risks.
– Received reports from the Audit and Risk Committee on the effectiveness of the Group’s risk management and internal control systems.
– Reviewed the Group’s risk management and internal control framework.
– Reviewed and approved the Group’s insurance arrangements.
– Reviewed and approved the Group’s Tax Policy.
HSES and risk management
– Reviewed 2019 corporate HSES KPIs and HSES plan.
– Reviewed and discussed HSES performance.
Corporate governance
– Reviewed compliance against the 2018 Code.
– Reviewed the schedule of matters reserved for the Board.
– Conducted an internal evaluation of the Board and its Committees.
Sustainability
– 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 Sustainability review.
– Approved the Group’s Climate Change Policy and Strategy.
– In consultation with the Nomination Committee, reviewed the independence of Non-Executive Directors.
CROSS REFERENCE
– Lender engagement activity (see page 16)
– Shareholder engagement activity (see page 73)
– Directors’ Remuneration Report (see pages 79 to 112)
– The Company’s strategy and business model
(see pages 12 and 13)
– CEO’s year in review (see pages 2 to 9)
– Financial review (see pages 46 to 49)
– Financial statements (see pages 117 to 174)
– Risk management (see pages 50 to 53)
– Principal risks (see pages 54 to 57)
– Sustainability review (see pages 24 to 45)
– The Governance section (see pages 58 to 116)
– Sustainability review (see pages 24 to 45)
Succession planning and appointments
– Monitored progress against the Company’s succession plan for Non-Executive Directors.
– Reviewed proposals from management on the Group’s leadership and organisational structure.
Employees
– Reviewed and approved proposals for awards to the wider employee population under the Company’s share award schemes.
– Engaged with the workforce (via the Group Staff Forum – see pages 42 and 68 for more information) in accordance with the 2018 UK Corporate Governance Code.
– Nomination Committee Report (see pages 77 and 78)
– Directors’ Remuneration Report (see pages 79 to 112)
– The Governance section (see pages 58 to 116)
BOARD ACTIVITY DURING THE YEAR
RELEVANT
STRATEGIC PILLARS
STAKEHOLDER CONSIDERATIONS
3
1
2
3
4
3
1
1
2
3
4
1
2
3
4
4
1
4
Shareholders and Lenders
– Capital allocation
– Financial performance
Shareholders
– Remuneration structure
Shareholders and Lenders
– Capital allocation
– Financial performance
Governments & regulators and Joint venture partners
– Mexico FDP approval and unitisation process
Shareholders and Lenders
– Financial performance
Customers
– Financial capability
Shareholders, Governments & regulators and Joint venture partners
– Risk management and internal control
– ESG performance
Workforce
– Health and safety of workforce
Shareholders and Governments & regulators
– Risk management and internal control
– Board effectiveness
Shareholders, Governments & regulators and Joint venture partners
– ESG performance
– Risk management and internal control
Workforce
– ESG performance
Shareholders and Workforce
– Board effectiveness
– Development and progression
Workforce
– Development and progression
– Reward
– Corporate culture
Board
update call
Board
meeting
Board
update call
Board
meeting
Board
update call
Board
meeting
Attendance at 2019 Board
meetings by individual Directors
Jul ‘19
Aug ‘19
Sep ‘19
Oct ‘19
Nov ‘19
Dec ‘19
Management
presentations
Management
presentations
1 Dave Blackwood was unable to attend one meeting because he was undergoing a course of medical treatment.
2 Barbara Jeremiah was unable to attend one meeting soon after she joined the Board because it coincided with a meeting
of another board of which she was a member. She had previously notified Premier of this, but it was not possible at that
late stage to change the date of either meeting.
3 Jane Hinkley stepped down from the Board on 31 December 2019.
Current Directors
Robin Allan
Dave Blackwood1
Anne Marie Cannon
Tony Durrant
Roy A Franklin
Barbara Jeremiah2
Jane Hinkley3
Iain Macdonald
Richard Rose
Mike Wheeler
Meetings
attended
6/6 – 100%
5/6 – 83%
6/6 – 100%
6/6 – 100%
6/6 – 100%
3/4 – 75%
6/6 – 100%
6/6 – 100%
6/6 – 100%
6/6 – 100%
Premier Oil plc 2019 Annual Report and Financial Statements 71
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ INDUCTION
AND DEVELOPMENT
Meetings
with Directors
and senior
executives
Site visits
to business
units
Regular
briefings on
governance and
legal issues
Board resource
library
Key corporate
governance
documents
One-to-one
meetings
with external
advisers
In-depth
management
presentations
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. Non-Executive
Directors also engage with staff via the
Group Staff Forum. 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 annually subject
to continued satisfactory performance.
CORPORATE GOVERNANCE REPORT CONTINUED
Board and Committees
performance evaluation
An externally facilitated performance
evaluation was last undertaken in 2018.
The 2019 performance evaluation was
undertaken internally and facilitated by the
Company Secretary. The evaluation was
conducted by the use of questionnaires
completed by Board Committee members
and those regularly in attendance at their
meetings. The questionnaires addressed:
• Board and Committee size and composition,
skills and experience, and dynamics;
• the Board’s oversight of strategy, risk and
internal control;
• the performance of the chairmen and
individual members;
• the frequency, length, management and
focus of meetings; and
• the quality of the papers considered at the
meetings and the support given by staff.
The completed questionnaires were
collated and anonymised by the Company
Secretary and submitted to the chairman of
each body, who discussed the findings with
the individual members before preparing a
summary report for discussion by the
Board. In the case of the performance of
the Chairman of the Board, the discussions
with Board members were held by the
Senior Independent Director.
An action plan was then drawn up for
the Board by the Chairman and Company
Secretary and actions were agreed for each
body with the relevant chairmen. Key
actions identified included the recruitment
of an additional Non-Executive Director
with strong technical and operational
expertise; the Company’s response to the
climate change agenda; and ongoing work
on defining and communicating culture
and strategy within the organisation.
2018 performance evaluation
Actions identified for 2019 from the 2018
Board performance evaluation included
devoting more time to exploring strategic
options, focusing more closely on
management succession planning and
talent management (see Nomination
Committee Report on page 77) and
addressing any weaknesses in the
Remuneration Policy before submitting
a revised Policy to a shareholder vote in
2020 (see Remuneration Committee Report
on page 79).
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, in its broadest sense and 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
sustainability 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.
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 2019, management presentations
were given on strategic options for Premier;
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.
72 Premier Oil plc 2019 Annual Report and Financial Statements
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 Anne Marie Cannon,
who has served as a Director for over six
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
2020 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
94 and 95 respectively.
The main responsibilities of each Board
role are set out on page 69 of this report.
Full biographies can be found on pages 62
to 65. These set out the skills, knowledge
and experience of each Director, as well as
current and previous appointments.
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 2019 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 113.
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.
Over 200 meetings were held with investors
and prospective investors during 2019.
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 that 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 with major shareholders, if
requested. Extensive information about the
Group’s activities is provided in this Report,
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 113 to 115.
At the 2019 AGM, the Annual Report on
Remuneration received a 41.86 per cent vote
against. In order to understand better the
reasons for this outcome and to help to shape
the new Remuneration Policy being put to
shareholders at the 2020 AGM, during
autumn 2019, the Chairman of the
Remuneration Committee and the Chairman
of the Board met or spoke to many of
Premier’s largest institutional shareholders
and also to key representative investor bodies
(the Investment Association, ISS and Glass
Lewis). The outcome of this consultation is
summarised in the Remuneration Committee
Report on page 79.
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.
Investor contact by type (%)
2
1
1. One-to-one meetings
2. Group meetings
80
20
Investor contact by location
of investor (%)
4
3
2
1. UK
2. USA
3. Europe
4. Other
1
65
24
5
6
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.
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
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.
Premier Oil plc 2019 Annual Report and Financial Statements 73
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT AUDIT AND RISK COMMITTEE REPORT
“ I ensure that
the Committee
is rigorous and
effective in
carrying out
its role.”
IAIN MACDONALD
Chairman of the Audit and Risk Committee
Members
Iain Macdonald
(Committee Chairman)
Dave Blackwood
Mike Wheeler
Role of the Committee
Meetings attended
(eligible to attend)
How the Committee spent its
time during the year (%)
4
1
4(4)
4(4)
4(4)
3
2
1. Governance
2. Risk management
and internal control
3. Financial reporting
4. Audit
10
44
32
14
– Monitors and reviews the effectiveness of 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.
Dear shareholder,
I am pleased to present the Audit and Risk
Committee’s report to you for 2019. The
objective of this report is to provide a
summary of the Committee’s work in
ensuring that the interests of all of the
Company’s stakeholders are protected
through a robust system of risk management
and transparent financial reporting.
Key activities during the year
The Committee held four scheduled meetings
during 2019. In addition to the members of the
Committee listed on this page, meetings of the
Committee are normally also attended by the
Chairman, the Finance Director, the Group
Financial Controller, the Group Audit and Risk
Manager and representatives of the external
auditors. Other members of the Executive
Committee or senior managers are required
to attend when significant risk management
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 Committee spent considerable time
during the year reviewing the significant
financial reporting judgements associated
with the Group’s full and half-year results.
In particular, the Committee considered the
Company’s long-term oil price assumptions
in the context of continued oil price
volatility during the year. With the
introduction of the IFRS 16 provisions on
74 Premier Oil plc 2019 Annual Report and Financial Statements
lease accounting, the Committee developed
a detailed understanding of the proposed
adjustments to the Group’s accounting
policies and reviewed management’s
proposed disclosure for the half-year results
regarding the adoption of IFRS 16, which
was subsequently cited as an example of
good disclosure by the Financial Reporting
Council in its Thematic Review. More detail
about the work of the Committee in relation
to financial reporting judgements can be
found in the diagram opposite.
The Committee reviewed and endorsed
the schedule of reportable audits and
reviews of the internal controls planned
for the year, including the plan to address
recommendations emerging from the
organisation health check conducted
at the end of 2018. The Committee also
reviewed the status of the ongoing project
to improve the Company’s Business
Management System. In discharging
its duty to monitor and review the
effectiveness of the Company’s risk
management and internal control systems,
the Committee received presentations from
various business functions. These included:
operations management systems within
the UK Business Unit, financial forecasting,
the management of major projects,
cyber-security, tax and supply chain
management. These presentations included
a detailed review by the Committee of the
key risks facing each function and the
controls in place to manage them.
Each meeting of the Committee includes a
discussion on the current major business
risks, including learnings from recent
incidents and materialised risks, and a
review of the emerging risks facing the
business and the systems in place to
identify them.
The Committee also noted significant
findings from the reported audits and
reviews conducted over the period,
considered the closeout of actions arising
from these audits including the status of
overdue actions, and reviewed the audit
priorities for 2020. 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 ‘Risk Management’ section of the
Strategic Report on pages 50 to 53, 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.
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.
FINANCIAL JUDGEMENTS AND INTERNAL CONTROL MATTERS
The Committee considered the following
significant judgements and internal control
matters in preparing the 2019 Annual
Report and Financial Statements,
coming to the following conclusions:
Going concern
The Directors are required to consider the appropriateness
of adopting the going concern basis of accounting
The Committee reviewed in detail management’s projections of
the Group’s position in respect of its main financial covenants. Key
assumptions in the projections included those related to oil and
gas prices during the period, portfolio management options
available during the Forecast Period and the inclusion of the
proposed acquisitions announced on 7 January 2020. The key
assumptions were assessed and challenged by the Committee.
The Committee concluded that:
• 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 borrowing facilities and will have sufficient
financial headroom throughout the going concern period;
• it 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; and
• the going concern statement included on page 49 is fair
and balanced.
Exploration and evaluation (‘E&E’) assets
Assessment of the carrying values of E&E assets and
whether any indicators of impairment exist in
relation to these assets
The Committee satisfied itself 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 145.
Oil and gas reserves and resources
Estimation of oil and gas reserves and resources
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 proved
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.
Impairment of oil and gas properties
Assessment of indicators of impairment or reversals
of previous impairments
In assessing indicators of impairment or reversals of previous
impairments, the Committee:
• reviewed and challenged management’s key assumptions for each
oil and gas property, including the long-term planning assumptions
and future oil and gas prices;
• taking account of available market data, approved management’s
long-term planning assumptions, including oil prices of: US$65/bbl
in 2020 and 2021, US$70/bbl in 2022 followed by an oil price of
US$70/bbl in real terms thereafter (2018: long-term oil price
assumption of US$75/bbl in real terms); and
• considered the reduction in the long-term oil price assumption
to be an indicator of impairment and assessed management’s
impairment calculations of all of the Group’s oil and gas properties
at this revised oil price.
The Committee was satisfied that the most significant assumptions
on which the amount of the impairment charge are based are future
oil and gas prices, the discount rate applied to the forecast future
cash flows and the decommissioning discount rate. The Committee
considered the disclosure of the sensitivity of the impairment charge
to changes in the oil price, as set out in note 10 on page 146 to the
financial statements, to be appropriate.
Taxation
Assessment of deferred tax asset recoverability
Provisions for decommissioning
Assessment of the estimate of costs to be incurred
on decommissioning activities
The Committee discussed with management their projections
of probable UK taxable profits and noted that these projections
include existing producing assets, certain currently unsanctioned
UK development projects and assets for which the acquisition is
expected to complete by the end of Q3 2020. 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. 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 142 and 157, respectively.
The Committee 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 150.
Premier Oil plc 2019 Annual Report and Financial Statements 75
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT AUDIT AND RISK COMMITTEE REPORT CONTINUED
Risk management and internal control in
the Group is discussed more fully in the
‘Risk Management’ section of the Strategic
Report on pages 50 to 53.
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.
Internal assurance
The Company does not maintain a
standalone internal audit function. Instead,
internal assurance is achieved through the
oversight of the Group Audit and Risk
Manager in conjunction with the Group
Financial Controller, the support of the
Group Function Managers and the targeted
use of third-party audit and review.
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. Business unit management review
Business unit management reviews are
designed to assure the effectiveness of the
management system of the business area.
2. Group function review of a business area
The Group functions are independent of the
business area and their reviews are designed
to assure the effectiveness of a Group
management system as applied to the
business area.
3. External third-party review
Third-party reviews are commissioned on
a targeted risk basis to provide independent
assurance of the effectiveness of a Group
or business area management system. For
certain risk-critical management systems,
the Company assures the effectiveness of the
management system to a recognised industry
certification (e.g. ISO 14001, OHSAS 18001).
On an annual basis, the Committee agrees
with management a risk-based programme
of the most significant audits and reviews.
In agreeing the programme, the Committee
takes into account the significant and
emerging risks facing the business which
it reviews at each meeting.
The Committee and the external auditors
then receive reports at each meeting from
the Group Audit and Risk Manager
covering progress against the audit
programme, findings and actions. While
the external auditors are made aware of
the outcomes of the internal assurance
programme, their remit is not impacted.
External audit effectiveness
The Committee reviewed the auditors’
work plan at the start of the audit cycle,
considering in particular the auditors’
assessment of the significant areas of risk in
the Group’s financial statements. For 2019, the
significant areas of risk corresponded with
the major areas of judgement identified by
the Committee, 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 March
and August of 2019 and in March 2020 at
the conclusion of the 2019 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.
FRC Audit Quality Review of the
Company’s 2017 external audit
During 2019, the Audit Quality Review
Team from the FRC undertook a review of
Ernst and Young LLP’s (‘EY’) audit of the
Group’s 2017 financial statements. The team
made recommendations for improvement,
including in EY’s assessment of whether
forecast profits from certain future
unsanctioned projects, which supported a
proportion of the deferred tax assets, were
probable. The Audit and Risk Committee
discussed the review findings with EY,
reviewed EY’s proposed actions to address
these findings and is satisfied that these
changes were implemented for the 2018
and 2019 audits.
Auditors‘ independence and objectivity
EY were appointed as the Company’s
auditor for the financial year commencing
1 January 2017 following a formal competitive
tender process conducted in 2016.
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. This includes
reporting accountant services to support
a prospectus and investment circulars in
relation to future acquisitions. 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.
EY 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 2019.
Based on its review of the effectiveness of
the 2019 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 Ernst & Young LLP as the Group’s
external auditors will be proposed at the
Group’s 2020 Annual General Meeting.
On behalf of the Audit and Risk Committee.
Iain Macdonald
Chairman of the Audit and Risk Committee
76 Premier Oil plc 2019 Annual Report and Financial Statements
NOMINATION COMMITTEE REPORT
ROY A FRANKLIN
Committee Chairman
Members
Roy A Franklin
(Committee Chairman)
Dave Blackwood
Anne Marie Cannon
Tony Durrant
Jane Hinkley
Barbara Jeremiah1
Iain Macdonald
Mike Wheeler
1 Barbara Jeremiah joined the Committee in May 2019.
Meetings attended
(eligible to attend)
How the Committee spent its
time during the year (%)
4(4)
3(4)
4(4)
4(4)
4(4)
3(3)
4(4)
4(4)
6
1
2
5
4
3
1. Governance and
organisation structure
2. Executive Director and senior
management succession
3. Workforce engagement
including staff forums
4. Talent management and
development
5. Non-Executive Director
succession
6. Diversity and Inclusion
20
25
25
10
10
10
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; and to
oversee the development of a diverse pipeline for succession to Board and senior
management positions.
– To keep under review the structure, size and composition of the Board and Committees.
– To lead the process for Board appointments, ensuring that the procedure is
formal, rigorous and transparent, and identifying and nominating candidates
for the Board’s approval.
– To lead Board-level engagement with the Company’s workforce, enabling the
workforce to raise matters of concern.
– To assess and monitor the Company’s culture in order to ensure that it is aligned
with the Company’s purpose, values and strategy.
Dear shareholder,
During 2019, the Nomination Committee
focused its attention on workforce
engagement, talent management and
succession planning for the Board and
senior management, diversity and inclusion
initiatives and monitoring actions taken in
response to the 2018 ‘health check’ of
Premier’s organisational structure.
Workforce engagement
In 2018, in line with the provisions of the
revised UK Corporate Governance Code,
the Board opted to constitute a workforce
advisory panel as its chosen method of
formal workforce engagement. Since
then much work has been ongoing to
bring this decision to life. In early 2019,
staff in Premier’s operating regions elected
representatives to local staff forums.
These local forums are facilitated by
Human Resources but owned by the
staff representatives themselves, under a
Forum Charter communicated throughout
the Group. A Group Staff Forum, which
includes the staff members who chair the
Aberdeen, Indonesia, London and Vietnam
Forums, has also been established.
The first meeting between members of
the Group Staff Forum and members of
the Committee was held in November 2019.
An agenda was prepared by the staff which
included future Company strategy, internal
communications, Company procedures,
and Company culture; an informal dinner
was held afterwards to allow the discussion
to continue. The outcome of the meeting was
reviewed by the Board and the Executive
Committee, and feedback from this review
was in turn given to the Group Staff Forum.
For example, Group Staff Forum members’
comments on Premier’s corporate culture
are being taken into account as part of the
culture ‘refresh’ that is underway, following
the 2018 organisational structure ‘health
check’ (see below).
Talent and succession –
review and planning
The Committee receives a report from
the Executive annually on senior
management leadership capability and
succession planning. The three elements
of this assessment are performance and
potential, succession planning, and risk
assessment (individual, organisational,
and marketplace). The 2019 assessment
also looked at the quality and diversity
of the succession pipeline of senior
management taking into consideration
any skills shortages and contingency plans.
Forward-looking diversity and inclusion
initiatives were also considered alongside
these workstreams with a view to
increasing diversity, reducing bias and
broadening Premier’s range of talent.
The Committee also reviews potential
changes to management requirements
(the number, expertise and location of
staff members) in the light of changing
operational needs.
Premier Oil plc 2019 Annual Report and Financial Statements 77
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT 2020 focus areas
The Committee will continue to focus
on the following areas during the
remainder of 2020 and beyond:
• culture and behaviour;
• workforce engagement;
• diversity and inclusion; and
• talent management and succession.
NOMINATION COMMITTEE REPORT CONTINUED
Progress following the 2018
organisational structure review
The Committee received regular
reports on the implementation of the
recommendations of the organisational
health check during 2019. Ongoing
workstreams include a refresh of corporate
culture and values, communication of
strategy, simplification of Group policies
and a simplification of the Business
Management System.
Board and Committee composition
and Board changes
The Committee works to ensure that the
Board continues to have the appropriate
balance of skills, knowledge, experience,
independence and diversity to lead Premier
effectively. The Committee also keeps
under review the composition of the
Committees to ensure that they retain
the appropriate combination of skills,
experience, independence, knowledge and
diversity, and that their non-executive
members remain independent and are not
so heavily committed elsewhere that they
risk being unable to attend properly to
Premier’s affairs. Further, the Committee
takes into account the findings of the
annual Board and Committees evaluation
in exercising its duties (conducted
internally in 2019 – see Corporate
Governance Report on page 66).
At the 2019 Annual General Meeting
Barbara Jeremiah was elected as a
Non-Executive Director. Barbara succeeded
Jane Hinkley as Chairman of the
Remuneration Committee in August 2019.
Towards the end of the year it was agreed
to recommend to the Board that an
additional Non-Executive Director should
be recruited, with strong experience in
upstream oil and gas operations and, if
possible, with ESG experience. In the light
of the Board’s gender diversity balance
with Jane Hinkley due to step down, and in
view of the Hampton-Alexander Review
recommended diversity target, it was
agreed that the focus for this search
should be placed on female candidates. The
Committee appointed Spencer Stuart to
conduct the search. A longlist of candidates
was then prepared and circulated to
Committee members for comment.
A shortlist was then drawn up, from which
the preferred candidates were interviewed
by members of the Committee, and finally
Elisabeth Proust was recommended to the
Board for appointment.
Jane Hinkley retired from the Board at the
end of 2019 and has been succeeded as the
Senior Independent Director by Anne Marie
Cannon. In appointing Anne Marie to this
role the Board took account of her strong
skills in relationship management, her
sector experience, length of tenure on the
Board and Committee membership at
Premier, as well as her other external roles
and time commitments.
Diversity and Inclusion
The Board recognises that diversity and
inclusion are essential both for the Board
and throughout Premier. All appointments
are made based on merit, experience and
performance and whilst actively seeking
diversity of skills, gender, social and ethnic
backgrounds, cognitive and personal
strengths. During the year the Committee
reviewed ongoing workstreams to ensure
that diversity and inclusion are integrated
into our Business Management System, HR
standards and recruitment processes, and
are front of mind as we continue to work on
a refresh of Premier’s corporate culture and
with the Group Staff Forum.
The objective of our Board Diversity Policy,
which the Committee reviews annually, is
to ensure the optimal composition of the
Board for successfully delivering the
Company’s strategy. The Committee
maintains its current policy of embracing
diversity in its broadest sense, including
gender, ethnic and social diversity but
without setting formal, measurable
objectives. Notwithstanding the above,
the Committee is mindful of the
Hampton-Alexander target on gender
diversity, that women should constitute at
least one-third of the membership of FTSE
350 company boards by 2020. Following
Jane Hinkley’s retirement at the end of
December 2019, the proportion of female
Directors fell from 30 per cent to 22 per cent
whilst the search for an additional
Non-Executive Director continued.
Elisabeth Proust will join the Board with
effect from 1 April 2020 at which point the
proportion of female Directors will return
to 30 per cent.
Further, Robin Allan intends to stand down
from the Board at the forthcoming AGM on
12 May. At that point, the proportion of
female Directors will then be one-third
female to two-thirds male, and the
Hampton-Alexander target will be met.
Further details of the Board’s composition
are outlined on pages 62 to 65.
With regard to senior management gender
diversity, women represent 20 per cent of
the Executive Committee and their direct
reports. As stated above we have worked
to ensure that diversity and inclusion are,
and remain, integrated into our Business
Management System and HR standards
and, alongside improvements to flexible
working policies, we hope to see the above
ratios improve with time.
Roy A Franklin
Chairman of the Nomination Committee
78 Premier Oil plc 2019 Annual Report and Financial Statements
DIRECTORS’ REMUNERATION REPORT
“ My primary objective has been to
engage with our shareholders to
understand their views on our past
performance, former remuneration
practices and changes we
contemplated in a new policy.”
BARBARA JEREMIAH
Chairman of the Remuneration Committee
Members
Barbara Jeremiah1
(Committee Chairman)
Jane Hinkley
Dave Blackwood
Anne Marie Cannon
Mike Wheeler
Meetings attended
(eligible to attend)
3(3)
5(5)
5(5)
5(5)
5(5)
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.
1 Barbara Jeremiah was appointed as a member of the Committee on
16 May 2019 and replaced Jane Hinkley as Chair of the Committee on
20 August 2019.
– Exercise oversight of the pay and performance conditions
across the Group.
How the Committee spent its time during the year (%)
6
5
4
3
2
1. Executive Director Policy review
1
2. Senior executive remuneration
3. Wider workforce pay and conditions
4. Employee engagement
5. Shareholder consultation
35
15
20
10
10
6. Remuneration reporting and governance 10
Dear shareholder,
On behalf of the Board, I am pleased
to present the Directors’ Remuneration
Report for the year ended 31 December 2019.
This is my first statement as Chair of the
Remuneration Committee, having
succeeded Jane Hinkley as Chair
on 20 August 2019. As the current Policy is
due to expire at the 2020 Annual General
Meeting (‘AGM’), my primary objective in my
first year in the role has been to understand
the reasons behind the last three successive
years of declining support for the executive
remuneration arrangements at Premier Oil,
and undertake a comprehensive review of
the Policy from a fresh perspective to
ensure it supports the direction of our
business and is acceptable to shareholders
going forwards.
This letter summarises the remuneration
outcomes for the year and the new Policy
going forwards.
Review of executive remuneration for 2020
As the current Policy (approved at the 2017
AGM with 88.2 per cent in favour) is due to
expire at the 2020 AGM, the Committee
undertook a comprehensive review of
remuneration during the year to ensure that it
supports the business strategy and is effective
to attract, retain and motivate key talent who
are critical to the success of the business.
A new Policy, set out in this report, will
be presented for shareholder approval at
the AGM.
At the first stage of the review, the
Committee consulted with Premier’s largest
institutional shareholders to understand
their views on the Remuneration Report
vote at the 2019 AGM. The results were
published in our Update Statement on the
Investment Association’s public register
in November and related mainly to the
complexity and lack of transparency in the
annual bonus. A second consultation was
then held with our largest institutional
shareholders and the main proxy voting
agencies (the Investment Association, ISS
and Glass Lewis) to gain their input on the
proposed new Policy prior to its finalisation.
Premier Oil plc 2019 Annual Report and Financial Statements 79
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
The feedback received from both
consultations is reflected in the proposed
new Policy and changes to implementation
of the bonus this year. A summary of the
proposed changes and the shareholder
consultation is provided below.
Summary of proposed changes
When developing the new 2020 Policy,
the Committee took the opportunity
to address the key themes from the
shareholder consultations and improve
compliance with the 2018 UK Corporate
Governance Code (the ‘Code’), regulations
and emerging governance best practice.
The key shareholder themes and how
these have been addressed by the
proposed changes are as follows:
Simplification
The current executive remuneration
structure has been simplified to a single
Performance Share Plan (with the removal
of the current Restricted Share Awards)
and a leaner annual bonus scorecard
(removing personal objectives and refining
the corporate objectives to better support
our strategic pillars). With the removal
of the restricted share component and a
new maximum individual limit of 200 per
cent of salary for the annual Performance
Share Award, total remuneration levels of
the Executive Directors are being reduced
from the current levels. On a comparable
basis, including the restricted share
component, the current face value of
LTIP awards is 255 per cent of salary.
Relevance
In the LTIP, the Committee is introducing
a Return on Capital Employed (‘ROCE’)
metric to augment the current relative
Total Shareholder Return (‘TSR’) metric
which will ensure that executives focus on
effective capital and balance sheet
management and the quality of earnings
through driving operational and technical
efficiencies over the cycle. Many of our
shareholders also expressed support for
such a metric. The ROCE metric will be set
and calibrated in line with the Company’s
medium to long-term business and
financing plan. The bonus metrics will
focus on fewer, more targeted financial,
operating, strategic and environment,
health and safety (‘EHS’) metrics.
Competitive market positioning
The new structure will ensure that
management are fairly rewarded for their
efforts (relative to the E&P market and
talent pool and the significant economic
and technical challenges facing the
Company) while ensuring that there is
closer alignment between remuneration
outcomes for Executive Directors and senior
management and the overall corporate
performance and shareholder experience.
Compliance with corporate governance
best practice
The new Policy is fully compliant with the
Code and investor guidelines. With regard
to the operation of the Executive Director
pension arrangements, the following
should be noted:
• Pension arrangements for new Executive
Directors will be in the form of a defined
contribution of 15 per cent of salary
which is in line with the UK workforce
contribution rate.
• The defined contribution for Richard Rose
will be reduced from 20 per cent to 15 per
cent of salary with effect from 1 January
2023 in line with the UK workforce.
AREAS OF
DISCUSSION
Annual bonus
measures
Restricted Shares
LTIP performance
measures
Share ownership
SHAREHOLDER
FEEDBACK
COMMITTEE’S RESPONSE AND RATIONALE
FOR FINAL POSITION IN POLICY
Desire for simplification of annual
bonus objectives, removal of
overlap in the metrics, and
greater transparency around the
judgement and discretion applied
by the Committee.
Although many shareholders
were supportive of such plans, the
majority disliked the use of a hybrid
structure including both Restricted
Shares and Performance Shares.
While TSR remains a preference for
the majority of shareholders, most
disliked the sole focus on TSR and
would prefer to see an internal
metric that is more directly within
management’s control and less
sensitive to the oil price.
Several shareholders were
concerned with the level of
shareholding in the current
management team relative to
our share ownership guidelines.
From 2019, the bonus scorecard will be simplified through removal of personal
objectives, with a focus on a smaller number of key financial, operational, strategic
and EHS metrics for 2020. Enhanced disclosure of annual bonus outcomes has been
provided in this report.
Restricted Share Awards have been removed. In the future, Executive Directors will
only receive Performance Share Awards.
Performance Share Awards will be based on ROCE in addition to relative TSR, with
a majority weighting retained on the latter.
The main reason for the Executive Directors (excluding the CEO) not meeting
their minimum shareholding requirement is the fall in share price which has
resulted in a significant reduction in value of their holdings. The number of shares
held by the CEO has in fact increased by around 60 per cent over the last five
years (we note that the CEO has never sold any shares and has purchased shares).
Following strong operational and cash flow performance during 2019 and the
recently announced proposed acquisitions, the Committee expects that this will
flow through to the share price which, as it restores, will result in the Executive
Directors meeting their requirements. The full minimum shareholding
requirement of 250 per cent of salary will extend for two years post-cessation
under the new Policy.
80 Premier Oil plc 2019 Annual Report and Financial Statements
• Tony Durrant and Robin Allan receive a
pension arrangement agreed on their
recruitment in 2005 and 2003 respectively
which replicates the benefits of the
Company’s defined benefit arrangement
which was closed to new members in 1997.
This arrangement will cease for Robin
Allan when he leaves the Board on 12 May
2020. The arrangement for Tony Durrant
will cease on 31 December 2022 and from
1 January 2023, he will receive a defined
contribution of 15 per cent of salary in line
with the UK workforce.
The Committee believes that the new
Policy aligns with our key principles of:
• reinforcing the business strategy through
the selection of relevant performance
measures;
• promoting long-term sustainable success
through enhanced performance-linkage;
• rebalancing of the package towards
long-term performance; and
• ensuring alignment with shareholders
through deferral of a significant portion
of remuneration into shares.
Implementation of our new
Remuneration Policy in 2020
Executive Directors will receive a salary
increase of 2 per cent in line with the
increase awarded to the UK workforce,
following a salary freeze since 2014.
The maximum bonus opportunity will
remain unchanged at 120 per cent of salary,
however, the scorecard of performance
measures will be simplified. The scorecard
will be based on a reduced number of key
financial, operational, strategic and EHS
metrics, with no personal objectives. These
changes are intended to remove complexity
and overlap from the bonus metrics in
response to shareholder feedback, as well
as strengthening the link between strategy,
performance and incentive payments.
I believe that the purpose of the bonus
should be to reward performance in excess
of that which the salary is intended to
reward and to focus on the strategic
performance of the business. The changes
to the scorecard are designed to achieve
this. Details of the specific measures and
weightings are provided on page 111 of this
report, and the specific targets set will be
published together with the bonus outcome
in the Annual Report on Remuneration for
2020. The deferral requirement has been
increased under the new Policy and 50 per
cent of any bonus paid will be deferred in
shares for three years.
Performance Share Awards will be
granted to the Executive Directors in 2020
at a level of 200 per cent of salary. This is a
meaningful reduction from the equivalent
LTIP face value of 255 per cent of salary
under the current Policy (as well as a
reduction from the scaled back equivalent
face value of 215 per cent of salary awarded
under the LTIP in the last few years). The
performance conditions will be based
75 per cent on relative TSR performance
against an international group of oil and
gas sector peers and 25 per cent on a new
metric of ROCE. Targets will be calibrated
to reflect market practice and business
forecasts, further details of which are
provided on page 111 of this report. No
vested awards will be released until five
years from grant. Other key senior
employees, including Executive Committee
members and business unit leaders, will
also be eligible to participate in the LTIP
at the Committee’s discretion to ensure
alignment and focus of the senior team
on sustainable long-term corporate
performance.
The Board reviewed the Non-Executive
Directors’ and Chairman’s fees during the
year, and approved an increase of 2 per cent
in line with the average cost-of-living and
the increase awarded to UK-based staff.
Non-Executive Director fees were last
increased with effect from 1 January 2013.
Premier Oil plc 2019 Annual Report and Financial Statements 81
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Implementation of our current
Remuneration Policy in 2019
Financial and operational highlights
Premier’s operational performance has
been strong during the year and enabled
the business to continue to deliver on its
strategic pillars in 2019. The management
team has generated significant free cash
flow which is materially deleveraging the
balance sheet, while actively managing its
portfolio and selectively progressing
growth projects. Key achievements during
2019 were as follows:
• Full-year production of 78.4 kboepd at the
upper end of guidance of 75-80 kboepd.
• Catcher Area production rates of
67.2 kboepd (gross) and high operating
efficiency; project cash payback reached,
22 months after first oil.
• First gas achieved from BIG-P (Indonesia)
delivered on schedule and significantly
below budget, and formal approval of
Catcher Area satellites received with first
oil targeted for early 2021.
• Tolmount on schedule for first gas by the
end of 2020 adding net 20-25 kboepd to
Group production.
• Significant commercial discovery at
Tolmount East; development planning
already well advanced with project
sanction targeted for 2020 2H.
• Rig contracted to appraise the Malguk-1
discovery (Alaska North Slope); targeting
more than 250 mmbls (gross) of
recoverable resources, results expected
in Q2 2020.
• 2019 opex (ex-lease costs) of US$11/boe, and
capex of US$240m, both below guidance
reflecting disciplined cost control, capital
allocation and projects delivered on time
and under budget.
• Net debt reduced by over US$340m to
US$1.99bn as at 31 December.
The Committee was pleased to see that
this strong operational performance
flowed through to share price growth
of 48 per cent during 2019.
Annual bonus outcomes for 2019
In transitioning to the new bonus structure
in 2020, the Committee decided to remove
the personal objectives from the annual
bonus for 2019. This new simplified
structure allows for improved disclosure
of the bonus outcomes, judgement and any
discretion used by the Committee, which
are disclosed in detail on page 100 and
summarised below.
In view of the key achievements outlined
above, the Committee approved a bonus
outcome for the Executive Directors of
65 per cent of the maximum bonus
opportunity of 120 per cent of salary. The
amount earned above 50 per cent of base
salary will be deferred in shares for three
years. The Committee determined that
the annual bonus outcome for 2019, based
on the application of the performance
conditions, was in line with the overall
performance of the business. However, the
Committee exercised discretion to reduce
the outcome for Executive Directors from
66.3 per cent to 65 per cent in order to
ensure alignment with bonus payments
made to the rest of the workforce (65 per
cent of the maximum for each grade).
2017 LTIP vesting
The three-year performance period relating
to the Performance Share Awards and
Restricted Share Awards granted in 2017
ended in December 2019. At grant, the
Committee used its discretion to scale
back award levels by half to 87.5 per cent
of salary for the Performance Share
Awards and to 20 per cent of salary for
the Restricted Share Awards.
The Performance Share Awards were
based on three-year TSR relative to a
comparator group of international oil and gas
sector peers, where Premier ranked between
seventh and eighth out of its peer comparator
group of 15. This resulted in a vesting
outcome of 38 per cent of the shares under
award. The Committee considered the
underlying performance of the Company
and concluded that the vesting outcomes
were justified.
The Restricted Share Awards vest over
three, four, and five years subject to
achievement of a financial underpin
measured at the end of year three. The
Committee noted the reduction in the
Company’s net debt and net leverage ratio
during the Performance Period, such that
the financial underpin for the Restricted
Share Awards was satisfied. The Committee
therefore concluded that the Awards
should vest in full.
The Committee did not adjust any
incentive outcome to account for share
price appreciation, having concluded that
the value delivered was commensurate
with performance over the period.
Wider workforce considerations
and fairness
In 2019, the Committee worked to develop
its approach to engaging with the wider
workforce and took account of feedback
from the Group employee engagement
survey carried out in 2018 and the new
Group Staff Forum when developing the
Remuneration Policy. In determining the
new Policy, the Committee has ensured that
our policies and practices across the business
are fair and consistent and support diversity
and equality. As a result, the Committee has
determined that Executive Director
pensions will be brought into line with the
wider workforce from 1 January 2023 and
salary increases for Executive Directors will
be aligned with the UK workforce from 2020.
In addition, the methodology for calculating
bonus payments for Executive Directors for
2019 was aligned with the rest of the
organisation.
Committee changes
I was appointed to the Board as a
Non-Executive Director on 16 May 2019 and
succeeded Jane Hinkley as Chairman of the
Remuneration Committee on 20 August 2019.
Jane Hinkley stepped down from the Board
on 31 December 2019. I would like to thank
Jane for her contribution and leadership of
the Committee since 19 May 2011.
82 Premier Oil plc 2019 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.
Executive Director change
On 4 March 2020, Robin Allan confirmed
his intention to step down from the Board
at the conclusion of the 2020 AGM. The
section 430 (2B) statement in respect of his
leaving arrangements is available on our
website and full details of the remuneration
paid to him will be included in the 2020
Directors’ Remuneration Report.
In conclusion
The current management team has
performed strongly during the year,
delivering strong operational performance
and generating significant free cash flow.
The Committee and I are delighted with
their hard work and achievements, which
have allowed Premier to materially reduce
its debt levels and invest selectively in the
portfolio for future growth, including the
recently announced proposed strategic
acquisitions of the Andrew Area and
Shearwater assets as well as the
underwritten financing and proposed
extension of Premier’s credit facilities. These
proposed acquisitions are materially value
accretive and the Company looks forward
to realising their significant long-term
potential through production optimisation,
incremental developments and field life
extension projects as well as the continued
deleveraging of Premier’s balance sheet
through the cash flow generated.
I would like to thank shareholders
and their representative bodies for the
constructive consultation both post the
2019 AGM and on the new Remuneration
Policy. The Board of Premier is committed
to addressing shareholder concerns in both
its new Policy and how it is implemented,
and we hope shareholders will be able to
give their support at the AGM on 12 May
2020. I will be available at the meeting to
answer any questions in relation to this
Remuneration Report.
On behalf of the Committee, I would like
to thank all our stakeholders for their
continuing support.
Barbara Jeremiah
Chairman of the Remuneration Committee
Premier Oil plc 2019 Annual Report and Financial Statements 83
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AT A GLANCE
Components of remuneration for Executive Directors
Salary
FIXED
Benefits
Pension
Annual bonus
LTIP
VARIABLE
+
+
+
+
Changes to
the existing Policy
No change
Normally
increased in
line with the UK
workforce.
No change
Competitive
package of
benefits.
New Directors
aligned with the
workforce at 15%
of salary.
Current Directors
reduced to
workforce level by
1 January 2023.
No change
to 120% of salary
maximum.
Enhanced
deferral in
shares.
Enhanced malus/
clawback
triggers.
Implementation
in 2020
Salaries
increased by 2%
in line with the
UK workforce
(frozen since 2014).
Car allowance,
healthcare and
other taxable
benefits.
Agreement
reached to align
with the rest of
the UK workforce
by 1 January 2023.
120% of salary
(unchanged).
50% of any
bonus deferred.
Leaner scorecard
of financial,
strategic,
operational and
EHS metrics.
Restricted
Share Award
removed and
Performance
Share Award
uplifted.
Overall maximum
reduced to
200% of salary.
Enhanced
malus/clawback
triggers.
Performance
Share Award of
200% of salary.
75% relative TSR,
25% ROCE.
Vesting after
year 3 plus 2 year
holding period.
+
Minimum
shareholding
requirement
No change
to 250% of salary
requirement.
Holding
requirement
extends for
2 years
post-cessation.
250% of salary
(unchanged).
Extends for
2 years
post-cessation.
Reasons for changes:
• To address shareholder response at the 2019 AGM regarding complexity and overlap of annual bonus objectives and lack of transparency.
• To ensure executive remuneration at Premier Oil is simple, relevant and appropriately competitive.
• To comply with the UK Corporate Governance Code and best practice.
How executive remuneration aligns to our strategy
STRATEGIC PILLARS
Grow shareholder value
1
2
3
4
Operating in a safe and
responsible manner
Focused on high quality
assets with commercially
advantaged positions
Access to capital and
financial liquidity
Effective organisation sustained
by the right people
KEY PRIORITIES
• Operate assets in a safe and
• Progress projects to schedule
• Debt reduction
responsible manner
and budget
• Ensure workforce safety
• Complete appraisal programmes
• Prioritise capital to sanctioned
and capital efficient projects
• Minimise risk to the environment
• Progress financing structures
• Tightly control cost base
• Net zero emissions for new projects
• Hedging strategy
• Ensure organisation is
appropriately sized
• Implement actions from Staff
Engagement Survey and
organisational health check
• Implement staff forum actions
LINK TO 2020 REMUNERATION POLICY
Safety and environmental metrics
in the annual bonus
Strategic project, production and
exploration measures in the bonus
focus on key E&P assets
Operating cash flow metric in the
bonus drives cash generation for
investment and debt reduction
The Committee considers wider pay
and conditions when determining
executive pay
Total Shareholder Return and Return on Capital measures in the LTIP directly measure shareholder return, disciplined capital allocation and operational efficiency
Remuneration Committee discretion to override formulaic outcomes in incentives to reflect underlying business performance
Deferral of part of the bonus into shares, a two-year holding period on vested LTIP awards, and minimum shareholding requirement
(extending post-cessation) provide a link to shareholder value and align the interests of Executive Directors and shareholders
84 Premier Oil plc 2019 Annual Report and Financial Statements
AT A GLANCE
Executive Director 2019 single total figure of remuneration (£’000s)
CEO pay ratio
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Tony Durrant
Richard Rose
Robin Allan
£1,631.1
£1,012.6
£1,018.6
19.8 : 1
25th
percentile
11.9 : 1
50th
percentile
8.2 : 1
75th
percentile
Salary
Taxable benefits & other payments
Pension
Bonus
Long-term incentives
2019 performance outcomes
ANNUAL BONUS
Personal objectives were removed from Executive Director bonuses for 2019 to simplify the scorecard and remove any overlap,
in response to shareholder feedback from the 2019 AGM.
Details of specific measures, targets and outcomes for each category are provided on page 100 of this report.
CATEGORY
Production
Finance
HSES
Exploration
Strategic projects
% OF FORMULAIC
OUTCOME
OVERALL ACHIEVEMENT KEY HIGHLIGHTS
17%
13%
11%
8.4%
16.9%
Above target performance
2019 production of 78.4 kboepd
Above target performance
Net debt reduction of over US$340m
Target performance
No recordable injuries on operated assets
Target performance
Exploration success in Mexico and at Tolmount East
Target performance
12.5% increase in NPV
Formulaic outcome (% of max)
66.3%
Above target performance
Committee adjustment1
Final outcome (% of max)
-1.3%
65%
1 See page 102.
Long-term incentives
2017 PERFORMANCE SHARE AWARDS
How we stack up against our peer group.
RANK
1
COMPANY
TSR
PREMIER OIL
31.3%
Upper quartile
Median
2
3
4
5
6
7
8
9
10
11
12
13
14
15
2017 RESTRICTED
SHARE AWARDS
The Committee noted
the reduction in the
Company’s net debt
and net leverage ratio
during the performance
period, such that the
financial underpin for
the Restricted Share
Awards was satisfied.
Vesting (% of award)
PERFORMANCE SHARE AWARDS
38%
RESTRICTED SHARE AWARDS
100%
Premier Oil plc 2019 Annual Report and Financial Statements 85
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DIRECTORS’ REMUNERATION REPORT CONTINUED
Policy Report
This section of the Remuneration Report sets out the new Remuneration Policy which will be put to a binding shareholder vote at the
Annual General Meeting on 12 May 2020. This new Policy, set out below, will take effect from the date of that meeting and is intended
to apply for three years.
KEY PRINCIPLES OF OUR REMUNERATION POLICY
The Committee regularly reviews the Remuneration Policy to ensure it supports shareholder interests, reinforces the business
strategy and promotes long-term sustainable success. 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 the Remuneration Policy does not raise environmental, operational, social or governance risks by inadvertently
motivating irresponsible behaviours.
The Committee reviews remuneration arrangements for executives and other key senior leaders to ensure they continue to support
direct alignment with shareholders and a performance-oriented culture. In reviewing these 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.
COMMITTEE PROCESS IN DETERMINING THE NEW REMUNERATION POLICY
The process the Committee went through in determining the 2020 Remuneration Policy was as follows:
• the Committee considered the Company’s strategy, how the current Remuneration Policy related to and supported the strategy, and
formed its own views on the changes (if any) required to the Policy to align with the strategy;
• the Committee considered feedback from shareholders and investor bodies on the 2018 Annual Remuneration Report;
• the Committee sought advice from its independent remuneration consultant on the impact of the 2018 UK Corporate Governance Code
(the ‘Code’), regulations and current investor sentiment in formulating the new Remuneration Policy. In particular, when determining
the new Policy the Committee ensured it addressed the factors of Provision 40 of the Code, namely clarity, simplicity, risk, predictability,
proportionality and alignment to culture.
• the Committee reviewed the wider workforce remuneration and incentives to ensure the approach to executive remuneration is consistent;
• the Committee consulted with Executive Directors and other relevant members of senior management on the proposed changes to the
Remuneration Policy; and
• the Committee conducted a full consultation exercise with major shareholders (representing over 50 per cent of shares in issue) and
investor bodies on the changes.
The Committee was mindful in its deliberations on the new Remuneration Policy of any potential conflicts of interest and sought to
minimise them through an open and transparent internal consultation process; by seeking independent advice from its external
advisers and by undertaking a full shareholder consultation exercise.
To view our previous Remuneration Policy, visit our website: www.premier-oil.com/investors.
86 Premier Oil plc 2019 Annual Report and Financial Statements
CHANGES TO THE REMUNERATION POLICY
Based on the above objectives, the Committee developed a revised remuneration structure for our senior executives that fully complies
with the 2018 UK Corporate Governance Code, as follows:
Current Policy
Change to proposed Policy
2018 Code requirement met
Any bonus in excess of 50% of salary is
deferred in shares for three years.
50% of any bonus paid is deferred in shares
for three years.
• Promote long-term shareholdings by
Executive Directors.
Combination of Performance Shares and
Restricted Shares.
Executive Directors who joined on
or after 20 August 2013 receive pension
contributions and/or an equivalent cash
supplement of 20% of salary.
Other Executive Directors participate in a
pension arrangement which replicates the
benefits of the Company’s defined benefit
scheme.
Performance Shares only, with awards
vesting after three years subject to
performance conditions and a two-year
holding period post-vesting.
• Five-year period between the date of grant
and realisation for equity incentives.
• Phased release of equity awards via
annual rolling vesting.
• Discretion to override formulaic outcomes.
Contributions for new Directors will be in
line with the contribution for the majority
of the UK workforce.
• Pension contributions for new Executive
Directors align with those available to
the UK workforce.
The contribution for existing Directors will
be reduced to 15% from 1 January 2023.
• Pension contributions for existing
Directors will be reduced to align with
the UK workforce by 1 January 2023.
250% of salary minimum shareholding
requirement.
The full shareholding requirement extends
for two years post-cessation of employment.
• Post-cessation shareholding requirement
of two years.
Malus and clawback: Material misstatement,
gross misconduct, and error in calculation.
As current, but with serious reputational
damage and corporate failure in addition.
Applies for one year from payment/vesting.
Applies for two years from payment/vesting.
• Malus and clawback provisions aligned
with the FRC’s Board Effectiveness
Guidance.
The above changes to the Policy provide a best practice governance-aligned, simplified structure with significant levels of deferral and
linkage to long-term sustainable performance, with an overall reduction in total remuneration levels of the Executive Directors.
The graphic below indicates how the new incentive structure operates:
Year-end
0
1
2
3
4
5
6
Performance Period
Deferral in shares for 50% of award
Annual
bonus
Performance
Share Award
('PSA')
Restricted
Share Award
('RSA')
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 vest1 third of RSAs vest1 third of RSAs vest
Malus/clawback provisions apply
Premier Oil plc 2019 Annual Report and Financial Statements 87
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
EXECUTIVE DIRECTOR POLICY
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
Performance metrics
• Not applicable
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
• Newly appointed Executive Directors will receive pension contributions and/or an equivalent
cash supplement in line with the contribution for the majority of the workforce
• Current Executive Directors who joined Premier on or after 20 August 2013 receive pension
contributions and/or an equivalent cash supplement equal to 20 per cent of salary. This will be
reduced to 15 per cent of salary from 1 January 2023, in line with the UK workforce
• For Executive Directors who joined prior to 20 August 2013 the Scheme provides benefits of value
equivalent to a defined benefit plan 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 five per cent per annum. The way this promise is currently
administered is as follows:
– 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
– Executive Directors accrue notional defined benefits entitlement within the Scheme
– To the extent that payments made are not paid into the Scheme, they are deemed to have been
invested into a Life Fund
– At the point that a Director departs or retires, a comparison is undertaken between the value
of the notional defined contribution pot 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
– 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
– This arrangement will cease on 31 December 2022 and from 1 January 2023 a pension contribution
and/or equivalent cash supplement of 15 per cent of salary will be paid, in line with the UK workforce
Performance metrics
• Not applicable
88 Premier Oil plc 2019 Annual Report and Financial Statements
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,
for example relocation allowances
Opportunity
• Set at a level which the Committee considers appropriate for the role and individual circumstances
Performance metrics
• Not applicable
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
• 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’),
and other corporate objectives
• Performance measures, weightings and targets are set at the beginning of the year and weighted
to reflect business priorities
• 50 per cent of any annual bonus earned is deferred in shares for three years
• Dividend equivalents may accrue on Deferred Bonus Awards and be paid on those shares which
vest. For the avoidance of doubt, dividend equivalent payments made under this Policy will be
made in shares
• 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, serious reputational damage, corporate failure, or in
such other exceptional circumstances as the Committee sees fit
• The Committee may exercise malus and clawback until the later of: (i) two years from the
payment of the bonus or the vesting of the shares, or (ii) the completion of the second audit
after payment/vesting
Opportunity
• Up to 120 per cent of salary
• Target amount is 60 per cent of salary
• Threshold amount is 25 per cent of the maximum, with no payout below threshold
Premier Oil plc 2019 Annual Report and Financial Statements 89
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
Annual bonus
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; capital; 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
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
• Dividend equivalents may accrue on Performance Share Awards. For the avoidance of doubt,
dividend payments made under this Policy will be made in shares
• 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, serious reputational damage, corporate failure, or in such other
exceptional circumstances as the Committee sees fit
• The Committee may exercise malus and clawback until the later of: (i) two years from the vesting
date or (ii) the completion of the second audit after vesting
Opportunity
• Performance Share Awards may be granted up to 200 per cent of salary
• 25 per cent of the award will vest for threshold performance, with full vesting for stretch
performance. Vesting increases on a straight-line basis between threshold and stretch
Performance metrics
• The Committee will select performance measures for each cycle to ensure that they continue
to be linked to the delivery of Company strategy
• Performance Share Awards will normally vest based on relative Total Shareholder Return and
Return on Capital Employed. The Committee will consult with key shareholders on substantive
changes to the LTIP performance metrics
• Where the measure is relative TSR, for each performance cycle, the Committee may review and
adjust the TSR comparator group 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
• The Committee may adjust the vesting outcome to ensure alignment with underlying Company
performance and in line with the 2018 UK Corporate Governance Code
90 Premier Oil plc 2019 Annual Report and Financial Statements
FURTHER DETAILS ON THE POLICY
Legacy arrangements
The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any
discretions available to it in connection with such payments) that are not in line with the Policy set out in this report where the terms of
the payment were agreed before the Policy came into effect or at a time when the relevant individual was not a Director of the Company.
This includes the following.
• Restricted Share Awards and Performance Share Awards granted in 2017, 2018 and 2019 under the 2017 Long Term Incentive Plan.
• Deferred Bonus Awards granted in relation to bonuses for the 2016, 2017, 2018 and 2019 financial years.
• Malus and clawback and change of control provisions will continue to apply to the 2017, 2018 and 2019 LTIP awards under the 2017 Long
Term Incentive Plan, and to bonus awards made to Directors for the 2016, 2017, 2018 and 2019 financial years.
• 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.
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.
The broader employee population participates in the Premier Value Share Plan (‘PVSP’). Similar to the 2017 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 Incentive award, 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.
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. Shares owned outright, shares held in the Share Incentive Plan and unvested deferred
bonus awards (net of taxes), will count towards this requirement. Executive Directors are expected to have reached this holding
requirement within five years of the approval of this Policy or, if later, from their appointment date.
On cessation of employment, Executive Directors are required to retain their minimum shareholding requirement immediately prior
to departure for two years. Shares acquired from own resources and/or in-flight LTIP Awards are excluded from the post-cessation
shareholding requirement. Where their shareholding at departure is below the minimum requirement, the Executive Director’s
shareholding is required to be retained for two years. The Committee will operate a robust enforcement mechanism of the post-cessation
shareholding requirement.
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 long-term incentive plan (the ‘Premier Oil 2017 Long Term
Incentive Plan’) were approved by shareholders at the 2017 AGM. Amendments to the plan rules to reflect the new Remuneration Policy
will be put to shareholders at the 2020 AGM.
Premier Oil plc 2019 Annual Report and Financial Statements 91
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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.
Dilution limits
In accordance with the Investment Association’s Remuneration Principles, commitments to issue new shares under all of the Company’s
incentive plans will not exceed 10 per cent of issued Ordinary Share capital in any rolling 10-year period. In addition, commitments to
issue new shares in respect of discretionary incentives awarded to executives and senior management will not exceed 5 per cent of
issued Ordinary Share capital in any rolling 10-year period.
Illustration of application of the Executive Director Remuneration Policy
The 2020 Policy is geared towards performance-orientated pay, with a particular emphasis on long-term performance. For example, at
‘on-target’ performance, approximately 47 per cent of the CEO’s remuneration package is delivered through variable components; this is
increased from the 2017 Policy with the removal of the Restricted Share Awards.
The performance scenario charts below show the estimated remuneration that could be received by the current Executive Directors
for 2020, 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
• 2020 salary, as disclosed in the Annual Report on Remuneration on page 111
• 2019 taxable benefits, as provided in the single figure table on page 99
• Pension contribution of 20 per cent of salary for the Finance Director and 2019 pension benefits for other
Executive Directors as provided in the single figure table on page 99
Minimum
On-Target
Maximum
Maximum with share price
growth
Annual bonus
Nil payout
Payout of 50 per cent of
maximum
Maximum payout (120 per cent
of salary)
As per maximum
Long-term incentive
plan
Nil payout
Performance Share Awards vest
at 25 per cent of maximum
Performance Share Awards vest
in full (200 per cent of salary)
As per Maximum with a 50 per
cent share price increase over
three years
92 Premier Oil plc 2019 Annual Report and Financial Statements
The charts below illustrate the potential reward opportunities for each of the current Executive Directors for the four performance
scenarios.
Tony Durrant, Chief Executive Officer (£’000s)
Minimum
100%
On-target
53%
Maximum
28%
Maximum
(with 50% share
price appreciation)
23%
Richard Rose, Finance Director (£’000s)
£711
26%
27%
22%
21%
£1,337
45%
37%
Fixed
Annual bonus
Long-term incentives
Share price growth
£2,532
18%
£3,101
Minimum
100%
£447
Fixed
Annual bonus
Long-term incentives
Share price growth
On-target
54%
25%
21%
£836
Maximum
28%
Maximum
(with 50% share
price appreciation)
23%
27%
22%
45%
37%
Robin Allan, Director, North Sea and Exploration (£’000s)
£1,579
18%
£1,933
Minimum
100%
£446
Fixed
Annual bonus
Long-term incentives
Share price growth
On-target
54%
25%
21%
£835
Maximum
28%
Maximum
(with 50% share
price appreciation)
23%
27%
22%
45%
37%
£1,578
18%
£1,932
Notes:
1 The valuation of annual bonus and Performance Share Awards (‘PSAs’) for the on-target and maximum scenarios excludes share price appreciation, any dividend
accrual and the impact of any scale back of awards. PSAs vest after three years subject to TSR performance and continued employment. PSAs are subject to a
Holding Period ending on the fifth anniversary of the date of grant of the awards.
2 The above charts are subject to audit.
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, and may be higher or lower than the previous incumbent. Salaries may be set at a lower level
initially with the intention of increasing salaries at a higher than usual rate as the executive gains experience in the role. 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. 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.
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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 untaken 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.
The table below summarises how Performance Share Awards and legacy 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.
Event
Timing of vesting/award
Calculation of vesting/payment
Annual bonus/Deferred Bonus Awards
‘Good leaver’
Annual bonus is paid at the same time as to
continuing employees
Unvested Deferred Bonus Awards vest on
cessation of employment. The Committee has
discretion not to defer part of the bonus earned
in the year of leaving
‘Bad leaver’
Not applicable
Change of control1
Annual bonus is paid and unvested Deferred Bonus
Awards vest on the date of change of control
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)
Annual bonus is paid only to the extent that any
performance conditions have been satisfied and is
pro-rated for the proportion of the financial year
worked before cessation of employment
Individuals lose the right to their annual bonus and
unvested Deferred Bonus Awards
Annual bonus is paid only to the extent that any
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
unless the Committee determines otherwise
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 unless the Committee
determines otherwise
Note:
1 In certain circumstances, the Committee may determine that unvested Deferred Bonus Awards, Restricted Share Awards and Performance Share Awards 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.
94 Premier Oil plc 2019 Annual Report and Financial Statements
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.
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.
Consideration of employment conditions elsewhere in the Company
The Committee engages with the wider workforce by taking account of feedback from employee engagement opportunities such as
the Group Staff Forum. The Committee considers the pay and conditions elsewhere in the Company, including how Company-wide
pay tracks against the market. When determining salary and pension for Executive Directors, the Committee takes account of salary
increases and pension contributions across the Group, particularly for those employees based in the UK. The Committee ensures that
our policies and practices across the business are fair and consistent, and support diversity and equality. 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
Barbara Jeremiah
Year appointed
Director
Date of current
appointment letter
2017
2017
2014
2010
2016
2017
2019
10.08.2017
09.08.2017
21.01.2020
17.05.2017
23.04.2019
05.08.2017
09.09.2019
Premier Oil plc 2019 Annual Report and Financial Statements 95
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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:
Non-Executive Director 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 additional responsibilities, including 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
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.
96 Premier Oil plc 2019 Annual Report and Financial Statements
Annual Report on Remuneration
COMMITTEE MEMBERSHIP AND OPERATION
Committee member
Jane Hinkley
Barbara Jeremiah (Chair)
Anne Marie Cannon
Dave Blackwood
Mike Wheeler
Date of appointment to the Committee
1 September 2010 (retired 31 December 2019)
16 May 2019
17 May 2017
12 December 2017
15 October 2018
Scheduled meetings
attended
Ad hoc meetings
attended
4(4)
2(2)
4(4)
4(4)
4(4)
1(1)
1(1)
1(1)
1(1)
1(1)
COMMITTEE TERMS OF REFERENCE
The Committee acts within written terms of reference which are reviewed regularly and published on the Company’s website
www.premier-oil.com. The terms of reference were reviewed in 2018 with amendments made in order to comply with the 2018 UK
Corporate Governance Code. Minor amendments were also made in October 2019. 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;
• 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.
2019 ACTIVITY
2019 share grants
2019 TSR comparator
group
2019 bonus targets
SAYE invitation
Review of Directors’
Remuneration Report
Gender pay
gap reporting
Remuneration
Policy review
Mid-year review of
2019 bonus scorecard
January
2019
March
2019
June
2019
August
2019
December
2019
2018 bonus outcome
2016 LTIP vesting
outcomes
Salary review
Tender process for new
remuneration advisers
Consideration of
shareholder feedback
Remuneration Policy
review
Preliminary
assessment of 2019
bonus outcome
Premier Oil plc 2019 Annual Report and Financial Statements 97
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
DIRECTORS’ REMUNERATION REPORT CONTINUED
ADVISERS
The Remuneration Committee received advice on executive remuneration from Mercer | Kepler (‘Kepler’) until August 2019. From August
2019 PricewaterhouseCoopers LLP (‘PwC’) were appointed by the Remuneration Committee as independent adviser following a formal
competitive selection process. During 2019, PwC provided support and advice on remuneration for senior executives including the Policy
review for Executive Directors, market practice and corporate governance developments, shareholder consultation and other stakeholder
obligations. They also assisted with the drafting of the Directors’ Remuneration Report and attended Committee meetings. The fees
charged for the provision of independent advice to the Committee during the year were £20,340 from Kepler and £51,500 from PwC.
Separately, PwC provides performance updates on outstanding LTIP awards, for which fees for 2019 were £18,000. Other than in relation
to advice on remuneration, PwC provides support to management in relation to tax reporting, tax compliance and ad hoc tax and
accounting advice.
PwC and Kepler are founding members of the Remuneration Consultants Group and voluntarily operate under its Code of Conduct in
dealings with the Committee. The Committee evaluates the support provided by its advisers annually and is satisfied that the advice it
received from both PwC and Kepler was objective and independent, and that there are no connections with Premier that may impair
their independence.
During the year, the Committee also took advice from the CEO, whose attendance at Committee meetings was by invitation from the
Chair, to advise on specific questions raised by the Committee and on matters relating to the performance and remuneration of the
senior management team. No Director was present for any discussions that related directly to their own remuneration.
VOTING ON REMUNERATION MATTERS
At the 2019 AGM, the Annual Report on Remuneration received a 41.86 per cent vote against. To understand the reasons for the dissent,
the Committee consulted with Premier’s largest institutional shareholders and published the results in the Company’s Update Statement
on the Investment Association’s public register in November. Key observations included a desire for simplification of annual bonus
objectives and greater transparency around the judgement and discretion applied by the Committee.
The Committee has addressed all these issues in the new proposed Remuneration Policy for 2020, in addition to changes to align with
the 2018 UK Corporate Governance Code and shareholder and UK remuneration governance guidelines. A comprehensive consultation
was conducted with all of the Company’s major shareholders, Glass Lewis, the Investment Association and ISS in late 2019 and early 2020,
to gain their input on the new proposed Remuneration Policy before its finalisation. The Committee Chairman’s statement on page 79
includes further details on shareholder engagement. Given the changes made by the Committee to the Policy and, as the 2019 bonus
outturn is aligned with corporate performance, evidenced in this report, the Committee hopes that shareholders will be able to vote in
support of the new Policy and the Annual Report on Remuneration at the 2020 AGM.
Votes received at the 2019 Annual General Meeting in respect of approval of the Annual Report on Remuneration along with votes
received at the 2017 Annual General Meeting on the Directors’ Remuneration Policy are set out below:
Resolution
Votes FOR
and % of votes cast
Votes AGAINST
and % of votes cast
Annual Report on Remuneration (2019 AGM)
Directors’ Remuneration Policy (2017 AGM)
239,324,318
126,747,108
58.14%
88.18%
172,319,657
16,991,271
41.86%
11.82%
Votes
WITHHELD
2,146,169
273,793
98 Premier Oil plc 2019 Annual Report and Financial Statements
SINGLE TOTAL FIGURE OF REMUNERATION FOR EXECUTIVE DIRECTORS (AUDITED)
All figures in £’000s
2019
2018
2019
2018
2019
2018
Tony Durrant
Richard Rose
Robin Allan
Fixed pay
Salary
Taxable benefits1
Pension2
Other payments3
Total fixed pay
Performance related pay
Bonus
– LTIP: Value delivered through performance
– LTIP: Value delivered through share price growth
LTIP total4
Total performance related pay
569.0
24.5
117.3
1.5
712.3
443.8
303.0
172.0
475.0
918.8
569.0
25.5
103.2
1.5
699.2
370.4
280.8
208.0
488.8
859.2
353.8
353.8
353.8
353.8
22.4
63.4
1.8
23.6
63.4
1.8
21.9
70.2
1.5
23.1
56.1
1.5
441.4
442.6
447.4
434.5
275.9
188.4
106.9
295.3
571.2
235.2
123.4
127.8
251.2
486.4
929.0
275.9
188.4
106.9
295.3
571.2
1,018.6
225.7
145.5
133.5
279.0
504.7
939.2
Single total figure of remuneration
1,631.1
1,558.4
1,012.6
Notes to 2019 figures (unless stated):
1 Taxable benefits include car allowance, healthcare and other taxable benefits.
2 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.
3 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 the date of award. Other payments would normally include both SIP and Save As You Earn (‘SAYE’)
awards. No discount was applied to SAYE awards granted in 2019 and therefore the embedded value of those options was nil.
4 As the 2016 long-term incentive awards had not vested at the point that 2018 Directors’ Remuneration Report was published, figures disclosed in that Report were
calculated based on the average share price between 1 October 2018 and 31 December 2018. The long-term incentives for 2018 disclosed above are based on an actual
share price at vesting of 82.90p. Single-figure comparators for 2018 have been updated accordingly. Further details of the final vesting levels for the 2017 long-term
incentive awards are set out on page 102.
SINGLE TOTAL FIGURE OF REMUNERATION FOR NON-EXECUTIVE DIRECTORS (AUDITED)
All figures in £’000s
Base fee
Additional fees1
Expenses2
Total
Roy A
Franklin
(Chairman)
169.6
169.6
–
–
5.2
5.9
174.8
175.5
2019
2018
2019
2018
2019
2018
2019
2018
Dave
Blackwood
Anne Marie
Cannon
Jane
Hinkley
Barbara
Jeremiah
Iain
Macdonald
Mike
Wheeler
53.0
53.0
–
–
–
–
53.0
53.0
53.0
53.0
–
–
–
–
53.0
53.0
53.0
53.o
17.3
21.2
0.2
–
70.5
74.2
33.4
–
3.9
–
0.5
–
37.8
–
53.0
53.0
10.6
10.6
–
–
63.6
63.6
53.0
53.0
–
–
–
–
53.0
53.0
Notes to 2019 figures (unless stated):
1 Additional fees of £10,600 were payable for acting as Senior Independent Director or as Chairman of a Committee. The Company Chairman waived the fee payable
to him as Chairman of the Nomination Committee.
2 Amounts disclosed relate to taxable travel and accommodation expenses paid to Non-Executive Directors in respect of qualifying services during the year.
Premier Oil plc 2019 Annual Report and Financial Statements 99
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
2019 ANNUAL BONUS OUTCOME (AUDITED)
The maximum bonus opportunity for Executives for 2019 was 120 per cent of salary. The scorecard below summarises the Group’s
performance against the financial and operational targets set by the Board for 2019 that are used to determine the level of bonus awarded.
Actual
performance
% of formulaic
outcome
2019 Corporate targets
Performance target ranges
Category
Target
Weighting
Threshold
Production Group production excluding Catcher
(kboepd)
Catcher production (kboepd)
Finance
Meet net debt/EBITDA covenant
on a quarterly basis
10%
10%
5%
41.0
29.0
<3x
Target
44.0
31.0
<2.8x
Stretch
46.0
31.5
<2.6x
44.8
33.6
2.3x
Reduce accounting
net debt
Beat opex budget
Beat gross G&A budget
HSES
Total recordable injury rate
(injury rate per million man hours)
Tier 1 and 2 process safety events
Spills (kg/year)
Leadership engagement visits
Safety Critical Assurance
(cumulative overdue days)
Action close out rate
Exploration Gross resource estimate for
Tolmount East appraisal well (Bcf)
Gross un-risked prospective mean
resources added through new
ventures or acquisitions (mmboe)
Strategic
projects
Execute corporate actions to
strengthen financial position
Delivery of upside projects in existing
producing assets (net % increase in
NPV of corporate asset database)
Successful completion of Zama
appraisal programme with
confirmation of resource estimates
and reservoir deliverability
Implement key recommendations
from organisational health check
5% 85%
102
35
130
>90%
220
45
40
>95%
306
0.91
1
20kg
51
42
88%
160 – 300 Bcf
(P50 – P10)
100
200
500
460
15%
Board
approved plan
Completion
on reasonable
terms
Completion
with superior
terms
Board
approved plan
5%
3%
5%
7.5%
12.5%
5% Well and drill
stem test
objectives met
Well
objectives
met, JV agreed
concept
Well
objectives
met, JV &
Pemex agreed
concept
6%
By year-end
By year-end
By year-end
Target
performance
Threshold
performance
Formulaic outcome total:
Outcome following Committee adjustment:
7%
10%
4.5%
4%
2.5%
2%
3%
8%
3.5%
4.9%
6%
5%
3.5%
2.4%
66.3%
65.0%
The 2019 annual bonus opportunity had five key elements designed to drive delivery of our strategy: production, financial performance,
HSES, exploration and strategic projects. The scorecard above was used to determine bonus outcomes for all employees and Executive
Directors. Following feedback from shareholders and as disclosed in our Update Statement on the 2019 Remuneration Report vote, the
Committee resolved to remove the personal targets for Executive Directors when assessing 2019 performance in order to simplify the
scorecard and remove any duplication. Bonus outcomes have therefore been determined solely on the above corporate targets. Over
the year, Premier has continued to deliver on its strategic pillars, as reflected in the share price increase of 48 per cent during 2019. The
management team has generated significant free cash flow which is materially deleveraging the balance sheet, while actively managing
its portfolio and selectively progressing growth projects at the right exposure. Key achievements during 2019 were as follows:
100 Premier Oil plc 2019 Annual Report and Financial Statements
PRODUCTION
STRATEGIC PROJECTS
Outcome: Above target performance
Outcome: Target performance.
2019 production of 78.4 kboepd was at the upper end of full-year
guidance, underpinned by high operating efficiency and
continued high rates primarily from the Premier-operated
Catcher Area. Operating efficiency was high at 93 per cent
across the Group with the UK Business Unit significantly
out-performing the average efficiency rates seen in the
Central North Sea.
FINANCE
Outcome: Above target performance
Strong operational performance drove free cash flow generation
during 2019 and, consequently, the Group was able to reduce net
debt by over US$340m during the year, thereby delivering on the
stretch net debt and covenant targets set by the Board at the
beginning of the year. In addition, continued cost discipline
resulted in both the opex and G&A targets being met in full
with overall field operating costs being below full-year guidance
of US$20/boe at US$18/boe (including lease costs).
HSES
Outcome: Target performance
In terms of HSES, the Group completed the year without a recordable
injury on any of its operated assets where it is Duty Holder.
However, following several HiPo’s and two Tier 2 LOPCs on our
leased asset facilities, the Committee determined that the Group’s
overall HSES performance in respect of the lagging indicators
represented a threshold performance for the year. In terms of
leading indicators, the Committee noted management’s strong
performance in relation to the HSES leadership and safety critical
maintenance and testing compliance targets, where outcomes for
the year met the stretch and above target levels respectively.
EXPLORATION
Outcome: Target performance
2019 saw successful outcomes for appraisal wells drilled in the
Southern UK North Sea and Block 7 offshore Mexico. In the UK
the successful Tolmount East appraisal well enabled development
planning to commence with a project sanction decision targeted
for the second half of 2020. The Tolmount East success has
positive implications for other targets within the Greater
Tolmount Area. In addition to drilling activity, low cost entry into
prospective acreage in the Andaman Sea and the prolific Alaska
North Slope has further strengthened the Group’s exploration
portfolio with significant resource potential in both basins.
Throughout 2019, management assessed a number of acquisition
opportunities and corporate actions with a view to strengthening
the Group’s financial position and accelerating debt reduction. On
7 January 2020, the Group announced the proposed acquisitions
of the Andrew Area and Shearwater assets from BP, and an
additional 25 per cent interest in the Premier operated Tolmount
Area from Dana (the ‘Acquisitions’). In addition, a proposed
extension to the Company’s existing credit facilities to
30 November 2023 was announced at the same time. The Board
believes that the Acquisitions are materially value accretive for
Premier and will accelerate the deleveraging of the Company’s
balance sheet. The Committee resolved that the threshold
objective in relation to this target had been achieved in 2019.
As stated in our strategy, the Group focuses on high quality assets
in commercially advantaged positions. Central to achieving this
is the optimisation of the existing assets with a view to realising
low cost upside. The net present value of the Group’s Corporate
Asset Database (‘CAD’) increased by 12.5 per cent during the year
through a mixture of approved infill drilling programmes,
satellite resource developments and facility upgrades. Typically,
these projects have a payback period of less than a year and, with
rates of return in excess of 20 per cent, they will help to sustain
the Group’s production profile over the next five years.
The Group significantly upgraded its resource estimates for
the Zama field on Mexico Block 7 following the drilling of two
appraisal wells. Post the successful campaign, the Group initiated
a sales process for Premier’s 25 per cent interest in Mexico Block 7.
The Block 7 joint venture partners also progressed the unitisation
process in December by submitting an Aviso (notice of shared
reservoir) to the Mexican authorities for their approval. FEED
on the joint venture partnership’s chosen development concept
continues ahead of project sanction targeted for later in 2020.
The Group has made progress in implementing a number
of the actions arising from the organisational ‘health check’
commissioned by the Board in 2018. In particular, the technical
capability within the corporate office has been strengthened and
there has been significant progress in simplifying the Company’s
Business Management System (‘BMS’). However, not all of the
actions from the health check were successfully implemented
during the year, therefore work is ongoing to address the
outstanding items.
Premier Oil plc 2019 Annual Report and Financial Statements 101
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
In January 2020, employees across the organisation were awarded bonuses of 65 per cent of the maximum for each grade based on a
provisional formulaic outcome. At the point of determining the level of bonus to be awarded to the Executive Directors, the Committee
considered the final formulaic outcome of 66.3 per cent and agreed that, in order to ensure alignment with the rest of the organisation,
Executive Directors should be awarded bonuses of 65 per cent of the maximum 120 per cent of salary. Annual bonuses awarded to
Executive Directors are summarised in the table below. Amounts exceeding 50 per cent of salary will be awarded in the form of shares,
deferred for three years.
Director
Tony Durrant
Richard Rose
Robin Allan
Bonus as % of
maximum
Total value
£000s
Cash amount
£000s
Amount
deferred into
shares £000s
65%
65%
65%
443.8
275.9
275.9
284.5
176.9
176.9
159.3
99.0
99.0
RETROSPECTIVE DISCLOSURE IN RESPECT OF THE 2018 ANNUAL BONUS
The Committee disclosed in the 2018 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 around the progress of contractor and
funding agreements for the project with a stretch target that included agreement with an equity partner to farm-in to the project. At the
point of assessing the 2018 bonus outcome, a term sheet for vendor loan notes had been agreed with key contractors and preparations for
applying for senior debt to finance the project were underway. The Committee judged that performance during 2018 for this particular
objective was below target, representing 2.4 per cent out of a maximum of 8 per cent of the total outcome.
LTIP VESTING OUTCOMES IN 2019 (AUDITED)
In March 2019, the Committee assessed the Performance Targets for LTIP awards granted in 2017 with a vesting date of 1 September 2020.
The Performance Period for these awards ran from 1 January 2017 to 31 December 2019 with the outcomes being as follows:
• Performance Share Awards ('PSAs'): Vesting levels for the PSAs granted in 2017 are subject to the Company's Total Shareholder Return
('TSR') over the Performance Period relative to a comparator group of 18 international oil and gas sector peers as set out on page 103.
During the Performance Period, three comparator companies delisted and were removed from the comparator group. The Company's
TSR over the Performance Period was 31.3 per cent resulting in a ranking between 7th and 8th within the comparator group. Under the
Group's 2017 Remuneration Policy, 25 per cent of an award vests for median performance, 100 per cent for upper quartile performance
and pro-rata vesting in between. The Company's ranking between median and upper quartile of the comparator group for the 2017 PSA
gives a vesting level of 38 per cent.
• Restricted Share Awards ('RSAs'): Vesting levels for the RSAs granted in 2017 are subject to a financial underpin based on the
reduction of the ratio of net debt to EBITDA, as agreed with the Company’s lenders. At the end of the Performance Period, the
Company's net leverage ratio was 2.3x, well below the 3.0x target. The Company also complied with the absolute net debt target
set by its lenders throughout the Performance Period. Satisfaction of these targets gives a vesting level of 100 per cent for the RSAs.
The Committee considered the Group's performance against the targets stated above and a number of other measures, including: return
on capital, production, reserves and resources and net asset value growth. The Committee satisfied itself that the formulaic vesting
outcomes for both the PSAs and RSAs were reflective of the underlying performance of the Group and that both sets of awards should
vest on the normal vesting date of 1 September 2020. Details of the awards vesting are set out below.
Performance Share Awards
(87.5% of salary at grant)
Restricted Share Awards
(20% of salary at grant)
Director
PSAs
granted
PSAs
vesting
Value
delivered
through
performance
£000s
Value
delivered
through
share price
growth
£000s
Tony Durrant
905,227
343,986
Richard Rose
Robin Allan
562,784
562,784
213,857
213,857
189.2
117.6
117.6
107.4
66.8
66.8
Value
delivered
through
performance
£000s
Value
delivered
through
share price
growth
£000s
113.8
70.7
70.7
64.6
40.2
40.2
Total
long-term
incentives
£000s
475.0
295.3
295.3
RSAs
granted
RSAs
vesting
206,909
206,909
128,636
128,636
128,636
128,636
Note:
Vesting values shown are based on a share price of 86.22p (the volume weighted average price from 1 October 2019 to 31 December 2019).
102 Premier Oil plc 2019 Annual Report and Financial Statements
LTIP AWARDS GRANTED IN 2019 UNDER THE TERMS OF THE 2017 LONG TERM INCENTIVE PLAN (AUDITED)
Consistent with the methodology applied in 2018, the Committee determined that it was again appropriate to scale back the Restricted
Share Award by 50 per cent in view of market conditions. The Performance Share Awards were granted in full with an upper decile
relative TSR performance target required for full vesting, representing a stretch target to the approved Remuneration Policy of upper
quartile. The LTIP awards were granted to Executive Directors on 14 March 2019 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.
Details of the awards are set out in the table below. Performance for these awards will be measured between 1 January 2019 and
31 December 2021. The constituents of the comparator group are detailed below.
2019-2021 cycle
Performance Share Awards
Restricted Share Awards
Director
Grant date
Market price
used to
determine the
awards1
% salary
awarded as
Performance
Shares
Number of
Performance
Share Awards
granted
Tony Durrant
Richard Rose
Robin Allan
14.03.19
14.03.19
14.03.19
78.66p
78.66p
78.66p
175%
175%
175%
1,265,891
787,010
787,010
% salary
awarded as
Restricted
Shares after
scale back
Number of
Restricted
Share Awards
granted
20%
20%
20%
144,673
89,944
89,944
Face value2
£’000s
113.8
70.8
70.8
Face value2
£’000s
995.8
619.1
619.1
Notes:
1 Market price is the average of the closing market prices of a Premier Oil share over the five dealing days immediately preceding the grant date.
2 Face value is the maximum number of shares that would vest (excluding any dividend shares that may accrue) if the performance conditions are met in full,
multiplied by the market price used to determine the awards.
TSR comparator group by Performance Share Award
Company
Aker BP ASA
Beach Energy Limited
Cairn Energy PLC
DNO ASA
Energean Oil & Gas PLC
Energi Mega Persada Tbk
EnQuest plc
Maurel & Prom
Faroe Petroleum plc
Genel Energy plc
Gulf Keystone Petroleum Limited
2017
2018
2019
Company
2017
2018
2019
Kosmos Energy
Lundin Petroleum
Nostrum Oil & Gas plc
Ophir Energy plc
Origin Energy
Oryx Petroleum
Rockhopper Exploration PLC
Santos Ltd
Pharos Energy
Tullow Oil plc
Notes:
The following amendments have been made to the comparator groups since the date of award:
• Origin Energy has been removed from the 2017 and 2018 comparator groups following the sale of its upstream oil and gas assets to Beach Energy.
• Ophir Energy has been removed from all comparator groups following the takeover by Medco.
• Faroe Petroleum has been removed from the 2017 and 2018 comparator groups following the takeover by DNO.
• SOCO International changed its name to Pharos Energy on 16 October 2019.
Premier Oil plc 2019 Annual Report and Financial Statements 103
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
DIRECTORS’ REMUNERATION REPORT CONTINUED
OUTSTANDING SHARE AWARDS
2017 Long Term Incentive Plan (‘2017 LTIP’)
The 2017 LTIP was approved by shareholders at the 2017 Annual General Meeting and replaces the 2009 LTIP.
As at 31 December 2019, the Executive Directors held the following outstanding Performance Share Awards (‘PSA’) and Restricted Share
Awards (‘RSA’) under the 2017 LTIP:
Director
Tony Durrant
Richard Rose
Robin Allan
Award type
Date of
grant
Awards
held at
1 January
2019
Granted
Lapsed
Vested
Awards
held at 31
December
2019
Market
price of
shares on
date of
award
Earliest
vesting
date
PSA
2017-20
PSA
2018-21
PSA
2019-22
RSA
2017-20
RSA
2018-21
RSA
2019-22
PSA
2017-20
PSA
2018-21
PSA
2019-22
RSA
2017-20
RSA
2018-21
RSA
2019-22
PSA
2017-20
PSA
2018-21
PSA
2019-22
RSA
2017-20
RSA
2018-21
RSA
2019-22
01.09.17
905,227
15.03.18
1,392,073
–
–
14.03.19
–
1,265,891
01.09.17
206,909
15.03.18
159,094
–
–
14.03.19
–
144,673
2,663,303
1,410,564
01.09.17
562,784
15.03.18
865,458
–
–
14.03.19
–
787,010
01.09.17
128,636
15.03.18
98,909
–
–
14.03.19
–
89,944
1,655,787
876,954
01.09.17
562,784
15.03.18
865,458
–
–
14.03.19
–
787,010
01.09.17
128,636
15.03.18
98,909
–
–
14.03.19
–
89,944
1,655,787
876,954
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
905,227
55.00p
01.09.20
1,392,073
71.53p
15.03.21
1,265,891
78.66p
14.03.22
206,909
55.00p
01.09.20
159,094
71.53p
15.03.21
144,673
78.66p
14.03.22
4,073,867
562,784
55.00p
01.09.20
865,458
71.53p
15.03.21
787,010
78.66p
14.03.22
128,636
55.00p
01.09.20
98,909
71.53p
15.03.21
89,944
78.66p
14.03.22
2,532,741
562,784
55.00p
01.09.20
865,458
71.53p
15.03.21
787,010
78.66p
14.03.22
128,636
55.00p
01.09.20
98,909
71.53p
15.03.21
89,944
78.66p
14.03.22
2,532,741
Notes:
1 Any vested awards are subject to a two-year holding period such that the total time horizon is five years.
2 Restricted Share Awards vest in one third increments in years three, four and five respectively, subject to continued employment and the achievement
of the financial underpin at the end of year three.
104 Premier Oil plc 2019 Annual Report and Financial Statements
2009 Long Term Incentive Plan (‘2009 LTIP’)
On 4 March 2019, the Committee determined that the Equity Pool and Performance Share Awards granted to Executive Directors on
1 January 2016 should vest. Details of the vesting outcomes are set out on page 98 of the Company’s 2018 Annual Report. 50 per cent
of the vested awards were released immediately with the remaining 50 per cent being granted as a Deferred Share Award subject to
a further three-year deferral period. The table below sets out details of the Executive Directors’ outstanding awards under the 2009
LTIP.
Director
Tony Durrant
Richard Rose
Robin Allan
Award type
Performance
Share Award
Deferred
Share Award
Performance
Share Award
Deferred
Share Award
Performance
Share Award
Deferred
Share Award
Awards
held at
1 January
2019
Date of
grant
Granted
Lapsed
Vested
Awards
held at 31
December
2019
Market
price of
shares on
date of
award
Earliest
vesting
date
01.01.16
567,864
–
141,399
426,465
–
66.50p
01.01.19
01.01.19
–
294,849
–
–
294,849
78.66p
01.01.22
01.01.16
249,500
–
62,126
187,374
–
66.50p
01.01.19
01.01.19
–
151,499
–
–
151,499
78.66p
01.01.22
01.01.16
294,203
–
73,257
220,946
–
66.50p
01.01.19
01.01.19
–
168,285
–
–
168,285
78.66p
01.01.22
Deferred Bonus Awards
As at 31 December 2019 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, 31 December 2017 and 31 December 2018.
Director
Date of grant
Awards held at
1 January 2019
Granted
Lapsed
Vested
Awards held at
31 December
2019
Market price
of shares on
date of award1
Earliest
vesting date
Tony Durrant
Richard Rose
Robin Allan
12.04.17
15.03.18
14.03.19
12.04.17
15.03.18
14.03.19
12.04.17
15.03.18
14.03.19
142,574
207,617
–
350,191
72,437
129,077
–
201,514
77,357
123,637
–
200,994
–
–
109,155
109,155
–
–
74,113
74,113
–
–
62,016
62,016
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
142,574
207,617
109,155
459,346
72,437
129,077
74,113
275,627
77,357
123,637
62,016
263,010
65.85p
71.53p
78.66p
65.85p
71.53p
78.66p
65.85p
71.53p
78.66p
12.04.20
15.03.21
14.03.22
12.04.20
15.03.21
14.03.22
12.04.20
15.03.21
14.03.22
1 The average of the closing prices of a Premier Oil share over the five dealing days immediately preceding the award date.
Premier Oil plc 2019 Annual Report and Financial Statements 105
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
DIRECTORS’ REMUNERATION REPORT CONTINUED
All-employee share 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
Date of grant
Exercisable dates
Tony Durrant
04.05.16
01.06.19 – 30.11.19
08.05.19
01.06.22 – 30.11.22
Richard Rose
04.05.16
01.06.19 – 30.11.19
Robin Allan
04.05.16
01.06.19 – 30.11.19
08.05.19
01.06.22 – 30.11.22
08.05.19
01.06.22 – 30.11.22
Acquisition
price per
share
Options held
at 1 January
2019
Granted
Exercised
Lapsed
Options
held at
31 December
2019
42.00p
100.45p
42.00p
100.45p
42.00p
100.45p
42,857
–
42,857
–
17,919
–
42,857
–
42,857
–
17,919
–
42,857
–
42,857
–
17,919
–
–
–
–
–
–
–
17,919
17,919
–
17,919
Shares held beneficially in the SIP by the Executive Directors during the financial year were as follows:
Director
Tony Durrant
Richard Rose
Robin Allan
Total Partnership
Shares purchased
in 2019 at prices
between £0.623
and £0.9902
Total Matching
Shares awarded
in 2019 at prices
between £0.623
and £0.9902
Shares held on
31 December 2019
Partnership and
Matching Shares
acquired between
1 January and
4 March 2020
1,879
2,254
1,879
1,879
2,254
1,879
29,211
23,742
39,664
826
992
826
Shares held on
1 January 2019
25,453
19,234
35,906
STATEMENT OF DIRECTORS’ SHAREHOLDINGS AND SCHEME INTERESTS (AUDITED)
The table below summarises the Directors’ interests in shares, including unvested awards under employee share schemes, as at
31 December 2019. Further details of all outstanding awards are provided on pages 104 to 106.
Director
Robin Allan
Dave Blackwood
Anne Marie Cannon
Tony Durrant
Roy A Franklin
Jane Hinkley
Barbara Jeremiah
Iain Macdonald
Richard Rose
Mike Wheeler
Owned outright at
31 December 20191
Deferred shares
subject to continued
employment at
31 December 20192
Unvested shares
subject to
performance at
31 December 20193
Unvested SAYE
options at
31 December 2019
Total share
interests at
31 December 2019
663,505
10,000
10,000
1,670,499
60,000
13,234
–
23,076
236,744
30,000
431,295
2,532,741
17,919
3,645,460
–
–
–
–
–
–
10,000
10,000
754,195
4,073,867
17,919
6,516,480
–
–
–
–
–
–
–
–
427,146
–
2,532,741
–
–
–
–
–
17,919
–
60,000
13,234
–
23,076
3,214,550
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 and Deferred Share Awards under the 2009 LTIP. 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 LTIP PSAs and RSAs.
Awards under all of the Company’s share schemes may be met using a combination of market purchases, financed by the Company
through the Premier Oil plc Employee Benefit Trust, and newly issued shares. The Company complies with the Investment Association’s
recommended guidelines on shareholder dilution through employee share schemes: awards under the Group’s discretionary schemes
which may be satisfied with newly issued shares must not exceed 5 per cent of the Company’s issued share capital in any rolling 10-year
period, and the total of all awards satisfied with newly issued shares under all plans must not exceed 10 per cent of the Company’s issued
share capital in any rolling 10-year period.
106 Premier Oil plc 2019 Annual Report and Financial Statements
Directors’ shareholding requirements
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. Shares owned outright, shares
held in the Share Incentive Plan and unvested deferred bonus awards (net of taxes), count towards this requirement. Under the Company’s
proposed Remuneration Policy, the shareholding requirement extends for two years post-cessation of employment. Shares acquired from
own resources and/or in-flight LTIP awards are excluded from the post-cessation shareholding requirement. Where their shareholding at
departure is below the minimum requirement, the Executive Director’s shareholding is required to be retained for two years. The
Committee will operate a robust enforcement mechanism of the post-cessation shareholding requirement. The graphs below show the
value of Executive Directors’ shareholdings and scheme interests as a percentage of salary, in accordance with the above shareholding
requirements, over the last six years. Shareholdings are valued using the average share price from 1 October to 31 December of each financial
year (2019: 86.22p). The final outstanding Deferred Share Award under the legacy 2009 LTIP has also been included on a net of tax basis.
Tony Durrant
(Number of shares)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Richard Rose
(Number of shares)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Robin Allan
(Number of shares)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
(%)
500
450
400
350
300
250
200
150
100
50
0
(%)
500
450
400
350
300
250
200
150
100
50
0
(%)
500
450
400
350
300
250
200
150
100
50
0
2014
2015
2016
2017
2018
2019
Total shareholding
Shareholding as a % of salary
Shareholding requirement
Expected 2020
(post share award vesting)
2014
2015
2016
2017
2018
2019
Total shareholding
Shareholding as a % of salary
Shareholding requirement
Expected 2020
(post share award vesting)
2014
2015
2016
2017
2018
2019
Total shareholding
Shareholding as a % of salary
Shareholding requirement
Expected 2020
(post share award vesting)
Premier Oil plc 2019 Annual Report and Financial Statements 107
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
TOTAL PENSION ENTITLEMENTS (AUDITED)
In line with the Policy, as Executive Directors appointed prior to 20 August 2013, the Company is committed to providing Robin Allan
and Tony Durrant with the cash value of a target pension calculated as if they were contributing members of the Company’s final salary
Retirement and Death Benefits Plan (the ‘Scheme’), not subject to the Scheme’s cap on pensionable earnings (£166,200 for the 2019/20 tax year).
This cash value will be assessed at the point that the individual ceases to be an Executive Director and the Company will make good at that
time any shortfall relative to the value of payments which had already been made. The normal retirement age is 60, although benefits accrue
until the relevant Executive Director ceases employment.
Financial provision for this commitment is made by giving Directors a pension allowance equal to 20 per cent of salary. At their option,
part or all of this allowance may be paid as cash (subject to a deduction in respect of the Company’s national insurance contributions)
with any balance being contributed to an approved pension plan. In addition, at its discretion, the Company may pay supplemental cash
sums to the Directors in order to reduce the projected extent of any eventual shortfall.
The accrued pension entitlements of the Directors are as follows:
(a) Accrued pension
as at 31 December
2019 £’000s pa1,3
(b) Accrued
pension in (a) after
allowing for
inflation £’000s pa3
(c) Accrued pension
as at 31 December
2019 £’000s pa1,3
(d) Value of growth
in accrued pension
above inflation
£’000s2,3
(e) Deduction for
deemed
contributions by
Director £’000s3
(f) Value of growth
in accrued pension
above inflation
less deemed
contributions by
Director £’000s3
148.4
100.3
152.0
102.7
159.5
107.2
150.0
90.0
32.7
19.8
117.3
70.2
Director
Tony Durrant
Robin Allan4
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 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.
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.
Payments made by the Company in respect of pension benefits in relation to 2019 are summarised below:
Director
Tony Durrant
Richard Rose
Robin Allan
Pension plan
contributions
£’000s
Cash payments
made during 2019
£’000s
Total pension benefits
paid by Company
£’000s
0.0
10.0
0.0
572.6
53.4
145.4
572.6
63.4
145.4
In respect of 2019, Tony Durrant and Robin Allan elected to receive their total pension entitlement in cash. During 2018, 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 2019 towards the shortfall for Robin Allan and 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.
EXECUTIVE DIRECTOR EXTERNAL APPOINTMENTS
Executive Directors are permitted to accept non-executive appointments outside the Company providing that the Board’s approval is
obtained. 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.
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.
108 Premier Oil plc 2019 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 2009 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 2009:
(£)
200
150
100
50
0
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
31 Dec 2018
31 Dec 2019
FTSE All-Share Oil & Gas Producers Index
Premier Oil plc
£157
£37
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.
CEO single
figure of
remuneration
£’000s
Annual bonus
payout as % of
maximum
Equity Pool
as % of
maximum1
Asset Pool
as % of
maximum2
Restricted
Share Award
vesting as %
of maximum3
Performance
Share Award
vesting as %
of maximum
Matching
Share Award
vesting as %
of maximum
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
1,558.4
1,631.1
60%
55%
45%
24%
39% (and
pro-rated)
40%
10%
66.5%
63.4%
54.3%
65%
100%
100%
0%
0%
0%
0%
0%
0%
0%
45.1%
N/A
55%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
100%
N/A
100%
90%
0%
0%
0%
0%
0%
0%
75.1%
38%
100%
100%
66%
0%
0%
0%
0%
0%
0%
0%
N/A
2010
2011
2012
2013
Simon Lockett
Simon Lockett
Simon Lockett
Simon Lockett
20144
Simon Lockett
Tony Durrant
Tony Durrant
Tony Durrant
Tony Durrant
Tony Durrant
2015
2016
2017
2018
20193
Tony Durrant
Notes:
1 Maximum opportunity for the 2016 Equity Pool was 50 per cent of salary.
2 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.
3 The maximum opportunity for the Restricted Share Award was 20 per cent of salary.
4 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.
Premier Oil plc 2019 Annual Report and Financial Statements 109
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REMUNERATION REPORT CONTINUED
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
UK-based
employees1
(average
per capita)
% change
% change
0%
(3.9%)
19.8%
3.3%
(9.2%)
34.7%
2019
£’000s
569.0
24.5
443.8
1,037.3
CEO
2018
£’000s
569.0
25.5
370.4
964.9
Notes:
1 UK-based employees who were employed for the full year in both 2018 and 2019.
2 Includes cash bonus and amount deferred into shares (amounts above 50 per cent of salary are deferred into shares).
CEO PAY RATIO
In accordance with new statutory requirements in the UK, listed companies with more than 250 employees are required to disclose
annually the ratio of their CEO’s pay to the median, lower quartile and upper quartile pay of their UK employees. The table below sets
out the CEO pay ratio for the Company for 2019.
Year
2019
Method
Method A
Total pay and benefits
Salary
P25
(lower quartile)
P50
(median)
P75
(upper quartile)
19.8 : 1
£82,237
£52,508
11.9 : 1
8.2 : 1
£136,538
£200,076
£79,465
£124,584
The Committee believes that, of the methodologies permitted under the regulations, Method A provides the most statistically accurate
representation of the Chief Executive Officer’s remuneration relative to the UK workforce. Total pay and benefits (on a full-time equivalent
basis) for the people employed during the full 12-month period to 31 December 2019 have been calculated in line with the ‘single figure
methodology’ used for the Chief Executive Officer. Employees were then ranked to identify each individual at the 25th, 50th and 75th percentiles.
The median pay ratio is consistent with the pay, reward and progression policies for the Company’s UK employees as a whole, as we have
pay grades benchmarked to the oil and gas industry, a graduated bonus scheme based on these grades and share plans for all employees.
The results are consistent for the professional nature of our workforce and we would not expect to see a disconnect between the CEO
pay and the pay of the UK workforce.
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 2018 and 31 December 2019. 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 2018 and
31 December 2019.
2019
US$ million
2018
US$ million
% change
Remuneration paid to or receivable by all employees of the Group
120.2
113.6
5.8%
Distributions to shareholders by way of dividend
Distributions to shareholders by way of share buyback
–
–
–
–
–
–
IMPLEMENTATION OF EXECUTIVE DIRECTOR REMUNERATION POLICY FOR 2020
This section sets out the proposed implementation of the Directors’ Remuneration Policy in 2020, subject to its approval by shareholders
at the 2020 AGM.
Salary
The salaries of the Executive Directors are reviewed annually to ensure they remain appropriate. Below are the base salaries of the
Executive Directors effective from 1 January 2020. This is an increase of 2 per cent which is consistent with the salary increases for the
wider UK workforce in accordance with the Policy.
110 Premier Oil plc 2019 Annual Report and Financial Statements
Director
Tony Durrant
Richard Rose
Robin Allan1
Position
Chief Executive Officer
Finance Director
Director, North Sea and Exploration
Note:
1 Robin Allan will stand down from the Board on 12 May 2020, therefore no increase was awarded.
Salary from
1 January 2019
£
569,000
353,750
353,750
Salary from
1 January
2020
£
580,380
360,825
353,750
Percentage
increase
%
2%
2%
–
Pension, benefits and all-employee share plans
There are no changes intended to the benefits or rights of participation in all-employee share plans provided to Executive Directors.
Pension contributions and arrangements for the existing Executive Directors will be unchanged compared to 2019, but will be aligned
with the rate applicable to the wider UK workforce (currently a defined contribution of 15 per cent of salary) from 1 January 2023.
Annual bonus
The Executive Director annual bonus corporate scorecard, setting out measures and targets for 2020, has been established by the
Remuneration Committee. Details of performance against the measures will be disclosed in the 2020 Annual Report on Remuneration so far
as possible, whilst maintaining commercial confidentiality. The following table sets out the categories and a description of the measures.
Category
Targets
1. Financial & Operational
Operating cash flow
2. Project Development
3. ESG
4. Exploration
Production
Tolmount delivery
Reserves replacement
Safety
Environmental performance
Discovery/prospective resources
Weighting
(% of maximum corporate
bonus opportunity)
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
25%
Subject to approval of the Directors’ Remuneration Policy at the 2020 AGM, 50 per cent of any bonus earned will be deferred in shares for
three years.
2017 Long Term Incentive Plan
The Committee intends to grant LTIP awards to Executive Directors of value equal to 200 per cent of salary following the 2020 AGM,
subject to shareholder approval of the Policy. For the relative TSR element, performance will be assessed against a comparator group of
listed E&P companies with threshold vesting (25 per cent of maximum) for performance in line with the median and maximum vesting
for performance in line with the upper quartile. The targets for the Return on Capital Employed metric have not yet been determined but
will be announced prior to the AGM, via RNS.
Non-Executive Director remuneration
During the year, the Committee reviewed the fees for the Chairman and the Board reviewed the fees for Non-Executive Directors. The
Committee agreed an increase of 2 per cent in line with the wider UK workforce. Non-Executive Director fees for 2020 are as follows:
Role
Chairman
Other Non-Executive Directors
Fee type
Total fee
Basic fee
Committee Chairmanship
Senior Independent Director
From
1 January
2019
£
From
1 January
2020
£
Percentage
increase
%
169,600
53,000
10,600
10,600
172,992
54,060
10,812
10,812
2%
2%
2%
2%
Premier Oil plc 2019 Annual Report and Financial Statements 111
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
DIRECTORS’ REMUNERATION REPORT CONTINUED
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
five-year period ending 31 December 2019.
Year
2015
2016
2017
2018
2019
Annual bonus
Long-term incentives
Total bonus outcome reduced to 10%
(formulaic outcome of 55.8% to 58.1%)
None
None
None
None
Total bonus outcome reduced to 65%
(formulaic outcome of 66.3%)
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.
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.
For and on behalf of the Remuneration Committee:
Barbara Jeremiah
Chairman of the Remuneration Committee
4 March 2020
112 Premier Oil plc 2019 Annual Report and Financial Statements
DIRECTORS’ REPORT
The Directors present their Annual Report on the affairs of the Group, together with the audited Group financial statements and
Auditors’ Report for the year ended 31 December 2019. 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 115.
DIVIDEND
No dividend is proposed in respect of the year ended 31 December 2019 (2018: nil).
ANNUAL GENERAL MEETING
The Company’s next AGM will be held on Tuesday 12 May 2020 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 4 March 2020 are shown on pages 62 to 65.
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 67.
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 158. 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 2019, for the allotment of relevant securities is for a nominal amount of up to (i) £34,235,029 and (ii)
equity securities up to a nominal amount of £68,470,059 less the nominal amount of any shares issued under part (i) of the authority.
In addition to the authority given at the 2019 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 2019 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 £10,270,508 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.
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 159. 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 158. No person has any special rights of control over the Company’s share capital
and all issued shares are fully paid.
Premier Oil plc 2019 Annual Report and Financial Statements 113
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT DIRECTORS’ REPORT CONTINUED
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.
SIGNIFICANT SHAREHOLDINGS
As at 4 March 2020, 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
Morgan Stanley
Baillie Gifford & Co
JP Morgan Chase & Co
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
Notified number
of voting rights
Notified percentage of
voting rights1
Nature of holding
03.03.2020
04.03.2020
04.01.2019
07.02.2020
13.07.2018
13.05.2015
27.04.2009
03.03.2017
20.01.2012
68,304,392
45,157,595
41,626,147
44,476837
38,917,945
25,451,951
3,933,529
23,907,981
24,666,346
8.16%
5.39%
5.09%
5.31%
5.02%
4.98%
4.95%
4.68%
4.66%
Indirect
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 152 to 156, 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$130 million. Upon a change of control, the
commitments under the facility would be cancelled and all amounts owing would be immediately due and payable, together with
accrued interest.
POLITICAL DONATIONS
No political donations were made during the year (2018: US$nil).
SIGNIFICANT EVENTS SINCE 31 DECEMBER 2019
Details of significant events since the balance sheet date are contained in note 27 to the financial statements on page 167.
114 Premier Oil plc 2019 Annual Report and Financial Statements
INFORMATION SET OUT IN THE STRATEGIC REPORT
The Strategic Report set out on pages 1 to 57 provides a comprehensive review of the performance of the Company’s operations for
the year ended 31 December 2019 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 Employees section of the Sustainability Review in the Strategic Report
on pages 40 to 42. In addition, information regarding the Company’s greenhouse gas emissions is also included in the Environment
section of the Sustainability Review in the Strategic Report on pages 34 to 39. 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 58 to 112. 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
9.8.4 (1)
9.8.4 (5)
Item
Location
Interest capitalised
Financial statements, note 5, page 142
Waiver of emoluments by a director
Directors’ Remuneration Report, page 99
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
4 March 2020
Premier Oil plc 2019 Annual Report and Financial Statements 115
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT 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. 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;
2. 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.
This responsibility statement was approved by the Board of Directors on 4 March 2020 and is signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
116 Premier Oil plc 2019 Annual Report and Financial Statements
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC
FOR THE YEAR ENDED 31 DECEMBER 2019
OPINION
In our opinion:
• Premier Oil plc’s Group financial statements and Parent Company financial statements (the ‘financial statements’) give a true and
fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2019 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’)
as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006, and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
We have audited the financial statements of Premier Oil plc which comprise:
Group
Parent Company
Consolidated balance sheet as at 31 December 2019
Balance sheet as at 31 December 2019
Consolidated income statement 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 cash flow statement for the year then ended
Related notes 1 to 28 to the consolidated financial statements, including
a summary of significant accounting policies
Related notes 1 to 10 to the financial statements including
a summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and
IFRSs as adopted by the European Union. 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).
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (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 the Group and Parent Company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’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 is sufficient and appropriate to provide a basis for our opinion.
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 the ISAs (UK) require 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 54 to 57 that describe the principal risks and explain how they are being managed
or mitigated;
• the Directors’ confirmation set out on page 50 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 page 49 in the Financial Review 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 12 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 53 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 2019 Annual Report and Financial Statements 117
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
OVERVIEW OF OUR AUDIT APPROACH
Key audit matters 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:
• Oil and gas reserve estimation, including reserves used in the calculation of Depreciation, Depletion and
Amortisation (‘DD&A’), impairment testing and the assessment of the recoverability of Deferred Tax Assets (‘DTAs’);
• Impairment of tangible oil and gas properties;
• The recoverability of DTAs; and
• Going concern and covenant compliance.
Materiality
Audit scope
We performed our audit of the Group financial statements to an overall materiality level of US$18m, which
represents 2% of earnings before interest, tax, depreciation and amortisation, excluding non-recurring items
and the impact of the adoption of IFRS 16 Leases (‘adjusted EBITDA’).
For the purpose of our audit, components were defined at a legal entity level. We performed an audit of the complete
financial information of six components and audit procedures on specific balances of a further seven components.
The components where we performed full or specific audit procedures accounted for 99% of adjusted EBITDA,
revenue and total assets.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources
in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial
statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.
Key observations communicated
to the Audit and Risk Committee
We reported to the Audit and Risk
Committee at its March 2020 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 reserve
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
Our response to the risk
Refer to the Audit and Risk Committee
Report (page 75); Accounting policies
(page 128); and Note 10 of the
Consolidated Financial Statements
(page 146).
At 31 December 2019, Premier reported
171 million barrels of oil equivalent
(‘mmboe’) of proved and probable (‘2P’)
reserves (2018: 194 mmboe).
The estimation and measurement of oil
and gas reserves impacts many material
elements of the financial statements
including DD&A, impairment, going
concern, decommissioning and DTA
recoverability. There is technical
uncertainty in assessing reserve
quantities and there are complex
contractual arrangements that
determine Premier’s entitlement
of reserves.
The scope of our procedures included
contingent resources that impact the
financial statements, primarily being
those associated with fields yet to be
sanctioned but included in
management’s DTA recoverability
assessment. This risk has remained
consistent with the prior year.
Our response was primarily performed by the Group audit team,
with input from our three component audit teams based in Ho Chi
Minh City (Vietnam), Jakarta (Indonesia) and Aberdeen (United
Kingdom). Our procedures covered 100% of reserve and resource
volumes with a direct impact on the financial statements.
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;
• Management’s 2P reserves estimates are prepared by an internal
specialist whilst an external specialist is engaged for the purpose of
assessing the appropriateness of management’s internal estimate.
We assessed the appropriateness of reliance on management’s
internal and external reserve specialists by performing procedures
to evaluate their objectivity and competency;
• Met with management’s internal and external specialists to
understand the basis, and therefore appropriateness, of
variances between the two estimates;
• Investigated all material volume movements from the prior
period estimates and lack of movement where changes were
expected based on our understanding of operations and findings
from other areas of our audit;
• Ensured reserve volumes were consistently applied throughout
all relevant accounting processes including DD&A, impairment,
going concern, decommissioning provisions and DTA
recoverability; and
• Reconciled management’s reserves disclosure included in the
Annual Report to the results of our testing.
118 Premier Oil plc 2019 Annual Report and Financial Statements
Impairment of tangible oil and gas properties
Risk
Our response to the risk
Our response was performed by the Group and Aberdeen
component audit teams covering 100% of the assets tested for
impairment. Our procedures comprised the following:
• Confirmed our understanding of Premier’s impairment
process as well as the control environment implemented
by management;
• Tested the completeness of indicators of impairment loss or
reversal identified by management through assessment of
changes in asset performance and market conditions;
• Where an indicator of impairment or reversal of an oil and gas
property was identified, we:
– Obtained the underlying VIU model and tested the
model integrity;
– In conjunction with our EY valuations specialists, assessed
the appropriateness of management’s oil and gas price
assumptions through comparison with the estimates of
market participants. Reflective of a narrowing of the range
of long-term oil price forecasts, management elected to revise
its long-term Brent oil price assumption to US$70/bbl (real)
(2018: US$75/bbl, real) during the current period;
– In conjunction with our EY valuations specialists, assessed
the appropriateness of management’s impairment discount
rates based on an independent re-calculation of the Group’s
weighted average cost of capital;
– Tested management’s production profiles through
reconciliation to the results of our testing in respect
to reserve estimation;
– Tested the appropriateness of other cash flow assumptions,
including cost estimates, inflation rate and FX rates based
on comparison with recent actuals and our understanding
obtained from other areas of the audit; and
– In light of Premier’s support for the objectives of UK Oil and
Gas to reach net zero carbon emissions by 2030, considered
the extent of reserves recognised that are due to be produced
beyond 2030 in assessing the potential impact of the energy
transition on the valuation of Premier’s tangible oil and gas
assets.
Refer to the Audit and Risk Committee
Report (page 75), Accounting policies
(page 128); and Note 10 of the
Consolidated Financial Statements
(page 146).
In the current period, management
recorded a net impairment charge
of US$41.5m (2018: net impairment
reversal of US$35.2m). US$11.0m of
the charge relates to producing assets
(predominantly Solan) and is therefore
subject to the determination of
judgemental valuation inputs. The
remaining charge of US$30.5m
relates to the impact of changes to
decommissioning provisions on
nil-carrying value assets.
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.
Following the identification of
Group-wide indicators of impairment,
being a revision to the long-term oil price
assumption and discount rate applied to
decommissioning provisions, all of
management’s tangible oil and gas
assets, as well as the goodwill balance
which is associated with Catcher, were
tested for impairment in the period.
Management prepare their tangible
asset impairment tests under the
value-in-use methodology. The models
include a number of accounting
estimates and judgements 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.
Key observations communicated
to the Audit and Risk Committee
We reported to the Audit and Risk
Committee at its March 2020 meeting
that, based on our testing performed,
we considered the current period
impairment charge to be materially
correctly stated.
We reported to the Audit and Risk
Committee how management’s
long-term oil price (US$70/bbl real) and
discount rate (9% pre-tax in respect to
UK assets) assumptions compared with
the range of acceptable estimates, which
we consider to be US$56/bbl to US$71/bbl
(real) and 9% to 12% respectively. As a
result of headroom on Premier’s
longer-life assets, had a long-term oil
price or discount rate assumption at the
middle of their respective ranges been
applied by management, the impairment
charge would not have been materially
different.
96% of Premier’s 2P reserves relate to
assets that are expected to cease
production before 2030. The remaining
4% will be extracted by 2040 and relate
to gas volumes. Consequently, we do
not believe that Premier’s 2P reserves,
as well as associated tangible oil and gas
properties, are significantly exposed to
the risks of energy transition.
Premier Oil plc 2019 Annual Report and Financial Statements 119
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
The recoverability of DTAs
Risk
Our response to the risk
Refer to the Audit and Risk Committee
Report (page 75), Accounting policies
(page 128); and Note 19 of the
Consolidated Financial Statements
(page 157).
As at 31 December 2019, Premier
recognised a gross deferred tax asset of
US$1,556m (2018: US$1,434m), primarily
relating to the value of historical UK tax
losses that are expected to be utilised in
future periods.
The recognition of DTAs is dependent on
the availability of future taxable profits
against which losses can be utilised.
Management’s forecast of future taxable
profits relies on the estimation of oil and
gas price assumptions, production
profiles and cost forecasts. This includes
forecast future taxable profits of
currently producing assets and certain
unsanctioned assets.
In addition, unlike in the prior year, as at
31 December 2019 management’s future
taxable profits against which DTAs are
recorded include those associated with
its proposed UK acquisitions as defined
in note 27 (‘target assets’ or ‘Acquired
Assets’).
This risk is elevated compared to the
prior year due to the inclusion of forecast
profits relating to the target assets.
Our response to the risk associated with the recoverability of
DTAs was performed by the Group and Aberdeen component
audit teams, covering 100% of the recorded DTA.
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;
• In respect to Premier’s existing assets, ensured the forecasts
used by management for assessing the recoverability of DTAs,
including production profiles and cost estimates, were
consistent with those used when testing for impairment and
assessing going concern and viability;
• Ensured the oil and gas prices used by management for
assessing the recoverability of DTAs were consistent with those
used when testing for impairment and assessing going concern
and viability. In addition, we performed a sensitivity assessment
to identify the impact on DTA recognition had a long-term oil
price at the middle of the range defined previously been applied;
• Evaluated the reasonableness of tax planning strategies applied
in determining the recoverability of deferred tax assets based on
tax legislation and historical execution of similar strategies;
• In respect to fields that are yet to commence production, we
assessed the likelihood of executing required development
activities to bring the asset to production based on our
understanding of the required development activities
outstanding and testing of forecasted capital expenditure
within the cash flow model; and
• In respect to assessing the likelihood, as at 31 December 2019,
of Premier realising future taxable profits associated with
target assets:
Key observations communicated
to the Audit and Risk Committee
We reported to the Audit and Risk
Committee at its March 2020 meeting
that, based on our testing performed,
forecasted future taxable profits
underpinning the recognised DTA are
probable in accordance with accounting
standards and consistent with the
assumptions applied in asset impairment
testing and the going concern and
viability assessments.
In particular, based on the audit evidence
we obtained, we reported that we
concurred with management’s
assessment that, as at 31 December 2019,
future taxable profits associated with
target assets were appropriate for
inclusion in the DTA recoverability
assessment. In addition, had a long-term
oil price at the middle of the range
(US$56/bbl to US$71/bbl real) been applied,
headroom would remain, resulting in
continued full recognition of DTAs.
– Inquired of management’s external lawyers as to the status of
the proposed acquisitions as at the balance sheet date and the
uncertainties that remained at that time;
– Obtained and inspected draft Sale and Purchase Agreements
(‘SPAs’) as at 31 December 2019 in respect to each proposed
acquisition;
– Obtained and inspected funding arrangements in place as at
31 December 2019 to complete the acquisitions;
– Obtained and inspected agreements signed by creditors as at
31 December 2019 evidencing their intent to vote in favour of
the Scheme of Arrangement;
– Reviewed the results of creditor votes cast at the Creditor’s
Meeting (12 February 2020), which exceeded the required
thresholds;
– Assessed the appropriateness of reliance on the estimates of
parties engaged to provide Competent Person Reports (‘CPRs’)
by performing procedures to evaluate their objectivity and
competency;
– Reconciled production and cost forecasts associated with
target assets to CPRs; and
– Ensured that oil and price assumptions applied in respect to
target assets were consistent with those applied to Premier’s
existing assets, being consistent with those used when testing
for impairment and assessing going concern and viability.
120 Premier Oil plc 2019 Annual Report and Financial Statements
Key observations communicated
to the Audit and Risk Committee
We reported to the March 2020 meeting
of the Audit and Risk Committee that,
based on our testing performed, we
believed that the going concern
assumption adopted in the 2019 financial
statements is appropriate, based on
forecast covenant compliance headroom
calculated under management’s base
case as well as an assessment of the
likelihood of events arising that would
result in Premier not being considered
a going concern.
Management’s base case oil and gas
price assumptions applied throughout
the going concern period are consistent
with those used in assessing the
recoverability of deferred tax assets and
in testing assets for impairment. The oil
price forecasted by management in its
base case (US$65/bbl) is within the range
of broker, consultant and peer estimates
of US$53/bbl to US$73/bbl, US$61/bbl to
US$68/bbl and US$59/bbl to US$71/bbl,
respectively.
Under certain production and oil price
downside scenarios, including the
potential for oil prices to remain
suppressed for the entire period of the
going concern assessment as a result of
COVID-19, covenants would be breached
during the going concern period should
the acquisition of the target assets not
complete and in the absence of
mitigating actions.
However, based on our audit procedures,
we confirmed that we concurred with
management’s going concern
assessment. We were satisfied that the
going concern assumption was
appropriate, based on the reasonableness
of Premier’s base case assumptions, as
well as the plausibility of management’s
assumptions in respect to the ability to
complete the acquisition of the target
assets and to execute mitigating actions
in the required timeframe in downside
scenarios. In downside scenarios,
management’s key mitigating actions
include the ability to complete asset
disposals and defer capital expenditure,
as required.
We confirmed that management’s
disclosure appropriately describes the
risks associated with Premier’s ability to
continue to operate as a going concern.
Going concern assessment and covenant compliance
Risk
Our response to the risk
Refer to the Audit and Risk Committee
Report (page 75); Accounting policies
(page 127); and Note 16 of the
Consolidated Financial Statements
(page 149).
Premier’s ongoing covenant compliance
is a key consideration when considering
the appropriateness of adopting the
going concern basis of accounting.
Management’s base case forecasts
include the cash flows associated with
Premier’s existing assets as well as the
assets it expects to acquire.
Under management’s base case
assumption, no breach of covenants is
forecasted throughout the going concern
period. However, should the acquisition
of the target assets not complete and 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.
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;
• In conjunction with EY Business Modelling specialists, tested
the integrity of management’s going concern model;
• In conjunction with EY Valuation specialists, audited
management’s oil and gas price assumptions of US$65/bbl
and 45 p/therm, respectively. Our audit procedures included
a comparison of management’s price assumptions with those
of market participants, including those released since the
outbreak of COVID-19;
• In respect to Premier’s existing assets, we:
– 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;
– Assessed the appropriateness of reliance on management’s
internal and external reserve specialists by performing
procedures to evaluate their objectivity and competency;
– Compared management’s production profile to that of the
independent external specialist and investigated all
significant variations;
– Compared management’s production profile per Premier’s
current period going concern model with that included in the
prior period model, investigating any significant variances
and corroborating the drivers of variances to understanding
obtained when performing other audit procedures including
reserve estimation and impairment; and
– Audited the reasonableness of all other key assumptions,
including cost forecasts through reconciliation to the budget
approved by the Board and comparison with recent actuals,
as well as their consistency with other areas of the audit
including impairment assessments and deferred tax asset
recognition.
• In respect to target assets, we:
– Assessed the likelihood of Premier completing the proposed
acquisitions by executing the procedures detailed in our
response to ‘recoverability of deferred tax assets’;
– Assessed the appropriateness of reliance on the estimates of
parties engaged to provide CPRs by performing procedures to
evaluate their objectivity and competency; and
– Reconciled production and cost forecasts associated with
target assets to CPRs.
• 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;
• Independent of management’s analysis, used our understanding
of Premier and the sector to identify events or conditions that,
individually or collectively, may cast significant doubt on the
entity’s ability to continue as a going concern. Based on the
events and conditions identified, we 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 considering the impact of the
proposed acquisitions not completing, oil price realisations at
the bottom of broker forecasts (being US$12/bbl lower than
management’s base case), production downside of a high-margin
field (representing a 10% fall in forecast Group production), as
well as the combined of each;
• Considered the likelihood of management’s ability to execute
mitigating actions, as required, to prevent a breach of covenants
in downside scenarios based on our understanding of Premier’s
assets and the sector; and
• Reviewed the appropriateness of management’s going concern
disclosure in describing the risks associated with its ability to
continue to operate as a going concern for a period of 12 months
from the date of our auditors’ report.
The key audit matters identified above are consistent with those identified in our prior period auditors’ report.
Premier Oil plc 2019 Annual Report and Financial Statements 121
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope
for each entity within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. In
determining the scope of our audit, we take into account size, risk profile, the organisation of the Group and effectiveness of Group-wide
controls, changes in the business environment and other factors such as the potential for and history of material misstatements.
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 47 reporting components of the Group, we selected 13 (2018: 18) components
covering entities within the United Kingdom, Vietnam, Indonesia, Mexico and the Falkland Islands, which represent the principal
business units within the Group.
Of the 13 (2018: 18) components selected, we performed an audit of the complete financial information of 6 (2018: 8) components (‘full scope
components’) which were selected based on their size or risk characteristics. For the remaining 7 (2018: 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.
Changes to our scope since the prior period primarily relate to declining business activity in certain components driven by asset
disposals, natural well decline at operating assets and conversion of Premier’s convertible bonds.
The charts below illustrate the coverage obtained from the work performed by our audit teams. The audit scope of specific scope
components may not have included testing of all significant accounts of the component but will have contributed to the coverage
of the Group.
Adjusted EBITDA
Total assets
Revenue
2 3
1
2
3
1
2 3
1
1. Full scope components
98%
2. Specific scope components 1%
1%
3. Other procedures
1. Full scope components
79%
2. Specific scope components 20%
1%
3. Other procedures
1. Full scope components
98%
2. Specific scope components 1%
1%
3. Other procedures
Of the remaining 34 components, which together represent 1 per cent of the Group’s adjusted EBITDA, we performed other procedures,
including the following to respond to any potential risks of material misstatement to the consolidated financial statements:
• Review of Group-wide entity level controls, including the level of management oversight;
• Analytical review procedures on a legal entity basis;
• Testing of consolidation journals, intercompany eliminations and foreign currency translation recalculations;
• Enquiry of management about unusual transactions; and
• Review of minutes of Board meetings held throughout the period.
Involvement with component teams
The overall audit strategy is determined by the Senior Statutory Auditor, Gary Donald. In establishing our overall approach to the Group
audit, we determined the type of work that needed to be undertaken at each component by us, as the Group audit team, or by component
auditors from other EY global network firms operating under our instruction. We have component teams in Aberdeen (United Kingdom),
Ho Chi Minh City (Vietnam) and Jakarta (Indonesia).
Of the 6 full and 7 specific scope components, audit procedures were performed by component auditors on 5 and 2 components,
respectively. The remainder of components were audited directly by the Group audit team.
During 2019, senior members of the Group audit team visited each component team and respective local business unit management.
The Group audit team interacted regularly with each component team during each stage of the audit 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.
122 Premier Oil plc 2019 Annual Report and Financial Statements
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the
audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our
audit procedures.
We determined materiality for the Group to be US$18 million (2018: US$16 million), which is 2 per cent (2018: 2 per cent) of adjusted
EBITDA. Our preliminary assessment of overall materiality was based on management’s budget. Applying the same basis, if 2019 actuals
were used, our materiality threshold would have been US$19 million, as follows. We elected not to revise our materiality threshold
upwards given our testing was substantially complete.
Starting basis
Operating profit: US$455.0m
Adjustments
Add back:
– Depreciation, depletion, amortisation and
impairment: US$757.9m
– Non-recurring items, including exploration
expenditure and new ventures: US$21.3m
Less:
– DD&A and interest costs incurred
on IFRS 16 Leases: US$273.0m
Materiality
Total basis of materiality: US$961.2m
We believe that adjusted EBITDA provides us with a suitable basis for setting materiality as EBITDA is a measure of particular focus of
shareholders, the basis of covenants included in the Group’s loan agreements and a key performance indicator of the Group. We adjusted
for the impact of IFRS 16 adoption when determining our basis of materiality by deducting finance costs and depreciation incurred in
respect of lease liabilities and right-of-use assets, respectively, on the basis that IFRS 16 adoption has no impact on the underlying
performance of the Group and lease expenditure continues to be classified as an operating cost when calculating covenant compliance
in accordance with the Group’s borrowing facilities. IFRS 16 has the effect of reducing operating expenditure incurred in respect of leases
previously classified as operating leases under IAS 17 Leases.
We determined materiality for the Parent Company to be US$9 million (2018: US$8 million), which is 0.5 per cent (2018: 0.5 per cent) of
total assets. Total assets is an appropriate basis to determine materiality for an investment holding company. 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
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 75 per cent (2018: 75 per cent) of our planning materiality, namely US$13.5 million (2018: US$12 million).
We set performance materiality at this percentage following a quantitative and qualitative assessment of prior year misstatements as
well as considering our assessment of the Group’s overall control environment.
The performance materiality set for each component is based on the relative scale and risk of the component to the Group as a whole
and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated
to components was US$3 million to US$9 million (2018: US$3 million to US$8 million).
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit and Risk Committee that we would report to them all uncorrected audit differences in excess of US$0.9 million
(2018: US$0.8 million), which is set at 5 per cent of planning materiality, as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
OTHER INFORMATION
The other information comprises the information included in the Annual Report set out on pages 1 to 116 and 175 to 184,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.
Premier Oil plc 2019 Annual Report and Financial Statements 123
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF PREMIER OIL PLC CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
In this context, we also have nothing to report in regard to our responsibility to specifically address 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:
• Fair, balanced and understandable set out on page 116 – 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 the Group’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or
• Audit Committee reporting set out on page 74 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 116 – the parts of the Directors’ statement
required under the Listing Rules relating to the Company’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.
OPINIONS 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.
In our opinion, based on the work undertaken in the course of the 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
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of
the 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.
RESPONSIBILITIES OF DIRECTORS
The Directors are responsible for the preparation of the 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 the Group and 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 the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
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 auditors’ 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 ISAs (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.
124 Premier Oil plc 2019 Annual Report and Financial Statements
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 whistleblowing reports, 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. 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 this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
involved journal entry testing, with a focus on journals meeting our defined risk criteria based on our understanding of the business.
If any instances 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.
A description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
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 2019, as auditors of Premier Oil plc to hold office until the conclusion of the next AGM of the Company. The period of
total uninterrupted engagement including previous renewals and reappointments is three years covering periods from our appointment
through to the year ending 31 December 2019.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain
independent of the Group 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.
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
4 March 2020
Notes:
1 The maintenance and integrity of the Premier Oil Plc website 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 website.
2 Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Premier Oil plc 2019 Annual Report and Financial Statements 125
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT ACCOUNTING POLICIES
FOR THE YEAR ENDED 31 DECEMBER 2019
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.
• Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
• IFRS 16 Leases
• Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
• IFRIC 23 Uncertainty over Income Tax Treatments
• Amendments to IAS 28 – Long-term Interests in Associates and Joint Ventures
• AIP (2015-2017 Cycle): IFRS 3 Business Combinations – Previously held interests in a joint operation
• AIP (2015-2017 Cycle): IFRS 11 Joint Arrangements – Previously held interests in a joint operation
• AIP (2015-2017 Cycle): IAS 12 Income Taxes – Income tax consequences of payments on financial instruments classified as equity
• AIP (2015-2017 Cycle): IAS 23 Borrowing Costs – Borrowing costs eligible for capitalisation
• Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement
IFRS 16 LEASES
Premier adopted IFRS 16 Leases (‘IFRS 16’) with effect from 1 January 2019. IFRS 16 was issued in January 2016 to replace IAS 17 Leases.
Further information is included in Premier’s 2018 Annual Report and Financial Statements – Accounting Policies. 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’). Lease liabilities are measured at the present
value of future lease payments over the reasonably certain lease term. Variable lease payments that do not depend on an index or a rate
are not included in the lease liability. Such payments are expensed as incurred throughout the lease term.
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 of lease arrangements with a remaining lease term of less than 12 months as at 1 January 2019. The Group adopted the modified
retrospective approach to adoption on 1 January 2019, measuring right-of-use assets at an amount based on 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.
Lessees are 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 replace amounts previously recognised as operating expenditure in respect
of operating leases in accordance with IAS 17. Principal payments related to leases are now presented as financing cash flows in the cash
flow statement. The replacement of operating lease expenditure with the recognition of interest expense and depreciation in respect of
lease liabilities and right-of-use assets, respectively, will result in an increase in Group EBITDAX. The adoption of IFRS 16
will not impact the calculation of the Group’s financial debt covenants.
A matter finalised since the release of Premier’s 2018 Annual Report and Financial Statements is the determination of 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. The IFRS Interpretations Committee (‘IFRIC’) issued an agenda decision in respect to this matter in March 2019. Where
all partners of a joint operation are considered to share the primary responsibility for lease payments under a lease contract, the Group
recognises its share of the respective right-of-use asset and lease liability. This situation is most common where the parties of a joint
operation co-sign the lease contract. The Group recognises a gross lease liability for leases entered into on behalf of a joint operation
where it has primary responsibility for making the lease payments.
In such instances, if the arrangement between the Group and the joint operation represents a finance sublease, the Group recognises
a net investment in sublease for amounts recoverable from non-operators whilst derecognising the respective portion of the gross
right-of-use asset. The gross lease liability is retained on the balance sheet. The net investment in sublease is classified as either trade
and other receivables or long-term receivables on the balance sheet according to whether or not the amounts will be recovered within
12 months of the balance sheet date. Finance income recognised in respect of net investment in subleases is presented in interest revenue,
finance and other gains.
126 Premier Oil plc 2019 Annual Report and Financial Statements
The assessment as to whether a sublease exists predominantly depends on whether the operator or the joint operation directs the use
of the respective right-of-use asset. Where the arrangement between the operator and joint operation does not represent a sublease
or the sublease represents an operating sublease, the Group retains the gross lease liability and right-of-use asset on the balance sheet.
The following table provides a reconciliation of the Group’s operating lease commitments as at 31 December 2018 to the total lease
liability recognised on adoption of IFRS 16. The Group did not recognise any finance leases under IAS 17.
Operating lease commitments at 31 December 2018
Contracts not in scope of IFRS 161
Effect of discounting2
Short-term leases
Impact of leases in joint operations3
Lease extension options4
Other
Lease liabilities recognised on adoption of IFRS 16
US$ million
1,002.0
(85.6)
(189.9)
(3.1)
99.0
77.6
(0.4)
899.6
Notes:
1 Contracts that were considered to be leases under IAS 17 which do not meet the definition of a lease under IFRS 16, principally because the supplier is considered to
have substantive substitution rights over the associated assets.
2 The previously disclosed lease commitments were undiscounted, whilst the IFRS 16 obligations have been discounted based on Premier’s incremental borrowing rate.
3 This represents the gross up of the lease obligations to represent 100 per cent of the liability where the Group has entered into a lease agreement on behalf of the joint
operation and its partners and has primary responsibility for lease payments.
4 Previously, lease commitments only included non-cancellable periods in the lease agreements. Under IFRS 16, the lease term includes periods covered by options to
extend the lease where the Group is reasonably certain that such options will be exercised.
Consideration was given to the adoption of IFRIC 23 Uncertainty over Income Tax Treatments and it was determined that the adoption
of IFRIC 23 did not have a material effect on the Group’s financial statements. This is principally because the Group has limited tax
positions that would be considered to be uncertain.
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):
• Amendments to References to the Conceptual Framework in IFRS Standards
• Amendments to IAS 1 and IAS 8 – Definition of Material
• Amendments to IFRS 3 – Definition of a Business
• IFRS 17 Insurance Contracts
The Directors do not expect that the adoption of the Standards listed above will have a material effect on the financial statements
of the Group in future periods.
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 49.
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.
All significant intercompany transactions and balances between Group entities are eliminated on consolidation.
Premier Oil plc 2019 Annual Report and Financial Statements 127
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT ACCOUNTING POLICIES CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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 145), in relation to whether commercial determination
of an exploration prospect had been reached;
• carrying value of property, plant and equipment (note 10 on page 147) regarding assessing assets for indicators of impairment;
• decommissioning costs (note 17 on page 151), relating to the timing of when decommissioning would occur; and
• tax and recognition of deferred tax assets (note 19 on page 157), relating to the extent to which future taxable profits are included
in the assessment of recoverability.
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 146), 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 151 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 154), 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 157), where key assumptions relate to oil and gas prices expected to be
realised, 2P production profiles and estimated future costs, and the inclusion of 2C resources from certain unsanctioned projects.
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 assets or liabilities 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.
128 Premier Oil plc 2019 Annual Report and Financial Statements
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.
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 2019, 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.
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.
Premier Oil plc 2019 Annual Report and Financial Statements 129
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT ACCOUNTING POLICIES CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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.
(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.
130 Premier Oil plc 2019 Annual Report and Financial Statements
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.
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 proved and probable reserves and resources
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.
Premier Oil plc 2019 Annual Report and Financial Statements 131
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
ACCOUNTING POLICIES CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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.
TRADE PAYABLES
Initial recognition of trade payables is at fair value. Subsequently they are stated at amortised cost.
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.
132 Premier Oil plc 2019 Annual Report and Financial Statements
(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 2019 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 159.
Premier Oil plc 2019 Annual Report and Financial Statements 133
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT Note
2019
US$ million
2018
US$ million
1
17
2
1
9
7
5
5
6
7
8
8
8
8
1,584.7
(2.9)
(342.8)
(757.9)
(21.3)
4.2
(9.0)
455.0
31.4
1,397.5
(1.2)
(500.0)
(358.4)
(35.2)
42.3
(14.0)
531.0
27.8
(383.9)
(400.6)
102.5
52.5
155.0
9.3
164.3
18.8
17.2
19.9
18.2
158.2
(53.1)
105.1
28.3
133.4
13.6
12.2
17.3
15.5
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Continuing operations
Sales revenues
Other operating costs
Costs of operation
Depreciation, depletion, amortisation and impairment
Exploration expenses and new ventures
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
Profit before tax from continuing operations
Tax credit/(charge)
Profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations
Profit after tax
Earnings per share (cents)
From continuing operations
Basic
Diluted
From continuing and discontinued operations
Basic
Diluted
134 Premier Oil plc 2019 Annual Report and Financial Statements
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Profit for the year
Cash flow hedges on commodity swaps:
(Losses)/gains arising during the year
(Less)/add: reclassification adjustments for (gains)/losses in the year
Cash flow hedges on interest rate and foreign exchange swaps:
(Losses)/gains arising during the year
Add/(less): reclassification adjustments for losses/(gains) in the year
Tax relating to components of other comprehensive income
Exchange differences on translation of foreign operations
Gain on long-term employee benefit plans1
Other comprehensive (expense)/income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Note:
1 Not expected to be reclassified subsequently to income statement.
All comprehensive income is attributable to the equity holders of the parent.
Note
2019
US$ million
2018
US$ million
164.3
133.4
18
18
19
(50.8)
(45.6)
(96.4)
(13.4)
10.3
(3.1)
25.0
(3.8)
0.2
(78.1)
86.2
85.7
71.2
156.9
21.5
(11.4)
10.1
(33.8)
7.4
–
140.6
274.0
Premier Oil plc 2019 Annual Report and Financial Statements 135
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2019
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
Lease liabilities
Short-term provisions
Derivative financial instruments
Deferred income
Liabilities directly associated with assets held for sale
Net current (liabilities)/assets
Non-current liabilities
Long-term debt
Deferred tax liabilities
Lease liabilities
Deferred income
Derivative financial instruments
Long-term provisions
TOTAL LIABILITIES
Net assets
Equity and reserves
Share capital
Share premium account
Other reserves
Note
2019
US$ million
2018
US$ million
9
10
10
11
19
11
18
12
7
13
14
17
18
15
7
16
19
14
15
18
17
20
26
934.0
2,481.8
240.8
231.1
1,556.1
5,443.8
16.3
378.9
55.3
198.1
–
648.6
6,092.4
(356.2)
(149.7)
(76.8)
(98.8)
(15.3)
–
(696.8)
(48.2)
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
5,614.9
(375.6)
–
(46.0)
(41.4)
(11.0)
(21.9)
(495.9)
226.1
(2,169.8)
(2,552.0)
(129.9)
(582.8)
(60.5)
(62.3)
(1,258.8)
(4,264.1)
(4,960.9)
1,131.5
156.5
499.4
475.6
1,131.5
(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
The financial statements were approved by the Board of Directors and authorised for issue on 4 March 2020.
They were signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
136 Premier Oil plc 2019 Annual Report and Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
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 1 January 2019
Issue of Ordinary Shares
Purchase of ESOP Trust shares
Provision for share-based payments
Profit for the year
Other comprehensive expense
AT 31 DECEMBER 2019
Attributable to the equity holders of the parent
Share
capital
US$ million
Note
Share
premium
account
US$ million
Other
reserves
US$ million
Total
US$ million
21
21
109.0
45.2
284.5
207.2
–
–
–
–
–
154.2
2.3
–
–
–
–
–
–
–
–
–
491.7
7.7
–
–
–
–
156.5
499.4
141.4
7.7
(1.5)
14.6
(56.1)
133.4
140.6
380.1
0.9
(3.6)
12.0
164.3
(78.1)
475.6
534.9
260.1
(1.5)
14.6
(56.1)
133.4
140.6
1,026.0
10.9
(3.6)
12.0
164.3
(78.1)
1,131.5
Premier Oil plc 2019 Annual Report and Financial Statements 137
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Net cash from operating activities
Investing activities
Capital expenditure
Decommissioning pre-funding
Decommissioning expenditure
Receipts for sublease income
Proceeds from disposal of oil and gas properties
Net cash used in investing activities
Financing activities
Issuance of Ordinary Shares
Net release/(purchase) of ESOP Trust shares
Warrant cash consideration
Proceeds from drawdown of long-term bank loans
Repayment of long-term bank loans
Lease liability payments
Interest paid
Net cash from financing activities
Currency translation differences relating to cash and cash equivalents
Net decrease 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
2019
US$ million
2018
US$ million
1,108.7
722.8
11
14
14
22
(241.4)
(9.9)
(35.3)
20.2
4.2
(279.8)
(17.8)
(72.7)
–
73.4
(262.2)
(296.9)
4.7
1.1
(13.8)
–
(399.7)
(224.7)
(251.9)
(884.3)
(8.7)
(46.5)
244.6
198.1
13.8
(1.5)
–
105.0
(415.3)
–
(228.7)
(526.7)
(20.0)
(120.8)
365.4
244.6
138 Premier Oil plc 2019 Annual Report and Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
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, the disposal of which completed in March 2019, 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 World
Total Group sales revenue
Interest and other finance revenue
TOTAL GROUP REVENUE FROM CONTINUING OPERATIONS
Group operating profit
Indonesia
Vietnam
United Kingdom
Rest of the World
Unallocated1
Group operating profit
Interest revenue, finance and other gains
Finance costs and other finance expenses
Profit before tax from continuing operations
Tax
Profit after tax from continuing operations
Profit from discontinued operations
Balance sheet
Segment assets
Falkland Islands
Indonesia
Vietnam
United Kingdom
Rest of the World
Assets held for sale
Unallocated1
TOTAL ASSETS
2019
US$ million
2018
US$ million
172.2
198.6
1,213.9
–
1,584.7
2.4
1,587.1
90.9
96.2
291.7
(0.9)
(22.9)
455.0
31.4
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
(383.9)
(400.6)
102.5
52.5
155.0
9.3
680.0
481.5
437.8
158.2
(53.1)
105.1
28.3
648.1
417.7
312.0
4,060.3
3,706.1
179.4
–
253.4
6,092.4
103.8
55.2
372.0
5,614.9
Note:
1 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, new venture costs, cash and cash equivalents, mark-to-market valuations of commodity contracts and interest
rate swaps and options, warrants and other long-term debt.
Premier Oil plc 2019 Annual Report and Financial Statements 139
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
1. OPERATING SEGMENTS CONTINUED
Liabilities
Falkland Islands
Indonesia
Vietnam
United Kingdom
Rest of the World
Liabilities directly associated with assets held for sale
Unallocated1
TOTAL LIABILITIES
Other information
Capital additions and acquisitions
Falkland Islands
Indonesia2
Pakistan
Vietnam2
United Kingdom2
Rest of the World2
TOTAL CAPITAL ADDITIONS AND ACQUISITIONS
Depreciation, depletion, amortisation and impairment3
Indonesia
Vietnam
United Kingdom
Rest of the World
TOTAL DD&A AND IMPAIRMENT (CONTINUING OPERATIONS)
2019
US$ million
2018
US$ million
(13.0)
(216.5)
(324.3)
(12.8)
(174.0)
(174.1)
(2,041.7)
(1,431.9)
(34.5)
–
(2,330.9)
(4,960.9)
(51.4)
(21.9)
(2,722.8)
(4,588.9)
30.0
72.1
1.3
5.0
142.6
61.2
312.2
44.5
60.0
652.6
0.8
757.9
15.1
24.5
4.1
(0.1)
(50.3)
37.2
30.5
46.6
55.6
254.8
1.4
358.4
Notes:
1 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, new venture costs, cash and cash equivalents, mark-to-market valuations of commodity contracts
and interest rate swaps and options, warrants and other long-term debt.
2 Includes revisions to decommissioning estimates in the year.
3 Includes DD&A in respect of right-of-use assets.
Out of the total Group worldwide sales revenues of US$1,584.7 million (2018: US$1,397.5 million), revenues of US$1,213.9 million
(2018: US$931.5 million) arose from sales of oil and gas to customers located in the UK. Included within the total revenues were
revenues of US$1,539.1 million (2018: US$1,468.7 million) from contracts with customers. This was in addition to hedging gains of
US$45.6 million (2018: US$71.2 million loss).
Included in assets of the United Kingdom segment are non-current assets (excluding deferred tax assets) of US$2,286.3 million
(2018: US$2,090.5 million). Included in depreciation, depletion, amortisation and impairment is a net impairment charge in relation
to the UK of US$41.5 million (2018: US$35.2 million net credit).
Revenue from three customers (2018: three customers) each exceeded 10 per cent of the Group’s consolidated revenue. Sales to two
customers in the UK amounted to US$318.8 million and US$187.3 million (2018: two customers for US$312.4 million and US$142.3 million).
Sales to one customer in Indonesia totalled US$160.4 million (2018: one customer amounting to US$186.5 million).
140 Premier Oil plc 2019 Annual Report and Financial Statements
2. COSTS OF OPERATION
Operating costs
Gas purchases
Stock overlift/underlift movement
Royalties
3. AUDITORS’ REMUNERATION
Audit fees
Fees payable to the Company’s auditor for the Company’s Annual Report
Audit of the Company’s subsidiaries pursuant to legislation
Non-audit fees
Other services pursuant to legislation – interim review
Other services1
2019
US$ million
2018
US$ million
322.6
21.6
(10.5)
9.1
342.8
487.5
9.6
(11.1)
14.0
500.0
2019
US$ million
2018
US$ million
0.9
0.3
1.2
0.2
1.4
1.6
0.7
0.3
1.0
0.2
0.1
0.3
Note:
1 This increase was attributable to the work required of EY for the Group’s proposed acquisitions, including their working capital review, and reporting accountant’s
services. These services are typically provided by a company’s auditors, and the Audit and Risk Committee concluded that shareholder value was best served by
appointing our auditors for this work.
The Company has a policy on the provision of non-audit services by the auditors which is aimed at ensuring their continued
independence. This policy is available on the Group’s website. The use of the external auditors 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 auditors’ 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
2019
US$ million
2018
US$ million
98.6
8.4
7.9
5.3
120.2
94.3
8.0
9.3
2.0
113.6
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 159.
Average number of employees during the year
Technical and operations
Management and administration
2019
2018
500
275
775
508
274
782
Premier Oil plc 2019 Annual Report and Financial Statements 141
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
5. INTEREST REVENUE AND FINANCE COSTS
Interest revenue, finance and other gains
Short-term deposits and loans
Lease finance income
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
Lease finance costs
Unwinding of discount on decommissioning provision
Derivative losses
Finance income/(expense) on deferred income
Gross finance costs and other finance expenses
Finance costs capitalised during the year
Note
2019
US$ million
2018
US$ million
10
18
14
17
18
15
2.4
5.3
14.8
8.9
31.4
7.6
–
20.1
0.1
27.8
(190.7)
(186.9)
–
(37.8)
(5.1)
(31.9)
(0.8)
(37.8)
(34.3)
(45.1)
(265.5)
(304.9)
(50.0)
(44.0)
(29.4)
0.7
(122.7)
(388.2)
4.3
(383.9)
–
(57.7)
(29.4)
(9.8)
(96.9)
(401.8)
1.2
(400.6)
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 8.2 per cent (2018: 7.6 per cent) to the expenditures on the qualifying assets.
6. TAX
Current tax
UK corporation tax on profits
Overseas tax
Adjustments in respect of prior years
TOTAL CURRENT TAX
Deferred tax
UK corporation tax
Overseas tax
TOTAL DEFERRED TAX
Tax (credit)/charge on profit on ordinary activities
142 Premier Oil plc 2019 Annual Report and Financial Statements
2019
US$ million
2018
US$ million
(6.0)
81.6
(24.5)
51.1
(94.0)
(9.6)
(103.6)
(52.5)
(23.2)
120.7
(6.9)
90.6
(13.5)
(24.0)
(37.5)
53.1
The tax credit for the year can be reconciled to the profit per the consolidated income statement as follows:
Group profit on ordinary activities before tax
Group profit on ordinary activities before tax at 46.0% weighted average rate (2018: 44.7%)
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
Effect of differences in tax rates
Recognition that decommissioning provision will unwind at 50%
Recognition of deferred tax asset
Tax (credit)/charge for the year
Effective tax rate for the year
2019
US$ million
2018
US$ million
102.5
47.2
16.2
19.4
11.3
(89.2)
–
10.0
0.3
(40.3)
–
(8.0)
(19.4)
(52.5)
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
(51.2%)
33.5%
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 prior year adjustments include overseas tax disputes found in Premier’s favour. The Group has not recognised any tax benefit
for ongoing tax disputes where a ruling in the Group’s favour is not yet considered to be probable.
In addition, during the year, the Group recognised a deferred tax asset and associated tax credit in relation to an expected future tax
deduction associated with decommissioning costs funded by E.ON. An offsetting finance cost, which is classified within exchange
differences and others (see note 5), has also been recognised as this tax deduction will be reimbursed to E.ON once received by Premier.
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
Disposals
In April 2017, Premier announced it had reached an 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. The disposal was completed in March 2019, following the receipt of necessary governmental approvals and the full
consideration of US$65.6 million through deposits and completion payments paid by the buyer, and net cash flows collected by Premier
since the economic date of the transaction.
At 31 December 2018, the Pakistan Business Unit was classified as a disposal group held for sale and the assets and liabilities for this
disposal group were presented separately in the balance sheet.
Premier Oil plc 2019 Annual Report and Financial Statements 143
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
7. DISCONTINUED OPERATIONS, DISPOSALS AND ASSETS HELD FOR SALE CONTINUED
The results of the disposal group, until completion, which have been included as discontinued operations in the consolidated income
statement were as follows:
Revenue
Expenses
Profit before tax
Attributable tax (charge)/credit
Gain on disposal
Net profit for the period from discontinued operations
2019
US$ million
2018
US$ million
11.8
(3.6)
8.2
(2.0)
3.1
9.3
40.8
(15.0)
25.8
2.5
–
28.3
During the period to completion, the Pakistan disposal group contributed US$7.2 million (2018: US$29.0 million) to the Group’s net
operating cash flows and paid US$1.9 million (2018: US$5.0 million) in respect of investing activities. There were no financing cash flows
in either the current or the prior year.
The net gain of US$4.2 million from the disposals of non-current assets from continuing operations (2018: US$42.3 million gain from the
disposals of the Kakap field, Esmond Transportation System and Babbage Area) includes gains from the resolution of an overseas tax
matter relating to a subsidiary sold in 2018.
8. EARNINGS PER SHARE
The calculation of basic earnings per share is based on the profit after tax and the weighted average number of Ordinary Shares in issue
during the year. Basic and diluted earnings per share are calculated as follows:
Earnings
Earnings for the purpose of diluted earnings per share on continuing operations
Profit from discontinued operations
Earnings for the purposes of diluted earnings per share on continuing
and discontinued operations
Number of shares (millions)
2019
US$ million
2018
US$ million
155.0
9.3
164.3
105.1
28.3
133.4
Weighted average number of Ordinary Shares for the purposes of basic earnings per share
826.2
774.0
Effects of dilutive potential Ordinary Shares:
Contingently issuable shares
Weighted average number of Ordinary Shares for the purposes of diluted earnings per share
Earnings per share from continuing operations (cents)
Basic
Diluted
Earnings per share from discontinued operations (cents)
Basic
Diluted
76.9
903.1
18.8
17.2
1.1
1.0
88.3
862.3
13.6
12.2
3.7
3.3
The inclusion of the contingently issuable shares in the current and prior year produces diluted earnings per share for both continuing
and discontinued operations. At 31 December 2019 there were 76.9 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.
144 Premier Oil plc 2019 Annual Report and Financial Statements
9. INTANGIBLE EXPLORATION AND EVALUATION (‘E&E’) ASSETS
Oil and gas properties
Cost
At 1 January 2018
Exchange movements
Additions during the year
Transfer to PP&E
Disposals
Assets classified as held for sale
Exploration expense1
At 31 December 2018
Exchange movements
Additions during the year
Transfer to PP&E
Exploration expense1
AT 31 DECEMBER 2019
Total
US$ million
1,061.9
(5.6)
62.1
(274.2)
(1.4)
(0.6)
(29.6)
812.6
1.3
129.3
(1.9)
(7.3)
934.0
Note:
1 Expensed in the income statement with new venture costs of US$14.0 million in 2019 (2018: US$5.6 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 the Ibu Lembu prospect in Indonesia following
management’s decision to no longer pursue the prospect.
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.
The balance carried forward is predominantly in relation to the Group’s prospects in the Falkland Islands, Tuna in Indonesia and the
non-operated Zama prospect and Block 30 in Mexico.
Premier Oil plc 2019 Annual Report and Financial Statements 145
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
10. PROPERTY, PLANT AND EQUIPMENT (‘PP&E’)
Cost
At 1 January 2018
Exchange movements
Additions and changes in decommissioning estimates
Transferred from E&E
Assets classified as held for sale
Disposals
At 31 December 2018
Implementation of IFRS 16
At 1 January 2019
Exchange movements
Re-measurement of lease liabilities
Additions and changes in decommissioning estimates
Transferred from E&E
Disposals
AT 31 DECEMBER 2019
Amortisation and depreciation and impairment
At 1 January 2018
Exchange movements
Charge for the year
Net impairment credit
Disposals
At 31 December 2018
Exchange movements
Charge for the year
Net impairment charge
AT 31 DECEMBER 2019
Net book value
At 31 December 2018
AT 31 DECEMBER 2019
Oil and gas
properties
US$ million
Right-of-use
assets
US$ million
Other fixed
assets
US$ million
Total
US$ million
7,589.4
1.2
(33.5)
274.2
(4.1)
(19.6)
7,807.6
–
7,807.6
(1.7)
–
180.1
1.9
(1.3)
–
–
–
–
–
–
–
803.3
803.3
(0.6)
8.3
–
–
–
66.7
(2.1)
1.9
–
–
(9.2)
57.3
–
57.3
1.1
–
2.8
–
–
7,656.1
(0.9)
(31.6)
274.2
(4.1)
(28.8)
7,864.9
803.3
8,668.2
(1.2)
8.3
182.9
1.9
(1.3)
7,986.6
811.0
61.2
8,858.8
5,220.3
2.1
386.5
(35.2)
(5.5)
5,568.2
(1.1)
489.4
41.5
6,098.0
2,239.4
1,888.6
–
–
–
–
–
–
–
223.0
–
223.0
–
588.0
54.9
(1.7)
7.1
–
(9.2)
51.1
0.9
4.0
–
56.0
6.2
5.2
5,275.2
0.4
393.6
(35.2)
(14.7)
5,619.3
(0.2)
716.4
41.5
6,377.0
2,245.6
2,481.8
Finance costs that have been capitalised within oil and gas properties during the year total US$4.3 million (2018: US$1.2 million),
at a weighted average interest rate of 8.2 per cent (2018: 7.6 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.
146 Premier Oil plc 2019 Annual Report and Financial Statements
Impairment charge
The impairment charge in the current year relates to UK assets. The impairment charge of US$41.5 million (pre-tax) (2018: net
impairment reversal of US$35.2 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. In the period, Group-wide indicators
of impairment, being a reduction in both the long-term oil price and decommissioning discount rate assumptions, were identified.
US$30.5 million of the current year charge relates to the net effect of changes in decommissioning estimates on assets previously
depreciated to nil net book value. The remainder relates primarily to Solan. When testing producing assets for impairment, future cash
flows were estimated using the following oil price assumption: US$65/bbl in 2020 and 2021, US$70/bbl in 2022 and US$70/bbl in real
terms thereafter (2018: US$60/bbl in 2019, US$65/bbl in 2020, 2021 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 (2018: 9 per cent) and 12.5 per cent for the non-UK assets
(2018: 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.
Sensitivity
A US$5/bbl reduction in the long-term oil price (to US$65/bbl (real)) would increase the impairment charge by US$13.4 million, all on
the UK Solan asset. No other assets would be impaired.
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 (2018: 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 until 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 of the Catcher cash-generating unit, including the goodwill, is
US$203.8 million (2018: US$166.8 million).
The key assumptions applied in the measurement of the 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.
Right-of-use assets
There were no new leases entered into during the period. The re-measurements above represent the net impact of re-measurements
of the Catcher FPSO lease which were driven by changes in assumed COP dates during the year based on field performance.
In addition to the above, the Group has a net investment in sublease of US$75.7 million (1 January 2019: US$96.3 million), of which
US$54.1 million is classified as a long-term receivable and US$21.6 million as trade and other receivables. The net investment in sublease
represents our joint operation partners’ share of lease liabilities on lease arrangements for which Premier has entered into in its role as
operator as sole signatory on behalf of the joint operation and the asset is controlled by the joint operation.
Income of US$5.3 million, which predominantly represents unwinding of the net investment in sublease, has been recognised as finance
income in the year (see note 5).
11. RECEIVABLES
Trade and other receivables
Trade receivables
Other receivables
Prepayments
Tax recoverable
2019
US$ million
2018
US$ million
162.9
87.4
65.5
63.1
378.9
135.5
55.0
45.9
45.9
282.3
The carrying values of the trade and other receivables are equal to their fair value as at the balance sheet date.
Premier Oil plc 2019 Annual Report and Financial Statements 147
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
11. RECEIVABLES CONTINUED
Long-term receivables
Other long-term receivables
Net investment in sublease
Decommissioning funding asset
Long-term employee benefit plan surplus
Note
2019
US$ million
2018
US$ million
10
24
119.8
54.1
56.5
0.7
231.1
111.1
–
48.3
0.4
159.8
Other long-term receivables include US$111.2 million in cash held in escrow accounts for expected future decommissioning expenditure
in Indonesia, Vietnam and Mauritania (2018: US$101.2 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
2019, a long-term decommissioning funding asset of US$56.5 million has been recognised utilising the year-end US$/£ exchange rate and
underlying assumptions consistent with those used for the corresponding decommissioning provision.
As a result of the above, the Group has recognised a deferred tax asset and associated tax credit in relation to an expected future tax
deduction associated with decommissioning costs funded by E.ON. As this tax reduction will be reimbursed to E.ON once received by
Premier a payable has also been recognised with the cost of this having been expensed within exchange differences and others.
12. CASH AND CASH EQUIVALENTS
Cash at bank and in hand
Short-term deposits
Note
2019
US$ million
2018
US$ million
181.2
16.9
198.1
244.5
0.1
244.6
22
Included within cash at bank and in hand balances are partners’ share of cash balances on our operated assets of US$22.8 million
(2018: US$7.6 million) and US$24.3 million (2018: US$22.6 million) held as security for the Mexican letters of credit and performance
bonds relating to Andaman (Indonesia) E&E licences.
13. TRADE AND OTHER PAYABLES
Trade payables
Other payables
Accrued expenses
Tax payable
2019
US$ million
2018
US$ million
30.5
54.3
254.8
16.6
356.2
41.0
48.2
253.3
33.1
375.6
The carrying values of the trade and other payables approximates to their fair value as at the balance sheet date.
148 Premier Oil plc 2019 Annual Report and Financial Statements
14. LEASES
At 1 January 2019
Re-measurement
Finance costs
Cash outflows for lease arrangements
Exchange differences
At 31 December 2019
Classified as:
Short-term
Non-current
Lease liabilities
US$ million
899.6
8.3
50.0
(224.7)
(0.7)
732.5
149.7
582.8
Expenses related to both short-term and low value lease arrangements are considered to be immaterial for reporting purposes.
During the period variable lease costs of US$23.3million were expensed. Lease liabilities have been classified as either short-term
or non-current in the balance sheet according to whether they are expected to be settled within 12 months of the balance sheet date.
The significant portion of the Group’s lease liabilities represent lease arrangements for FPSO vessels on the Catcher, Chim Sáo and
Huntington assets. The lease liabilities and associated right-of-use assets have been calculated by reference to in-substance fixed lease
payments in the underlying agreements incurred throughout the non-cancellable period of the lease along with periods covered by
options to extend the lease where the Group is reasonably certain that such options will be exercised. When assessing whether extension
options are likely to be exercised, assumptions are consistent with those applied when testing for impairment.
Under the modified retrospective transition method, lease payments were discounted at 1 January 2019 using an incremental borrowing
rate representing the rate of interest that Premier would have to pay to borrow over a similar term, and with a similar security, the funds
necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The incremental borrowing
rate applied to each lease was determined by taking into account the risk-free rate, adjusted for factors such as the credit rating linked
to the life of the underlying lease agreement. The weighted average incremental borrowing rate applied by Premier upon transition was
7.2 per cent. Incremental borrowing rates applied to individual leases ranged between 5.4 per cent and 8.2 per cent.
15. 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$11.2 million during the year reflecting barrels delivered to FlowStream and a change in estimates following a decline in long-term
oil price assumption and finance cost on the unwind of the liability.
The portion of the deferred income that is expected to be delivered to FlowStream within the next 12 months has been classified
as a current liability.
16. BORROWINGS
The Group’s loans are carried at amortised cost as follows:
2019
US$ million
2018
US$ million
Bank loans
Senior loan notes
Retail bonds
TOTAL BORROWINGS
Due within one year
Due after more than one year
TOTAL BORROWINGS
Carrying
value
1,452.6
536.4
198.9
2,187.9
Fees
(16.7)
–
(1.4)
(18.1)
Total
1,435.9
536.4
197.5
2,169.8
–
2,169.8
2,169.8
Carrying
value
1,846.7
538.1
190.5
2,575.3
Fees
(21.0)
–
(2.3)
(23.3)
Total
1,825.7
538.1
188.2
2,552.0
–
2,552.0
2,552.0
Premier Oil plc 2019 Annual Report and Financial Statements 149
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
16. BORROWINGS CONTINUED
A maturity analysis showing the ageing profile of the total borrowings is shown in note 18.
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$130 million
converted loan facility; and
• £150 million of retail bonds.
All of the above facilities mature in May 2021. In early 2020, the Group announced it had reached an agreement to amend and extend
the Group’s refinancing facilities, including extending maturities to November 2023 (see note 27). The amend and extend is expected
to be approved via a court scheme of arrangement in March 2020.
The Company has financing in US$, £ 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.
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.
At 31 December 2019, covenant net debt, which includes letters of credit and deducting partners’ share of JV cash balances, was
US$2.4 billion (2018: US$2.7 billion).
Capital management
The primary objective of the Group’s capital management policy is to ensure that it maintains healthy capital ratios in order to support
its business and increase shareholder value. The Group manages its capital structure and makes adjustments to it in light of changes in
economic conditions. No changes were made in the objectives, policies or processes during the years ended 31 December 2019 and
31 December 2018.
The Group monitors capital using a gearing ratio, which is net debt divided by net assets plus net debt. The Group’s policy is to target to
keep the long-term gearing ratio below 50 per cent. Net debt comprises interest-bearing bank loans, senior loan notes, and retail bonds,
less cash and short-term deposits.
Net debt (US$ million)
Net assets (US$ million)
Net assets plus net debt (US$ million)
Gearing ratio (%)
17. PROVISIONS
Decommissioning
Contingent consideration
Indonesia termination benefit provision
Long-term employee benefit plan deficit
150 Premier Oil plc 2019 Annual Report and Financial Statements
2019
2018
(1,989.8)
(2,330.7)
1,131.5
3,121.3
63.7
1,026.0
3,356.7
69.4
Note
2019
US$ million
2018
US$ million
1,303.4
1,214.5
10.0
21.4
0.8
10.1
16.8
0.7
1,335.6
1,242.1
24
Decommissioning costs
Total provisions at 1 January
Revisions arising from:
New provisions and changes in estimates
Change in provision as a result of a change in discount rate
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
2019
US$ million
2018
US$ million
1,214.5
1,432.1
10
7
7
5
(59.7)
80.1
(23.7)
–
–
48.2
44.0
1,303.4
(76.8)
1,226.6
(101.1)
–
(74.2)
1.7
(30.8)
(70.9)
57.7
1,214.5
(46.0)
1,168.5
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 3.6 per cent (2018: 4.6 per cent) and an inflation rate of 2.5 per cent (2018: 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 marketplace for similar
types of rigs. 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$2.9 million charge (2018: US$1.2 million charge) and has been recognised within other operating costs.
Indonesia 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.
Premier Oil plc 2019 Annual Report and Financial Statements 151
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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,
interest rate risk, foreign currency exchange risk, credit risk, liquidity risk 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 that are level 3 in the IFRS 13 hierarchy.
As at 31 December 2019, 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:
Fair value of gas contract acquired from E.ON
Forward foreign exchange contracts
Gas forward sale contracts1
Interest rate options
Interest rate swaps
Oil forward sale contracts1
TOTAL
Note:
1 Includes US$16.8 million cash receivable from forward swap contracts which expired at the year-end.
152 Premier Oil plc 2019 Annual Report and Financial Statements
2019
US$ million
2018
US$ million
4.9
3.8
34.7
–
–
11.9
55.3
–
–
23.4
1.1
0.9
102.0
127.4
Liabilities measured at fair value
Financial liabilities at fair value:
Cross currency swaps1
Fair value of gas contract acquired from E.ON1
Forward foreign exchange contracts
Gas forward sale contracts
Oil forward sale contracts2
Warrants
TOTAL
2019
US$ million
2018
US$ million
123.6
125.6
–
–
–
1.9
35.6
161.1
3.8
2.4
0.6
6.6
31.8
170.8
Notes:
1 Classified within non-current liabilities in the prior year. As a result of the announcement of Corporate Actions in January 2020, US$63.2 million of cross currency
swaps have been classified within current liabilities as at 31 December 2019.
2 Includes US$1.3 million payable from forward swap contacts which expired at the year-end.
Income statement
Fair value movements recognised in the income statement in the year:
Interest revenue, finance and other gains
Change in fair value of embedded derivative within gas contract
Forward foreign exchange contracts
Warrants
Finance costs
Change in fair value of embedded derivative within gas contract
Cross currency swaps
Fixed price gas contracts acquired from E.ON
Forward foreign exchange contracts
Interest rate options
Interest rate swaps
Oil put options
Warrants
Statement of comprehensive income
Fair value movements recognised in the statement of comprehensive income for the year:
Cash flow hedges
Commodity swaps – gas
Commodity swaps – oil
Cross currency swaps
Unrealised exchange differences
Cash flow hedges on interest rate and foreign exchange swaps
2019
US$ million
2018
US$ million
8.6
6.2
–
14.8
–
(8.3)
–
–
(1.1)
(0.9)
–
(19.1)
(29.4)
–
–
20.1
20.1
(12.4)
(5.8)
(0.7)
(2.1)
(3.0)
(3.6)
(1.8)
–
(29.4)
2019
US$ million
2018
US$ million
6.2
(102.6)
(96.4)
10.3
(13.4)
(3.1)
23.4
133.5
156.9
(11.4)
21.5
10.1
Premier Oil plc 2019 Annual Report and Financial Statements 153
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
18. FINANCIAL INSTRUMENTS CONTINUED
Commodity price risk
Oil
At 31 December 2019, the Group had 4.0 million barrels (mmbbls) of Dated Brent oil hedged through forward sales for 2020 at an average
floor price of US$63.70/bbl. The forward sales have been designated as cash flow hedges and were assessed to be effective, with a fair
value movement of US$0.6 million charge (2018: US$133.5 million credit) in retained earnings.
During the year, forward oil sales contracts for 7.8 mmbbls matured generating a gain of US$35.9 million (2018: US$71.2 million loss).
This gain is an increase to sales revenue.
Gas
At the year-end date, 252,000 mt of HSFO, which drives the Group’s gas pricing in Singapore, is subject to forward sales contracts for 2020
at an average price of US$360.9/mt. All contracts have been designated as cash flow hedges and were assessed to be effective, with a fair
value movement of US$6.5 million credit (2018: US$22.8 million) in retained earnings.
As at 31 December 2019, the Group had forward UK gas sales contracts for 2020 of 42.3 million therms at an average price of 52p/therm
and 14.4 million therms at an average price of 51p/therm for 2021. These forward sales contracts have been designated as cash flow hedges
and were assessed to be effective, with a fair value movement of US$12.5 million credited (2018: US$0.6 million) to retained earnings.
During the year, forward gas sales contracts for 162,000 mt and 10.4 million therms matured generating a total income of US$9.7 million.
This gain is an increase to sales revenue.
Equity and synthetic warrants
During the period, 6.4 million equity warrants were converted resulting in an allotment of 5.6 million shares. The closing fair
value of the open equity warrants at 31 December 2019 was US$35.6 million after the exercise of warrants and resulting in a loss
of US$14.4 million being expensed in the year as derivative losses within other finance expenses.
The equity warrants have an exercise price of 41.80 pence (2018: 41.80 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.
During the year as certain net debt and leverage conditions were met, the Company decided to settle the synthetic warrants for a
cash consideration of £10.7 million. The fair value of US$4.7 million was expensed as a derivative loss within other finance expenses.
As at 31 December 2019, £10.3 million has been paid to warrant holders with the remaining £0.4 million reclassified as other payables.
The fair value of the warrants includes unobservable inputs and is level 3 in the IFRS 13 hierarchy. The key assumptions underpinning
the fair value relate to the expected future share price of the Company, US$:£ exchange rates and the expected date of exercise of the
warrants. The fair value has been determined using a Black-Scholes valuation model.
When determining the fair value of the equity warrants, if the share price assumed increased/decreased by 10 per cent, the closing
total fair value recognised for the equity warrants at the year-end would have increased/decreased by US$5.3 million. Movement in the
Company’s share price is the main driver with regards to changing the fair value of the warrant instruments.
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/decrease of 10 per cent in oil prices has an immaterial impact on other comprehensive income.
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$4.2 million. A decrease of 10 per cent in forward gas prices would increase the mark-to-market gain by US$4.2 million.
Interest rate risk
At 31 December 2019, the Group had purchased interest rate caps for US$1 billion (2018: US$1 billion) to protect against increasing interest
rates as the Group has long-term bank borrowings. 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 should the rates go above the 3 to 3.1 per cent range. These contracts will mature
by end 2020.
Interest rate swap contracts of US$300 million held in the prior year matured in early 2019.
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$1.42/€. All these amounts have been hedged under cross currency swaps
into US dollars.
154 Premier Oil plc 2019 Annual Report and Financial Statements
In addition, to cover sterling exposures an amount of £208.5 million was purchased and matured with spot and forward contracts during
the year (2018: £236 million) to cater for the Group’s North Sea developments and operations.
Other financial instruments
Credit risk
Credit risk arises from the Group’s trade receivables and its bank deposits.
The amount of receivables presented in the balance sheet is net of allowances for doubtful receivables, which were immaterial in 2019
and 2018. The Group does not require collateral or other security to support receivables from customers or related parties, unless they fall
below an acceptable credit rating where letters of credit are requested from buyers to mitigate credit exposure. The credit risk on liquid
funds and derivative financial instruments is limited because the counterparties are banks with at least single A credit ratings assigned
by international credit rating agencies.
An indication of the concentration of credit risk is shown in note 1, whereby the revenue from three customers each exceeded 10 per cent
of the Group’s consolidated revenue in 2019 (2018: three).
The age profile of the Group’s trade and other receivables and trade and other payables as at 31 December, including the related
undiscounted interest amounts payable, was:
Less than
1 month
US$ 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
2019:
Long-term receivables
Trade and other receivables
Trade and other payables
Bank loans
Senior loan notes
Retail bonds
TOTAL
2018:
Long-term receivables
Trade and other receivables
Trade and other payables
Bank loans
Senior loan notes
Retail bonds
TOTAL
–
217.5
(46.8)
(38.6)
(0.5)
–
131.6
–
184.4
(44.7)
(60.2)
(0.5)
–
79.0
–
6.1
(1.1)
(5.7)
(11.9)
–
(12.6)
–
0.5
(1.8)
(52.0)
(11.9)
–
(65.2)
–
26.7
(36.9)
(53.7)
(37.7)
(12.7)
40.1
–
–
(1,463.9)
(558.4)
(200.1)
191.0
–
–
–
–
–
231.1
250.3
(84.8)
(1,561.9)
(608.5)
(212.8)
(114.3)
(2,182.3)
191.0
(1,986.6)
19.2
140.6
–
5.6
(42.7)
(233.8)
(37.7)
(12.7)
(321.3)
–
–
(1,809.2)
(609.0)
(212.7)
(2,611.7)
159.8
190.5
(89.2)
(2,155.2)
(659.1)
(225.4)
–
–
–
–
–
140.6
(2,778.6)
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$1,784.1 million (2018: US$2,112.3 million) and letters of credit facilities
of US$455.8 million (2018: US$455.6 million), in addition to the retail bonds and senior loan notes. The undrawn balance of
the committed borrowing facilities as at 31 December 2019 was US$331.5 million (31 December 2018: US$265.6 million).
The undrawn balance of the letters of credit facilities as at 31 December 2019 was US$66.7 million (2018: US$91.3 million).
Premier Oil plc 2019 Annual Report and Financial Statements 155
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
18. FINANCIAL INSTRUMENTS CONTINUED
Interest rate risk profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 31 December (excluding trade and other payables which are interest
free) was:
2019:
Bank loans
Senior loan notes
Retail bonds
TOTAL
2018:
Bank loans
Senior loan notes
Retail bonds
TOTAL
Fixed rate
US$ million
Floating rate
US$ million
Total
US$ million
1,000.0
406.4
198.9
1,605.3
1,300.0
408.2
190.5
1,898.7
452.6
130.0
–
582.6
546.6
130.0
–
676.6
1,452.6
536.4
198.9
2,187.9
1,846.6
538.2
190.5
2,575.3
Fixed rate
weighted
average
interest rate
%
8.10
9.20
6.50
6.21
9.20
6.50
The floating rate financial liabilities at 31 December 2019 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
2019
Fair value
amount
US$ million
2019
Carrying
amount
US$ million
2018
Fair value
amount
US$ million
2018
Carrying
amount
US$ million
201.6
198.9
181.6
190.5
The fair values of the retail 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.
156 Premier Oil plc 2019 Annual Report and Financial Statements
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
2019
US$ million
2018
US$ million
1,556.1
(129.9)
1,426.2
1,434.1
(139.5)
1,294.6
At
1 January
2019
US$ million
Exchange
movements
US$ million
(Charged)/
credited to
income
statement
US$ million
Credited to
retained
earnings
US$ million
Disposal
of assets
US$ million
At 31
December
2019
US$ million
(609.2)
376.8
1,602.5
77.8
(13.8)
1,434.1
(139.5)
1,294.6
0.1
2.1
0.8
0.1
(0.1)
3.0
–
3.0
95.7
60.7
(66.7)
4.6
(0.3)
94.0
9.6
103.6
–
–
–
–
25.0
25.0
–
25.0
–
–
–
–
–
–
–
–
(513.4)
439.6
1,536.6
82.5
10.8
1,556.1
(129.9)
1,426.2
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
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 2019 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 2019 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$65/bbl in 2020 and 2021, US$70/bbl in 2022 and US$70/bbl in 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 existing UKCS assets. The existing UKCS assets include both existing producing
assets and certain future currently unsanctioned assets. The cash flows also include future revenues from the proposed acquisition
assets announced on 7 January 2020 on the basis that, at the balance sheet date, management consider it probable that the acquisitions
will complete and that the cash flows will arise within Premier’s UK ring fence. The acquisitions represent approximately US$267 million
of the deferred tax assets recognised at 31 December 2019. 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$18.1 million of tax losses and US$24.4 million of allowances relating to supplementary charge.
Premier Oil plc 2019 Annual Report and Financial Statements 157
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
19. DEFERRED TAX CONTINUED
In addition to the above, there are carried forward non-ring fence UK tax losses of approximately US$376.4 million (2018: US$359.1 million)
and overseas tax losses of US$267.7 million (2018: US$154.8 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
2019
12.5p shares
2019
£
2018
12.5p shares
2018
£
Authorised, called-up, issued and fully paid
831,536,079
103,942,010
817,069,925
102,133,741
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 14,466,154 Ordinary Shares at a nominal value of 12.5 pence per share. This increased the share
capital of the Company by US$2.3 million (2018: US$45.2 million) to US$156.5 million (2018: US$154.2 million).
Purchase and cancellation of own shares
During 2019, none of the Company’s Ordinary Shares were re-purchased or cancelled.
Own shares
At 1 January 2018
Purchase of ESOP Trust shares
Release of shares
At 31 December 2018
Purchase of ESOP Trust shares
Release of shares
AT 31 DECEMBER 2019
Total
US$ million
1.8
1.7
(1.3)
2.2
4.7
(3.8)
3.1
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
2019, the number of Ordinary Shares of 12.5 pence each held by the Trust was 2,926,042 (2018: 1,907,303 Ordinary Shares of 12.5 pence each).
158 Premier Oil plc 2019 Annual Report and Financial Statements
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 2019, the total cost recognised by the Company for equity-settled share-based payment transactions is
US$12.0 million (2018: US$14.6million). A credit of US$12.0 million has been recorded in retained earnings (2018: US$14.6 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, new venture costs or general and administration costs.
Details of the different share incentive plans currently in operation are set out below:
2017 Long Term Incentive Plan (‘LTIP’)
The Long Term Incentive Plan (‘LTIP’) was introduced in 2017 for Executive Directors and certain senior staff. This LTIP comprises two
types of awards which support different elements of the Company’s strategy.
• Performance Share Awards (‘PSA’): 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 shareholder 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.
RSAs represent 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 RSAs granted in 2018 and 2019 have been scaled back by 50 per cent to 20 per cent.
Premier Oil plc 2019 Annual Report and Financial Statements 159
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
21. SHARE-BASED PAYMENTS CONTINUED
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
2019
million
2018
million
2.1
1.0
(0.1)
3.0
1.2
1.0
(0.1)
2.1
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 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
2019
million
2018
million
13.5
8.3
(0.6)
21.2
61-63%
0.3-0.8%
0.40
5.7
8.1
(0.3)
13.5
82%
0.8%
0.30
At the 2020 Annual General Meeting, shareholders will be asked to approve a new Remuneration Policy, pursuant to which, only
Performance Share Awards will be granted to Executive Directors in future. The three-year performance period and two-year
post-vesting will continue to apply for future grants.
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.
Outstanding PVSP awards were granted to employees in 2017, 2018 and 2019 and these will vest in 2020, 2021 and 2022 respectively.
Owing to the prevailing business environment, the multiplier element of the PVSP (Multiplier Award) was removed from the 2017 awards,
resulting in each employee receiving in effect a fixed award at the end of the vesting period (Base Award). However, the 2018 and 2019
awards included the multiplier based on a pre-scale back Base Award. The value of the Base Award is set at a fixed percentage of the
award 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: 55 pence for 2017 awards, 72 pence for 2018 awards and 79 pence for 2019
awards. All these Base Awards were scaled back by 50 per cent.
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
Vested
Forfeited during the year
Outstanding as at 31 December
160 Premier Oil plc 2019 Annual Report and Financial Statements
2019
million
2018
million
19.7
6.3
(5.0)
(1.5)
19.5
13.9
6.8
–
(1.0)
19.7
The following table shows the movement in the number of shares awarded under the PVSP Multiplier Award:
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
No PVSP Multiplier Awards vested during the year.
2019
Million
2018
Million
13.2
12.7
(2.3)
23.6
–
13.6
(0.4)
13.2
58-63%
79–82%
0.3-0.8%
0.7–0.9%
0.36-0.37
0.29–0.30
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 employee’s 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 one month 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. During 2018, employees were invited to save up to £500 per month for a period of three years
and with no discount offered.
Outstanding at 1 January (million)
Granted during the year
Lapsed during the year
Exercised during the year1
Outstanding as at 31 December
2019
2018
Weighted
average
exercise
price
£0.46
£1.00
£0.65
£0.42
£0.92
Options
5.2
1.8
(0.2)
(4.4)
2.4
Weighted
average
exercise
price
£0.46
£0.79
£0.64
£0.69
£0.46
Options
5.3
0.3
(0.4)
–
5.2
Note:
1 4,397,788 Ordinary Shares with a nominal value of £549,724 were issued under the Group’s share option scheme during the year (2018: 43,490).
The weighted average share price as at the date of exercise for share options exercised during the year was £0.79.
The options outstanding at 31 December 2019 had a weighted average exercise price of £0.92 and a weighted average remaining
contractual life of 2.33 years.
The fair value of the options granted during the year was determined using the Black-Scholes valuation model and is not material.
Premier Oil plc 2019 Annual Report and Financial Statements 161
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
22. NOTES TO THE CASH FLOW STATEMENT
Profit before tax for the year
Adjustments for:
Depreciation, depletion, amortisation and impairment
Other operating costs
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
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Decrease 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
Conversion of convertible bonds
Non-cash movements on debt and cash balances (primarily 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
2019
US$ million
2018
US$ million
102.5
158.2
757.9
2.9
7.3
7.1
(31.4)
383.9
(4.2)
1,226.0
(3.8)
(74.9)
(19.5)
1,127.8
(61.2)
6.2
1,072.8
7.2
1.080.0
28.7
1,108.7
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
Note
2019
US$ million
2018
US$ million
(46.5)
–
399.7
–
(12.3)
340.9
(120.8)
(105.0)
415.3
181.9
22.1
393.5
(2,330.7)
(1,989.8)
(2,724.2)
(2,330.7)
16
198.1
(2,187.9)
(1,989.8)
244.6
(2,575.3)
(2,330.7)
The carrying amounts of the borrowings on the balance sheet are stated net of the unamortised portion of the refinancing fees of
US$18.1 million (2018: US$23.3 million).
162 Premier Oil plc 2019 Annual Report and Financial Statements
23. CAPITAL COMMITMENTS AND GUARANTEES
At 31 December 2019, the Group had capital commitments on exploration and development licences totalling US$118.5 million
(2018: US$121.5 million).
In addition, the Group had issued letters of credit for future decommissioning liabilities totalling £293.4 million, US$22.6 million held as
security for the Mexican letters of credit to meet minimum work programme requirements and performance bonds for the Indonesia
Andaman licences of US$1.2 million, totalling US$412.9 million (2018: US$389.1 million).
24. GROUP PENSION SCHEMES
Balance sheet
UK funded pension scheme
TOTAL SURPLUS IN BALANCE SHEET
UK unfunded pension scheme
TOTAL LIABILITY IN BALANCE SHEET
2019
US$ million
2018
US$ million
0.7
0.7
0.4
0.4
2019
US$ million
2018
US$ million
0.8
0.8
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 2019 of the future payments
projected to be made in respect of UK unfunded pensions is US$0.8 million (2018: 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 2019 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 2019. The results of the
calculations and the assumptions adopted are shown below.
As at 31 December 2019, 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 per cent of the
aggregate of members’ pensionable salaries.
Premier Oil plc 2019 Annual Report and Financial Statements 163
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
24. GROUP PENSION SCHEMES CONTINUED
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 2019
At 31 December 2018
1.9% pa
3.0% pa
2.0% pa
3.0% pa
2.9% pa
2.8% pa
3.2% pa
2.2% pa
3.2% pa
3.1% pa
S3PA Light CMI_2018 with
0.5% IAMI and 1.25% long-term
S2PA Light CMI_2017 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
23.4
24.7
24.8
26.2
22.2
23.4
23.2
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 2019
At 31 December 2018
39.9%
29.9%
29.9%
0.3%
100.0%
40.0%
29.2%
30.5%
0.3%
100.0%
At 31 December 2019
US$ million
At 31 December 2018
US$ million
(48.5)
36.9
(11.6)
10.9
(0.7)
(41.4)
28.9
(12.5)
12.1
(0.4)
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
164 Premier Oil plc 2019 Annual Report and Financial Statements
2019
US$ million
2018
US$ million
0.1
–
0.1
0.2
–
0.2
Reconciliation of defined benefit obligation
Opening present value of defined benefit obligation
Service cost
Interest cost
Actuarial losses/(gains) from changes in demographic assumptions
Actuarial losses/(gains) 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
2019
US$ million
2018
US$ million
28.9
0.1
0.8
1.5
5.2
(0.1)
(1.2)
1.7
36.9
32.4
0.2
0.8
(0.2)
(1.7)
0.3
(0.9)
(2.0)
28.9
2019
US$ million
2018
US$ million
41.4
1.2
4.9
0.1
(1.2)
2.1
48.5
6.1
46.3
1.1
(2.6)
0.1
(0.9)
(2.6)
41.4
(1.5)
Statement of amount recognised in other comprehensive income
Loss/(gain) from changes in the financial assumptions for
value of Scheme liabilities
Loss/(gain) 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 liability
Currency translation effect
Other comprehensive income
At 31 December 2019
US$ million
At 31 December 2018
US$ million
5.2
1.5
(0.1)
(4.9)
(1.6)
(0.4)
(0.3)
(1.7)
(0.2)
0.3
2.6
(1.6)
0.6
–
Statement of amount recognised in profit and loss and other comprehensive income
Amount recognised in profit and loss
Other comprehensive income
TOTAL COMPREHENSIVE (GAIN)/LOSS
At 31 December 2019
US$ million
At 31 December 2018
US$ million
0.1
(0.3)
(0.2)
0.2
–
0.2
Premier Oil plc 2019 Annual Report and Financial Statements 165
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
24. GROUP PENSION SCHEMES CONTINUED
Sensitivity of balance sheet at 31 December 2019
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% p.a.
Members living one year longer than assumed
Revised
(surplus)/deficit
US$ million
Change from disclosed
(surplus)/deficit
US$ million
(11.0)
(11.1)
(10.2)
0.6
0.5
1.4
Projected components of pension costs for period to 31 December 2020
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 2019 is 1.9% p.a.
• contributions to the Scheme will continue throughout 2020 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
2020
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$7.9 million (2018: US$9.3 million) represents contributions payable to these schemes by the
Group at rates specified in the rules of the Scheme.
25. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not
disclosed in this note.
Director and executive remuneration
The remuneration of Directors during the year is set out below.
Further information regarding the remuneration of individual Directors is provided in the audited part of the Remuneration Report.
Short-term employee benefits
Post-employment benefits
Other long-term benefits: share-based payments
166 Premier Oil plc 2019 Annual Report and Financial Statements
2019
US$ million
2018
US$ million
3.2
1.0
1.4
5.6
3.3
0.6
1.4
5.3
26. OTHER RESERVES
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
At 1 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 1 January 2019
Issue of Ordinary Shares
Purchase of ESOP Trust shares
Provision for share-based payments
21
Profit for the year
Other comprehensive expense
AT 31 DECEMBER 2019
(205.9)
374.3
8.1
(87.6)
(4.9)
57.4
7.7
(1.5)
14.6
–
1.3
133.4
–
(50.4)
0.9
(3.6)
12.0
164.3
0.2
123.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
374.3
8.1
–
–
–
–
–
–
–
–
–
–
374.3
8.1
–
–
–
–
–
–
–
–
–
–
–
–
7.4
(80.2)
133.2
128.3
–
–
–
–
–
–
–
–
(3.8)
(84.0)
(74.5)
53.8
–
–
–
(56.1)
(1.3)
–
–
–
–
–
–
–
–
–
141.4
7.7
(1.5)
14.6
(56.1)
–
133.4
140.6
380.1
0.9
(3.6)
12.0
164.3
(78.1)
475.6
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 represented the equity component of the convertible bonds which were fully exercised in 2018.
27. SUBSEQUENT EVENTS
Debt reduction
Subsequent to year-end, US$129.5 million of the RCF debt facility was cancelled and a further US$50 million was repaid, which will result
in a reduction in commitment fee costs in 2020.
Corporate Actions
In January 2020, the Group publicly announced the agreement it had reached to undertake the following corporate actions (together
the ‘Corporate Actions’):
• an amend and extend (‘A&E’) of all the Group’s refinancing facilities, including extension of maturities from May 2021 to November 2023;
• the proposed acquisition of a 25 per cent working interest in Tolmount from Dana and interests in Andrew and Shearwater (together
the ‘Acquisitions’ or ‘Acquired Assets’)
• entering into a US$300 million bridge facility to partly finance the Acquisitions (the ‘Bridge Facility’). Based on current forecasts it is
not expected that the Bridge Facility will be utilised; and
• raising equity from shareholders via a combination of a placing and a rights issue (the ‘Equity Raise’), which is fully underwritten.
Lender consents were obtained from the required proportion of lenders for the above Corporate Actions, prior to their announcement.
As part of this consent process, pending the Schemes becoming effective, sufficient lenders have provided forbearances in respect of
any defaults that may be argued to have arisen under Premier’s existing credit facilities by virtue of the implementation of the Schemes
and other aspects of the Corporate Actions. Accordingly, no resulting action can be taken to accelerate, or prevent drawings being made
under, the Group’s existing credit facilities in respect of the Scheme or Corporate Actions.
In February 2020, more than 75 per cent of the Group’s creditors voted to support the Group’s scheme of arrangement. Therefore,
management believes it is probable that the above actions will be approved via a court scheme of arrangement in March 2020.
Macro-economic risks
Premier is exposed to macro-economic risks, including pandemic diseases, that could have a material adverse effect on our operations.
We continue to monitor the recent COVID-19 outbreak, which is causing economic disruption in China and elsewhere and may impact
our performance in 2020. However, at present, it is not possible to predict whether or not the COVID-19 outbreak will have a material
adverse effect on our earnings, cash flows and financial condition.
Premier Oil plc 2019 Annual Report and Financial Statements 167
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
28. INVESTMENTS
Subsidiary undertakings
At 31 December 2019, 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
Premier Oil Natuna Sea BV
Premier Oil Andaman Limited
Premier Oil Andaman I Limited
Gas trading company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Exploration, production and development,
Indonesia
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
Exploration, production and development,
Indonesia
Exploration, production and development,
Indonesia
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil South Andaman Limited Exploration, production and development,
23 Lower Belgrave Street, London, SW1W 0NR
Indonesia
Premier Oil Tuna BV
Exploration, production and development,
Indonesia
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
Premier Oil ANS Limited
Exploration, production and development,
Alaska
23 Lower Belgrave Street, London, SW1W 0NR
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil do Brasil Petróleo
e Gás Ltda
Exploration, production and development,
Brazil
Rua Lauro Müller, 116 – Sala 2006, Torre, Botafogo,
Rio de Janeiro, 22.290-906
Premier Oil Exploration and
Production Mexico S.A
Exploration, production and development,
Mexico
Premier Oil Mexico Recursos,
S.A de C.V
Exploration, production and development,
Mexico
Ebury Gate Limited
Risk Mitigation Services, Guernsey
Calle Montes Urales, 424, Oficina 03-110 y 03-117
Lomas de Chapultepec V Sección. Miguel
Hidalgo, Ciudad de México, 11000
Calle Montes Urales, 424, Oficina 03-110 y 03-117
Lomas de Chapultepec V Sección. Miguel
Hidalgo, Ciudad de México, 11000
Level 5, Mill Court, La Charroterie, St Peter port,
GY1 1EJ
Note:
1 Held directly by Premier Oil plc. All other companies are held through a subsidiary undertaking.
168 Premier Oil plc 2019 Annual Report and Financial Statements
Other subsidiaries
Name of company
Business and area of operation
Registered office address
EnCore (NNS) Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
EnCore (VOG) Limited
EnCore CCS Limited
EnCore Gas Storage Limited
Dormant
Dormant
Dormant
EnCore Natural Resources Limited
Dormant
EnCore Oil and Gas Limited
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
EnCore Oil Limited
FP Mauritania A BV
Decommissioning activities, Mauritania
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
FP Mauritania B BV
Decommissioning activities, Mauritania
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
Atrium Building, 8th Floor, Strawinskylaan 3127,
1077 ZX, Amsterdam, Netherlands
Premier Oil ANS Holdings Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil (EnCore Petroleum)
Limited
Premier Oil Aberdeen Services
Limited
Intermediate holding company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Service company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil and Gas Services Limited Service company, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil B Limited
Premier Oil Belgravia Limited
Premier Oil Belgravia Holdings
Limited
Premier Oil Bukit Barat Limited
Dormant
Dormant
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
Exploration, production and development,
Indonesia
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Buton BV
Dormant
Premier Oil CCS Limited
Premier Oil Congo (Marine IX)
Limited
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
Premier Oil Ebury Limited
Activities of head office, UK
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Exploration (Mauritania)
Limited
Decommissioning activities, Mauritania
IFC 5, St Helier, JE1 1ST, Jersey
Premier Oil Exploration and
Production (Iraq) Limited
Dormant
Premier Oil Exploration Limited
Dormant
23 Lower Belgrave Street, London, SW1W 0NR
4th Floor, Saltire Court, 20 Castle Terrace,
Edinburgh, EH1 2EN
Premier Oil Exploration ONS Limited Dormant
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil Far East Limited
Service company, Singapore
23 Lower Belgrave Street, London, SW1W 0NR
Premier Oil International Holding BV Dormant
Premier Oil Investments Limited
Dormant
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
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
Premier Oil plc 2019 Annual Report and Financial Statements 169
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
28. INVESTMENTS CONTINUED
Name of company
Business and area of operation
Registered office address
Premier Oil Philippines BV
Dormant
Premier Oil Vietnam 121 Limited
Dormant
Premier Oil Vietnam North BV
Dormant
Premier Oil Mexico Investments
Limited
Dormant
Premier Overseas Holdings Limited Dormant
XEO Exploration plc
Dormant
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
23 Lower Belgrave Street, London, SW1W 0NR
170 Premier Oil plc 2019 Annual Report and Financial Statements
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 2019
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
2019
US$ million
2018
US$ million
3
7
4
4
5
6
7
9
565.5
0.7
1,374.8
1,941.0
565.5
0.4
1,288.6
1,854.5
0.7
0.7
0.5
0.5
(40.4)
(39.7)
(35.8)
(35.3)
(197.6)
(0.8)
(45.6)
(244.0)
1,657.3
156.5
499.4
619.0
382.4
(188.2)
(0.7)
(54.2)
(243.1)
1,576.1
154.2
491.7
547.8
382.4
1,657.3
1,576.1
Profit for the year ending 31 December 2019 was US$61.5 million (2018: US$84.8 million).
The financial statements of Premier Oil plc (registered number SC234781) were approved by the Board of Directors and authorised
for issue on 4 March 2020.
They were signed on its behalf by:
Tony Durrant
Chief Executive Officer
Richard Rose
Finance Director
Premier Oil plc 2019 Annual Report and Financial Statements 171
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
At 1 January 2018
Issue of Ordinary Shares
Net purchase of ESOP
Trust shares
Profit for the financial year
Provision for share-based
payments
Movement in cash flow hedges
Conversion of convertible bonds
At 1 January 2019
Issue of Ordinary Shares
Net purchase of ESOP
Trust shares
Profit for the financial year
Provision for share-based
payments
Pension costs – actuarial gains
Movement in cash flow hedges
AT 31 DECEMBER 2019
Share
capital
US$ 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
109.0
45.2
284.5
207.2
–
–
–
–
–
–
–
–
–
–
154.2
2.3
491.7
7.7
–
–
–
–
–
–
–
–
–
–
381.2
7.7
(1.5)
84.8
14.6
(1.2)
62.2
547.8
0.9
(3.6)
61.5
12.0
0.2
0.2
374.3
–
–
–
–
–
–
8.1
–
–
–
–
–
–
374.3
8.1
–
–
–
–
–
–
–
–
–
–
–
–
156.5
499.4
619.0
374.3
8.1
62.2
–
–
–
–
–
(62.2)
–
–
–
–
–
–
–
–
1,219.3
260.1
(1.5)
84.8
14.6
(1.2)
–
1,576.1
10.9
(3.6)
61.5
12.0
0.2
0.2
1,657.3
172 Premier Oil plc 2019 Annual Report and Financial Statements
NOTES TO THE COMPANY FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
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 49.
Where required, the equivalent disclosures are given in the consolidated financial statements. Key sources of estimation uncertainty
disclosure are provided in the Accounting Policies and in relevant notes to the consolidated financial statements as applicable. Details
of the Company’s share-based payment schemes are provided in note 21 of the consolidated financial statements on page 159.
The financial statements have been prepared on the historical cost basis except for the re-measurement of certain financial instruments
to fair value. The principal accounting policies adopted are the same as those set out on pages 126 to 133 to the 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 2019 of US$61.5 million (2018: US$84.8 million).
Other comprehensive expense for the year was US$0.4 million (2018: US$1.2 million income).
The auditors’ remuneration for audit and other services is disclosed in note 3 to the consolidated financial statements on page 141.
3. FIXED ASSET INVESTMENTS
Cost and net book value:
At 1 January
Additions
AT 31 DECEMBER
2019
US$ million
565.5
–
565.5
A list of all investments in subsidiaries held at 31 December 2019, 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 consolidated financial statements.
4. RECEIVABLES
Long-term receivables: amounts falling due after more than one year
Amounts owed by subsidiary undertakings
2019
US$ million
2018
US$ million
1,374.8
1,288.6
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.
The above carrying value reflects an impairment provision required under IFRS 9, which was calculated using the Group’s 12-month
probability of default.
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.
2019
US$ million
2018
US$ million
0.6
0.1
0.7
0.4
0.1
0.5
Premier Oil plc 2019 Annual Report and Financial Statements 173
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
5. TRADE AND OTHER PAYABLES
Derivative financial instruments – warrants
Accruals
2019
US$ million
2018
US$ million
35.6
4.8
40.4
31.8
4.0
35.8
The carrying values of the Company’s creditors approximate their fair value.
Further details on the warrants are disclosed in note 18 of the consolidated financial statements.
6. BORROWINGS
Retail bonds
2019
Fair value
amount
US$ million
2019
Carrying
amount
US$ million
2018
Fair value
amount
US$ million
2018
Carrying
amount
US$ million
201.6
198.9
181.6
190.5
In December 2013, the Company put in place a £500.0 million Euro Medium Term Notes (‘EMTN’) programme 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 5.0 per cent and maturity of seven years. Following the completion of the refinancing in 2017, the fixed coupon
increased to 6.5 per cent with the maturity extended to 2021.
The carrying value of the retail bonds is stated in the Company balance net of the unamortised portion of the debt arrangement fees
of US$1.4 million (2018: US$2.3 million).
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 consolidated financial statements on page 163.
Defined contribution schemes
The Company operates a defined contribution retirement benefit scheme. Further details of this scheme are provided in note 24 of the
consolidated financial statements on page 166.
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. In early 2020, the Group announced it had reached an agreement to amend and extend
the Group’s refinancing facilities, including extending maturities to November 2023 (see note 27 of the consolidated financial statements).
The amend and extend is expected to be approved via a court scheme of arrangement in March 2020.
9. SHARE CAPITAL AND SHARE PREMIUM
Further detail of these items are disclosed in note 20 of the consolidated financial statements on page 158.
10. DIVIDENDS
No dividend is proposed for the year ended 31 December 2019 (2018: nil).
174 Premier Oil plc 2019 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 Falkland
Islands we have classified each individual licence as a project, whereas for Indonesia, Vietnam and Mexico 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$109,820 (£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 45 of the Annual Report.
Reporting currency – Payments disclosed in this report have been disclosed in US dollars, consistent with the rest of the 2019 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.
Premier Oil plc 2019 Annual Report and Financial Statements 175
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
UK GOVERNMENT PAYMENT REPORTING CONTINUED
2019 European transparency directive disclosure
Country
Licence/company level
Production
entitlements
bbls ‘000s
Production
entitlements
US$ ‘000s
Income
taxes
US$ ‘000s
Royalties
(cash only)
US$ ‘000s
Dividends
US$ ‘000s
Bonus
payments
US$ ‘000s
Licence
fees
US$ ‘000s
Infrastructure
improvement
payments
US$ ‘000s
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
456
–
456
456
375
375
–
–
826
827
1,653
242
246
170
781
830
–
2,269
–
–
–
4,297
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
US$ ‘000s
375
375
187,031
187,031
826
827
1,653
242
246
170
781
830
(440)
1,829
38,428
66,657
105,085
295,973
Falkland
Islands
Sea Lion
Total Falkland Islands
–
–
–
–
–
–
Indonesia
Natuna Sea Block A
2,958
162,005
25,026
Total Indonesia
2,958
162,005
25,026
Mexico
United
Kingdom
Vietnam
Block 11
Block 13
Total Mexico
Johnston
Huntington
Brenda
Catcher
Tolmount
Corporate
Total UK
Chim Sáo
Corporate
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
640
37,972
–
–
–
–
–
–
–
–
(440)
(440)
–
–
–
53,363
13,294
Total Vietnam
640
37,972
53,363
13,294
TOTAL GROUP
3,598
199,977
77,949
13,294
176 Premier Oil plc 2019 Annual Report and Financial Statements
Production
entitlements
bbls ‘000s
Production
entitlements
US$ ‘000s
Income
taxes
US$ ‘000s
Royalties
(cash only)
US$ ‘000s
Dividends
US$ ‘000s
Bonus
payments
US$ ‘000s
Licence
fees
US$ ‘000s
Infrastructure
improvement
payments
US$ ‘000s
Total
US$ ‘000s
2019 European transparency directive disclosure
Country
Government
Falkland
Islands
Falkland Island
Government –
Department of
Mineral Resources
Total Falkland Islands
–
–
–
–
–
–
–
Indonesia
SKK Migas
2,958
162,005
Directorate General
of Taxes
–
–
25,026
Total Indonesia
2,958
162,005
25,026
Mexico
Fondo Mexicano del
Petróleo para la
Estabilización y el
Desarrollo (‘FMP’)
Servicio de
Administración
Tributaria (‘SAT’)
Total Mexico
United
Kingdom
HM Revenue & Customs
Oil and Gas Authority
Total UK
–
–
–
–
–
–
–
–
–
–
–
–
Vietnam
Petro Vietnam
640
37,972
–
–
–
(440)
–
(440)
–
–
–
–
–
–
–
–
–
–
–
–
–
HCM Tax Department
Vung Tau Customs office
–
–
–
–
53,363
–
9,463
3,831
Total Vietnam
640
37,972
53,363
13,294
TOTAL GROUP
3,598
199,977
77,949
13,294
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
375
375
–
–
–
–
–
–
–
–
375
375
162,005
25,026
187,031
–
661
–
661
–
–
–
–
–
456
–
–
456
456
992
1,653
–
2,269
2,269
–
–
–
–
4,297
–
–
–
–
–
–
–
–
–
–
992
1,653
(440)
2,269
1,829
38,428
62,826
3,831
105,085
295,973
Premier Oil plc 2019 Annual Report and Financial Statements 177
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT
20191
1,596.5
113.8
164.3
1,080.0
1,131.5
20181
1,438.3
184.0
133.4
777.2
1,026.0
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
(US$ million)
(1,989.8)
(2,330.7)
(2,724.2)
(2,765.2)
(2,242.2)
193.2
19.9
18.2
130.7
0.21
826.2
78.4
174.7
232
543
66.3
1.28
1.33
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
FIVE YEAR SUMMARY
FINANCIALS
Sales revenues
Profit/(loss) before tax
(US$ million)
(US$ million)
Net profit/(loss) for the year after tax
(US$ million)
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
(US$ million)
(US$ million)
(cents/share)
(cents/share)
(cents/share)
Cash flow from operating activities per share (cents/share)
Reserves per share – year-end
Issued Ordinary Shares – average
(boe/share)
(million)
Operations:
Production (working interest basis)
(kboepd)
Proved and probable reserves
(working interest basis)
Employees (average) – UK
Employees (average) – Overseas
Key indices:
Realised average oil price
Average exchange rates
Closing exchange rates
(mmboe)
(number)
(number)
(US$/bbl)
(US$/£)
(US$/£)
Note:
1 From all operations (continuing and discontinued) unless otherwise stated.
178 Premier Oil plc 2019 Annual Report and Financial Statements
OIL AND GAS RESERVES
WORKING INTEREST RESERVES AS AT 31 DECEMBER 2019
Working interest basis
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,
NGLs
and gas
mmboe
Gas
Bcf
1.03
160.76
0.05
34.89
68.04
342.17
17.62
23.27
86.74 561.09 193.70
Group proved plus probable
reserves
At 1 January 2019
Revisions
Discoveries and extensions
Acquisitions and divestments
–
–
0.20
16.42
–
–
–
–
–
0.26
(0.05)
(32.12)
5.46
32.96
(0.15)
0.42
5.51
49.80
14.58
–
–
–
–
–
–
–
–
–
–
–
(0.05)
(31.86)
(5.05)
Production
At 31 December 2019
(0.14)
(20.65)
1.09
156.79
Total Group developed and undeveloped reserves
Proved on production
0.82
116.72
Proved approved/justified
for development
Probable on production
Probable approved/justified
for development
At 31 December 2019
0.08
0.18
0.01
1.09
17.48
9.53
13.06
156.79
–
–
–
–
–
–
–
(2.77)
(16.67)
(17.83)
(3.31)
(4.31)
(20.12)
(45.56)
(28.49)
–
–
–
–
–
–
56.83
357.30
14.16
19.38
72.08 533.47
174.74
23.25
57.95
12.53
16.45
36.60
191.12
73.74
12.21
156.84
14.89
17.85
6.48
124.66
56.83
357.30
0.20
1.12
0.31
14.16
0.46
1.78
0.69
19.38
12.49
174.78
45.93
16.19
29.16
21.80
6.80 138.41
33.27
72.08 533.47
174.74
Notes:
1 Both the Zama discovery and Sea Lion remained as contingent resources awaiting FID/Sanction and do not appear in this table.
2 All assets in Pakistan have been divested as of April 2019.
3 Proved plus probable gas includes fuel gas.
Premier Oil plc categorises petroleum resources in accordance with the June 2018 SPE/WPC/AAPG/SPEE/SEG/SPWLA/EAGE Petroleum
Resource 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 164.4 mmboe as at 31 December 2019
(2018: 181.5 mmboe). This was calculated at year-end 2019, using the following oil price assumption: US$65/bbl in 2020 and 2021, US$70/bbl
in 2022 and US$70/bbl in real terms thereafter (2018: Dated Brent forward curve of US$60 in 2019, US$65/bbl in 2020, US$70/bbl in 2021
and US$75/bbl in real terms thereafter).
Premier Oil plc 2019 Annual Report and Financial Statements 179
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT WORLDWIDE LICENCE INTERESTS
AS AT 4 MARCH 2020
Licence
Blocks
Alaska
Area A
Area A
Brazil
112 leases with State of Alaska
5 leases with ASRC
CE-M-661
CE-M-661
CE-M-717_R11
CE-M-717
Falkland Islands
PL003a
PL003b
PL004a
PL004b
PL004c
PL032
PL033
Indonesia
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)
South Andaman South Andaman
Andaman I
Andaman I
Andaman II
Andaman II
Natuna Sea
Block A
Natuna Sea Block A
Tuna Block
Tuna Block
Mauritania
PSC B
Mexico
Chinguetti EEA
Mexico Block 7
Mexico Block 11
7
11
Mexico Block 13 13
Mexico Block 30 30
Operator
88 Energy
88 Energy
Total
Premier
Rockhopper
Rockhopper
Premier
Premier
Premier
Premier
Premier
Mubadala
Petroleum
Mubadala
Petroleum
Premier
Premier
Premier
Petronas
Talos
Premier
Premier
WDEA
Premier
equity
Unit interest
(if applicable)
Associated fields /
discoveries
Malguk–1 discovery
Malguk–1 discovery
Pecem
Isobel Deep
Beverley; Casper South;
Zebedee
Casper North; Sea Lion
Anoa; Gajah Baru; Naga;
Pelikan; Bison, Iguana &
Gajah Puteri
Kuda Laut; Singa Laut
Chinguetti
Zama
60.00
60.00
30.00
50.00
4.50
4.50
36.00
36.00
36.00
60.00
60.00
20.00
20.00
40.00
28.67
65.00
8.12
25.00
100.00
100.00
30.00
180 Premier Oil plc 2019 Annual Report and Financial Statements
Licence
Blocks
United Kingdom
Operator
Premier
equity
Unit interest
(if applicable)
Associated fields /
discoveries
P077
P087
P111
P164
P188
P201
P201
P213
P233
P264
P344
P362
P380
P380
P452
P452
P454
P611
P666
P686
P748
P752
P771
P1042
P1114
P1330
P1430
P2070
P2305
P2453
P2454
22/12a (Nelson Field (NELS))
22/7a (Nelson Field (NELS))
22/25a (Merganser down to 3300 metres
(MERG))
205/26a (ALL)
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)
16/21d (Brenda Field Area (above 7500 feet)
(A))
16/26a (Area P – Caledonia Field Area
(P-CAL))
15/25a (ALL)
23/26d (Scoter Field Area (A))
16/21b (Balmoral Field Area (BALM)) and
16/21c (Stirling Field (STIR))
Enterprise
Premier
(Shell for field)
Premier
(Shell for field)
Premier
Total
Premier
Premier
Premier
Premier
Premier
(Shell for field)
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)
44/22c (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)
Premier
Neptune
Neptune
Total
Premier
CNR
Total
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Premier
Vietnam
Block 12W
12W
50.00
46.50
65.99
100.00
5.20
85.00
100.00
100.00
70.00
100.00
44.20
5.20
35.94
72.22
40.00
79.00
42.67
42.67
5.20
42.22
40.00
18.57
76.00
100.00
100.00
50.00
50.00
50.00
50.00
50.00
50.00
53.13
1.66
1.66
7.92
Nelson
Nelson
Merganser
Solan
5.20
Elgin; Franklin
Balmoral:
78.12 Stirling:
68.68
Balmoral; Glamis; Stirling
12.00
Balmoral:
78.12 Stirling:
68.68
5.20
28.75
50.11
23.47
Orca: 23.47
5.20
50.11
74.00
Brenda
Caledonia
Nicol
Scoter
Balmoral; Stirling
Elgin; Franklin
Ravenspurn North
Johnston
Caister
Hunter
Orca
Minke; Orca
Elgin; Franklin; West
Franklin
Johnston
Kyle
Glenelg
Rita
Brenda
Huntington
Tolmount
Burgman; Carnaby; Catcher;
Varadero
Laverda
Greater Tolmount
Bonneville
Laverda
Chim Sáo; Dua
Premier Oil plc 2019 Annual Report and Financial Statements 181
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT Billion British thermal units per day
ISA (UK)
International Standard on Auditing (UK)
Billion cubic feet
IVC
Investor Code
GLOSSARY
ALARP
As low as reasonably practicable
Annual General Meeting
Barrel
AGM
bbl
BBtud
Bcf
BIG-P
BMS
boe
boepd
Bison, Iguana and Gajah Puteri
Business Management System
Barrel(s) of oil equivalent
Barrel(s) of oil equivalent per day
BRINDEX
The Association of British Independent Oil
Exploration Companies
CAGR
CGU
COP
CPRs
DD&A
DTA
EBITDA
Compound annual growth rate
Cash-generating unit
Cessation of production
Competent Person Reports
Depreciation, depletion and amortisation
Deferred tax asset
Earnings before interest, tax, depreciation
and amortisation
EBITDAX
Earnings before interest, tax, depreciation,
amortisation and exploration
E&E
EIS
Exploration and evaluation
Environmental Impact Statement
EMTN
Euro Medium Term Notes
E&P
EPA
ERM
ESG
ExCo
FDP
FEED
FPSO
FVOCI
FVTPL
GHG
GRI
GSA
HiPo
HiPoR
HSES
HSFO
IAS
IEA
IFRIC
Exploration and production
Equity Pool Awards
Enterprise risk management
Environmental, social and governance
Executive Committee
Field development plan
Front end engineering and design
Floating production, storage and offtake vessel
Fair value through other comprehensive income
Fair value through profit or loss
Greenhouse gas
Global Reporting Initiative
Gas Sales Agreement
High potential incidents
High Potential Incident Rate
Health, safety, environment and security
High Sulphur Fuel Oil
International Accounting Standard
International Energy Agency
IFRS Interpretations Committee
182 Premier Oil plc 2019 Annual Report and Financial Statements
IFRS
IOGP
IPIECA
International Financial Reporting Standard
International Association of Oil and Gas Producers
International Petroleum Industry Environmental
Conservation Association
kboepd
Thousand barrels of oil equivalent per day
KPI
LDAR
LNG
LOPC
LTIP
LWDC
M&A
mmbbls
mmboe
MSA
mscf
mt
MTC
OGA
ORB
PB3
PSA
PSC
PVSP
RWDC
RSA
SAYE
SDGs
SIP
SPA
Tcf
TCFD
te
TRIR
TSR
UNGC
USPP
2C
2P
Key performance indicator
Leak detection and repair programmes
Liquefied natural gas
Loss of primary containment
Long Term Incentive Plan
Lost work day cases
Mergers and acquisitions
Million barrels
Million barrels of oil equivalent
Matching Share Awards
Thousand standard cubic feet
Metric tonne
Medical treatment cases
Oil and Gas Agency
Order Book of Retail Bonds
OPT PB3 PowerBuoy®
Performance Share Awards
Production sharing contract
Premier Value Share Plan
Restricted work day cases
Restricted Share Award
Save As You Earn
UN Sustainable Development Goals
Share Incentive Plan
Sale and Purchase Agreements
Trillion cubic feet
Task Force on Climate-related Financial Disclosures
Tonnes
Total recordable injury rate
Total shareholder return
UN Global Compact
US Private Placement
Best estimate of contingent resources
Proved and probable reserves
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, cash margin, free cash flow, 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.
• Cash margin: Operating cash flow for the year divided by working interest production. This is a useful indicator of cash generation
from the Group’s producing assets.
• Free cash flow: Positive cash flow generation from operating, investing and financing activities excluding drawdowns from and
repayments of borrowing facilities and equity issuances.
• 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 and right-of-use assets 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.
Premier Oil plc 2019 Annual Report and Financial Statements 183
GOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONSTRATEGIC REPORT Registered Depositary Receipt holders
can trade, access account balances and
transaction history, find 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.
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: +44 (0) 371 664 0300
Calls are charged at the standard
geographic rate and will vary by provider.
Calls from 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 certificate. The portal provides a
range of services, free of charge, to help you
to administer your shareholding quickly and
efficiently 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.
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-effective way
for shareholders to receive Annual Reports
and other statutory communications as soon
as they are available.
To register for this service, please visit the
share portal: www.premier-oil-shares.com.
You will need your IVC which can be found
on your share certificate. 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 financial advice,
including offers to buy Premier Oil plc shares
at inflated prices, or offers 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.
184 Premier Oil plc 2019 Annual Report and Financial Statements
Further details regarding all aspects of shareholder information can be found on our website:
www.premier-oil.com
OTHER USEFUL LINKS
> www.premier-oil-shares.com
> www.adrbnymellon.com
> www.fca.org.uk/consumers/scams
> www.computershare-na.com/bnym_adr
CBP003306
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Principal Colour is an EMAS certified
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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
Further information
Full contact details for all of our advisers
are available on our website:
www.premier-oil.com