British North Sea-focused oil and gas producer Premier Oil has committed to carbon neutral operations at its fields by 2030, reporting a record free cash flow of $327 million last year, up around 30% and boosted by its flagship Catcher field.
It said on Thursday it would develop its operated projects on a carbon neutral basis in respect of Scope 1 and Scope 2 emissions, referring to emissions from its direct operations and from the power supply it uses.
“Today’s results appear to be another step in the right direction for Premier Oil. Debt reduction has been the company’s main focus over the past few years, which has been reduced to $1.99 billion, and free cash flow is at healthy levels” said Stuart Lamont, investment manager at Brewin Dolphin.
The spread of the coronavirus is likely to continue casting a shadow over energy stocks, Lamont said, after Premier’s share price dropped by one third so far this year.
Chief Executive Tony Durrant said greenhouse gas emissions that Premier could not eliminate from its operations through engineering would be covered by offset programmes such as planting trees near the oil and gas fields.
Engineering solutions might include powering its Tolmount projects through nearby windfarms, which Durrant said was possible from around 2023. (Premier Oil results).
Premier is awaiting a court decision on its plan, approved by a majority of its shareholders, for a capital raise of $500 million for new North Sea acquisitions between March 17 and 20 and postponing its debt maturities.
Debt holder ARCM, a hedge fund with a large short position in Premier’s stock, vehemently opposed the plans.
Premier’s climate targets follow similar commitments by other pure oil and gas exploration and production companies, such as Energean and Kosmos Energy, which will make use of emission offset programmes.
While Kosmos said it would, in the long term, develop a target to reduce so-called Scope 3 emissions from the end-use of its oil and gas, for example in vehicles, Durrant said this was difficult because Premier had no direct link with consumers.
European oil and gas majors with refineries and petrol stations, such as BP or Eni, have set themselves reduction targets for Scope 3 emissions, which typically vastly outstrip operational emissions.
Premier put a stake in its Zama discovery off Mexico on the market last year and Durrant said “multiple” bidders were still in the process, which depends on the outcome of talks with Mexico’s Pemex to determine access to reserves and operatorship.
The process might have to go to arbitration, which can be triggered from next week and would take a maximum of 125 days, Durrant said.
“But that would not be our preferred option,” he added.
Premier plans to produce between 70,000 and 75,000 barrels of oil equivalent this year, excluding its planned acquisitions.
Premier hedged 3.4 million barrels in the first half at an average price of $64 a barrel and 1.3 million barrels in the second half at $63 a barrel.
Source: Reuters. Image courtesy of iStockPhoto.com.