Competent Person’s Report on North Sea assets for Premier Oil

Overview

Premier Oil contracted RISC and DeGoyler & McNaughton to perform due diligence and each write a Competent Person’s Report (CPR) on the valuation of reserves and assessment of resources for the UK North Sea assets of German power and gas company E.On E & P UK Limited.

RISC’s CPR included seven producing fields for reserves and fields which have ceased production, two fields for undeveloped contingent resources, eleven discoveries and key exploration prospects and two processing terminals and pipeline gathering systems. DeGoyler & McNaughton reported on seven fields for reserves.

Challenge

The portfolio of assets consisted of very mature gas fields with ageing infrastructure and one major gas field development. Most of the mature fields had a negative pre- and post-tax Net Present Value with the majority of the portfolio value contained the large gas field development. The seller released a significant revision to the recoverable volumes of the large gas field development after the printing of the Information Memorandum and after the Management presentation, so RISC was unable to directly question the seller about the technical justification for this revision.

The Net Present Value of the portfolio was calculated during a time of low oil price and price volatility with oil at $45 per barrel at the start of the CPR sliding to a low of $30 per barrel and then back up to approximately $35 per barrel at the submission of the CPR to the UK Listing Authority and Premier Oil. Similarly, UK spot gas prices were fluctuating from approximately 35 to 45 pence per therm, all of which complicated the valuation.

Approach

Over a four month period, RISC’s technical team:

• Produced a CPR that contained a review of the historic field development and current status of the producing fields, summarised the reservoir Description and In Place Volumes, described the reservoir performance and production Forecasts, outlined the future development and costs, and summarised any upside opportunities.
• Derived 1P, 2P, 3P and 1C, 2C, 3C volumes for all fields.
• Audited the seismic interpretations, reservoir models, production histories, material balance models, decline curve analyses, behind pipe volumes and infill opportunities of the fields.
• Created new material balance models for a few producing fields.
• Integrated production forecasts with the development plans, costs and schedules.
• Carried out sensitivities on depth converting the seismic interpretation of the key field development in the Southern North Sea which had a complex overburden velocity field and created new depth surfaces for Gas Initially In Place volumetrics.
• Peer reviewed the sellers assumptions on field development and drilling options, cost and timing, and modified them when considered inappropriate.
• Peer reviewed the exploration prospects and evaluated the probability of geological success.
• Carried out pre-tax and post-tax discounted cash flow valuations using four different price scenarios for all reserves classes 1P, 2P and 3P.

Outcomes

RISC’s CPR assisted Premier Oil to hold a shareholder vote seeking approval for the acquisition.

Our client was very pleased with the cost control and management of the report and especially the fast turnaround and quick response of the team to the requests made by Premier’s senior executives, their legal advisors and the UK Listing Authority.

Review a copy of the CPR here.