Premier price for oil firm’s shares on news of Solan field approval

SHARES in Premier Oil rose yesterday after UK authorities gave the go-ahead for development of the company’s Solan field to the west of Shetland, with production set to start in about two years’ time.

The group, whose shares are listed on the London Stock Exchange, expects to start drilling the first of four sub-sea wells in the second quarter of next year, following approval from the UK’s Department of Energy and Climate Change (DECC).

Production of the 40 million or so barrels of oil contained within Solan is scheduled to begin in the final quarter of 2014 at an initial rate of 24,000 barrels per day.

Premier chief executive Simon Lockett said the project would make a significant contribution towards the group’s medium-term goal of producing 100,000 barrels of oil per day. Premier owns 60 per cent of Solan, with the rest in the hands of Chrysaor, the exploration and production company owned by Barclays Capital and private equity group Natural Gas Partners.

Active in the North Sea since the early 1970s, Premier uses cash generated from production there to fund investment in countries such as Kenya, Indonesia and Vietnam. The Scottish-registered firm’s UK interests include fields such as Balmoral, Kyle and the forthcoming Huntington project due to begin production later this year.

“DECC’s approval of the Solan field plan marks another significant milestone for Premier and further endorses our capabilities as an operator as we continue to build a substantial business in the North Sea,” Lockett said.

The announcement prompted broker upgrades from the likes of Nick Copeman, energy analyst with Oriel Securities. Premier’s shares followed suit, closing up almost 3 per cent at 378.4p.

Production from the facility – which will not be permanently manned after the first year of operation – will benefit from recent tax breaks for projects in the West of Shetland area. Last month’s Budget from Chancellor George Osborne included new field allowances that Premier has already said could be worth as much as $100m (£63m) in total to the company.

Welcoming the announcement, energy minister Charles Hendry said the Solan project would bring considerable benefits to the UK.

“In addition to contributing to the UK’s future energy supplies, a sizeable proportion of the contracts are expected to be awarded to UK companies,” he said.

“Premier’s investment is excellent news and further demonstrates the significant remaining opportunities to develop new oil and gas fields in the UK continental shelf.”

Equipment for the drilling phase will be provided by Awilco, the Aberdeen drilling operator owned out of Norway while contracts to produce the oil rig are likely to be awarded to Fife-based Burntisland Fabrications, while installation work has been signed over to Heerema of the Netherlands.