Premier Oil has hailed the increase in productivity achieved on a key field development project West of Shetland, on which it has faced big challenges.

The London-based company welcomed the progress achieved recently on the Solan field after slashing its valuation of the asset and pushing the expected start of production back in February.

Premier said then the commissioning of production facilities had taken took longer than anticipated amid poor weather conditions and low productivity over the winter period.

The problems highlighted the challenges firms can face operating in the stormy waters off Shetland, where majors including BP are developing some huge new fields.

Yesterday Premier said of Solan: "Increased offshore productivity was realised, partly due to improvement in the weather but also due to organisational changes in the project execution team."

The company is targeting first oil from Solan in the fourth quarter of this year. It had originally hoped to start production in the second quarter.

Premier had spent $1.6 billion (£1bn) developing Solan at June 30. It expects the field to achieve plateau rates of production of 20,000 to 25,000 barrels daily.

The company underlined its faith in the potential of the project last month when it took full control of Solan, in a deal that could be worth up to $100 million.

Yesterday the company said the deal to acquire the 40 per cent owned by North Sea-focused Chrysaor removed partner funding concerns about the project.

Premier continues to make good progress with work on another big field off Scotland.

It said the Catcher project off eastern Scotland remains within budget and on schedule for first oil in 2017.

Edinburgh-based Cairn Energy has a 20 per cent stake in Catcher, which it acquired through deals completed during the long period of high oil prices that ended last year.

The crude price has halved since June last year amid plentiful supplies from US shale areas and muted demand.

However, Cairn's chief executive Simon Thomson said recently that Catcher remained an attractive asset at the front end of its life.

Premier Oil's chief executive Tony Durrant has said the fall in the oil price could create opportunities to acquire North Sea assets at attractive prices.

The company has used hedging to limit the impact of the oil price fall on revenues, by selling crude on the futures market at above the current price of around $60 per barrel.

Brent crude fetched $115 per barrel in June last year.

In an update on first half trading, Premier said it has reaped rewards from efforts to cut costs. These have included cutting the rates paid to contractors around the world by ten per cent.

The company noted it benefits economically from the fact it has amassed $3.3 billion tax losses in respect of its UK activity. These can be set against the profits generated from UK production.

The Chancellor cut the rate of supplementary tax payable on UK North Sea profits in the March Budget, to 20 per cent from 30 per cent.

Oil and gas firms will benefit from moves to cut Corporation Tax rates by two percentage points, to 18 per cent by 2020, announced in the emergency Budget on Wednesday.

Premier produced 16,800 barrels oil equivalent daily in the UK in the first half, compared with 21,300 boed in the same period last year.

The fall reflected the $130m sale in December of what Premier described as the high cost Scott area.

Premier, which also has operations in Asia, produced an average 60,300 boed in the first half, down from 64,900 boed last time.

The company said it had made a successful start to its Falkland Islands exploration campaign with discoveries with the Zebedee and Isobel Deep wells.

In February Premier scrapped its dividend for the full year and scaled back plans to develop the Sea Lion field off the Falkland Islands to reduce spending.

Solan is one of three UK oil and gas assets whose book value Premier cut by a total $730m in January, or around $300m after tax.

Source: www.heraldscotland.com

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