continued progress…
building three quality
businesses
annual report and financial statements
year to 31 december 2009
premier oil plc 2009 annual report and financial statements
wwwpremieroilcom
premier oil plc
23 lower belgrave street
london sw1w 0nr
telephone 00 44 020 7730 1111
facsimile 00 44 020 7730 4696
premier today
we operate through three business units north sea asia and
middle eastpakistan each has a strategy designed to maximise
the opportunities available in these highly prospective regions
of the world each has demonstrated marked progress against
its strategy during 2009 with a doubling in production in the
north sea through the acquisition of oilexco record production
in pakistan combined with new exploration acreage in egypt
and significant progress on development projects and exploration
programmes in asia
looking to the future
the company is set to double in size as major
development projects come onstream in the north
sea and asia these will take the company to its
stated production target of 75000 boepd with more
than one billion potential barrels of prospective
resources in the portfolio to be drilled in the next five
years and ongoing work to identify new areas in
which to bring to bear premier’s particular skills and
expertise the company is wellplaced to deliver
substantial growth into the future
19342009 section 1 performance
highlights 01
chairman’s statement 02
chief executive’s review 04
financial review 14
social performance review 20
section 2 governance
board of directors 24
corporate governance report 26
audit and risk committee report 30
company risk factors 32
nomination committee report 34
report of the directors 35
remuneration report 38
statement of directors’ responsibilities 50
accounting policies 51
section 3 financial statements
independent auditors’ report – group 57
consolidated income statement 58
consolidated statement of comprehensive income 58
consolidated balance sheet 59
consolidated statement of changes in equity 60
consolidated cash flow statement 61
notes to the consolidated financial statements 62
independent auditors’ report – parent company 83
parent company financial statements 84
section 4 additional information
five year summary 96
shareholder information 97
oil and gas reserves 98
worldwide licence interests 99
glossary 101
contacts 102
contents
performance
premier is a leading ftse 250 independent exploration and
production company with oil and gas interests in the
north sea asia and in the middle east pakistan regions
our strategy is to add significant value for shareholders
through exploration and appraisal success astute
commercial deals and optimal asset management  01
premier oil plc 2009 annual report and financial statements
operational
 production increased by 21 per cent to 442 kboepd 2008 365 kboepd
 reserves increased by 12 per cent to 255 mmboe 2008 228 mmboe reserves
and resources increased to 468 mmboe 2008 382 mmboe an increase
of 23 per cent
 acquisitions completed in the uk and vietnam now successfully integrated
and outperforming expectations
 ongoing material progress on the chim sáo and gajah baru development
projects with first oil and gas on schedule for 2011
 five out of nine exploration and appraisal wells drilled were successful
including important discoveries in norway and vietnam
financial
 record profit after tax of us1130 million 2008 us983 million including
effects of tax allowances acquired with oilexco
 operating cash flow of us3477 million 2008 us3523 million despite
a 37 per cent fall in brent oil price yearonyear
 financing in place to fund current development and exploration programme
debt facilities expanded and maturities extended
 pro forma net debt at 2009 yearend including cash held in escrow of
us70 million was us2454 million 2008 us1173 million – net cash cash
on hand and in escrow and undrawn bank facilities were us649 million at
yearend 2008 us599 million
2010 outlook
 stable production levels from existing assets yearonyear on track to meet
mediumterm production target of 75 kboepd
 construction phase of gajah baru and chim sáo progressing well chim sáo
jacket scheduled for loadout shortly development drilling to commence
later this year on both projects scheduled for 2011 first oil and gas
 final development sanction for north sumatra block a and huntington
projects expected during the year with first oil and gas in 2012 or earlier
 work on predevelopment portfolio is focused on bream bugle and frøy
all of which are targeting 2013 first oil
 12 exploration and appraisal wells planned for 2010 programme focused on
north sea and asia encouraging start to 2010 exploration with the blåbaer
oil discovery in norway
highlights 02
premier oil plc 2009 annual report and financial statements
chairman’s statement
financial and operating performance
despite low oil and gas prices in the early part of the year increased production supported
by price recovery in the second half generated sales revenues of us6211 million in 2009
2008 us6552 million average production for the year rose 21 per cent to 44200 barrels
of oil equivalent per day boepd 2008 36500 boepd taking into account both the
oilexco north sea ltd oilexco acquisition and continuing strong demand in both
singapore and pakistan for our gas production
operating cash flow after tax was us3477 million 2008 us3523 million more than
covering exploration and development investments of us3031 million 2008 us2173 million
two significant acquisitions were completed during the year oilexco for us505 million
and delek energy vietnam llc delek for us72 million these were funded by a
combination of new equity us252 million an increase in bank borrowings and existing
cash resources as a result pro forma net debt at yearend stood at us2454 million 2008
us1173 million – net cash
profits after tax were at record levels of us1130 million 2008 us983 million benefiting
from the acquisition of significant uk tax allowances during the year operating profits for
the year were us1697 million 2008 us2617 million
oil and gas proven and probable reserves increased to 255 million barrels of oil equivalent
mmboe 2008 228 mmboe contingent resources are 213 mmboe 2008 154 mmboe
resulting in a 23 per cent increase in reserves and resources to 468 mmboe 2008 382
mmboe this included 60 mmboe acquired with the oilexco acquisition in the uk
considerable progress was made in advancing our major development projects the
wellhead platforms for the chim sáo and gajah baru projects in vietnam and indonesia
respectively are progressing well through their construction phases and the chim sáo jacket
will begin moving to its offshore location shortly development drilling will commence later
this year on both projects our first development project from the oilexco portfolio the uk
huntington field is also progressing well we have a number of north sea projects in both
the uk and norway which are targeted for development approval during 2010
our exploration programme in 2009 delivered five successes from nine exploration and
appraisal wells notably this included two successes drilled from our first two wells in
norway and the cá rˆ o ng –
do
 
discovery in vietnam which opens up a large and unexplored
area on the vietnameseindonesian border a series of successful wells on the nw gemsa
permit in egypt led to a profitable exit through a sale of our 10 per cent interest in the
block our programme of wells in norway and in asia continues in 2010
“premier offers material and profitable future
growth for shareholders through a reliable and
longlife production base good quality projects
under development and in the predevelopment
phase and an exciting exploration programme
in areas we know well” 03
premier oil plc 2009 annual report and financial statements
our efforts to maintain the highest levels of health safety and environmental performance
have continued as supported by our industry leading statistics in the international
association of oil and gas producers’ safety performance indicators report premier’s
drilling function was ranked number one across the industry for the lowest total recordable
injury frequency we were also ranked in the top quartile for production operations we
have retained our inclusion in the ftse4good index
shareholder returns
despite the significant volatility in equity markets and in the price of oil premier’s share
price increased by 12 per cent during the year after adjusting for the rights issue completed
in may over the fiveyear period to 31 december 2009 premier’s share price has increased
by 109 per cent
board change
i was delighted to take over chairmanship of your company with effect from 15 october
2009 i would like to pay tribute to the achievements and leadership of sir david john who
retired after 11 years as chairman of the company premier is extremely well positioned to
grow its production base engage in further development projects and add material
reserves through exploration the quality and potential of its asset position is a tribute to
the hard work of my predecessor and the high calibre team here at premier
mike welton
chairman 04
premier oil plc 2009 annual report and financial statements
chief executive’s review
group strategy
five years ago the then new management team established a number of strategic
objectives for future growth of the business
• increasing our production from 33 thousand barrels of oil equivalent per day kboepd
2005 to 50 kboepd
• monetising previously discovered resources through commercial negotiation and field
development
• adding to the portfolio of development projects and discoveries through exploration
success
• seeking valueadding acquisitions in core areas and
• creating strong regional businesses with full capability in production development and
exploration operations
over the subsequent fiveyear period premier has made significant strides in meeting all
these objectives
• 2009 production averaged 442 kboepd exceeding 50 kboepd in the second half of the
year projects now under development are expected to add a further 25 kboepd by 2012
• booked 2p reserves have increased by 45 per cent and reserves and resources have
more than doubled over the fiveyear period
• premier’s chim sáo discoveries in vietnam in 2006 and 2007 have been followed up with
2009 successes in vietnam and norway further drilling in norway and vietnam and
other exploration targets in the uk and indonesia are included in the 2010 programme
• acquisitions in 20067 and in 2009 coinciding with periods of relatively low oil prices
have been completed successfully in the uk indonesia and vietnam and
• the north sea and asia regional businesses are wellestablished we are actively seeking
opportunities to extend from our pakistan business base across the middle east region
“2009 was a year of important acquisitions
increasing production great strides in our
development projects and successful
exploration drilling we have a busy and
exciting programme for 2010 which will
continue to build on our three growing
regional businesses”
simon lockett
chief executive 05
premier oil plc 2009 annual report and financial statements
building on the existing strategy we expect significant further growth over the coming years
• a production target of 75 kboepd from existing projects by 2013
• the potential to add significant further production in the mediumterm from projects
currently within the predevelopment portfolio
• an exploration programme targeting reserve additions of 200 mmboe net to premier
from existing geological areas of expertise and
• acquisition and new venture activity which will provide future growth potential based
on existing skills within the group
we expect to maintain a conservative balance sheet through the investment cycle
facilitating our growth opportunities
regionally our established business units have their own forward plans and strategies
asia
in asia we seek to develop the full potential for our
natuna sea and north sumatra gas positions in
indonesia and our growing presence in the nam con
son basin in vietnam our wellestablished presence
in the region will allow us to bring relationships
knowledge and technical skills to new business
opportunities in the area
middle eastpakistan
we seek to maximise the value of our high quality
pakistan producing gas fields extending our technical
skills to new regional opportunities including with our
regional joint venture partner emirates international
investment company llc eiic
north sea and west africa
following the oilexco acquisition and the successful start to our norwegian exploration
programme we plan to build on our existing producing asset base and operating capability
by bringing forward discovered reserves into the development portfolio and by exploiting
exploration opportunities in our core areas of the uk central north sea and the norwegian
north sea 06
premier oil plc 2009 annual report and financial statements
chief executive’s review continued
neil hawkings
operations director
operations review
production development and reserves
a strong increase in production was achieved in 2009 principally due to the acquisition of
the oilexco producing assets completed in may 2009 significant progress on the
development portfolio was also achieved with both gajah baru in indonesia and chim sáo
in vietnam achieving final project approvals both projects are now in the construction
phase with expected first oil and gas in 2011 existing producing fields together with new
production from our development projects will keep the company on track to achieve our
75000 boepd target in the mediumterm
in line with guidance average working interest production for the full year was 442 kboepd
2008 365 kboepd of which 74 kboepd came from the former oilexco production portfolio
acquired on 21 may 2009 also in the uk the kyle and wytch farm fields performed
strongly though the scott field remained at 2008 levels underperforming somewhat due to
facilities issues production in other areas remained steady as strong gas demand and good
production performance were experienced in both pakistan and indonesiasingapore
working interest entitlement
production boepd 2009 2008 2009 2008
asia 11050 11700 7300 7100
middle eastpakistan 16000 14550 15850 14550
north sea 16200 9300 16200 9300
west africa 950 950 800 800
total 44200 36500 40150 31750
in the wake of the global financial crisis and the significant fall in oil prices cost levels in the
industry also fell the company achieved material development project cost reductions by
optimising and retendering the chim sáo and gajah baru projects both these projects are
now under construction with first production scheduled for 2011 further progress on our north
sumatra block a project in indonesia could not be achieved because of a delay in the
production sharing contract psc extension this is expected to be resolved shortly but has
caused first gas to be delayed to 2012 premier and its partners are working on a fast track 07
premier oil plc 2009 annual report and financial statements
solution to develop the huntington field in the uk a former oilexco asset floating production storage
and offtake vessel fpso tenders are being evaluated alongside tieback options to nearby
infrastructure with concept selection expected imminently followed by sanction in the third quarter
of 2010 first oil is targeted for 2012
as at 31 december 2009 proven and probable reserves on a working interest basis based on premier
and operator estimates were 255 mmboe 2008 228 mmboe these reserves comprised 32 per cent
liquids and 68 per cent gas the equivalent volume on an entitlement basis amounted to 229 mmboe
2008 198 mmboe using a price assumption of us75 per barrel bbl brent 2008 us60bbl brent
booked reserve additions were driven principally by the acquisitions of oilexco and delek during the
year contingent resources at yearend increased by 59 mmboe to 213 mmboe 2008 154 mmboe
driven by resources within the acquired portfolios and by new resources added with the discoveries
at grosbeak in norway and cá rˆ o ng –
do
 
in vietnam
proven and 2p reserves and 2c
probable reserves contingent resources
mmboe mmboe
start of 2009 228 382
production 16 16
net additions and revisions 43 102
end of 2009 255 468
asia
in asia we are seeking to develop the full potential of our natuna sea and north sumatra gas
positions in indonesia and our growing presence in the nam con son basin in vietnam our well
established presence in the region allows us to bring relationships knowledge and technical skills
to all business opportunities in the area
indonesia
during 2009 the premieroperated natuna sea block a in indonesia sold an overall average of
153 billion british thermal units per day bbtud gross from its gas export facility up 8 per cent
on 2008 whilst the nonoperated kakap block contributed a further 42 bbtud gross liquids
production from the block a anoa field averaged 1920 barrels of oil per day bopd gross and
the kakap fields 3540 bopd gross overall net production from indonesia amounted to
11050 boepd 2008 11700 boepd on a working interest basis
significant progress has been made on the gajah baru project the first of three fields to be
developed to supply additional gas to singapore and batam under three new gas sales agreements
gsas signed in 2008 and reported previously a second tender for the engineering procurement
construction and installation epci contract was completed on 16 march 2009 with resultant gross
costs savings of approximately us100 million total capital expenditure for the gajah baru project
is forecast at around us700 million gross maximum routine gas sales will be in the order of 140
million standard cubic feet per day mmscfd and recoverable reserves from the three new fields are
expected to be 500 billion cubic feet bcf
fabrication of both the wellhead platform jacket and deck continue in batam the project was 33
per cent complete at yearend for the construction phase slightly ahead of schedule development
well drilling is scheduled to commence in october 2010 and the project remains on track to deliver
first gas on schedule in october 2011
on the nonoperated north sumatra block a following approval of the plan of development for
the alur siwah alur rambong and julu rayeu gas fields in 2008 front end engineering design
feed studies were completed in 2009 and work continues on optimising the project prior to epci
bids negotiation of fullytermed agreements for use of exxonmobil facilities for transportation of
gas and liquids continued however the ministerial decree relating to the psc extension remains
unsigned the delay is impacting the project schedule with first gas scheduled for 2012 from alur
rambong and 2013 from alur siwah 08
premier oil plc 2009 annual report and financial statements
chief executive’s review continued
vietnam
substantial progress was made during the year with the chim sáo development the lower
oil prices at the end of 2008 prompted a review of the chim sáo project in which the well
design and producing facilities were optimised lowering capital expenditure estimates and
a new fpso supply contract was negotiated the redesigned project has all the necessary
partner and government approvals and the prime contracts for epci fpso and the drilling
rig have been executed at yearend the chim sáo platform jacket was 83 per cent
complete and its topsides 51 per cent complete on schedule to allow the main facilities to
be installed in summer 2010 work on the conversion of the lewek emas into an fpso
commenced in the keppel shipyard development drilling is expected to start in mid2010
and the fpso to be installed in the second quarter of 2011 first oil production is forecast
for mid2011 project costs are in line with budget
petrovietnam exploration production corporation pvep exercised its backin right for a
15 per cent equity in block 12w in april 2009 premier increased its interest in the block
to 53125 per cent through the acquisition of delek which completed in july 2009
india
no progress has been made in 2009 with the government of india in signing the ratna
licence premier will close its representative office in delhi in 2010
north sea and west africa
the acquisition of oilexco in may 2009 significantly increased premier’s presence in the
north sea adding some 60 mmboe of reserves and resources and a capable operating
team in the uk the acquired assets have been integrated with our existing uk portfolio
and are managed from the new premier office in aberdeen which opened in december
premier’s office in stavanger in norway continues to focus on the current norwegian
exploration programme and the integration of our significant technical database across the
north sea the north sea business unit also manages our remaining assets in west africa
uk
total north sea production was 16200 boepd for 2009 2008 9300 boepd of which 7400
boepd was generated by the acquired oilexco portfolio this represents production from
the acquisition completion date of 21 may 2009 averaged over the full year
there has been a strong underlying performance from wytch farm and kyle both of which
performed ahead of expectations in 2009 the wytch farm oil field contributed 2770 boepd
net production to premier representing a 7 per cent reduction on last year but still producing
ahead of expectations the operator has temporarily suspended further drilling on wytch
farm while the inventory of future drilling targets is upgraded it is anticipated that investment
in drilling will resume in early 2011 production from kyle was 2660 boepd 2008 2500
boepd without significant field investment during 2009
the scott field produced 3240 boepd 2008 3525 boepd underperforming expectations
as a result of both facilities issues and the failure of the first of the four well infill programme
two of the successful infill wells produced relatively high levels of hydrogen sulphide h
2
s
and at the end of 2009 the operator was focusing on the management of h
2
s levels
in the area surrounding the scott field premier is cooperating with other interest owners to
progress the development of a series of discoveries over the scott facility the partners in
bugle agreed to drill an appraisal well which was spudded in february 2010 premier will
have a 50 per cent equity share in block 1523d which contains the original bugle discovery
the cost of the well is shared equally with the participants in the neighbouring block
1523c if successful the bugle field will be tied back to scott along with the smaller
blackhorse discovery 09
premier oil plc 2009 annual report and financial statements
premier took control of the balmoral floating production vessel fpv following the oilexco acquisition
and as a result of detailed analysis three key risers were replaced during the annual shutdown
period as part of a longerterm replacement programme which will be completed in 2011
further work was carried out on the balmoral platform to increase the capacity of the gas lift power
generation and water handling systems the burghley field will be tied into these facilities in the
third quarter premier is working on a balmoral field infill opportunity that will be matured in 2010
following the acquisition of the oilexco portfolio premier successfully negotiated a new contract
with sevan marine asa pertaining to the shelley field the sevan voyageur fpso was hooked up
to the field and commenced production on 6 august at an initial rate of 11000 boepd at yearend
the rate had dropped to around 2200 boepd it is anticipated that the field abandonment will
commence in 2010
on the huntington development project fpso bids were received in december and are
currently being evaluated along with tie backs to infrastructure in the vicinity it is expected that the
development concept will be selected imminently with project sanction occurring before yearend
2010 it is anticipated that premier will hold the dominant equity position in the field
norway
on the frøy project in norway the joint venture pursued two new work programmes the first
was to reevaluate the standalone development concept in the light of substantial changes in the
contractor market which occurred as a result of the financial crisis in 2008 and the related drop in oil
price and industry activity this work indicated that a reduction in costs is feasible and is now being
pursued in the 2010 work programme in parallel the joint venture entered into an area cooperation
study with statoil and total who also hold reserves in the area this study was recently completed
and may lead to further consideration of tieback opportunities and potentially a joint project for
frøy with one or more other fields given successful outcomes of the work on either option a
project sanction decision could be taken in 2010 with first oil targeted for 2013
mauritania
in mauritania 2009 production from the chinguetti field averaged 950 boepd net to premier 2008
950 boepd net higher than earlier expectations the operator continues to assess production
performance from the field
the joint venture partnerships are currently in discussions with the mauritanian government to
extend the existing pscs covering the remaining potential in the area in particular the operator is
undertaking gas development studies for the banda and tevet fields including potential domestic
gas markets with the aim of concluding this work during 2010 the operator is also reevaluating
the tiof field development concept options
middle eastpakistan
our middle eastpakistan business unit seeks to maximise the value of our high quality pakistan
producing gas fields and to extend our technical skills to new regional opportunities including with
our regional joint venture partner eiic the joint venture company premco is based in abu dhabi
pakistan
average production of 15720 boepd in 2009 surpassed the previous record average production
of 14550 boepd in 2008 by 8 per cent gas demand in 2009 increased yearonyear and was
met primarily from additional production capacity at the zamzama and bhitbadhra fields this
was achieved through new infill wells gas plant expansions and shorter maintenance periods
the qadirpur gas field produced an average of 4150 boepd in 2009 2008 4060 boepd the
project to enhance qadirpur plant capacity was commissioned in january 2009 and has resulted
in reduced maintenance downtime a compression project was initiated in 2009 to mitigate the
declining field deliverability completion is expected by august 2010 as scheduled permeate
gas of low heating value will be supplied to sui northern gas pipelines ltd from february 2010 10
premier oil plc 2009 annual report and financial statements
chief executive’s review continued
for utilisation at engro’ s newly constructed power plant near qadirpur this supply of permeate
gas will also reduce the quantity of gas flared at the qadirpur field additional standby
permeate compressors will be installed at qadirpur during 2010 to ensure continuous
supply of the permeate gas during 2009 eight new production wells were successfully drilled
and connected to the production system including production from the sml horizon of the
qadirpur deep1 exploration well
the kadanwari gas field produced an average of 1250 boepd in 2009 2008 1225 boepd
the k14b well was completed and tied into the system in 2009 helping to sustain field
production levels in the year as a result of successful negotiations with the government the
kadanwari lease expiry date was extended for a further 10 years to 2022 whilst capping
the gas price at an equivalent price of us850 per million british thermal units the lease
extension will now allow full exploitation of the discovered gas reserves two additional
wells k19 and k20 were also drilled during 2009 k19 has discovered new gas and came
onstream in march 2010 with an initial flowrate of 22 mmscfd k20 did not initially flow
due to tight reservoir properties but following fracturing has shown positive results
the zamzama gas field produced an average of 6890 boepd in 2009 2008 6075 boepd
after modifications the phase2 plant was recommissioned in march 2009 and achieved
production of 127 mmscfd of high calorific value gas further modifications were planned
for november 2009 to increase the capacity to 150 mmscfd but these have been deferred
to april 2010 in order to maximise gas revenues during the high winter gas demand
period the zamzama north well commissioned in march 2009 as well as two infill wells
drilled during the year were tied into the production system resulting in 13 per cent higher
production in 2009 than in 2008
the bhitbadhra gas fields produced an average of 3430 boepd in 2009 2008 3190 boepd
the increase was due to higher available plant capacity as well as acceptance by the buyer
of some sales gas at slightly less than specification in order to satisfy their own commitments
during the high gas demand in winter the drilling of the bhit10 well in april 2009 and
installation of wellhead compressors on some wells allowed field deliverability to be
maintained at a high level the bado jabal1 exploration well did not encounter commercial
gas in its primary targeted zones and was sidetracked to be completed as an additional
producer in the badhra gas field from the existing mughalkot reservoir first gas was
achieved in march 2010
feed was completed in 2009 for the zarghun south gas field development first gas is
scheduled for the fourth quarter of 2011 substantially all of premier’s capital and operating
costs for its 375 per cent working interest are carried by the operator
egypt
first oil was achieved at the end of february 2009 from two al amir se wells on the nw
gemsa licence in egypt this was followed by successful appraisal of the al amir se area
and the exploration discovery at geyad on the same block in total the block produced an
average of 2880 bopd gross for the period to 23 december 2009 on this date premier
completed the sale of its 10 per cent interest in the permit to sea dragon energy inc for a
final consideration of us148 million recording a profit on sale of us84 million 11
premier oil plc 2009 annual report and financial statements
exploration review
exploration is a fundamental part of premier’s growth strategy with a target to add over
200 mmboe of net 2p reserves by 2015 the exploration strategy is to focus on areas
and geological themes where premier has demonstrable skills and expertise namely the
exploration of rift basins in asia and the north sea and onshore foldbelt provinces
as exemplified by premier’s acreage in pakistan and eastern indonesia
in 2009 premier participated in nine exploration and appraisal wells of which five were
successful successes included the new oil and gas discoveries at cá rˆ o ng – do
 
vietnam
and grosbeak norway appraising the resource base in the bream discovery norway
and stepout drilling adding reserves to the kadanwari field pakistan
premier continues to acquire the best quality data sets in support of the exploration and appraisal
drilling campaigns and in 2009 acquired over 1800km² of 3d to advance the interpretations in
preparation for 20102011 drilling in vietnam and indonesia the acquisition of oilexco presented
an opportunity to purchase 3d data sets across the uk central north sea which when combined
with the premier data sets in norway have established a competitive seismic database across the
whole of the central north sea uk and norway in support of the longerterm growth ambitions
three new licences were acquired in the uk sector of the central north sea
the 2009 exploration and appraisal programme delivered a contingent resource base of
approximately 29 mmboe subject to further appraisal at an overall success rate of 55 per cent
asia
vietnam
cá rˆ o ng –
do
 
crd the first well drilled by premier in block 0703 intersected approximately
90m net oil and gas pay within multiple stacked reservoir layers two of which were tested
and flowed oil at a combined rate of 3265 bopd plus 81 mmscfd gas through a 4864”
choke with no water production
premier acquired and processed 1006km² 3d seismic over the eastern third of block 0703
to determine future exploration and appraisal activity premier’s second exploration well
cá rˆ o ng vàng located 6km from crd was drilled to a total depth of 3980m brt and
intersected the reservoir intervals on prognosis however wireline logging indicated the
well did not encounter significant hydrocarbons and the well was plugged and abandoned
andrew lodge
exploration director 12
premier oil plc 2009 annual report and financial statements
the results of the wells are now being integrated with the 3d seismic to determine the best
location to appraise crd and to identify future exploration drilling targets for 2011 drilling
during 2009 pan pacific petroleum vietnam pty ltd acquired 5 per cent and pvep acquired
10 per cent of premier’s equity in block 0703 in consideration of their funding part of
premier’s residual 30 per cent interest of the crd well both transactions will require
approval from the government of vietnam which was requested in early 2010
elsewhere in vietnam the block 12w exploration acreage outside the chim sáo and dua
field areas was surrendered in november 2009 at the end of the statutory exploration period
and planning started for the acquisition of 3d seismic data on block 10410905 in 2010
indonesia
on the premieroperated tuna block plans have been updated following the success
in premier’s vietnam block 0703 immediately to the north in the nam con son basin
following interpretation of the 2400km 2d an 850km
2
3d seismic survey was acquired
in september 2009 interpretation of this survey is ongoing prospect selection will follow
ahead of drilling two exploration wells in 2010
on natuna sea block a a fiveyear exploration plan has been developed for the block
and due to rephasing of the nearby development drilling programme the anoa deep
exploration well will now be drilled in 2011
elsewhere on the japexoperated buton block the 250km 2d seismic survey begun in
2008 was completed by midyear prospect maturation is currently under way and a well is
planned for the fourth quarter of 2010 on the medcooperated north sumatra block a
further work to define prospects for drilling in 2011 is ongoing
premier continues to review opportunities to expand its acreage position in indonesia
and joint study activities under three agreements with migas the indonesian government
authority in north merak offshore java east asahan onshore sumatra and east
bangkanai onshore kalimantan were completed in 2009 the east bangkanai review
has justified followup work to be completed in early 2010
philippines
in the nonoperated sc43 licence premier relinquished its 21 per cent participating interest
and withdrew from the licence at the end of 2009
north sea and west africa
uk
the oilexco acquisition significantly increased premier’s uk exploration portfolio to a total
of 38 blocks from this expanded portfolio premier plans to drill three exploration and
appraisal wells in 2010 the bugle north well is in licence p815 block 1523d and spudded
in february catcher is a paleocene amplitude play in licence p1430 block 289 and is due
to spud in april premier is in advanced discussions with an interested party to farm down a
15 per cent equity in block 289 as part of ongoing portfolio management activity premier
will retain a 35 per cent equity in the licence
in early 2010 premier secured a 50 per cent equity and operatorship of block 2219c
containing the oates and bowers prospects block 2219c covers an extension of the prolific
paleocene forties reservoir unit 10km south of the huntington development a well on the
oates prospect will spud in june 2010
premier was awarded two further licences as part of the uk 25th licence round the two
licences awarded were p1628 block 297b near the kyle field and p1559 block 1523e
adjacent to the scotttelford production facilities block 297b contains the paleocene
prospects gladius and scutum whilst block 1523e has the upper jurassic cornet and
corniche prospects
premier is now looking to the uk 26th licence round announced in february 2010 as an
opportunity to grow the uk exploration portfolio for future drilling campaigns in 2011 and beyond
chief executive’s review continued 13
premier oil plc 2009 annual report and financial statements
norway
in 2009 premier participated in its first two exploration and appraisal wells in norway both of which
were successful the programme is continuing into 2010
on pl407 an appraisal well on the bream field was drilled and penetrated 185m net pay and
tested at a maximum flow rate of 2516 boepd this has provided sufficient information for the joint
venture to start development planning and the concept screening phase was completed in 2009
a decision on commerciality and further progression of the project will be taken in 2010 on the
nearby premieroperated pl406 licence preparations were advanced for the drilling of the
gardrofa prospect in the third quarter of 2010
on pl378 a discovery was made at grosbeak the well encountered oil and gas pay in the brent
and sognefjord formations respectively preliminary recoverable volumes range from 25 to 190
mmboe the grosbeak discovery will be appraised in the fourth quarter of 2010 and an exploration
well will be drilled to test the adjacent gnatcatcher prospect
since yearend a well on the greater luno prospect on pl359 encountered oil shows but has been
plugged and abandoned as a noncommercial well on pl374s a well on the blåbaer prospect
proved oil in the lower jurassic reservoir rocks which is being appraised with a sidetrack well
premier continues to evaluate options to grow the exploration portfolio in norway and the apa
and norway 21st licence rounds will be reviewed in 2010
congo
on the premieroperated marine ix licence the frida exploration well was drilled to a target depth
of 3250m wireline logging indicated that the well did not encounter significant hydrocarbons and
the well was plugged and abandoned in advance of the well premier reduced its equity in the
block to 315 per cent and consequently reduced the net financial exposure in the well to us84
million the results of the frida well are being incorporated into the existing 3d seismic database
prior to deciding whether to enter the next exploration phase in the fourth quarter of 2010
sadr
premier awaits resolution of sovereignty issues before pursuing exploration activities in this
prospective area the four sadr licences currently remain in force majeure
middle eastpakistan
pakistan
the k19 exploration stepout well was drilled in the nonoperated kadanwari lease the well
encountered 12m of high quality net gas pay in the esand interval of the lower goru formation
the esand interval tested gas at a maximum flow rate of 31 mmscfd at a flowing wellhead pressure
of 3743 psig with a 4064” choke the well was tied into the system in march and is producing gas
at a rate of 22 mmscfd
the bado jabal1 exploration well was drilled in 2009 in area a of the badhra block as a
deepening to the mughalkot reservoir development well this 5000m deep well identified both
lower goru and chiltan target formations but commercial quantities of gas were not encountered
since yearend a well targeting the pirkoh limestone in the qadirpur licence has been drilled it
reached target depth in march and is being plugged and abandoned as a dry hole
egypt
in the nonoperated nw gemsa licence a well on the geyad prospect in may encountered oil
bearing sands in the kareem formation and the field commenced production shortly thereafter
the shehab1 prospect on the same block was dry due to the lack of materiality of the block to
premier as a whole premier’s 10 per cent equity in the licence was sold for a consideration of
us148 million in december 2009
egypt continues to represent a target growth area for the company and consistent with our focus on rift
basin geology premier successfully bid for the south darag block in the gulf of suez in the egyptian
general petroleum corporation egpc 2009 bid round the block is in the process of being awarded
to premier subject to formal government approvals a work commitment comprising seismic
reprocessing geological and geophysical studies will be carried out during the initial exploration period 0
20
15
10
5
30
25
40
35
45
05 06 07 08 09
kboepd
production
20052009
14
premier oil plc 2009 annual report and financial statements
financial review
economic environment
the early part of 2009 was a turbulent period for the world economy the global capital
markets and for oil and gas prices brent oil prices opened the year at us35bbl but
recovered quickly peaking at us79bbl in december and averaging us62bbl for the year
the crisis in the financial services industry had more farreaching consequences and access
to capital for many smaller companies in the oil and gas sector remained challenging
premier was able to take advantage of its strong balance sheet and continued access
to capital to conclude successfully two material acquisitions during this period
the sharp deterioration in the oil price environment during the second half of 2008 led
to reduced levels of activity in the industry and downward pressure on exploration and
development costs during 2009 premier was able to capture the benefits of falling costs
in rig rates and project construction costs and cost levels have now stabilised
income statement
production levels in 2009 on a working interest basis averaged 44200 boepd compared to
36500 boepd in 2008 an increase of 21 per cent on an entitlement basis which under the
terms of our pscs allows for additional government take at higher oil prices production was
40150 boepd 2008 31750 boepd realised oil prices before hedging averaged
us663bbl compared with us945bbl for 2008
gas production averaged 156 mmscfd 2008 148 mmscfd during the year or approximately
61 per cent of total production average gas prices for the group were us518 per
thousand standard cubic feet mscf 2008 us657mscf gas prices in singapore which
are linked to high sulphur fuel oil hsfo pricing in turn closely linked to crude oil pricing
averaged us110mscf 2008 us152mscf for the year
total sales revenue from all operations was us6211 million 2008 us6552 million
with higher production largely offsetting the decline in commodity prices cost of sales
was us3614 million 2008 us3176 million unit operating costs were higher at us122
per barrel of oil equivalent boe 2008 us95boe reflecting the higher than average
costs of production associated with the acquired assets in the uk north sea
tony durrant
finance director 0
100
50
200
150
300
350
250
400
05 06 07 08 09
 million
operating cash flow
20052009
0
40
20
80
60
100
120
05 06 07 08 09
 million
profit after tax
20052009
0
100
50
200
150
250
300
05 06 07 08 09
mmboe
2p reserves
20052009
15
premier oil plc 2009 annual report and financial statements
amortisation includes the effect of an impairment charge as a result of a reserves downgrade
of us240 million in respect of the chinguetti field in mauritania underlying unit amortisation
excluding impairment rose to us96boe 2008 us80boe exploration expense and pre
licence exploration costs amounted to us570 million 2008 us429 million and us203 million
2008 us158 million respectively exploration expense includes all costs relating to dry holes
drilled in 2009 and the writeoff of previously capitalised exploration costs relating to psc b in
mauritania amounting to us192 million net administrative costs were stable at us183 million
2008 us172 million despite our growing presence in aberdeen norway and vietnam
in accordance with international financial reporting standard ifrs 3 – ‘business combinations’
we have included in the income statement for the year an amount of us116 million representing
the excess of fair values recorded in respect of the oilexco north sea ltd oilexco acquisition over
and above cost these fair values were reviewed at yearend to reflect the additional information
which has become available concerning conditions that existed at the date of acquisition for this
purpose values were only allocated to assets with booked proven and probable reserves a
deferred tax asset of us1408 million was also recorded on the acquisition reflecting the future
value of uk corporation tax allowances acquired with oilexco
operating profits were us1697 million 2008 us2617 million finance costs net of interest
revenue and other gains were us287 million 2008 us124 million reflecting the increase in
borrowings arising from our acquisition and capital investment programmes pretax profits were
us799 million 2008 us2776 million after charging mark to market revaluation of the group’s
hedges of us611 million 2008 us283 million gain
current tax charges in 2009 of us482 million 2008 us1929 million are significantly lower due
to the utilisation of acquired tax allowances in the uk the current tax charge has also been more
than offset by a deferred tax credit representing the value of future tax allowances in the uk the
net tax credit is us331 million 2008 us1793 million charge the additional deferred tax asset
recognised at yearend is based on a longterm oil price of us70bbl us275 million of uk tax
allowances remain unrecognised at yearend profit after tax is therefore a record us1130 million
2008 us983 million resulting in basic earnings per share of 1041 cents 2008 990 cents restated
cash flow
cash flow from operating activities before movements in working capital amounted to us4535
million 2008 us4781 million after working capital items and tax payments cash flow from
operating activities was us3477 million 2008 us3523 million despite the fall in oil and gas
prices cash flow from the oilexco producing assets was consolidated from completion of the
acquisition on 21 may 2009
capital expenditure in 2009 for exploration and development activities totalled us3031 million
2008 us2173 million
capital expenditure  million 2009 2008
fieldsdevelopment projects 1925 1240
exploration 1075 905
other 31 28
total 3031 2173
the principal field and development projects were gajah baru chim sáo shelley the scott well
infill programme the balmoral fpv riser replacement and the qadirpur gas compression project 16
premier oil plc 2009 annual report and financial statements
financial review continued
acquisitions and disposals
the group completed two very significant acquisitions during the year and also initiated
a number of disposals of assets which were not material for our operations on 25 march 2009
premier announced the acquisition of oilexco for us505 million oilexco was a company
active in the uk central north sea which had been placed into administration by its lending
banks on 7 january 2009 the acquisition provided the group with a significantly greater
presence in the north sea adding a material package of assets comprising existing
producing fields development projects of existing discovered reserves and a portfolio of
exploration prospects together with high quality uk operatorship capabilities the group
funded the acquisition and associated costs by way of
• a 4 for 9 rights issue of new ordinary shares at a price of 485 pence per share raising
gross proceeds of approximately £171 million us2522 million
• new credit facilities comprising initially of a us175 million 18month bridge facility
a us225 million threeyear revolving credit facility and us63 million and £60 million
us97 million threeyear letter of credit facilities and
• the groups existing cash resources
the acquisition was completed on 21 may 2009 for a final consideration of us5007 million
after certain working capital adjustments for transactions between the effective date and
completion total consideration as disclosed in the financial statements of us5742 million
includes us630 million of cash paid by the group which is held in trust for future
abandonment obligations and direct acquisition costs of us105 million
on 20 july 2009 the group announced that it had completed the acquisition of delek energy
vietnam llc delek the holding company for a 25 per cent interest in block 12w in the
nam con son basin offshore vietnam the purchase price for the interest was us72
million in cash which after completion adjustments amounted to us839 million future
payments of up to a total of us10 million are contingent on the development of new fields
in block 12w other than chim sáo following completion of the delek acquisition and the
exercise of petrovietnam exploration production corporation’s pvep backin right to
acquire a 15 per cent interest in the psc premier’s interest in the block increased from an
initial 375 per cent to 53125 per cent
on 19 august 2009 the group announced the sale of its 10 per cent nonoperated interest
in the nw gemsa licence onshore egypt the licence contained the producing al amir
field and the 2009 discovery at geyad on 22 december 2009 the transaction was
completed for an adjusted price of us148 million in cash
on 19 november 2009 premier announced the sale of its 645 per cent equity interest in
the janicejames fields for a production royalty interest the acquirer maersk oil will
assume future operating costs capital expenditure and abandonment obligations of the
assets the transaction was completed on 5 march 2010
at the same time premier also announced that it had reached agreement for the sale of
certain uk blocks containing the caledonia field the sheryl discovery and the catcher
prospect for a consideration of us12 million in cash and future contingent payments of
us13 million the acquirer failed to achieve the necessary uk regulatory approvals and the
agreement was terminated discussions continue with potential purchasers of the group’s
interest in the caledonia field 17
premier oil plc 2009 annual report and financial statements
acquisitions and disposals  million 2009
oilexco north sea ltd 5742
delek energy vietnam llc 839
sale of nw gemsa licence egypt 148
acquisitions net of disposals 6433
net debt position
net debt at 31 december 2009 amounted to us3156 million 2008 net cash of us1173 million
cash and cash equivalents of us2506 million excludes an amount of £430 million us702 million
held in an abandonment trust and classified in the balance sheet under trade and other receivables
it is anticipated that this cash will be replaced by bank letters of credit following the resolution of
certain tax issues regarding the windingup of the trust
net debtcash  million 2009 2008
cash and cash equivalents 2506 3237
convertible bonds 2132 2064
other longterm debt 3530 –
total net debtcash 3156 1173
 excluding unamortised issue costs and allocation to equity
 excluding unamortised issue costs
longterm borrowings are made up of convertible bonds and bank debt the bonds have a par
value of us250 million and a final maturity date of 27 june 2014 following the rights issue in
april 2009 the bonds carry an adjusted equity conversion price of £1356 per share
new credit facilities of us550 million were arranged in connection with the acquisition of oilexco
during subsequent syndication and the restructuring of the 18month bridge facility the total facility
size was increased to us789 million with a maturity of 31 march 2012 as at 31 december 2009
drawn borrowings were us353 million and issued letters of creditbank performance bonds were
us126 million undrawn borrowing facilities were us328 million which together with cash on
hand or held in escrow amounted to us649 million
financial risk management
consistent with its conservative financial approach the board’s policy continues to be to lock in oil
and gas price floors for a portion of expected future production at a level which protects the cash
flow of the group and is consistent with the business plan these floors are supplemented by
forward sales to meet other shortterm financial objectives floors are purchased for cash or via
collars funded by selling caps at a ceiling price when market conditions are considered favourable
all transactions are matched as closely as possible with expected cash flows to the group no
speculative transactions are undertaken
during 2009 oil price collars for 25 million barrels mmbbls matured at a cost of usnil 2008
us81 million at yearend a total of 83 mmbbls of dated brent oil were hedged via collars for
the period to end2012 with an average floor price of us49bbl and an average cap of us84bbl
this volume represents approximately 41 per cent of the group’s expected liquids production over
the period
during the year gas price collars for 120000 metric tonnes of hsfo matured no changes were
made to the group’s existing gas hedges during the year which cover approximately 400000
metric tonnes representing approximately 22 per cent of expected indonesian gas production for
the period to june 2013 18
premier oil plc 2009 annual report and financial statements
financial review continued
in connection with the oilexco acquisition 13 mmbbls of oil were sold forward at an
average price of us550bbl subsequent to yearend a further 1 mmbbls were sold
forward at an average price of us835bbl from 1 january 2010 therefore forward sales
of oil amounting to 14 mmbbls or 20 per cent of expected 2010 liquids production were in
place with an average weighted price of us760bbl in aggregate cash premia of
us125 million were paid during 2009 to put in place new hedges or enhance existing ones
premier’s gas hedging is required to be marked to market at the balance sheet date the
aggregate valuation is a us298 million liability 2008 us29 million generating
a us269 million charge in the income statement
oil hedges have typically been incorporated within the pricing terms of physical offtake
agreements for the underlying oil production avoiding the requirement to revalue the
hedges at yearend at the time of the oilexco acquisition however it was not possible
to embed new hedges within the terms of existing offtake agreements accordingly a
charge of us290 million is recorded in the 2009 income statement from 1 january 2010
following new offtake arrangements further revaluations over the life of these hedges will
not impact the income statement and the existing provision of us290 million will be
credited to income in the years 2010 and 2011
premier operates and reports in us dollars exchange rate exposures relate only to local currency
receipts and expenditures within individual business units local currency requirements are
acquired on a shortterm basis the group recorded a gain of us28 million on such
shortterm hedging during 2009 2008 us25 million loss
cash balances are invested in shortterm bank deposits and aaa rated liquidity funds
subject to board approved limits and with a view to minimising counterparty risks
the group undertakes a significant insurance programme to reduce the potential impact
of the physical risks associated with its exploration development and production activities
in addition business interruption cover is purchased for a proportion of the cash flow from
producing fields
going concern
the group monitors its capital position and its liquidity risk regularly throughout the year to
ensure that it has sufficient funds to meet forecast cash requirements sensitivities are run
to reflect latest expectations of expenditures forecast oil and gas prices and other negative
economic scenarios to manage the risk of funds shortfalls or covenant breaches and to
ensure the group’s ability to continue as a going concern further details of the group funding
facilities and liquidity position are included in the financial statements and related notes
despite economic volatility the directors consider that the headroom provided by the
available borrowing facilities gives them confidence that the group has adequate resources
to continue as a going concern as a result they continue to adopt the going concern basis
in preparing the 2009 annual report and financial statements
business risks
premier is an international business which has to face a variety of strategic operational
financial and external risks under these distinct classes the company has identified certain
risks pertinent to its business including exploration and reserve risks loss of key human
resources drilling and operating risks security risk in areas of operation costs and
availability of materials and services economic and sovereign risks market risk foreign
currency risk loss of or changes to production sharing or concession agreements joint
venture or related agreements and volatility of future oil and gas prices 19
premier oil plc 2009 annual report and financial statements
effective risk management is critical to achieving our strategic objectives and protecting our assets
personnel and reputation premier manages its risks prudently by maintaining a balanced portfolio
through compliance with the terms of its agreements and strict application of appropriate policies
and procedures and through the recruitment and retention of highly skilled individuals throughout
the organisation further the company has mitigated risks by focusing its activities mainly in known
hydrocarbon basins in jurisdictions that have previously established longterm oil and gas ventures
with foreign oil and gas companies existing infrastructure of services and oil and gas transportation
facilities and reasonable proximity to markets
a summary of the principal risks facing the company and the way in which these risks are mitigated
is provided in this report and also on the company’s website wwwpremieroilcom
key performance indicators
change
improvement
2009 2008 deterioration
lti and rwdc frequency 055 040 015
production kboepd 442 365 77
cash flow from operations  million 3477 3523 46
operating cost per boe  122 95 27
gearing 325 0 325
realised oil price per barrel  663 945 282
realised gas price per mscf 518 657 139
 lost time injuries lti and restricted work day cases rwdc per million manhours worked
 gearing is net debt divided by net assets for 2008 the group had a net cash position 20
premier oil plc 2009 annual report and financial statements
social performance review
premier is committed to applying the high ethical standards necessary to maintain our
reputation as a worldclass operator in oil and gas our reputation for doing the right thing
enables us to access new licences enter new countries build lasting relationships with
the local communities and ultimately secure the licence to operate we have policies and
procedures in place to ensure that our investment and operational decisions take appropriate
account of the impacts that may arise from our activities
premier carries out independent audits of its policies to ensure compliance with the requirements
of the following bodies the global reporting initiative international petroleum industry
environmental conservation association ipieca oil and gas industry guidance on voluntary
sustainability reporting the carbon disclosure project ftse4good and the united nations
global compact of which premier is signatory in 2009 areas for improvement were identified
relating to policy statements on political donations a global pay and benefits framework security
services and human rights as well as aspects of community engagement including prior and
informed consultation and the existence of appropriate grievance mechanisms steps are being
taken to strengthen existing policy statements and our alignment with global standards
we report below on how we have applied and delivered against our stated policies in 2009
and we explain any areas where we have not complied
further details on our policies procedures and performance reports are available on our
website wwwpremieroilcom
social responsibility
corporate social responsibility policy
we recognise that we have a corporate social responsibility towards a diverse group of
stakeholders including shareholders customers employees business partners local
communities and society at large including special interest groups that represent public interest
concerns such as nongovernmental organisations ngos our investment decisions take
account of economic environmental and social impacts and their management the interests
of shareholders do not necessarily take precedence over the interests of other stakeholder
groups and our business strategy is designed to promote social justice in the workplace and in
our external relationships in the countries where we operate
in all its operations the company will always comply with local laws and regulatory
requirements and make representations to the relevant authorities if it believes that policies
and practices of host governments undermine our policies we undertake environmental and
social impact assessments prior to undertaking any new investment and evaluate these
impacts regularly to ensure that they are responsibly managed on an ongoing basis we
expect our contractors suppliers joint venture and alliance partners to respect our policies
their concurrence with the principles upheld by our policies is an important factor in our
decision to form or remain in a relationship with them
it is our policy to support social investment in partnership with professional social development
organisations government agencies and local ngos that contribute to the sustainable
development goals of the communities and countries where we operate it is our policy that
all our business activities will be undertaken so that they contribute to sustainable
development goals and do not detract from them
there were no reported violations of this policy in the review period
human rights policy
our human rights policy is based on the fundamental rights pronounced in the universal
declaration of human rights and is guided by those rights enshrined in the core labour
conventions of the international labour organisation these rights are to be protected and
promoted throughout premier’s business operations and in our relations with both business
and local community partners the scope of our policy includes the rights of our employees –
their health and safety as well as their security arrangements and working conditions – and
the development rights of our external stakeholders in particular local communities 21
premier oil plc 2009 annual report and financial statements
where appropriate we will also use our legitimate influence to promote human rights outside of our
areas of operation
there were no reported violations of this policy in the review period
employment and social justice in the workplace policy
we aim to provide our staff with safe working conditions as well as just and competitive conditions
and terms of employment this means respect for the individual regardless of ethnic origin creed
age or gender we are an equal opportunities employer we try to recruit train and promote from
within the country of operation we respect the right of individual employees to join a legitimate
trade union and ensure that employees have access to fair grievance procedures through training
and appraisal we encourage staff to develop their own professional skills to the mutual advantage
of both the individual and company
any employee who has a concern regarding the application of this policy can make use of the
company’s grievance policy
all employees must be responsible for the following
• cooperate with any measures introduced to ensure equal opportunity
• report any suspected discriminatory acts or practices
• not to induce or attempt to induce others to practice unlawful discrimination
• not to victimise anyone as a result of them having reported or provided evidence of discrimination
• not to harass abuse or intimidate others on account of their race creed colour etc and
• not to canvass job applicants in an attempt to discourage them from applying or taking up a post
where there has been a clear breach of the equal employment opportunities policy disciplinary
procedures will follow serious offences will be dealt with as gross misconduct
there were no reported violations of this policy in the review period
business ethics and conduct policy
integrity honesty and fairness are fundamental to the way we conduct our business bribery is
unacceptable in any form premier staff should avoid accepting hospitality or gifts that might
appear to place them under an obligation all business transactions must be properly recorded
and accounted for we expect the same ethical standards to be applied in all of our business
relationships in all areas of operation and we promote our business ethics and conduct policy
with all of our business associates
premier’s whistleblowing policy enables our employees contractors and agency workers to voice
their concerns without fear of recrimination if they feel that the company or anyone working on behalf
of the company has not acted in accordance with our business ethics and conduct policy the policy
includes the option for concerned individuals to utilise the services of an independent third party
service provider which can be contacted confidentially and anonymously the service is contactable
24 hours a day seven days a week
during 2009 there was one minor incident in indonesia which was the subject of detailed investigation
health safety environment and security policy
we recognise our responsibility to operate with proper regard for the environment and for the health
and safety of people who may be affected directly or indirectly by our operations we believe that
effective health safety environmental and security performance is a key objective equal to all other
key business objectives our health safety environment and security policy requires the identification
of risks to people local biodiversity and physical assets arising from our operations and then to manage
these risks to levels that are as low as reasonably practicable alarp in line with our legal and other
obligations and our strategy for continual improvement it is the responsibility of every employee to
comply with this policy and to assist in its implementation as part of our commitment to continuous
improvement we systematically monitor our performance including our emergency preparedness 22
premier oil plc 2009 annual report and financial statements
social performance review continued
occupational health and safety performance
in 2009 we continued to deliver outstanding safety performance our production operations
in indonesia and our global drilling operations achieved excellent results and our recently
acquired assets in the north sea also performed well but incurred one lti during this period
we conducted offshore drilling operations in vietnam and congo offshore seismic surveys in
vietnam and indonesia and project construction work onshore in vietnam and indonesia
without significant injury
we worked 38 million manhours in 2009 of which 025 million were in drilling as a group we
have beaten our lti target every year for the last five years and in 2009 with an actual
ltirwdc frequency of 055 outperformed the industry average of 13 we benchmark our
total recordable injury frequency performance against the 40 other companies submitting data
to the international association of oil and gas producers ogp and we anticipate achieving
upper quartile performance for 2009
2009 2008 2007 2006 2005
number of ltis 2 13 42
number of rwdcs – –4 –1
target ltirwdc frequency 155 172 190 210 260
actual ltirwdc frequency 055 040 186 127 110
total recordable injuries 11 08 34 25 37
 per million manhours worked
we have been certified to ohsas 18001 since 2004 for global drilling and since 2006 for
indonesian production operations we underwent a number of ohsas 18001 surveillance
audits on our drilling and production operations during 2009 and we are pleased to report
that both retained their ohsas 18001 certification we are now working to certify the
balmoral production facilities to this standard
process safety performance
our project development teams in vietnam and indonesia have remained committed to
inherently safe design and continue to show tenacity in balancing safety environmental and
production considerations with economic investment and control over operating costs
premier recognises that process safety requires a different management regime and in this
respect we have ukstyle safety cases in place for all of our operated production facilities
worldwide our recent review of anoa showed that personnel risks are better than best
practice we conducted a similar review of our balmoral facility in the north sea and
confirmed that the risk levels met the uk statutory requirement in completing these safety
case reviews we have confirmed that clear criteria have been established with which to
determine whether the safety performance standards are met and are now verifying
performance through regular monitoring by an independent verification body
with respect to our new development projects gajah baru in indonesia and chim sáo in
vietnam we utilise our established project safety review process to confirm that specific
process safety criteria are being met during the concept selection design construction
installation and commissioning phases and will meet our safety standards before they enter
operation at various stages of the process numerous technical safety studies are prepared
to evaluate all major potential process risks the results of these studies are fed into a formal
quantitative risk assessment qra which considers the prevention detection control
mitigation and emergency response measures necessary to reduce risks to personnel to meet
industry best practice and to ensure that they are alarp  this qra and alarp justification
together with the associated performance standards for all safety critical equipment are
presented in the safety case 23
premier oil plc 2009 annual report and financial statements
we apply the same rigour to our drilling activities and conduct an independent assessment of the
condition functionality and maintenance regime of all safety critical equipment on any rigs we contract
environment
we conduct an environmental impact assessment for each new known operated activity such as
drilling a well or developing a production facility this process identifies all impacts and how they
may affect the local ecology we then look at each impact to see whether it is significant and what
more we might reasonably do to reduce it further we applied this process to production operations
conducting an environmental alarp assessment for our anoa production operations in indonesia
we are planning to conduct an assessment for our newly acquired production assets in the
north sea
we have been iso 14001 certified since 2004 for our global drilling operations and 2006 for
indonesian production operations in 2009 we retained our production certification in indonesia had
existing certification assigned to us on the balmoral facility in the north sea following acquisition and
began the certification process for both our indonesia and vietnam project developments our global
certification in drilling was temporarily suspended due to noncompliance but was reinstated
following revisions to our management systems
environmental performance
we report environmental performance in line with ipieca oil and gas industry guidance on
voluntary sustainability reporting and benchmark our environmental performance by contributing
our data to an industry database compiled and published by the ogp 
operated assets 2009 2008 2007 2006 2005
greenhouse gases
tonnes per thousand tonnes of production 171 167 171 232 209
oil spills tonnes 15 – 137 39 –
oil in produced water parts per million 19 23 20 21 23
energy use
gigajoules per tonne of production 17 20 18 19 18
emissions
we calculate our greenhouse gas co
2
equivalent emissions both for operated assets and on an
equity basis for production across our global portfolio up until this year our emissions came mainly
from flaring on the anoa field in indonesia our 2009 data includes emissions from our new facilities
at balmoral from the time of acquisition in may and also from shelley which commenced production
in august despite this our operated field emissions for 2009 are in line with those reported in the
previous two years at 171 tonnes per thousand tonnes of production this is mainly due to our efforts
to reduce flaring successfully achieving a marked reduction in greenhouse gas emissions on anoa
spills and discharges
there was no significant change in the volume of produced water discharged from our anoa
production facilities from 2008 to 2009 477000 tonnes with an average concentration of oil in
produced water of 225 parts per million ppm well within the indonesian government standard of
40 ppm since acquiring balmoral we have improved oil in water discharge concentrations from
approximately 40 to 14 ppm our group combined oil in water discharge across our operated assets
was 19 ppm down from 23 ppm in 2008
in 2009 there were seven reported hydrocarbon spills to the environment across our global drilling
and production operations all of which were minor the total volume of spills was 15 tonnes
resource use
the main sources of energy that power our facilities are fuel gas and diesel our energy use has
been consistent over the last few years and remains in the range of 17 to 20 gigajoules per tonne
of production 24
premier oil plc 2009 annual report and financial statements
board of directors
mike welton 63 joined premier’s board
in june 2009 as a nonexecutive director
and became chairman in october 2009
mr welton is also chairman of southern
water services ltd and a director of morrison
utility services and high speed two the
government owned llc set up to examine
high speed rail connections between london
and the west midlands he sits on the
advisory board of montrose associates mr
welton was previously chairman of hanson
plc 20052007 the turkishbritish business
council and the uk government’s railway
sector advisory group he was also chief
executive of balfour beatty plc 19992004
mr welton is the chairman of premier’s
nomination committee
robin allan 50 joined premier from burmah
oil in july 1986 working initially as a geologist
after technical and new venture roles he
spent six years in south east asia initially
managing premier’s asian existing and new
venture business and later becoming
premier’s country manager in indonesia
he became a member of the premier board
in december 2003 as director of business
development mr allan has now returned to
asia as director – asia managing the asian
portfolio from the singapore office
joe darby 61 joined premier’s board as a
nonexecutive director in september 2007
mr darby has over 40 years of experience in
the energy sector including eight years with
shell petroleum before becoming managing
director of thomson north sea ltd he has
held a number of senior roles including
chief executive with lasmo plc mr darby
is a nonexecutive director of nordaq energy
inc and alkane energy plc and has held non
executive roles at british nuclear fuels plc
mowlem plc and centurion energy inc he was
chairman of mowlem plc 20052006 and
faroe petroleum plc 20032007 mr darby
is a member of premier’s audit and risk
remuneration and nomination committees
t ony durrant 51 joined premier in june 2005
after qualifying as a chartered accountant
with arthur andersen he joined lehman
brothers in london initially as an oil sector
analyst he joined the investment banking
division of lehman in 1987 and from 1997
was a managing director and head of the
european natural resources group in this
role he managed both client relationships
and numerous transactions for a variety of
european and north american clients he is a
nonexecutive director of clipper windpower
plc he joined the premier board in july 2005
as finance director
neil hawkings 48 joined premier in
may 2005 after more than 20 years with
conocophillips where he worked in a variety
of engineering commercial and management
roles around the world undertaking
assignments in the uk dubai and indonesia
he joined the premier board in march 2006
as operations director
david lindsell 62 joined premier’s board in
january 2008 as a nonexecutive director he
was a partner at ernst  young llp for nearly
30 years and has extensive experience across
a range of industry sectors with a strong
knowledge of the oil and gas sector mr
lindsell is currently a nonexecutive director of
drax group plc and gartmore group ltd and
is deputy chairman of the financial reporting
review panel mr lindsell is the chairman of
premier’s audit and risk committee and a
member of the remuneration committee
simon lockett 45 chief executive joined
premier in january 1994 from shell and has
worked in a variety of roles for premier
including the management of investor
relations as commercial manager in
indonesia and as country manager in
albania he became a member of the premier
board in december 2003 as operations
director he was appointed chief executive
in march 2005 mr lockett is a member of
premier’s nomination committee
andrew lodge 53 joined premier’s board
as exploration director in april 2009 from
hess where he was vice president exploration
responsible for europe north africa asia
and australia for nine years previously he
was vice president exploration asset
manager and group exploration adviser for
bhp petroleum based in london and
australia prior to joining bhp petroleum
andrew worked for bp as a geophysicist
john orange 67 joined premier’s board
as a nonexecutive director in february 1997
he held a variety of senior international
management and legal posts during his
30 years with the bp group mr orange
is chairman of exile resources inc he is
premier’s senior independent nonexecutive
director chairman of the remuneration
committee and a member of the audit
and risk and nomination committees
professor david roberts 66 joined premier
in june 2006 as a nonexecutive director
professor roberts has over 30 years experience
in all aspects of exploration worldwide and
extensive knowledge of deep water areas
sedimentary basins stratigraphy and prospect
assessment he spent 22 years with bp in a
number of technical roles including global
exploration adviser and distinguished
exploration adviser professor roberts is a
nonexecutive director of getech plc and
medserv plc and has established his own
geoscience consultancy he is a visiting
professor and fellow of royal holloway
university of london the university of
southampton and ifp school in paris
professor roberts is a member of premier’s
remuneration and nomination committees
michel romieu 70 joined premier’s board
as a nonexecutive director in january 2008
mr romieu has over 30 years experience in
the international energy sector including
25 years with the elf group where he held
several senior positions including chief
executive of elf uk and the group’s gas
division he was elected president of the uk
offshore operator’s association for the year
1995 and held the position of director for
gas of cre the french energy regulator
from 2000 to 2003 he has established his
own consultancy specialising in providing
advice to the gas industry and is a lecturer
at the french petroleum institute mr romieu
is also president of uprigaz he is a member
of premier’s audit and risk committee 25
premier oil plc 2009 annual report and financial statements
governance
mike welton simon lockett
tony durrant
robin allan neil hawkings
andrew lodge john orange
professor david roberts
joe darby david lindsell
michel romieu 26
premier oil plc 2009 annual report and financial statements
corporate governance report
the role of our board and compliance
the overall purpose of the board is to represent the company’s owners ensure that the company’s strategic objectives are properly
pursued and that the major business risks are actively monitored and managed this goes beyond regulatory compliance and puts
the interests of our shareholders as the board’s primary focus
the company has established procedures and policies to ensure compliance with the combined code the code the company has
complied throughout the accounting period with provisions set out in section 1 of the code except where reported below while
this is an important exercise the board does not believe that good governance can be defined merely in terms of compliance with
a set of rules
the board
the board of directors comprises the chairman chief executive four other executive directors and five independent nonexecutive
directors biographical details of each including membership of board committees are set out in the board of directors section
details of the executive directors’ service contracts and the nonexecutive directors’ letters of appointment are laid out in the
remuneration report
premier is an international business which has to manage a variety of political technical and commercial risks it is therefore important
that the board contains the appropriate mix of skills and experience to meet these challenges premier’s board has such a mix
selection of suitable nonexecutive directors is a matter for board approval following recommendations made by the nomination
committee
the nonexecutive directors bring independent judgement to bear on issues of strategy performance and resources including key
appointments and standards of conduct
we require that our nonexecutive directors are free from any relationship or circumstances that could materially interfere with the
exercise of their independent judgement the board has determined that each of the nonexecutive directors with the exception
of the chairman is independent
new directors receive a full induction to the company this consists of information covering the operations of the board as well as
meetings with the board chief executive and other executive directors all nonexecutives have direct contact with the company’s
senior executives between board meetings and also visit the company’s operations in order to familiarise themselves with its activities
and to meet and engage with staff
the company has directors’ and officers’ liability insurance in place and details of the policy are given to new directors on
appointment
matters reserved for board decision are laid down in writing including the appointment of the company secretary who is
responsible for ensuring that board procedures and rules are applied a copy of the matters reserved for board decision can be
found on the company’s website wwwpremieroilcom formal procedures are in place to enable individual board members to take
independent advice where appropriate
the board is responsible for overall group strategy acquisition and divestment policy approval of major capital expenditure projects
the overall group debt and equity structure and consideration of significant financing matters the board has continued to focus its
efforts in 2009 on strategic issues which will create shareholder value monitoring performance against agreed objectives and
planning future business opportunities
the board meets at least eight times each year and in addition a regular update conference call takes place in the months when no
formal meeting is scheduled the agenda for each board meeting is set by the chairman in consultation with the chief executive and
the company secretary board members receive a monthly report of the company’s activities which incorporates an update on
progress against objectives and the management of business risks
formal procedures are in place to ensure the board’s powers of authorisation of conflicts or potential conflicts of interest of directors
are operated effectively the board determined that during 2009 these procedures were enforced and adhered to appropriately
the chairman
the chairman’s role is parttime and he is a nonexecutive director his key responsibility is the leadership of the board ensuring its
effectiveness on all aspects of its role and setting its agenda between board meetings the chairman is responsible for ensuring the
integrity and effectiveness of the boardexecutive relationship this is effected through regular contact with the chief executive
between board meetings as well as contact with other board members shareholders joint venture partners and host governments
in 2009 the new chairman visited several of the company’s overseas operations to meet local management and senior industry and
government representatives he also met with a number of institutional investors the chairman and the nonexecutive directors
meet periodically without the executive directors present and the nonexecutive directors meet once a year without the chairman
the roles of chairman and chief executive are separate and their responsibilities are clearly established set out in writing and agreed
by the board
mr m w welton also chairs the board of southern water services ltd 27
premier oil plc 2009 annual report and financial statements
senior independent director
mr j r w orange is chairman of the remuneration committee and the company’s senior independent nonexecutive director he is
available to shareholders who have concerns that cannot be resolved through discussion with the chairman or chief executive
whilst mr j r w orange’s service on the board exceeds the term of nine years suggested by the code the board considers that as a
result of his experience his longterm perspective of premier’s business and his independence of spirit and objectivity of mind his
contributions are of great value as an independent director
reelection of directors
in accordance with the company’s articles of association one third of directors retire each year with their reappointment being
subject to the approval of shareholders this requires directors to submit themselves for reelection at least every three years in
addition any nonexecutive director having held office for more than nine years is subject to reelection on an annual basis
board committees
the board has established audit and risk remuneration and nomination committees each committee has formal terms of
reference approved by the board which can be found on the company’s website wwwpremieroilcom 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
the number of meetings of the board and its committees during 2009 and individual attendance by directors is shown below
audit
board and risk remuneration nomination
number of meetings 17
1
59
2
3
attendance
sir david john
3
1314 35 67 23
r a allan
4
1517 25– –
j darby
5
1517 45 89 33
a r c durrant
6
1717 55 22–
n hawkings 1617 45– –
d c lindsell 1617 55 89 –
s c lockett
7
1717 55 79 23
a g lodge
8
910 22 ––
j r w orange 1617 55 99 33
professor d g roberts
4 9
1517 – 89 33
m romieu
4
1517 55 ––
m w welton
10
88 –––
notes
1 there were 16 scheduled meetings of the board during the year the remaining meeting only attended by messrs s c lockett and a r c durrant was called
to approve the detail of arrangements approved in principle by a prior scheduled meeting of the board
2 there were eight scheduled meetings of the remuneration committee during the year the remaining meeting only attended by mr j r w orange and
professor d g roberts was called to approve the detail of arrangements approved in principle by a prior scheduled meeting of the remuneration committee
3 sir david john missed one nomination committee meeting which was called to discuss the appointment of his successor as chairman of the company he
resigned from the board and its committees on 15 october 2009
4 messrs r a allan m romieu and professor d g roberts missed one board meeting due to the short notice scheduling of the meeting
5 mr j darby missed one board meeting and one audit and risk committee meeting due to the rescheduling of the meetings
6 mr a r c durrant was invited to attend two remuneration committee meetings
7 mr s c lockett missed one nomination committee meeting
8 mr a g lodge was appointed to the board on 20 april 2009
9 professor d g roberts missed one remuneration committee meeting due to the rescheduling of the meeting
10 mr m w welton was appointed to the board on 1 june 2009 and was appointed chairman of the board and of the nomination committee on 15 october 2009
 by invitation
executive committee
the board has delegated the daytoday running of the group to the chief executive who has established an executive committee to
assist him in this role the committee is made up of each of the executive directors and the company secretary the executive
committee is chaired by the chief executive
the responsibilities of the executive committee include the development of group strategy for approval by the board portfolio
management and the delivery of performance against the targets set by the board at its meetings it reviews health safety
environmental and security performance and operational business performance reports
three regional business units – north sea and west africa middle eastpakistan and asia – manage the geographical spread of
business in the group each business unit is headed by a regional business unit manager who delivers against specific strategies and
performance targets set by the executive committee 28
premier oil plc 2009 annual report and financial statements
corporate governance report continued
internal control
the board is responsible for developing maintaining and regularly reviewing the group’s system of internal controls including those
related to financial reporting this system is designed to meet the particular needs of the group but by their nature can only provide
reasonable but not absolute assurance against material misstatement or loss the key procedures in the control system have been in
place for the year under review and up to the date of approval of the annual report and financial statements
management of business risks – this is an ongoing process in accordance with the turnbull guidance that identifies evaluates and
manages risks faced by the group this is based on each business unit and corporate function producing a risk matrix which identifies
the key business risks the probability of those risks occurring their impact if they do occur and the actions being taken to manage
those risks to the desired level risk acceptance and reduction objectives are defined with particular attention given to safety and
environmental factors and applied to ensure that the risks are at a level that is as low as reasonably practicable
the directors receive assurance directly from the business units and functional management through the completion of annual
declarations confirming compliance with the group’s policies procedures and risk management processes these processes are
designed to manage rather than eliminate risk of failure to achieve business objectives
monitoring – a business management system bms is in force which regulates a wide range of daytoday activities both in the uk
and overseas offices including environmental controls health and safety regulations and political risks part of this bms is a
documented review and assurance activity which deals with the risk review and audit processes the purpose of the risk review
process is to identify the significant risks to the business rate them consistently and ensure we have mitigating measures in place to
manage them the purpose of the audit process is to ensure that the policies and procedures within the bms are being adhered to
the group health safety environment and security manager is currently accountable for the overall running of the process with the
group financial controller specifically responsible for the financial aspects however the group has now considered it appropriate to
appoint a fulltime operational audit and risk control manager reporting directly to the chief executive who will assume
responsibility for this process it is anticipated that this appointment will be made in the first half of 2010
the effective operation of internal control procedures is reviewed by planned audits in addition audits of joint venture operations
are carried out by our joint venture partners as well as audits of our joint venture partners where they operate
a process of business control reviews has been developed and implemented across the group this process is designed inter alia
to provide assurance to the board that the company is embedding effective risk management into its operations the report of each
review is presented to the audit and risk committee a rolling threeyear plan to cover all operations is in place
during 2009 a number of financial control and operational reviews were carried out all recommended actions following these
reviews are being implemented
during 2009 the key business risks and internal control weaknesses identified were formally discussed by the executive committee
and the board on a periodic basis this process will continue during 2010
the board receives regular reports on any major problems that have occurred and how the risks have changed over the period under
review
management structure – the board has overall responsibility for the group and there is a formal schedule of matters specifically
reserved for decision by the board each executive director has been given responsibility for specific aspects of the group’s affairs
the executive directors together with the company secretary constitute the executive committee which normally meets weekly
delegation of authority – responsibility levels are communicated throughout the group as part of corporate accounting and through
an authorisation manual which sets out inter alia delegated authority levels segregation of duties and other control procedures
quality and integrity of personnel – the integrity and competence of personnel is ensured through high recruitment standards and
subsequent training
financial reporting – the company’s internal control over financial reporting includes policies and processes that pertain to the
maintenance of financial records that in reasonable detail accurately and fairly reflect transactions and the assets or liabilities
position at a given balance sheet date directors through the audit and risk committee have conducted an assessment of the
effectiveness of internal control over financial reporting in accordance with the internal control revised guidance for directors on the
combined code based on this assessment the directors have determined that the company’s internal control over financial
reporting was effective during 2009
budgetary process – there is a comprehensive budgeting system with an annual budget approved by the board covering capital
expenditure cash flow the income statement and balance sheet monthly results are reported against budget and revised forecasts
for the year are prepared regularly separate approval processes and limits are in place for unbudgeted expenditure items
investment appraisal – the group has clearly defined procedures for capital expenditure these include authority levels commitment
records and reporting annual budget and detailed appraisal and review procedures the authority of the directors is required for key
treasury matters including changes to equity and loan financing interest rate and foreign currency policy including foreign currency
hedging oil price hedging cheque signatories and opening of bank accounts comprehensive due diligence work is carried out if a
business or an asset is to be acquired 29
premier oil plc 2009 annual report and financial statements
internal control continued
during 2009 the board reviewed the group’s system of internal controls and is satisfied that all the controls in place are appropriate
to provide reasonable assurance against any material misstatement or loss the review is conducted on a regular basis and changes
are made to internal control systems to address any new risks or exposures arising as a result of changes to the business or the
business environment
board performance evaluation
an evaluation of the performance of the board its committees the individual directors and the chairman was conducted following
the appointment of the new chairman
the board and committee evaluations were facilitated by the chairman and comprised a written questionnaire and a series of oneto
one interviews with all directors the questionnaire and interviews covered a number of key areas including strategy succession
planning board size and composition risk management and the relationship between the board and management the results of
the reviews were then considered by the chairman and discussed by the board as a whole
the performance of individual nonexecutive directors was evaluated by the chairman with input from the committee chairmen and
the other directors the performance of the chief executive and other executive directors was evaluated by the chairman and non
executive directors
the directors have concluded that following this evaluation the board and its committees operate effectively and also consider that
each director is contributing effectively and demonstrates commitment to the role
communication with shareholders
communication with shareholders is given significant attention extensive information about the group’s activities is provided in the
annual report and financial statements the interim report trading updates and interim management statements the company
has also produced a summary review document in each of the last seven years highlighting premier’ s capabilities and operations
these documents are available to all shareholders the company’ s website wwwpremieroilcom also provides detailed information
on the group’s activities
in accordance with current regulations the company uses its website as its default method of publication for statutory documents to
reduce printing costs and help benefit the environment
the company operates a process of deemed consent shareholders are given 28 days to indicate whether they wish to continue
receiving hard copies of all statutory documents by post before being deemed as consenting to webbased communications
consenting shareholders are sent notification in the post each time the company places a statutory document on its website
all new shareholders receive hard copies of statutory documents until the next deemed consent process is undertaken
shareholders can request all future communications to be sent by post or request a hard copy of a particular document which has
been published on the company’s website wwwpremieroilcom
the company promotes the use of the online shareholder services at wwwpremieroilsharescom on this website shareholders are
able to access their shareholding update their address or submit queries on their account directly to the company’s registrars
shareholders also have the ability to vote online prior to the 2010 annual general meeting agm the share portal also 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 registered receive an email notifying them when the company has added a statutory
document to its website for each new registration processed the company will donate £1 to pure the clean planet trust a uk
charity dedicated to combating climate change
the company has posted on its website guidelines advising shareholders of how to deal with potential scams where shareholders
may have received unsolicited phone calls concerning investment matters often where callers have stated they work for a subsidiary
of or on behalf of the company shareholders are advised to be wary of any unsolicited advice offers to buy shares at discount or
offers of free analysis reports as the company does not retain the services of any such business for these purposes
there is regular dialogue with institutional investors and the chairman chief executive and finance director who are the directors
responsible for dealing with shareholders ensure that other members of the board receive full reports of these discussions enquiries
from individuals on matters relating to their shareholding and the business of the group are welcomed and are dealt with in a timely
manner all shareholders are encouraged to attend the agm to discuss the progress of the group
by order of the board
s c huddle
company secretary
24 march 2010 30
premier oil plc 2009 annual report and financial statements
audit and risk committee report
the audit and risk committee is responsible for
• monitoring the integrity of the financial statements of the company and formal announcements relating to the company’s
financial performance and reviewing any significant financial reporting judgements contained therein
• reviewing the company’s internal financial and operational control and risk management systems details of which are given in
the corporate governance report
• reviewing accounting policies accounting treatments and disclosures in financial statements to ensure clarity and completeness
• overseeing the company’s relationship with its external auditors including making recommendations as to the appointment or
reappointment of the external auditors reviewing their terms of engagement and monitoring their independence and
• reviewing the effectiveness of the company’s whistleblowing procedures
the audit and risk committee comprises only nonexecutive directors its members are messrs d c lindsell chairman j darby
j r w orange and m romieu the company secretary acts as secretary to the committee the board considers mr d c lindsell and
the other members of the committee to have the relevant commercial financial and accounting experience to assess effectively the
complex financial reporting risk and internal control issues relevant to the company
the committee engages the services of external advisers as they deem necessary in the furtherance of their duties at the company’s
expense no external advisers materially assisted the committee during the year
minutes of committee meetings are distributed to all board members all of whom are invited to attend meetings since the board
believes that the work of the committee is increasingly important for all board members
the committee is satisfied that it receives sufficient reliable and timely information from management in order to enable it to fulfil its
responsibilities
the committee met five times in 2009 in january it considered accounting and reporting issues relating to the full year results in
march in march it reviewed the full year results and annual report and its annual assessment of the effectiveness of internal control to
enable the board to make its statement on internal control in the corporate governance report in july it considered accounting and
reporting issues relating to the half year results and in august it reviewed the half year results in 2009 an additional meeting was held
in march which considered accounting issues relating to the acquisition of oilexco group internal control reviews performed during
the year and any ensuing recommendations are also considered at the january and july board meetings
more specifically the responsibilities of the committee were discharged as follows
• the committee reviewed the risk management process designed to identify the key risks facing the group and how these risks
were being managed and reviewed the findings from financial and operating controls reviews carried out during the year
together with progress in implementing any required improvements it also reviewed the effectiveness of the group’s internal
controls and disclosures made in the annual report and financial statements
• the committee reviewed the findings from the external auditors’ audit of the 2008 financial statements and their 2009 interim
review and the audit plan for the 2009 audit the fee proposals for the audit and interim review were reviewed and agreed and
the committee reviewed the scope and fees for nonaudit assignments awarded to the external auditors to satisfy itself that the
assignments concerned did not give rise to threats to the auditors’ independence and objectivity
• the committee met with the finance director and external auditors as part of the interim and final financial statements review
and approval process the committee considered assumptions about the future and other sources of estimation uncertainty as
well as the most appropriate treatment and disclosure of any new or judgemental matters that may have a significant effect on
amounts in the financial statements and
• the performance and effectiveness of the committee was reviewed as part of the board performance evaluation process the
committee was considered to be operating effectively and in accordance with the financial reporting council guidance on
audit committees 31
premier oil plc 2009 annual report and financial statements
internal audit
the committee also carried out its annual review into whether it is appropriate for the company to establish an internal audit
function the board places great emphasis on the importance of risk management and control at all operating levels in the business
and is confident that this culture is in place the committee took account of the fact that the company obtains independent
confirmation of its internal controls from a variety of sources these include joint venture and government audits and the use of
specific reviews using thirdparty specialists the committee also took account of the business controls reviews and risk management
process more fully described in the corporate governance report the committee concluded that while at this time there was no
need for a dedicated internal financial audit resource it is now appropriate to appoint an operational audit and risk control manager
who will have prime responsibility for managing the operational audit and control review process it is anticipated that this
appointment will be made in the first half of 2010
external auditor
deloitte llp deloitte was initially appointed external auditor of the company in 2004
the audit and risk committee regularly reviews the issue of the independence of the external auditors this review considers the
overall relationship between the auditors and the company based on feedback from the company’s finance team and from the
auditors and the nature and extent of nonaudit 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 partner and other key members of the audit team
deloitte are 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 external auditor to confirm that in providing
nonaudit services it complies with ethical standards of the uk auditing practices board this confirmation was received for 2009
by order of the board
d c lindsell
chairman of the audit and risk committee
24 march 2010 32
premier oil plc 2009 annual report and financial statements
company risk factors
risk factors
premier is an international business which has to face a variety of strategic operational financial and external risks
premier’s business financial standing results and reputation may be impacted by various risks not all of these risks are within the
company’s control and the company may be affected by risks other than those listed below
clear responsibility
the board is responsible for overall group strategy acquisition and divestment policy approval of major capital expenditure projects
corporate costs and significant financing matters and the management of risks the board recognises that risk is inherent across
premier’s operations and all activities are subject to an appropriate review to ensure that risks are identified monitored and if
possible managed
risk management process
premier has an established business management system which includes an integrated risk management process for identifying
evaluating and managing risks faced by the group this is based on each business unit and corporate function producing a risk matrix
which identifies the key business risks – strategic operational financial and external – the probability of those risks occurring their
impact if they do occur and the actions being taken to manage those risks to the desired level risk acceptance and reduction
objectives are defined with particular attention given to reducing them to as low as reasonably practicable these risk matrices are
updated on a regular basis and made available to the executive committee
key risks facing premier their potential impacts and our responses are outlined below effective risk management is critical to
achieving our strategic objectives and protecting our assets personnel and reputation premier manages its risks by maintaining a
balanced portfolio through compliance with the terms of its agreements and application of appropriate policies and procedures and
through the recruitment and retention of skilled individuals throughout the organisation
key business risks
reserve replacement
future oil and gas production will depend on our access to new reserves through exploration negotiations with governments and
other owners of reserves and acquisitions failures in exploration or in identifying and finalising transactions to access potential
reserves could slow our oil and gas production and replacement of reserves premier manages these risks by proactive project
planning and milestone driven performance criteria for exploration effective peer reviews and thorough diligence on new areas
allow us to mitigate risk of failure
competition
premier operates in a very challenging business environment and faces competition on access to exploration acreage gas markets
oil services and rigs technology and processes and human resources
production
the delivery of premier’s production depends on the successful development of its key projects in developing these projects we face
numerous challenges these include uncertain geology availability of technology and engineering capacity availability of skilled
resources maintaining project schedules and managing costs as well as technical fiscal regulatory political and other conditions
such potential obstacles may impair our delivery of these projects and in turn our operational performance and financial position
including the financial impact from failure to fulfil contractual commitments related to project delivery
health safety environment and security hses
given the range of premier’s operated and joint venture production operations globally our hses risks cover a wide spectrum
these risks include major process safety incidents failure to comply with approved policies effects of natural disasters and
pandemics social unrest civil war and terrorism exposure to general operational hazards personal health and safety and crime
the consequences of such risks materialising can be injuries loss of life environmental harm and disruption to business activities
depending on their cause and severity they can affect premier’s reputation operational performance and financial position premier
has an effective and comprehensive hses management system to mitigate this risk and support safe and secure execution of all
critical operating activities
reputation
premier strives to be a good corporate citizen globally and has strong and positive relationships with the governments and
communities in the countries where we do business this is important for maintaining our licence to operate and our ability to secure
new resources our business principles govern how premier conducts its affairs failure – real or perceived – to follow these principles
or any of the risk factors materialising could harm our reputation which could impact our licence to operate financing and access to
new opportunities 33
premier oil plc 2009 annual report and financial statements
human resources
premier’s key human resources are essential for the successful delivery of its projects and continuing operations loss of personnel
to competitors or our inability to attract quality human resources could affect our operational performance and growth strategy
premier has created salary bonus and longterm incentive arrangements designed to incentivise loyalty and good performance
commodity prices
oil and gas prices are affected by global supply of and demand for these commodities factors that influence these include
operational issues natural disasters weather political instability or conflicts and economic conditions or actions by major oil
exporting countries price fluctuations can affect our business assumptions and can impact investment decisions and financial
position premier manages this risk with an oil and gas hedging programme to underpin our financial strength and capacity to fund
our future developments and operations
financial discipline
premier has established financial policies and processes to ensure that it 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 a detailed set of financial and
treasury policies and a delegation of authority manual are also in place to reasonably protect against risk of financial fraud in the group
all major investment decisions taken consider an appropriate financial benchmark to secure against downside risk of such investments
the group also undertakes an insurance programme to reduce the potential impact of the physical risks associated with exploration
and production activities in addition business interruption cover is purchased for a proportion of the cash flow from producing fields
cash balances are invested in shortterm deposits with minimum a credit rating banks aaa managed liquidity funds and a1p1
commercial paper subject to board approved limits
further information on financial instruments and financial risk factors can be found in note 17 in the notes to the consolidated
financial statements
host government – political and fiscal risks
premier operates in some countries where political economic and social transition is taking place developments in politics laws and
regulations can affect our operations and earnings potential developments include forced divestment of assets limits on production
or cost recovery import and export restrictions international conflicts including war civil unrest and local security concerns that
threaten the safe operation of company facilities price controls tax increases and other retroactive tax claims expropriation of property
cancellation of contract rights and environmental regulations it is difficult to predict the timing or severity of these occurrences or
their potential effect if such risks materialise they could affect the employees reputation operational performance and financial
position of the group
joint ventures and partners
inherently oil and gas operations globally are conducted in a joint venture environment many of our major projects are operated by
our partners our ability to influence our partners is sometimes limited due to our small shares in major nonoperated development
and production operations nonalignment on various strategic decisions in joint ventures may result in operational or production
inefficiencies or delay premier mitigates this risk by continuous and regular engagement of its partners in operated and non
operated projects 34
premier oil plc 2009 annual report and financial statements
nomination committee report
the nomination committee meets as and when required and comprises messrs m w welton chairman j darby s c lockett
j r w orange and professor d g roberts sir david john retired from the committee on 15 october 2009 the board considers the
membership of the nomination committee to be in compliance with the combined code
the committee met three times in 2009 formal meetings are held to consider standing items of business there is also a significant
level of ad hoc discussion between members of the committee particularly when a recruitment exercise is taking place
the role of the nomination committee includes
• reviewing the structure size and composition of the board and to make recommendations to the board with regard to any
adjustments that are deemed necessary this requires an ongoing assessment of the appropriate skillsmix required at board
level in light of the strategy of the company in the mediumterm
• responsibility for identifying and nominating candidates subject to board approval to fill board vacancies as and when they
arise and to prepare a description of the role and capabilities required for a particular appointment and
• the assessment of time required to fulfil the role of chairman senior independent director and nonexecutive director ensuring
that current members of the board have devoted sufficient time to their duties and that any candidates have sufficient time to
undertake the roles
during 2009 the primary work of the committee has been the process to select a successor to sir david john who decided to stand
down as chairman of the board for this purpose mr j r w orange as senior independent nonexecutive director chaired the
committee the process concluded with the announcement in september 2009 that mr m w welton would take over as chairman
of the board on 15 october 2009
the nomination committee together with the board addresses the company’s succession plans both for members of the board and
senior management the appointment of mr m w welton to the board in june 2009 and his subsequent appointment as chairman in
october has helped to maintain the balance of the board in light of sir david john’s retirement
by order of the board
m w welton
chairman
24 march 2010 35
premier oil plc 2009 annual report and financial statements
the directors submit their report and the audited group financial statements for the year ended 31 december 2009
results and dividends
the group’ s net profit for the year amounted to us1130 million 2008 profit of us983 million a dividend is not proposed 2008 usnil
principal activities
the principal activities of the group are oil and gas exploration development and production the group operates through subsidiary
undertakings and joint ventures details of which are shown in notes 10 and 11 in the notes to the consolidated financial statements
business review
the company is required by the companies act to set out in this report a fair review of the business of the group during the financial
year ended 31 december 2009 and of the position of the group at the end of the year the business review the information that
fulfils the requirements of the business review can be found in the following sections of the annual report and financial statements
• chief executive’s review
• financial review
• company risk factors
• key performance indicators within the financial review
• environmental employee social and community matters within the social performance review
the chairman’s statement chief executive’s review and the financial review also include details of expected future developments in
the business of the group
annual general meeting agm
the company’s 8th agm will be held on friday 21 may 2010 at 1100am the notice of the meeting accompanies this report
directors
the directors who served throughout the year except as noted were as follows
• mr mike welton chairman appointed 1 june 2009 appointed as chairman 15 october 2009
• mr robin allan
• mr joe darby
• mr tony durrant
• mr neil hawkings
• sir david john resigned 15 october 2009
• mr david lindsell
• mr simon lockett chief executive
• mr andrew lodge appointed 20 april 2009
• mr john orange senior independent nonexecutive director
• professor david roberts
• mr michel romieu
biographical details of all directors can be found in the board of directors section of this report
directors’ election and rotation
• mr m w welton having been appointed since the 2009 agm is required by the articles of association to stand for election
at the forthcoming agm
• mr s c lockett and professor d g roberts are retiring by rotation and being eligible will offer themselves for reelection at the
forthcoming agm and
• mr j r w orange as a nonexecutive director with more than nine years service will retire under the provisions of the combined
code and being eligible will offer himself for reelection at the forthcoming agm
with regard to the appointment and replacement of directors the company is governed by its articles of association the combined
code the companies acts and related legislation the powers of directors are described in the corporate governance report and
in the matters reserved for board decision a copy of which can be found on the company’s website wwwpremieroilcom the
company’s articles of association may only be amended by special resolution at a general meeting of the shareholders
report of the directors 36
premier oil plc 2009 annual report and financial statements
report of the directors continued
directors’ interests
the directors who held office at 31 december 2009 had the following interests in the ordinary shares of the company
at 1 january
2009 or date of at 31 december at 24 march
name appointment 2009 2010
r a allan
1
18992 31961 59010
j darby
2
4000 5777 5777
a r c durrant
1
30622 47252 64172
n hawkings
1
622 4471 30308
d c lindsell
2
3000 4333 4333
s c lockett
1
50760 78616 116375
a g lodge
1
– 73 107
j r w orange
2 3
8500 12277 6777
professor d g roberts –– –
m romieu –– –
m w welton –– –
notes
1 the beneficial interests of the executive directors include personal shareholdings together with share incentive plan partnership shares and any matching
shares held for more than three years
2 the beneficial interests of the nonexecutive directors comprise personal shareholdings
3 this includes 1444 ordinary shares held by mr j r w orange’s wife
directors’ interests in share options deferred bonus shares deferred and matching share awards under the asset and equity plan
performance share awards under the long term incentive plan and deferred share incentive plan entitlements are shown in the
remuneration report together with details of the remuneration of all directors who served during the year
directors’ indemnities
the company has granted an indemnity to all of its directors 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
share capital
as at 31 december 2009 the company’s issued share capital comprised
percentage of
total issued
number of shares £ share capital
ordinary shares of 50 pence 114673066 57336533 100
the rights attached to the company’s share capital can be found in note 19 in the notes to the consolidated financial statements no
person has any special rights of control over the company’s share capital and all issued shares are fullypaid
the company uses the premier oil plc employee benefit trust to satisfy its obligations under its employee share schemes the voting
rights in relation to the shares held within the employee benefit trust are exercisable by the trustees
there are no specific restrictions on the size of a holding nor on the transfer of shares which are both 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
the agm held in 2009 authorised the directors to allot shares in the capital of the company up to a maximum nominal amount of
£38216250 providing that any allotments issued beyond the value of £19108100 being approximately onethird of the then issued
share capital are only allotted pursuant to a fully preemptive rights issue
further authority was given at the 2009 agm to allot shares up to a maximum nominal value of £2866220 being approximately
5 per cent of the then issued share capital as if statutory preemption rights did not apply
the authority given to the directors to allot shares at the 2009 agm was granted for a period of one year similar resolutions will be
put to the forthcoming agm to renew this authority there were 24226 ordinary shares issued under the group’s share option
schemes during the year
the agm held in 2009 authorised the purchase by the company of up to 17197320 shares and this authority will remain available
until the forthcoming agm when the granting of a similar authority will be proposed no shares were purchased during the year
and no shares are held in treasury 37
premier oil plc 2009 annual report and financial statements
substantial shareholders
at 23 march 2010 the company had received notification from the following institutions in accordance with chapter 5 of the
disclosure and transparency rules of interests in excess of 3 per cent of the company’s issued ordinary shares with voting rights
notified notified
number of percentage of nature of
name of shareholder voting rights voting rights holding
1
schroders plc 8094087 9876 indirect
blackrock inc 11224700 9790 indirect
axa sa  group companies 7498283 9130 indirect
ameriprise financial inc 4028672 5076 indirect
aviva plc 3859897 4870 direct
legal  general group plc 4586471 3990 direct
bear stearns international trading ltd 2552847 3109 direct
norges bank 3454277 3010 direct
notes
1 where the nature of the holding is both direct and indirect the larger holding has been quoted
payment policy
the group’s policy in respect of its suppliers is to establish terms of payment when agreeing the terms of business transactions and to
abide by the terms of payment at 31 december 2009 the group had trade creditors totalling us565 million 2008 us503 million
hedging and risk management
details of the group’s policy on hedging and risk management are provided in the financial review a further disclosure has been
made in note 17 of the notes to the consolidated financial statements related to various financial instruments and exposure of the
group to price credit liquidity and cash flow risk
subsequent events
there are no significant subsequent events to report
donations
during the year the company made charitable contributions amounting to us33919 2008 us41578 no political contributions
were made during the year 2008 usnil
significant agreements – change of control
there are a number of agreements that take effect alter or terminate upon a change of control of the company such as commercial
contracts bank loan agreements property lease arrangements and employees’ share plans none of these are considered to be
significant in terms of their likely impact on the business of the group as a whole
furthermore the directors are not aware of any agreements between the company and its directors or employees that provide for
compensation for loss of office or employment that occurs because of a takeover bid
going concern
after making enquiries and in light of the group’s available loan facilities the group budget for 2010 and the mediumterm plans the
directors have reasonable expectation that the group has adequate resources to continue operations for the foreseeable future the
going concern basis for the financial statements has therefore continued to be adopted further details are set out in the financial review
auditors
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 auditors are unaware and
• the director has taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant
audit information and to establish that the company’s auditors are aware of that information
this confirmation is given and should be interpreted in accordance with the provisions of s418 of the companies act 2006 a resolution
to reappoint deloitte llp as auditors will be put to shareholders at the forthcoming agm
by order of the board
s c huddle
company secretary
24 march 2010 38
premier oil plc 2009 annual report and financial statements
remuneration report
compliance
this report has been prepared in accordance with schedule 8 of the companies act 2006 and the large and mediumsized
companies and groups accounts and reports regulations 2008 as required this report is being put to shareholders at the
forthcoming agm for an advisory vote
the sections within this report that have been audited by deloitte llp are indicated
throughout 2009 the company complied with the provisions of the combined code on corporate governance the code regarding
best practice on the design of performancerelated remuneration
remuneration committee
the remuneration committee the committee normally meets at least four times a year and determines the remuneration of the
executive directors and senior management the committee is composed entirely of nonexecutive directors and comprises
mr j r w orange who chairs the committee and is the company’s senior independent nonexecutive director and messrs j darby
d c lindsell and professor d g roberts the board considers that the membership of the committee is compliant with the code
recommendations on the basis that it considers mr j r w orange to be independent notwithstanding his length of service
mr m w welton the company’ s chairman is not a member of the committee but attends meetings by invitation mr s c lockett is
not a member of the committee but attends meetings by invitation except when his own remuneration is being discussed to ensure
that the chief executive is fully aware of discussions concerning remuneration policy and the remuneration packages of its most
senior management
no director of the company is involved in determining his own remuneration the determination of the remuneration of the non
executive directors is a matter reserved for board decision
the committee acts within its agreed written terms of reference and complies with the relevant provisions of the code in
implementing its remuneration policy the terms of reference are published on the company’s website wwwpremieroilcom
the role of the committee includes
• considering and determining the remuneration policy for the chairman executive directors and senior management
• within this agreed policy considering and determining the total compensation package of each executive director of the company
• considering and advising on the general principles under which remuneration is applied to employees of the company
• determining the quantum and performance conditions for awards to be made under the company’ s longterm incentive schemes and
• determining the policy for pension arrangements service agreements and termination payments to directors and senior management
the principal focus of the committee in 2009 has been to ensure that the remuneration packages of the senior executives are set at
levels which are sufficient to retain and attract high quality individuals in what remains a competitive market
the committee takes independent advice from hewitt new bridge street a leading firm of remuneration consultants which is
appointed as an adviser to the committee hewitt new bridge street is a trading name of hewitt associates ltd who do not provide
any other services to the company during the period under review the committee sought the assistance of the chairman and the
chief executive on matters relating to directors’ and senior management’s performance and remuneration
performance chart
the chart below shows the company’ s total shareholder return tsr defined as the increase in the value of a share including reinvested
dividends over the last five financial years compared with the equivalent information in respect of the ftse all share oil  gas
producers index which the committee considers to be the most relevant equity market index
total shareholder return
value £
31 dec 04
premier oil plc
this graph looks at the value at 31 december 2009 of £100 invested in premier oil plc on 31 december 2004
compared with the value of £100 invested in the ftse all share oil  gas producers index
31 dec 05 31 dec 06 31 dec 07 31 dec 08 31 dec 09
£25561
£16888
ftse all share oil  gas producers index
0
50
100
150
200
250
300 39
premier oil plc 2009 annual report and financial statements
total shareholder return continued
the midmarket closing price of the company’s shares at 31 december 2009 was £1105 31 december 2008 £985 the intraday
trading price of the company’s shares during 2009 was between £593 and £1433
the report is divided into two parts
part a which is not subject to audit provides an overview of the company’s current remuneration policy for all employees including
the executive directors
part b which is audited shows how the remuneration policy has been applied to executive directors for the year under review and
contains tables detailing the directors’ emoluments for the year ended 31 december 2009 their accrued pensions and their interests
under the company’s longterm incentive arrangements
part a remuneration policy
the company’s remuneration policy is to provide remuneration packages which ensure that employees are fairly and responsibly
rewarded for their contributions the committee supports the principle of superior remuneration for superior performance the aim
is to provide remuneration packages which are sufficiently competitive to attract retain and motivate individuals of the quality
required to achieve the group’s objectives and thereby enhance shareholder value the committee takes account of the level of
remuneration paid to all employees for comparable positions in similar companies within the industry as well as pay and conditions
throughout the remainder of the group
the main components of executive directors’ remuneration are basic salary an annual performancerelated cash and share bonus
scheme with a deferred element benefits eligibility to participate in the company’s longterm incentive schemes and allemployee
share schemes and pension provision the underlying principle of the company’s remuneration policy is to find an appropriate
balance between fixed and performancerelated elements in respect of its senior management the approach is that the greater part
of total remuneration should be delivered through performancerelated incentives these incentive schemes are designed to align
the interests of executives with those of shareholders and establish a clear link between pay and performance
in line with the association of british insurers’ guidelines on responsible investment disclosure the committee will ensure that the
company’s remuneration policy will not raise environmental social or governance risks by inadvertently motivating irresponsible
behaviour more generally the committee will ensure that the overall remuneration policy does not encourage inappropriate
operational risk
the committee intends to undertake a review of the company’s remuneration structure during 2010 to ensure that it continues to
support the business strategy and fairly rewards employees for their performance
base salary
the remuneration policy applied to executive directors is to position base salaries between the median and upper quartile for
comparable positions in similar companies within the industry all other employees receive a competitive salary which targets a salary
level positioned at the upper quartile for comparable positions in companies within the industry the objective is to ensure that the
base salary when taken together with the rest of the package provides a competitive but performancedriven remuneration package
the committee believes that this positioning is appropriate given the competitive marketplace that exists within the industry in which
it operates while salary is reviewed by reference to market conditions the performance of the company and the performance of the
individual the committee would not regard this element of remuneration as directly performancerelated
the salaries of the executive directors as at 1 january 2010 are as follows
percentage
salary increase
position £ from 2009
s c lockett chief executive 435000 00
r a allan director – asia 300000 00
a r c durrant finance director 320000 00
n hawkings operations director 300000 00
a g lodge exploration director 300000 91
in light of the conditions in the wider economy the committee concluded that it was appropriate for the base salaries of the majority
of executive directors to remain unchanged for 2010 mr a g lodge received a salary increase in recognition of his development in
his role since appointment in april 2009 the increase of 91 per cent brings his salary into line with that of the operations director
and director – asia
base salary is supplemented by a number of additional nonpensionable incentive plans which are designed to reward employees
for their performance against challenging corporate objectives which support the longterm growth of the company and focus
strongly on creating longterm value each element is discussed in detail below 40
premier oil plc 2009 annual report and financial statements
remuneration report continued
annual bonus scheme
a discretionary bonus which is nonpensionable may be paid to all employees on the achievement of a challenging range of
corporate targets that are set by the committee each year the total annual bonus potential for executive directors is 100 per cent of
base salary other employees can earn an annual bonus payment of up to a maximum of 45 per cent of base salary
an essential element of the company’s policy is that in addition to being an incentive to enhance shortterm performance annual
bonuses should also operate to enhance longterm performance and be an effective recruitment and retention mechanism in a
competitive market environment accordingly a proportion of all employees’ bonuses may at the discretion of the committee be
paid as shares the receipt of which is deferred for three years for executive directors’ annual bonuses the committee’s policy is that
50 per cent is payable immediately in cash and the remaining half is payable in shares and deferred for three years
for executive directors only the deferred element of the annual bonus is contingent upon the relevant beneficiary remaining in
employment for the three years from the date of the award but is not dependent on any further performancerelated measures
the annual bonus scheme for the 2010 financial year has a similar structure to that of 2009 and the same maximum award level
the performance measures for 2010 are a combination of targets relating to production and development finance and organisation
exploration and health safety environment and security the weighting for each target will be determined by the committee shortly
after the publication of the 2009 annual report and financial statements
longterm incentives
the company currently operates an allemployee long term incentive plan ltip a share incentive plan a save as you earn scheme
for ukbased and expatriate employees only and a historical asset and equity plan aep the committee also has the discretion to
grant conditional share awards to new employees
details of the share incentive plan the save as you earn scheme and the aep are set out in part b of this report
long term incentive plan
the ltip  an allemployee plan was approved by shareholders at the 2009 agm the first awards were made in 2009 and will mature
at the end of 2011
the ltip has been introduced to meet the following objectives
• to provide a longterm allemployee scheme which motivates all employees and provides a longerterm perspective to the total
remuneration package and
• to create a balance between rewarding employees for delivering returns to shareholders through absolute share price growth
and rewarding operational performance through comparative tsr performance absolute share price performance provides
alignment between the interests of shareholders and employees via share price performance comparative tsr was selected as
the other performance condition as it ensures that the company has delivered competitive returns with respect to the company’s
most relevant competitors over the performance period irrespective of general market conditions and movements in the oil price
awards under the ltip comprise three elements equity pool awards and performance share awards that vest after the expiry of a
threeyear performance period and a potential matching award that vests at the expiry of a further threeyear performance period
commencing at the end of the threeyear performance period for equity pool and performance share awards the performance
period for equity pool awards and performance share awards will usually run from 1 january but in the case of awards granted in
2009 the performance period runs from 1 june 2009 to 31 december 2011
equity pool award
the equity pool award comprises a number of participation points which are allocated to employees at the discretion of the
committee the performance condition relating to the equity pool award requires the compound annual growth in the company’s
market capitalisation over the performance period to be at least 10 per cent if it is a notional pool of value will be created as follows
notional pool of value created as a percentage of the increase
compound annual growth in the equity pool in the compound annual growth
less than 10 per cent 0 per cent
10 per cent 1 per cent
more than 10 per cent but less than 20 per cent between 1 per cent and 25 per cent on a straightline basis
20 per cent or more 25 per cent 41
premier oil plc 2009 annual report and financial statements
equity pool award continued
the committee must also be satisfied that the notional pool of value to be created on the above basis is reflective of the underlying
financial and operational performance of the company in their assessment the committee will take account of amongst other things
• return on invested capital
• reserve replacement
• cash flow
• earnings per share
• health and safety
and may scale back the size of the notional pool accordingly in the event that overall performance is unsatisfactory
the notional pool of value will be allocated to employees prorata to the number of participation points they hold and converted into
a number of shares the maximum benefit that an individual may receive will normally be limited to 100 per cent of salary except
where the compound growth rate exceeds 20 per cent in which case the committee may increase the limit on such a proportionate
basis as it determines to be fair and reasonable
performance share award
the performance share award is over a number of ordinary shares in the company with a value on grant of up to 150 per cent of
salary and is subject to a tsr performance condition
performance shares will not vest unless the company’s tsr performance over the threeyear performance period is at least at the
median of a comparator group comprising approximately 35 listed companies in the oil and gas sector whereby the shares subject to
the performance share award will vest as follows
tsr position of the company relative to the comparator group percentage of shares which vest
below median 0 per cent
median 25 per cent
between median and up to upper quartile between 25 per cent and 100 per cent on a straightline basis
within upper quartile 100 per cent
the number of shares arising out of the vesting of an employee’ s equity pool award and performance share award will be aggregated
and 50 per cent of those shares will be transferred to the employee while the balance will be deferred the deferred award for
executive directors and certain other members of senior management there is a compulsory deferral period of three years in return
for the grant of a matching award over further shares for all other employees the deferred award will vest six months after their
deemed grant date unless the employee elects to defer the vesting for three years in return for a grant of a matching award
matching awards
the maximum number of shares subject to a matching award shall not exceed 250 per cent of the number of shares subject to the
relevant deferred award matching awards are subject to a tsr performance condition on the same terms as those applying to the
performance share awards except that full vesting will only occur if the company’s tsr relative to the comparator group is at a
position within the upper decile if the company’s tsr is at least at the median of the comparator group then the shares subject to the
matching award will vest as follows
tsr position of the company relative to the comparator group percentage of shares which vest
below median 0 per cent
median 25 per cent
between median and up to upper decile between 25 per cent and 100 per cent on a straightline basis
within upper decile 100 per cent
details of the awards granted to executive directors under this plan are set out in part b outstanding longterm incentive awards 42
premier oil plc 2009 annual report and financial statements
remuneration report continued
executive directors’ contracts of service
details of the service contracts of the executive directors of the company are as follows
unexpired term
contract date notice period of contract potential termination payment
s c lockett 9 december 2003 12 months rolling contract 12 months salary and benefits
r a allan 9 december 2003 12 months rolling contract 12 months salary and benefits
a r c durrant 1 july 2005 12 months rolling contract 12 months salary and benefits
n hawkings 23 march 2006 12 months rolling contract 12 months salary and benefits
a g lodge 20 april 2009 12 months rolling contract 12 months salary and benefits
save for automatic termination when each executive director becomes 60 years of age the executive directors have rolling service
contracts and are subject to reelection by shareholders under the company’s articles of association and the provisions of the code
the service contract of each executive director may be terminated on 12 months notice in writing by either side in accordance with
current market practice in such an event the compensation commitments in respect of their contracts could amount to one year’s
remuneration based on base salary annual bonus and benefits in kind and pension rights during the notice period there are
provisions for earlier termination 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 there are no
other provisions such as liquidated damages clauses which expressly provide for compensation in the event of early termination or
enhanced provisions in the event of a change of control the committee would apply general principles of mitigation to any payment
made to a departing executive director and would consider each case on an individual basis
external appointments
executive directors are entitled to accept nonexecutive appointments outside the company providing that the board’s approval is
sought mr a r c durrant currently holds one external nonexecutive directorship with clipper windpower plc and is entitled to retain
the fees earned connected therewith 2009 us64860 and 2008 us76300
nonexecutive directors
nonexecutive directors have letters of appointment which are all effective for a period of three years subject to reappointment
by the members in general meeting all of which have a notice period of three months messrs m w welton j r w orange and
professor d g roberts have letters of appointment issued on 23 september 2009 mr j darby has a letter of appointment dated
1 september 2007 and messrs d c lindsell and m romieu have letters of appointment dated 17 january 2008
nonexecutive directors do not participate in any bonus plan or share incentive programme operated by the company and are not
entitled to pension contributions or other benefits provided by the company
the company’s articles of association provide that the remuneration paid to nonexecutive directors is to be determined by the
board within the limits set by the shareholders fees for nonexecutives are reviewed at least every two years having regard to the
size of the company and the time commitments of the nonexecutives the basic fee for each of the nonexecutive directors
excluding the chairman at the end of 2009 was £40000 per annum an additional fee of £8000 per annum is paid per committee
chairmanship mr j r w orange is provided with an additional set fee of £2000 per annum in respect of his position as senior
independent nonexecutive director mr m w welton as chairman receives a fee of £150000 per annum
as for 2009 the board has decided not to increase the fees for nonexecutive directors for 2010 but has agreed to review them for 2011 43
premier oil plc 2009 annual report and financial statements
part b the information in this part of the report has been audited
directors’ emoluments
total emoluments paid to directors for the year ended 31 december 2009 was £2905600 2008 £2069500
the remuneration paid to the executive directors during the year under review is summarised in the table below
salary benefits annual cash bonus
†
other total pension contributions
2009 2008 2009 2008 2009 2008 2009 2008 2009 2008 2009 2008
£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000
s c lockett
1
4350 3950 174 170 1849 1086 – – 6373 5206 563 500
r a allan
2 3
2850 2850 1573 170 1275 784 438 – 6136 3804 605 579
a r c durrant
4
3200 2900 216 202 1360 798 567 517 5343 4417 – –
n hawkings
2
2863 2600 169 165 1275 715 – – 4307 3480 605 529
a g lodge
2 5
1894 – 126 – 820 – 225 – 3065 – 129 –
total 15157 12300 2258 707 6579 3383 1230 517 25224 16907 1902 1608
notes
1 a contribution of £56280 was paid in 2009 to mr s c lockett’s personal money purchase pension scheme
2 in respect of messrs r a allan n hawkings and a g lodge the salaries in the above table exclude £15000 £13750 and £3093 respectively which was
sacrificed into the money purchase pension scheme
3 mr r a allan was paid a nonpensionable and nonbonusable overseas premium of £43750 following his relocation to the singapore office on 1 june 2009
in addition he received £139120 of expatriate benefits during the year
4 mr a r c durrant was paid a nonbonusable salary supplement of £56736 as part of his pension arrangements
5 mr a g lodge’s total remuneration in 2009 is calculated from 20 april 2009 being the date of his appointment to the board mr a g lodge received a non
bonusable salary supplement of £22540 as part of his pension arrangements
 the main benefits provided are medical insurance car allowance and a subsidised gym membership following his appointment as director – asia mr r a
allan also received benefits in respect of his relocation to singapore
† the annual cash bonus is reported as remuneration in the year to which the bonus relates but is payable in the subsequent financial year
remuneration paid to the nonexecutive directors during the year under review is summarised in the table below
fees
2009 2008
£’000 £’000
m w welton chairman
1
466 –
j darby 400 400
sir david john
2
1186 1300
d c lindsell 480 427
j r w orange 500 500
professor d g roberts 400 400
m romieu
3
400 398
former directors
4
– 363
total 3832 3788
notes
1 mr m w welton’s total remuneration in 2009 is calculated from 1 june 2009 being the date of his appointment to the board
2 sir david john retired from the board on 15 october 2009
3 the figure of £38200 published in the 2008 annual report in respect of fees paid to mr m romieu during 2008 was incorrect
4 relates to the nonexecutive director fees for messrs s j dobbie and r v emerson who retired from the board in 2008 44
premier oil plc 2009 annual report and financial statements
remuneration report continued
pension schemes
the company operates a defined contribution pension scheme in the uk together with a defined benefit pension scheme – the
premier oil plc retirement and death benefits plan the scheme the scheme was closed to new members in 1997 mr s c lockett is
a member of the scheme subject to the earnings cap the scheme is a funded registered final salary scheme which provides a
pension on broadly a fiftieths accrual basis of up to twothirds salary at the normal pension age of 60 benefits are actuarially reduced
on early retirement before age 60 and pensions in payment increase in line with the lower of inflation or 5 per cent per annum
the company has operated its own cap on pensionable earnings since april 2006 when the external cap was removed in the
scheme the cap is determined at 1 january each year and for the year to 31 december 2009 this was set at £117600 increasing to
£123600 for the year to 31 december 2010 in the company’s money purchase pension arrangement the cap is determined at 6 april
each year and for 200809 this was set at £117600 increasing to £123600 for april 200910
the company has agreed to provide messrs s c lockett r a allan a r c durrant n hawkings and a g lodge with a pension
substantially as if they were contributing members of the scheme and in regard to service completed subsequent to their
appointment as directors not subject to the earnings cap ‘the pension promise’ the additional value of this target pension
provision relative to the standard terms applied to employees is made available at the directors’ option in the form of either an
enhanced scale of pension contributions or a nonpensionable salary supplement as at the yearend messrs s c lockett r a allan
and n hawkings had elected to receive pension contributions mr a r c durrant had elected to receive a salary supplement and
mr a g lodge had elected for a combination of the two messrs a r c durrant and a g lodge received a salary supplement during
2009 of £56736 and £22540 respectively
messrs r a allan n hawkings and a g lodge are members of the company’ s group personal pension plan during 2009 the company
contributed £24420 £24420 and £12927 respectively to this plan on their behalf in addition in respect of the pension promise the
company contributed £36080 into each of messrs r a allan and n hawkings’ pension funds with the group personal pension plan
mr s c lockett has established his own personal pension plan to which during 2009 the company contributed £56280 in regard to
the pension promise this is in addition to the company contributions paid into the scheme on his behalf
the accrued pension entitlements of the directors who were members or deemed members of the scheme during 2009 are as follows
b d e g
a transfer value c transfer value increase from f increase
accrued in respect accrued in respect d to b less transfer value in accrued
pension as at of a as at pension as at of c as at contributions of increase pension
31 december 31 december 31 december 31 december by director in accrued excluding
2009 2009 2008 2008 during 2009 benefit inflation
£’000 pa £’000 £’000 pa £’000 £’000 £’000 £’000
s c lockett 666 8393 540 3932 4211 1248 99
r a allan 321 4911 248 2366 2377 933 61
a r c durrant 249 3923 185 1877 1866 867 55
n hawkings 188 2746 134 1201 1377 687 47
a g lodge 34 590 –– 437 590 34
notes
– the amounts of accrued pension under a and c represent the accrued pension entitlements of the director as at the stated dates
– the transfer values under b d and f have been calculated in line with the occupational pension schemes transfer values amendment regulations 2008
si 20081050
– the principal reasons for the increases under e are changes in financial assumptions used to calculate the transfer values
– the amounts under f represent the increase in value of the directors’ benefits in terms of the value on the transfer value basis in force at the end of the year
of the excess of the endyear accrued benefits over the startyear accrued benefits as revalued by price inflation less contributions by the directors
– 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 thus in the case of mr a r c durrant who has elected not to receive
enhanced pension contributions the company’s pension obligation will be met entirely by the payment of salary supplements
– in addition to the current provision noted above mr r a allan is entitled to a deferred pension under the scheme in respect of a prior service period with the
company between september 1986 and november 1999
– members of the scheme have the option to pay additional voluntary contributions none of the directors have elected to do so
the following payments were made to a former director of the company in respect of unfunded pension liabilities
amount of unfunded amount of unfunded
pension paid during 2009 pension paid during 2008
£ £
j a heath 32818 32526 45
premier oil plc 2009 annual report and financial statements
annual bonus scheme
following a review of the 2009 targets as published in the 2008 annual report and financial statements the committee agreed that the
health safety environment and security target 10 per cent of the total maximum award had been achieved and agreed a 75 per cent
award out of the maximum 90 per cent in relation to the finance and organisation production and development exploration and new
business targets this resulted in a total award of 85 per cent of salary 425 per cent paid as cash and 425 per cent deferred in shares
as indicated above for performance against the above targets 2008 55 per cent of salary paid as 275 per cent cash and 275 per
cent deferred shares
shares held in trust in respect of the deferred element of previous annual bonus awards for directors are as follows
midmarket closing
date of grant price on date of award number of shares
1
earliest vesting date
s c lockett 11 january 2008 13170p 11296 11 january 2011
22 january 2009 7145p 17930 22 january 2012
7 january 2010 12550p 14731 7 january 2013
43957
r a allan 11 january 2008 13170p 8124 11 january 2011
22 january 2009 7145p 12936 22 january 2012
7 january 2010 12550p 10159 7 january 2013
31219
a r c durrant 11 january 2008 13170p 8154 11 january 2011
22 january 2009 7145p 13164 22 january 2012
7 january 2010 12550p 10836 7 january 2013
32154
n hawkings 11 january 2008 13170p 7369 11 january 2011
22 january 2009 7145p 11801 22 january 2012
7 january 2010 12550p 10159 7 january 2013
29329
a g lodge 7 january 2010 12550p 6530 7 january 2013
6530
notes
1 the number of deferred bonus shares awarded in 2008 and 2009 were adjusted following the rights issue which took place in may 2009 the adjusted numbers
are quoted in the table above
outstanding longterm incentive awards
asset and equity plan aep
the aep expired in 2009 and the award granted in 2008 which will mature at the end of 2010 is the last award remaining under the
plan the aep has two plans the asset pool and the equity pool the asset pool is created by reference to the increase in the net
asset value per share of the company over a threeyear period and the equity pool is created by reference to the increase in equity
value per share of the company over a threeyear period in both cases no pool is created where the compound annual growth in the
relevant measure asset value or share price is below 10 per cent per annum at 10 per cent compound growth per annum 1 per cent
of the growth becomes the pool at 20 per cent compound growth per annum 25 per cent of the growth becomes the pool the
size of the pool increases on a straightline basis between these two points in addition the vesting of awards is subject to the
committee being satisfied that there has been satisfactory improvement in the performance of the company
in relation to the 2006 aep award based on performance over 2006 2007 and 2008 an independent external valuation of the asset
pool was undertaken and the committee determined the 2006 vesting level as set out in the table below 50 per cent of the awards
were released in cash and 50 per cent in deferred shares the minimum vesting threshold for the equity pool was not achieved
resulting in this part of the award lapsing 46
premier oil plc 2009 annual report and financial statements
remuneration report continued
asset and equity plan aep continued
matching awards granted
cash awarded deferred shares awarded
1 2
during the year
1 3
s c lockett £208230 20752 51882
r a allan £151135 15062 37656
a r c durrant £151135 15062 37656
n hawkings £151135 15062 37656
notes
1 the number of deferred shares and matching award shares awarded in 2009 were adjusted following the rights issue which took place in may 2009 the
adjusted numbers are quoted in the table above
2 the midmarket closing price was £1228 on the day the award vested 20 april 2009
3 the matching awards granted during the year relate to the deferred shares and are the maximum award possible under the matching award scheme subject
to performance criteria the midmarket closing price on the date of grant of matching awards 29 may 2009 was £1136
details of outstanding aep awards
2007 award
as at 31 december 2009 a total of 584067 participation points have been allocated under the 2007 award 82950 participation points
have been awarded since the date of grant as timeapportioned compensatory awards to employees who have joined the company
during the threeyear performance period and 49180 participation points have been forfeited due to participants leaving the
employment of the company the increase in aggregate participation points reflects the decision to extend the award to all global
employees the executive directors have been allocated the following points under the 2007 award
number of participation points
s c lockett 320
r a allan 210
a r c durrant 210
n hawkings 210
a g lodge
1
467
notes
1 mr a g lodge received compensatory points under the 2007 award following his appointment to the board on 20 april 2009
the equity pool of the 2007 award was calculated by comparing the market value calculated by reference to the average share price
for the three months prior to the date of award 1 january 2007 with the market value similarly calculated to 31 december 2009
the minimum vesting threshold for the equity pool was not achieved resulting in this part of the award lapsing
an independent external valuation of the asset pool of the 2007 award will take place following the publication of the yearend
results if it is determined that the minimum vesting threshold has been achieved half of any executive director’s vested award will be
received in shares and the other half in the form of an award of deferred shares which will vest three years later
2008 award
as at 31 december 2009 a total of 725260 participation points have been allocated under the 2008 award the executive directors
have been allocated the following points under the 2008 award
number of participation points
s c lockett 310
r a allan 205
a r c durrant 205
n hawkings 205
a g lodge
1
1139
notes
1 mr a g lodge received compensatory points under the 2008 award following his appointment to the board on 20 april 2009 47
premier oil plc 2009 annual report and financial statements
details of outstanding aep awards continued
details of deferred shares and matching awards granted to directors under the asset and equity plan are set out below
no of no of
deferred matching market
awards shares awards awards price of
held at granted granted held at 31 shares on earliest
date of type of 1 january during during december day of performance vesting
grant award 2009 2009
1
2009
2
event 2009 award period date
s c lockett 170107 deferred 51736 –– – 51736 1127p – 010110
share
270307 matching 129340 –– – 129340 1235p 010107 – 010110
award 311209
110108 deferred 41256 –– – 41256 1317p – 010111
share
130308 matching 103140 –– – 103140 1343p 010108 – 010111
award 311210
200409 deferred – 20752 –– 20752 1228p – 010112
share
290509 matching –– 51882 – 51882 1136p 010109 – 010112
award 311211
325472 20752 51882 – 398106
r a allan 170107 deferred 36230 –– – 36230 1127p – 010110
share
270307 matching 90576 –– – 90576 1235p 010107 – 010110
award 311209
110108 deferred 24619 –– – 24619 1317p – 010111
share
130308 matching 61548 –– – 61548 1343p 010108 – 010111
award 311210
200409 deferred – 15062 –– 15062 1228p – 010112
share
290509 matching –– 37656 – 37656 1136p 010109 – 010112
award 311211
212973 15062 37656 – 265691
a r c durrant 170107 deferred 19062 –– – 19062 1127p – 010110
share
270307 matching 47656 –– – 47656 1235p 010107 – 010110
award 311209
110108 deferred 24619 –– – 24619 1317p – 010111
share
130308 matching 61548 –– – 61548 1343p 010108 – 010111
award 311210
200409 deferred – 15062 –– 15062 1228p – 010112
share
290509 matching –– 37656 – 37656 1136p 010109 – 010112
award 311211
152885 15062 37656 – 205603
n hawkings 170107 deferred 16164 –– – 16164 1127p – 010110
share
270307 matching 40410 –– – 40410 1235p 010107 – 010110
award 311209
110108 deferred 21613 –– – 21613 1317p – 010111
share
130308 matching 54033 –– – 54033 1343p 010108 – 010111
award 311210
200409 deferred – 15062 –– 15062 1228p – 010112
share
290509 matching –– 37656 – 37656 1136p 010109 – 010112
award 311211
132220 15062 37656 – 184938
notes
1 there are no performance criteria for the deferred shares
2 matching awards granted are the maximum award possible under the matching award scheme subject to performance criteria based on tsr against a
comparator group of approximately 35 listed companies in the oil and gas sector full vesting requires upper decile performance
 the number of deferred shares and matching award shares awarded under the aep in 2007 2008 and 2009 were adjusted following the rights issue which took
place in may 2009 the adjusted numbers are quoted in the table above 48
premier oil plc 2009 annual report and financial statements
remuneration report continued
details of outstanding ltip awards
2009 award
as at 31 december 2009 a total of 990430 participation points have been allocated under the 2009 bonus pool award
the executive directors have been allocated the following points under the 2009 bonus pool award
number of participation points
s c lockett 525
r a allan 420
a r c durrant 420
n hawkings 420
a g lodge 420
for the first awards of performance shares made under the ltip the committee granted awards over shares with a maximum value of
150 per cent of salary for mr s c lockett and 125 per cent of salary for the other executive directors the executive directors have
been awarded the following performance share awards under the 2009 award
date awards at awards at earliest
of grant 010109 granted
1
lapsed vested 311209 performance period vesting date
s c lockett 280809 – 51216 –– 51216 010609 – 311211 010112
r a allan 280809 – 29434 –– 29434 010609 – 311211 010112
a r c durrant 280809 – 31397 –– 31397 010609 – 311211 010112
n hawkings 280809 – 29434 –– 29434 010609 – 311211 010112
a g lodge 280809 – 26981 –– 26981 010609 – 311211 010112
notes
1 the market price of the shares on the date of award was £1274
as at 31 december 2009 a total of 1250463 performance shares have been awarded under the 2009 performance share award
conditional share awards
mr a g lodge was awarded a conditional share award equivalent in value to the shares he forfeited at his employer when he left to
join the company this award was considered essential to induce mr lodge to join the company vesting of the awards is contingent
on mr lodge remaining in employment at the vesting date but is not dependent on any further performancerelated measures
details of the conditional share awards are set out below
market price of earliest
date of grant number of shares shares on day of award vesting date
20 april 2009 17837 1195p 200410
20 april 2009 25685 1195p 200411
notes
 the number of conditional share awards held were adjusted following the rights issue which took place in may 2009 the adjusted numbers are quoted in the
table above
share option schemes
executive share option scheme 2003
options granted under the scheme are normally exercisable not less than three years after their date of grant and will lapse unless
previously exercised on their tenth anniversary no payment was made for the grant of an option options cannot normally be
exercised until predetermined performance conditions have been achieved however the grant to mr n hawkings was made as part
of his recruitment terms where it was agreed that the grant would not be subject to any prevesting performance conditions the
executive share option scheme 2003 has expired
directors’ interests under this scheme are shown below
options midmarket options
acquisition held at price on held at
exercisable price per 1 january date of 31 december
date of grant dates share £ 2009 event exercise £ 2009
n hawkings 160505 160508 – 150515 437095 24478 –– 24478
notes
 the number of options held and the option acquisition price were adjusted following the rights issue which took place in may 2009 the adjusted numbers are
quoted in the table above 49
premier oil plc 2009 annual report and financial statements
savings related share option scheme 2003
under this scheme ukbased and expatriate employees including executive directors with six months or more continuous service
are invited within a period of 42 days of the announcement of the annual results to join the scheme employees may save between
£5 and £250 per month through payroll deduction for a period of three or five years after which time they can acquire shares at a
market value set at the time of invitation discounted by up to 20 per cent the savings related share option scheme 2003 expired in
2009 and was replaced by the savings related share option scheme 2009 which was approved by shareholders at the 2009 agm
directors’ interests under this scheme are shown below
options midmarket options
acquisition held at price on held at
price per 1 january date of 31 december
date of grant exercisable dates share £ 2009 event exercise £ 2009
s c lockett 030507 010610 – 301110 813732 1160 –– 1160
r a allan 030507 010612 – 301112 813732 2012 –– 2012
a r c durrant 040506 010611 – 301111 666672 2414 –– 2414
n hawkings 040506 010611 – 301111 666672 2414 –– 2414
notes
 the number of options held and the option acquisition price were adjusted following the rights issue which took place in may 2009 the adjusted numbers are
quoted in the table above
share incentive plan sip
under this plan ukbased and expatriate employees including executive directors may make contributions to acquire shares in the
company 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 oneforone basis should an employee leave the sip
scheme before the end of the threeyear holding period they will lose the right to the matching shares unless they leave due to
injury redundancy tupe transfer retirement death or the sale of the company
in the case of the award of matching shares the company has not required performance criteria to be fulfilled as the purpose of the
plan is to encourage all employees to become shareholders in the company
the company invites all company employees to make contributions to acquire partnership shares on a monthly basis during 2009
messrs s c lockett r a allan a r c durrant n hawkings and a g lodge contributed the maximum monthly amount of £125 to the plan
shares held beneficially in this plan by the directors during the financial year were as follows
total total matching partnership
partnership shares and matching
shares awarded in shares
purchased in 2009 at prices shares acquired
2009 at prices between 693p held on between
shares held on between 693p and 1303p 31 december 1 january and
1 january 2009 and 1303p vesting in 2012 2009 24 march 2010
s c lockett 3561 145 145 3851 68
r a allan 3552 145 145 3842 68
a r c durrant 1014 145 145 1304 68
n hawkings 1014 145 145 1304 68
a g lodge – 73 73 146 68
sourcing of shares and dilution limits
the company uses the premier oil plc employee benefit trust to satisfy the obligations of the executive share option scheme the aep 
the ltip and the directors’ deferred bonus shares future obligations will be met using a combination of market purchases financed
by the company and newlyissued shares the number of shares held by the employee benefit trust as at 31 december 2009 was
1077711 31 december 2008 863339 the company’s share plans comply with recommended guidelines on dilution limits
by order of the board
j r w orange
chairman of the remuneration committee
24 march 2010 50
premier oil plc 2009 annual report and financial statements
statement of directors’ responsibilities
the directors are responsible for preparing the annual report and financial statements and the remuneration report 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 ias 1 – ‘presentation of financial
statements’ requires that ifrs financial statements present fairly for each financial year the group’s financial position financial
performance and cash flows this requires the faithful representation of the effects of transactions other events and conditions in
accordance with the definitions and recognition criteria for assets liabilities income and expenses set out in the international
accounting standards board’s ‘framework for the preparation and presentation of financial statements’ in virtually all circumstances
a fair presentation will be achieved by compliance with all applicable ifrss however directors are also required to
• properly select and apply accounting policies
• present information including accounting policies in a manner that provides relevant reliable comparable and understandable
information and
• provide additional disclosures when compliance with the specific requirements in ifrss is insufficient to enable users to understand
the impact of particular transactions other events and conditions on the group’s financial position and financial performance
parent company financial statements
the directors have elected to prepare the parent company financial statements in accordance with united kingdom generally
accepted accounting practice united kingdom accounting standards and applicable law the parent company financial statements
are required by law to give a true and fair view of the state of affairs of the company in preparing these financial statements the
directors are required to
• select suitable accounting policies and then apply them consistently
• make judgements and estimates that are reasonable and prudent
• state whether applicable united kingdom accounting standards have 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
the directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the company and enable them to ensure that the parent company 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 wwwpremieroilcom 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 financial statements prepared in accordance with international financial reporting standards as adopted by the eu for the
group and uk gaap for the company give a true and fair view of the assets liabilities financial position and profit or loss of the
group and company respectively and the undertakings included in the consolidation taken as a whole and
2 the business review which is incorporated into the report of the directors includes a fair review of the development and
performance of the business and the position of the group and company and the undertakings included in the consolidation
taken as a whole together with a description of the principal risks and uncertainties they face
by order of the board
s c lockett a r c durrant
chief executive finance director
24 march 2010 24 march 2010 51
premier oil plc 2009 annual report and financial statements
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 north sea and west africa asia and
middle eastpakistan
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
the following standards amendments and interpretations to published standards were adopted by the group for the financial year
beginning 1 january 2009
• ifrs 8 – ‘operating segments’ ifrs 8 replaces ias 14 – ‘segment reporting’ it requires a ‘management approach’ under which
segment information is presented on the same basis as that used for internal reporting purposes this has not resulted in a
change in the number of reportable segments presented operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decisionmaker
• ias 1 revised 2007 – ‘presentation of financial statements’ the revised standard requires the separate presentation of owner
and nonowner changes in equity by introducing the statement of comprehensive income the statement of total recognised
income and expense is no longer presented whenever there is a restatement or reclassification an additional balance sheet as
at the beginning of the earliest period presented will be required to be published there was no effect on the group’s reported
income or net assets as a result of the adoption of this revised standard
• ias 23 revised 2007 – ‘borrowing costs’ the amended standard requires borrowing costs related to the acquisition
construction or production of a qualifying asset to be capitalised as part of the cost of the asset all other borrowing costs should
be expensed as incurred the adoption of this standard has not had any impact on the accounting policies applied by the group
• improving disclosures about financial instruments amendments to ifrs 7 – ‘financial instruments disclosures’ the
amendments to ifrs 7 expand the disclosures required in respect of fair value measurements and liquidity risk the group has
elected not to provide comparative information for these expanded disclosures in the current year in accordance with the
transitional reliefs offered in these amendments
• ‘classification of rights issues – amendment to ias 32’ the amendment is effective for annual periods beginning on or after
1 february 2010 with early adoption permitted the group has elected to adopt the amendment in advance of the effective
date and as required by ias 8 – ‘accounting policies changes in accounting estimates and errors’ has applied the amendment
retrospectively the amendment requires that rights issues options or warrants to acquire a fixed number of the entity’s own
equity instruments for a fixed amount of any currency are equity instruments if the entity offers the rights issues options or
warrants pro rata to all of its existing owners of the same class of its own nonderivative equity instruments the offer of rights by
premier oil plc to its shareholders on 25 march 2009 was accounted for as an equity instrument as required by the amendment
in the consolidated financial statements of the group
at the date of authorisation of these financial statements the group has not applied the following standards and interpretations
which are in issue but not yet effective
• ifrs 1 amendedias 27 amended – ‘cost of an investment in a subsidiary jointly controlled entity or associate’
• ifrs 3 revised 2008 – ‘business combinations’
• ias 27 revised 2008 – ‘consolidated and separate financial statements’
• ias 28 revised 2008 – ‘investments in associates’
• ifric 17 ‘distributions of noncash assets to owners’
• improvements to ifrss april 2009
the directors do not expect that the adoption of these standards and interpretations in future periods will have a material impact on
the financial statements of the group
basis of accounting
the financial statements have been prepared in accordance with ifrss as endorsed by the council of the european union
the financial statements are prepared under the historical cost convention except for the revaluation of financial instruments and
certain oil and gas properties at the transition date to ifrs
the financial statements have been prepared on the going concern basis further information relating to the going concern
assumption is provided in the report of the directors
the principle accounting policies adopted are set out on the following pages
accounting policies 52
premier oil plc 2009 annual report and financial statements
accounting policies continued
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 where the company has the power to govern the financial
and operating policies of an investee entity so as to obtain benefits from its activities
on acquisition the assets liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition
any excessdeficiency of the cost of acquisition overbelow the fair values of the identifiable net assets acquired is recognised as
goodwillexcess of fair value over cost the interest of minority shareholders is stated at the minority’s proportion of the fair values of
the assets and liabilities recognised
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
interest in associates
an associate is an entity in which the group has a longterm equity interest and over which it has significant influence but not control
through participation in the financial and operating policy decisions of the investee
the results assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting
interests in associates are carried in the balance sheet at cost as adjusted by postacquisition changes in the group’s share of the net
assets of the associate less any impairment in the value of individual investments any excessdeficiency of the cost of acquisition
overbelow the group’s share of the net fair values of the identifiable assets liabilities and contingent liabilities of the associate at the
date of acquisition is recognised as goodwillexcess of fair value over cost
where a group entity transacts with an associate of the group unrealised profits and losses are eliminated to the extent of the group’s
interest in the relevant associate
interest in joint ventures
a joint venture is a contractual arrangement whereby the group and other parties undertake an economic activity that is subject to
joint control
where a group company undertakes its activities under joint venture arrangements directly the group’s share of jointly controlled
assets and any liabilities incurred jointly with other venturers are recognised in the financial statements of the relevant company and
classified according to their nature
liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis
income from the sale or use of the group’s share of the output of jointly controlled assets and its share of joint venture expenses
are recognised when it is probable that the economic benefits associated with the transactions will flow tofrom the group and their
amount can be measured reliably
joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to
as jointly controlled entities the group reports its interests in jointly controlled entities using proportionate consolidation – the
group’s share of the assets liabilities income and expenses of jointly controlled entities are combined with the equivalent items in the
consolidated financial statements on a linebyline basis
where the group transacts with its jointly controlled entities unrealised profits and losses are eliminated to the extent of the group’s
interest in the joint venture
sales revenue and other income
sales of petroleum production are recognised when goods are delivered or the title has passed to the customer
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
oil and gas assets
the company applies the successful efforts method of accounting for exploration and evaluation ee 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 53
premier oil plc 2009 annual report and financial statements
oil and gas assets continued
prelicence costs
costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they
are incurred
exploration and evaluation costs
costs of ee are initially capitalised as ee 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 ee assets
tangible assets used in ee activities such as the company’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 ee 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 ee activities together with the cost of other materials consumed
during the exploration and evaluation phases
ee costs are not amortised prior to the conclusion of appraisal activities
treatment of ee assets at conclusion of appraisal activities
intangible ee assets related to each exploration licenceprospect 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 ee assets is then
reclassified as development and production assets if however commercial reserves have not been found the capitalised costs
are charged to expense after conclusion of appraisal activities
b development and production assets
development and production assets are accumulated generally on a fieldbyfield basis and represent the cost of developing the
commercial reserves discovered and bringing them into production together with the ee expenditures incurred in finding
commercial reserves transferred from intangible ee assets as outlined in accounting policy a above
the cost of development and production assets also includes the cost of acquisitions and purchases of such assets directly
attributable overheads finance costs capitalised and the cost of recognising provisions for future restoration and decommissioning
depreciation of producing assets
the net book values of producing assets are depreciated generally on a fieldbyfield basis using the unitofproduction method
by reference to the ratio of production in the year and the related commercial 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
pipelines are depreciated on a unitofthroughput basis
c impairment of development and production assets
an impairment test is performed whenever events and circumstances arising during the development or production phase
indicate that the carrying value of a development or production asset 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 flows of each field are interdependent
any impairment identified is charged to the income statement as additional depreciation 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 under the purchase method where the transaction meets the definition
of a business combination
transactions involving the purchase of an individual field interest or a group of field interests that do not qualify as a business
combination are treated as asset purchases irrespective of whether the specific transactions involved 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 development and production assets
disposed of and any surplus is recorded as a gain on disposal in the income statement 54
premier oil plc 2009 annual report and financial statements
accounting policies continued
inventories
inventories except for petroleum products are valued at the lower of cost and net realisable value petroleum products and under
and overlifts of crude oil are recorded at net realisable value under inventories and other debtors or creditors respectively
tax
income tax expense represents the sum of the tax currently payable and deferred tax 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 and is accounted for using the
balance sheet liability method deferred tax liabilities are generally 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 goodwillexcess 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
deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised
deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to equity in
which case the deferred tax is also dealt with in equity deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off corporation tax assets against corporation 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 nonmonetary 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 nonmonetary assets held at historic cost
are translated at the date of purchase and are not retranslated
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 classified as equity and transferred to the group’s translation reserve such translation differences are
recognised as income or as expenses in the year in which the operation is disposed of
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 past
service cost is also recognised immediately to the extent that the benefits are already vested and otherwise is amortised on a
straightline basis over the average period until the benefits become vested
the retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as
adjusted for unrecognised past service cost and as reduced by the fair value of plan assets any asset resulting from this calculation is
limited to unrecognised past service cost plus 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 straightline basis over the lease term 55
premier oil plc 2009 annual report and financial statements
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 their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts
bank borrowings
interestbearing 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 to 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
trade payables
trade payables are stated at their nominal value
derivative financial instruments
the group uses derivative financial instruments derivatives to manage its exposure to changes in foreign currency exchange rates
interest rates and oil price fluctuations
all derivative financial instruments are initially recorded at cost including transaction costs derivatives are subsequently carried at fair
value apart from those derivatives designated as qualifying cash flow hedging instruments all changes in fair value are recorded as
financial income or expense in the year in which they arise
for the purposes of hedge accounting hedging relationships may be of three types fair value hedges are hedges of particular risks
that may change the fair value of a recognised asset or liability cash flow hedges are hedges of particular risks that may change the
amount or timing of future cash flows hedges of net investment in a foreign entity are hedges of particular risks that may change the
carrying value of the net assets of a foreign entity
t o qualify for hedge accounting the hedging relationship must meet several strict conditions on documentation probability of occurrence
hedge effectiveness and reliability of measurement if these conditions are not met then the relationship does not qualify for hedge
accounting in this case the hedging instrument and the hedged item are reported independently as if there were no hedging
relationship in particular any derivatives are reported at fair value with changes in fair value included in financial income or expense
for qualifying fair value hedges the hedging instrument is recorded at fair value and the hedged item is recorded at its previous
carrying value adjusted for any changes in fair value that are attributable to the hedged risk any changes in the fair values are
reported in financial income or expense
for qualifying cash flow hedges the hedging instrument is recorded at fair value the portion of any change in fair value that is an
effective hedge is included in equity and any remaining ineffective portion is reported in financial income if the hedging relationship
is the hedge of a firm commitment or highly probable forecasted transaction the cumulative changes of fair value of the hedging
instrument that have been recorded in equity are included in the initial carrying value of the asset or liability at the time it is
recognised for all other qualifying cash flow hedges the cumulative changes of fair value of the hedging instrument that have been
recorded in equity are included in financial income at the time when the forecasted transaction affects net income
for qualifying hedges of net investment in a foreign entity the hedging instrument is recorded at fair value the portion of any
change in fair value that is an effective hedge is included in equity
any remaining ineffective portion is recorded in financial income or expense where the hedging instrument is a derivative and in
equity in other cases if the entity is disposed of then the cumulative changes of fair value of the hedging instrument that have been
recorded in equity are included in financial income at the time of the disposal
derivatives embedded in other financial instruments or nonderivative host contracts are treated as separate derivatives when their
risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with
unrealised gains or losses reported in the income statement embedded derivatives which are closely related to host contracts
including in particular price caps and floors within the group’s oil sales contracts are not separated and are not carried at fair value
fair value is the amount for which a financial asset liability or instrument could be exchanged between knowledgeable and willing
parties in an arm’s length transaction 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
cash and cash equivalents
cash comprises cash in hand and deposits repayable on demand less overdrafts payable on demand cash equivalents comprise
funds held in term deposit accounts with a maturity not exceeding three months 56
premier oil plc 2009 annual report and financial statements
accounting policies continued
sharebased payments
the group has applied the requirements of ifrs 2 – ‘sharebased payment’ in accordance with the transitional provisions ifrs 2 has
been applied to all grants of equity instruments after 7 november 2002 that were unvested at 1 january 2005
the group issues equitysettled and cashsettled sharebased payments to certain employees equitysettled sharebased payments
are measured at fair value excluding the effect of non marketbased vesting conditions at the date of grant the fair value
determined at the grant date of the equitysettled sharebased payments is expensed on a straightline basis over the vesting period
based on the group’s estimate of shares that will eventually vest and adjusted for the effect of non marketbased vesting conditions
fair value is measured by use of the monte carlo simulation the main assumptions are provided in note 19
a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each balance
sheet date for cashsettled sharebased payments
convertible bonds
the net proceeds received from the issue of convertible bonds are split between a liability element and an equity component at the
date of issue the fair value of the liability component is estimated using the prevailing market interest rate for similar non
convertible debt the difference between the proceeds of issue of the convertible bonds and the fair value assigned to the liability
component representing the embedded option to convert the liability into equity of the group is included in equity and is not re
measured the liability component is carried at amortised cost
issue costs are apportioned between the liability and equity components of the convertible bonds based on their relative carrying
amounts at the date of issue the portion relating to the equity component is charged directly against equity
the interest expense on the liability component is calculated by applying the prevailing market interest rate at the time of issue for
similar nonconvertible debt to the liability component of the instrument the difference between this amount and the interest paid is
added to the carrying amount of the convertible bonds
critical accounting judgements and key sources of estimation uncertainty
details of the group’s significant accounting judgements and critical accounting estimates are set out in these financial statements
and include
• carrying value of intangible exploration and evaluation assets note 8
• carrying value of property plant and equipment note 9
• proved and probable reserves estimates note 9
• decommissioning costs note 16
• derivative financial instruments note 17
• sharebased payments note 19
• pensions note 23 and
• acquisition of subsidiaries note 25 57
premier oil plc 2009 annual report and financial statements
independent auditors’ report to the members
of premier oil plc
we have audited the group financial statements of premier oil plc for the year ended 31 december 2009 which comprise the
consolidated income statement the consolidated statement of comprehensive income the consolidated balance sheet
the consolidated statement of changes in equity the consolidated cash flow statement and the related notes 1 to 25 the financial
reporting framework that has been applied in their preparation is applicable law and international financial reporting standards
ifrss as adopted by the european union
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
respective responsibilities of directors and auditors
as explained more fully in the statement of directors’ responsibilities the directors are responsible for the preparation of the group
financial statements and for being satisfied that they give a true and fair view our responsibility is to audit the group financial
statements in accordance with applicable law and international standards on auditing uk and ireland those standards require us to
comply with the auditing practices board’s ethical standards for auditors
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement whether caused by fraud or error this includes an
assessment of whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and
adequately disclosed the reasonableness of significant accounting estimates made by the directors and the overall presentation of
the financial statements
opinion on financial statements
in our opinion the group financial statements
• give a true and fair view of the state of the group’s affairs as at 31 december 2009 and of its profit for the year then ended
• have been properly prepared in accordance with ifrss as adopted by the european union and
• have been prepared in accordance with the requirements of the companies act 2006 and article 4 of the ias regulation
opinion on other matter prescribed by the companies act 2006
in our opinion the information given in the report of the directors for the financial year for which the group financial statements are
prepared is consistent with the group financial statements
matters on which we are required to report by exception
we have nothing to report in respect of the following
under the companies act 2006 we are required to report to you if in our opinion
• 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
under the listing rules we are required to review
• the directors’ statement contained within the report of the directors in relation to going concern and
• the part of the corporate governance report relating to the company’s compliance with the nine provisions of the june 2008
combined code specified for our review
other matter
we have reported separately on the parent company financial statements of premier oil plc for the year ended 31 december 2009
and on the information in the remuneration report that is described as having been audited
matthew donaldson senior statutory auditor
for and on behalf of deloitte llp
chartered accountants and statutory auditors
london
united kingdom
24 march 2010
financial statements 58
premier oil plc 2009 annual report and financial statements
consolidated income statement
for the year ended 31 december 2009
2009 2008
note  million  million
sales revenues 1 6211 6552
cost of sales 2 3614 3176
exploration expense 8 570 429
prelicence exploration costs 203 158
acquisition of subsidiaries 25 56 –
general and administration costs 183 172
operating profit 1697 2617
interest revenue finance and other gains 5 157 146
finance costs and other finance expenses 5 444 270
mark to market revaluation of commodity hedges 17 611 283
profit before tax 799 2776
tax 6 331 1793
profit after tax 1130 983
earnings per share cents
basic 7 1041 990
diluted 7 1039 982
the results relate entirely to continuing operations
consolidated statement of comprehensive income
for the year ended 31 december 2009
2009 2008
note  million  million
profit for the year 1130 983
cash flow hedges – losses arising during the year
on commodity swaps 17 98 –
on interest rate swaps 17 08 –
exchange differences on translation of foreign operations 87 56
actuarial losses on longterm employee benefit plans 23 35 21
total comprehensive income for the year 1076 906 59
premier oil plc 2009 annual report and financial statements
consolidated balance sheet
as at 31 december 2009
2009 2008
note  million  million
noncurrent assets
intangible exploration and evaluation assets 8 2316 1579
property plant and equipment 9 13860 7674
deferred tax asset 18 1906 58
18082 9311
current assets
inventories 353 146
trade and other receivables 12 4457 1812
cash and cash equivalents 17 2506 3237
7316 5195
total assets 25398 14506
current liabilities
trade and other payables 13 4197 2028
current tax payable 465 738
4662 2766
net current assets 2654 2429
noncurrent liabilities
convertible bonds 14 2101 2027
other longterm debt 14 3372 –
deferred tax liabilities 18 1798 1888
longterm provisions 16 3076 1432
longterm employee benefit plan deficit 23 135 68
deferred revenue 17 541 336
11023 5751
total liabilities 15685 8517
net assets 9713 5989
equity and reserves
share capital 19 970 736
share premium account 2237 97
retained earnings 6032 4729
capital redemption reserve 43 17
translation reserves 71 16
equity reserve 360 426
9713 5989
the financial statements were approved by the board of directors and authorised for issue on 24 march 2010
they were signed on its behalf by
s c lockett
a r c durrant
directors consolidated statement of changes in equity
for the year ended 31 december 2009
60
premier oil plc 2009 annual report and financial statements
share capital
share premium retained redemption translation equity
capital account earnings reserve reserves reserve total
note  million  million  million  million  million  million  million
at 1 january 2008 735 94 4155 17 40 488 5529
issue of ordinary shares 01 03 – – – – 04
purchase of shares for esop trust – – 179 – – – 179
purchase of own shares – – 472 – – – 472
provision for sharebased payments 19 – – 201 – – – 201
transfer between reserves – – 62 – – 62 –
total comprehensive income – – 962 – 56 – 906
at 31 december 2008 736 97 4729 17 16 426 5989
issue of ordinary shares 260 2262 – – – – 2522
expenses of issue of ordinary shares – 122 – – – – 122
cancellation of ordinary shares 26 – – 26 – – –
purchase of shares for esop trust – – 25 – – – 25
provision for sharebased payments 19 – – 273 – – – 273
transfer between reserves – – 66 – – 66 –
total comprehensive income – – 989 – 87 – 1076
at 31 december 2009 970 2237 6032 43 71 360 9713
 the transfer between reserves relates to the noncash interest on the convertible bonds less the amortisation of the issue costs that were charged directly
against equity 61
premier oil plc 2009 annual report and financial statements
consolidated cash flow statement
for the year ended 31 december 2009
2009 2008
note  million  million
net cash from operating activities 21 3477 3523
investing activities
capital expenditure 3031 2173
prelicence exploration costs 203 158
acquisition of subsidiaries 25 5742 –
acquisition of oil and gas properties 839 –
proceeds from disposal of oil and gas properties 148 31
net cash used in investing activities 9667 2300
financing activities
issue of ordinary shares 2522 04
expenses of issue of ordinary shares 122 –
purchase of shares for esop trust 25 179
purchase of own shares – 472
loan drawdowns 3530 –
debt arrangement fees 256 –
repayment of longterm financing – 530
interest paid 212 109
net cash fromused in financing activities 5437 1286
currency translation differences relating to cash and cash equivalents 22 20
net decrease in cash and cash equivalents 731 83
cash and cash equivalents at the beginning of the year 3237 3320
cash and cash equivalents at the end of the year 21 2506 3237 notes to the consolidated financial statements
for the year ended 31 december 2009
62
premier oil plc 2009 annual report and financial statements
1 geographical segments
the group’s operations are located and managed in three regional business units – north sea and west africa asia and middle
eastpakistan these geographical segments are the basis on which the group reports its primary segmental information sales
revenue represents amounts invoiced exclusive of salesrelated taxes for the group’s share of oil and gas sales
2008
2009 restated
 million  million
revenue
north sea and west africa 3517 3245
asia 1464 2036
middle eastpakistan 1230 1271
total group sales revenue 6211 6552
interest and other finance revenue 22 125
total group revenue 6233 6677
group operating profitloss
north sea and west africa 314 894
asia 759 1020
middle eastpakistan 765 860
unallocated 141 157
group operating profit 1697 2617
interest revenue finance and other gains 157 146
finance costs and other finance expenses 444 270
mark to market revaluation of commodity hedges 611 283
profit before tax 799 2776
tax 331 1793
profit after tax 1130 983
balance sheet
segment assets
north sea and west africa 12498 4421
asia 8226 5278
middle eastpakistan 1359 1463
unallocated 3315 3344
total assets 25398 14506
liabilities
north sea and west africa 4591 3014
asia 2677 1660
middle eastpakistan 1031 602
unallocated 7386 3241
total liabilities 15685 8517
other information
capital additions and acquisitions
north sea and west africa 6376 892
asia 2666 1052
middle eastpakistan 261 296
total capital additions and acquisitions 9303 2240
depreciation depletion amortisation and impairment
north sea and west africa 1318 953
asia 314 278
middle eastpakistan 176 175
total depreciation depletion amortisation and impairment 1808 1406
 the group’s west africa operations were combined with the north sea business unit at the beginning of 2009 accordingly the 2008 segmental information
has been represented to reflect this
 unallocated expenditure assets and liabilities include amounts of a corporate nature and not specifically attributable to a geographical segment
these items include cash mark to market valuations of commodity hedges convertible bonds and other longterm debt 63
premier oil plc 2009 annual report and financial statements
2 cost of sales
2009 2008
note  million  million
operating costs 1967 1271
stock overliftunderlift movement 311 331
royalties 150 168
amortisation and depreciation of property plant and equipment
oil and gas properties 9 1552 1072
other fixed assets 9 16 15
impairment of oil and gas properties 9 240 319
3614 3176
3 auditors’ remuneration
2009 2008
 million  million
audit fees
fees payable to the company’s auditors for the company’s annual report 05 05
audit of the company’s subsidiaries pursuant to legislation 02 02
07 07
nonaudit fees
other services pursuant to legislation – interim review 02 01
tax services 11 07
services related to acquisition of subsidiaries 19 –
other services 01 03
33 11
 services related to acquisition of subsidiaries comprised financial due diligence us04 million tax due diligence us06 million and reporting
accountants’ services us09 million
4 staff costs
2009 2008
 million  million
staff costs including executive directors
wages and salaries 1075 776
social security costs 35 28
pension costs
defined contribution 20 22
defined benefit 10 15
1140 841
 the 2008 staff costs have been restated to reflect a reclassification of employee categories during 2009 and the inclusion of offshore staff
a portion of the group’s staff costs above are recharged to the joint venture partners or capitalised where they are directly
attributable to capital projects the above costs include sharebased payments to employees as disclosed in note 19
2009 2008
average number of employees during the year
technical and operations 335 306
management and administration 173 162
508 468
 staff numbers include executive directors the 2008 employee numbers have been restated to reflect a reclassification of employee categories during 2009
and the inclusion of offshore staff 64
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009
5 interest revenue and finance costs
2009 2008
note  million  million
interest revenue finance and other gains
shortterm deposits 16 109
mark to market valuation of foreign exchange contracts 28 –
profit on disposal of oil and gas properties 93 –
others 06 16
exchange differences 14 21
157 146
finance costs and other finance expenses
bank loans and overdrafts 159 30
payable in respect of convertible bonds 14 146 142
unwinding of discount on decommissioning provision 87 58
longterm debt arrangement fees 105 08
mark to market valuation of foreign exchange contracts – 25
others 01 07
gross finance costs and other finance expenses 498 270
interest capitalised during the year 54 –
444 270
6 tax
2009 2008
 million  million
current tax
uk corporation tax on profits 234 475
uk petroleum revenue tax 232 340
overseas tax 730 1116
adjustments in respect of previous periods 246 02
total current tax 482 1929
deferred tax
uk corporation tax 671 09
uk petroleum revenue tax 236 76
overseas tax 94 69
total deferred tax 813 136
tax on profit on ordinary activities 331 1793
the tax charge for the year can be reconciled to the profit per the income statement as follows
2009 2008
 million  million
group profit on ordinary activities before tax 799 2776
group profit on ordinary activities before tax at 599 weighted average rate 2008 610 479 1693
tax effects of
incomeexpenses that are not taxabledeductible in determining taxable profit 105 55
tax and tax credits not related to profit before tax including uk petroleum revenue tax 192 43
unrecognised tax losses 407 87
utilisation and recognition of tax losses not previously recognised 1356 15
adjustment in respect of previous periods 193 16
effect of change in tax rates 272 –
timing differences for which deferred tax not recognised 357 –
tax creditexpense for the year 331 1793
effective tax rate for the year 414 646 65
premier oil plc 2009 annual report and financial statements
6 tax continued
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 yearonyear relates to the mix of profit and loss in each
jurisdiction the standard tax rate of uk ring fence profits is 50 per cent
there are no significant unrecognised temporary differences associated with undistributed profits of subsidiaries associates
and joint ventures the amount of unused tax losses for which no deferred tax asset is recognised in the balance sheet in the
absence of suitable ring fence and nonring fence forecast profits is us3671 million in the uk 2008 us68 million this gives
rise to a potential deferred tax asset of us1633 million 2008 us19 million
7 earnings per share
the calculation of basic earnings per share is based on the profit after tax and on the weighted average number of ordinary
shares in issue during the year the denominators for the purposes of calculating both basic and diluted earnings per share for
the prior year have been adjusted to reflect the bonus element related to the rights issue in 2009
basic and diluted earnings per share are calculated as follows
weighted average
profit after tax number of shares earnings per share
2008 2008
2009 2008 2009 restated 2009 restated
 million  million million million cents cents
basic 1130 983 1086 993 1041 990
outstanding share options – – 02 08  
diluted 1130 983 1088 1001 1039 982
 the inclusion of the outstanding share options in the 2009 and 2008 calculations produces a diluted earnings per share the outstanding share options
number includes any expected additional share issues due to future sharebased payments at 31 december 2009 9337340 2008 restated 9337340
potential ordinary shares in the company that are underlying the company’s convertible bonds and that may dilute earnings per share in the future have not
been included in the calculation of diluted earnings per share because they are antidilutive for the year to 31 december 2009
in accordance with ias 33 – ‘earnings per share’ the comparatives have been restated to take into account the rights issue by the
company during 2009
8 intangible exploration and evaluation ee assets
oil and gas properties
north sea and middle east
west africa asia pakistan total
 million  million  million  million
cost
at 1 january 2008 643 890 – 1533
exchange movements 76 – – 76
additions during the year 525 428 25 978
transfer to tangible fixed assets – 408 19 427
exploration expenditure written off 151 272 06 429
at 1 january 2009 941 638 – 1579
exchange movements 112 – – 112
additions during the year 599 579 42 1220
transfer to tangible fixed assets 02 11 12 25
exploration expenditure written off 411 129 30 570
at 31 december 2009 1239 1077 – 2316
the amounts for intangible ee 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 the outcome of ongoing exploration and therefore whether the carrying
value of ee assets will ultimately be recovered is inherently uncertain 66
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009
9 property plant and equipment
oil and gas properties
north sea and middle east other
west africa asia pakistan fixed assets total
 million  million  million  million  million
cost
at 1 january 2008 5524 4246 1468 90 11328
exchange movements – – – 13 13
additions during the year 342 621 270 29 1262
disposals – – – 09 09
transfer from intangible fixed assets – 408 19 – 427
at 1 january 2009 5866 5275 1757 97 12995
exchange movements – – – 08 08
acquisitions 4865 839 –– 5704
additions during the year 885 1247 216 31 2379
disposals – 78 50 01 129
transfer from intangible fixed assets 02 11 12 – 25
at 31 december 2009 11618 7294 1935 135 20982
amortisation and depreciation
at 1 january 2008 2057 1021 794 61 3933
exchange movements – – – 11 11
charge for the year 624 274 174 15 1087
impairment loss 319 – – – 319
disposals – – – 07 07
at 1 january 2009 3000 1295 968 58 5321
exchange movements – – – 06 06
charge for the year 1064 313 175 16 1568
impairment loss 240 – – – 240
disposals – – 12 01 13
at 31 december 2009 4304 1608 1131 79 7122
net book value
at 31 december 2008 2866 3980 789 39 7674
at 31 december 2009 7314 5686 804 56 13860
other fixed assets include items such as leasehold improvements motor vehicles and office equipment
the impairment loss relates to the chinguetti field in mauritania the impairment charge was calculated by reference to an
assessment of the future discounted cash flows expected to be derived from production of commercial reserves measured
against the carrying value of the asset the future cash flows are discounted using a pretax discount rate of 10 per cent
estimates involved in impairment measurement include estimates of commercial reserves future oil and gas prices costs and
timing which are inherently uncertain
amortisation and depreciation for oil and gas properties is calculated on a unitofproduction 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 fieldbyfield 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 67
premier oil plc 2009 annual report and financial statements
10 investments
principal subsidiary undertakings
the company has investments in the following 100 per cent owned subsidiaries which principally affected the profits or net assets
of the group to avoid a statement of excessive length details of investments which are not significant have been omitted
country of incorporation
name of company business and area of operation or registration
premier oil group ltd intermediate holding company uk scotland
premier oil finance jersey ltd convertible bond issuing company jersey jersey
premier oil holdings ltd intermediate holding company uk england and wales
premier oil overseas bv intermediate holding company netherlands netherlands
premier oil uk ltd exploration production and development uk scotland
premier oil exploration ltd exploration production and development uk scotland
premier oil natuna sea bv exploration production and development indonesia netherlands
premier oil kakap bv exploration production and development indonesia netherlands
premier oil sumatra north bv exploration production and development indonesia netherlands
premier oil pakistan holdings bv intermediate holding company netherlands netherlands
pkp exploration ltd exploration production and development pakistan england and wales
pkp kadanwari 2 ltd exploration production and development pakistan cayman islands
pkp kirthar 2 bv exploration production and development pakistan netherlands
premier oil vietnam offshore bv exploration production and development vietnam netherlands
premier oil vietnam llc exploration production and development vietnam united states of america
premier oil norge as exploration production and development norway norway
 held directly by premier oil plc all other companies are held through subsidiary undertakings
 formerly premier pict petroleum ltd
11 investments in joint ventures
the group accounts for its 49 per cent share in premco energy projects company llc premco and its 50 per cent share in
premco energy projects bv prembv using proportionate consolidation the remaining 51 per cent interest in premco and
50 per cent interest in prembv are owned by emirates international investment company llc eiic
the following amounts are included in the group financial statements as a result of the proportionate consolidation of premco
and prembv
2009 2008
 million  million
noncurrent assets 02 –
current assets
trade and other receivables 03 –
cash and cash equivalents 02 02
current liabilities
trade and other payables 04 20
net assetsliabilities 03 18
included in the consolidated income statement are the results for the group’s share of jointly controlled entities with prelicence
exploration costs at us07 million 2008 us20 million loss before tax us08 million 2008 us20 million tax charge usnil
2008 usnil and loss after tax us08 million 2008 us20 million 68
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009
12 trade and other receivables
2009 2008
note  million  million
trade receivables 1062 965
other receivables 1982 272
mark to market valuation of commodity hedges 17 809 107
prepayments 83 122
tax recoverable 521 346
4457 1812
 included within other receivables is an amount of us702 million held in an abandonment trust 2008 usnil and income accruals totalling us426 million
2008 usnil
 the recoverable tax balance includes advance payments of overseas corporation taxes totalling us124 million 2008 us188 million
the carrying values of the trade and other receivables are equal to their fair value as at the balance sheet date
13 trade and other payables
2009 2008
note  million  million
trade payables 565 503
accrued expenses 1750 1001
other payables 371 345
mark to market valuation of commodity hedges 17 1371 140
shortterm provisions 140 39
4197 2028
the carrying values of the trade and other payables are equal to their fair value as at the balance sheet date
14 borrowings
2009 2008
note  million  million
amounts falling due in two to five years
other longterm debt – bank loans 17 3530 –
convertible bonds 2132 –
amounts falling due over five years
convertible bonds – 2064
total borrowings 5662 2064
cash
cash at bank and in hand 128 115
shortterm deposits 2378 3122
total cash 2506 3237
 the carrying values of the convertible bonds and the other longterm debt on the balance sheet are stated net of the unamortised portion of the issue costs
of us31 million 2008 us37 million and debt arrangement fees of us158 million 2008 usnil respectively
the borrowings are repayable as follows
2009 2008
 million  million
borrowings analysed by maturity
bank loans – in the third year 3530 –
convertible bonds – in the fifth year 2008 sixth year 2132 2064
total borrowings 5662 2064
the group’s principal credit facilities were renegotiated in 2009 to comprise a us388 million revolving credit facility a £60 million
us972 million letter of credit facility and a us175 million term loan and us130 million revolving credit facility all maturing in
march 2012 2008 us275 million and £53 million us77 million 69
premier oil plc 2009 annual report and financial statements
14 borrowings continued
convertible bonds
in june 2007 the group issued bonds at a par value of us250 million which are convertible into ordinary shares of the company
at any time from 6 august 2007 until six days before their maturity date of 27 june 2014
at the initial conversion price of £1582 per share there were 8003434 ordinary shares of the company underlying the bonds
in april 2009 the conversion price was adjusted from £1582 per share to £1356 per share as a result of the company’s 4 for 9
rights issue of new ordinary shares at the adjusted conversion price of £1356 per share there are 9337340 ordinary shares
of the company underlying the bonds
if the bonds have not been previously purchased and cancelled redeemed or converted they will be redeemed at par value on
27 june 2014 interest of 2875 per cent per annum will be paid semiannually in arrears up to that date
the net proceeds received from the issue of the convertible bonds were split between a liability element and an equity
component at the date of issue the fair value of the liability component was estimated using the prevailing market interest rate
for similar nonconvertible debt the difference between the proceeds of issue of the convertible bonds and the fair value
assigned to the liability component representing the embedded option to convert the liability into equity of the group was
included in equity reserves
issue costs were apportioned between the liability and equity components of the convertible bonds based on their relative
carrying amounts at the date of issue the portion relating to the equity component was charged directly against equity
2009 2008
 million  million
liability component at 1 january 2027 1956
interest charged 146 142
interest paid 72 71
total liability component at 31 december 2101 2027
the total interest charged for the year has been calculated by applying an effective annual interest rate of 673 per cent
2008 673 per cent to the liability component for the period since the bonds were issued the noncash accrual of interest
will increase the liability component as the cash interest is only paid at 2875 per cent to us250 million at maturity
there is no material difference between the carrying amount of the liability component of the convertible bonds and their fair
value this fair value is calculated by discounting the future cash flows at the market rate
15 obligations under leases
2009 2008
 million  million
minimum lease payments under operating leases recognised as an expense in the year 66 84
outstanding commitments for future minimum lease payments under noncancellable
operating leases which fall due as follows
within one year 67 49
in two to five years 1830 151
over five years 861 09
2758 209
operating lease payments represent the group’s share of rentals payable by the group for fpsos and for certain of its office
properties office equipment and motor vehicles 70
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009
16 longterm provisions
2009 2008
note  million  million
asset and equity plan
at 1 january 33 58
provision in the year 42 33
reclassification of provision to creditors falling due within one year 33 58
at 31 december 42 33
decommissioning costs
at 1 january 1399 1414
acquisition of subsidiaries 25 1143 –
revision arising from
change in estimates of future decommissioning costs 244 321
exchange differences 161 394
unwinding of discount on decommissioning provision 87 58
at 31 december 3034 1399
total provisions 3076 1432
the company currently operates an asset and equity plan to reward employees for improvement in the asset value of the
business and the market value of the company over a threeyear period further details of this plan are disclosed in note 19
the decommissioning provision represents the present value of decommissioning costs relating to the uk west africa pakistan
and vietnam oil and gas interests which are expected to be incurred up to 2031 these provisions have been created based on
premier’s internal estimates and where available operator’s estimates based on the current economic environment
assumptions have been made which the management believe are 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
17 financial instruments
hedging instruments
the group’s activities expose it to financial risks of changes primarily in oil and gas prices but also foreign currency exchange
and interest rates the group uses derivative financial instruments to hedge these risk exposures the use of financial derivatives
is governed by the group’s policies and approved by the board of directors which provide written principles on the use of
financial derivatives
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 premier undertakes oil and gas price hedging
periodically within board limits to protect operating cash flow against weak prices
oil and gas hedging is undertaken with collar options swaps and embedded hedges in longterm crude offtake agreements
the embedded hedges in longterm crude offtake agreements are not fair valued as they qualify for ‘ownuse’ exemption under
ias 39 – ‘financial instruments recognition and measurement’ oil is hedged using dated brent oil price options indonesian
gas is hedged using hsfo singapore 180cst which is the variable component of the gas price
oil production
a during the year additional hedges using both collars and swaps were undertaken which both enhanced existing collars and
covered a portion of the additional production acquired from the acquisition of oilexco total premia of us125 million were
paid for the collars
b forecast production for 2010 is now 69 per cent hedged for 2011 it is 45 per cent hedged and for 2012 it is 14 per cent for
the year 2010 14 mmbbls are hedged at an average swap rate of us7563bbl in addition 324 mmbbls for each of 2010
and 2011 are hedged at a floor of us512bbl and average cap of us800bbl for 2012 18 mmbbls are hedged at an
average floor of us393bbl and an average cap of us1000bbl 71
premier oil plc 2009 annual report and financial statements
17 financial instruments continued
c two offtake agreements have been entered into in which the parameters of the above collars are embedded these
agreements are as follows
i offtake agreement effective from 1 july 2008 for four and a half years and
ii a new offtake agreement effective from 1 january 2010 for two years
these agreements have the effect of replacing the original financiallysettled hedges previously in place for the period
covered by collars
d deferred revenue of us541 million 2008 us336 million has been created due to firstday gains arising from offtake
agreements and related options this deferred revenue will be amortised over the life of each individual offtake agreement
for the year ended 31 december 2009 a total of us85 million 2008 us43 million was released to the income statement
in respect of this deferred revenue
during the year oil hedges matured generating a cash cost of us150 million 2008 us81 million an unrealised fair value loss
was calculated on the swaps for the year of us98 million 2008 usnil which has been recognised directly in equity reserves as
the swaps are 100 per cent effective under hedge accounting rules
indonesian gas production
production from 2010 to midyear 2013 is now 22 per cent hedged with a floor of us2500 per metric tonne mt and a cap of
us5000mt
during the year gas hedges matured generating a cash cost of usnil 2008 us78 million while all hedges were assessed
to be effective all movements in the fair values have been recognised in the income statement as all such movements relate
to the timevalue portion of hedges under ias 39 – ‘financial instruments recognition and measurement’
fair value of hedges
oil gas total
assetliability  million  million  million
at 1 january 2008 408 244 652
credit to income statement for 2008 297 215 512
at 1 january 2009 111 29 140
premia paid in the year 125 – 125
charge to income statement for 2009 989 269 1258
charge to reserves for 2009 98 – 98
at 31 december 2009 1073 298 1371
 us150 million of the income statement charge for the year ended 31 december 2009 has been included as a deduction against sales revenues
fair value of option
oil gas total
assetliability  million  million  million
at 1 january 2008 379 – 379
charge to income statement for 2008 272 – 272
at 1 january 2009 107 – 107
recognised in the balance sheet 290 – 290
credit to income statement for 2009 412 – 412
at 31 december 2009 809 – 809
deferred revenue
oil gas total
assetliability  million  million  million
at 1 january 2008 379 – 379
credit to income statement for 2008 43 – 43
at 1 january 2009 336 – 336
recognised in the balance sheet 290 – 290
credit to income statement for 2009 85 – 85
at 31 december 2009 541 – 541 17 financial instruments continued
the fair values which have been determined from counterparties with whom the trades have been concluded have been
recognised in the balance sheet in trade and other receivables and trade and other payables
the key variable which affects the fair value of the group’s hedge instruments is market expectations about future commodity
prices the following illustrates the sensitivity of net income and equity to a 10 per cent increase and a 10 per cent decrease
in this variable
oil gas total
increasedecrease in mark to market value  million  million  million
10 per cent increase 122 136 258
10 per cent decrease 172 112 284
interest rate risk profile of financial liabilities
during the year us150 million of longterm bank borrowings were swapped from floating rate to fixed rate at an average fixed
rate of 158 per cent interest is payable on a sixmonthly basis and receives us 3month libor on a quarterly basis which
matches the payment timing and interest basis of the longterm bank borrowings
the fair value of this option at 31 december 2009 was a liability of us08 million this has been recognised directly in equity
reserves
the interest rate profile of the financial liabilities of the group as at 31 december was
fixed rate
weighted
average
fixed rate floating rate total interest rate
 million  million  million 
2009
bank loans 1500 2030 3530 5126
convertible bonds 2500 – 2500 2875
total 4000 2030 6030 –
2008
convertible bonds 2500 – 2500 2875
total 2500 – 2500 –
the carrying values on the balance sheet of the bank loans and the convertible bonds which are stated net of debt arrangement
fees and issue costs are as follows
2009 2008
 million  million
bank loans 3372 –
convertible bonds
liability component 2101 2027
equity component 360 426
the floating rate financial liabilities at 31 december 2009 comprised bank borrowings bearing interest at rates set by reference
to us libor exposing the group to a cash flow interest rate risk
72
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009 73
premier oil plc 2009 annual report and financial statements
17 financial instruments continued
interest rate risk profile of financial assets
the interest rate profile of the financial assets of the group as at 31 december was
floating rate interest free total
 million  million  million
2009
cash and shortterm deposits
sterling 04 – 04
us 2268 91 2359
other 106 37 143
total 2378 128 2506
2008
cash and shortterm deposits
sterling 01 – 01
us 2900 65 2965
other 221 50 271
total 3122 115 3237
the floating rate cash and shortterm deposits consist of cash held in interestbearing current accounts and deposits placed on
the money markets for periods ranging from overnight to three months
the impact of foreign exchange and interest rate sensitivity analyses is immaterial to the group’s results
borrowing facilities
the group has committed borrowing facilities of us693 million and letter of credit facilities of £60 million us972 million in
addition to the convertible bonds the undrawn cash balance as at 31 december was
2009 2008
 million  million
expiring in more than one year but not more than two years – 2750
expiring in more than two years but not more than five years 3282 –
fair value of financial assets and financial liabilities
the fair values of the financial assets and financial liabilities are
2009 2009 2008 2008
carrying estimated carrying estimated
amount fair value amount fair value
 million  million  million  million
primary financial instruments held or issued to finance the
group’s operations
cash and shortterm deposits 2506 2506 3237 3237
bank loans 3530 3530 – –
liability component of convertible bonds 2132 2132 2064 2064
derivative financial instruments held or issued to hedge the
group’s exposure on expected future sales
forward foreign exchange contracts – net 02 02 29 29
fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction other than in a forced
or liquidated sale 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 realised noninterest bearing financial instruments which include amounts receivable from
customers and accounts payable are recorded materially at fair value reflecting their shortterm maturity and are not shown in
the above table 17 financial instruments continued
credit risk
the group’s credit risk is attributable to its 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 2009 and 2008 the group does not require
collateral or other security to support receivables from customers or related parties 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
the group has no significant concentration of credit risk
the ageing profile of the group’s trade and other receivables and trade and other payables as at 31 december including the
related interest amounts was
less than 2 to 3 3 months 1 to 5 over 5
1 month months to 1 year years years total
 million  million  million  million  million  million
2009
trade and other receivables 2761 232 51 –– 3044
trade and other payables 617 271 48 –– 936
convertible bonds –– 72 2752 – 2824
total 2144 39 69 2752 – 716
2008
trade and other receivables 887 298 52 – – 1237
trade and other payables 755 47 46 – – 848
convertible bonds – – 72 288 2536 2896
total 132 251 66 288 2536 2507
currency risk
to cover sterling exposures an amount of £1238 million was purchased with forward contracts during the year 2008 £1050
million premier’s activities are largely conducted in us dollars all borrowings at yearend were denominated in us dollars to
match the currency of the assets
liquidity risk
ultimate responsibility for liquidity risk management rests with the board of directors which has built an appropriate liquidity risk
management framework for the management of the group’s short medium and longterm funding and liquidity management
requirements the group manages liquidity risk by maintaining adequate reserves banking facilities and borrowing facilities by
continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities and
future capital and operating commitments
18 deferred tax
2009 2008
 million  million
deferred tax asset 1906 58
deferred tax liabilities 1798 1888
108 1830
74
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009 75
premier oil plc 2009 annual report and financial statements
18 deferred tax continued
uk uk
corporation petroleum overseas
tax revenue tax tax total
note  million  million  million  million
at 1 january 2008 27 428 1490 1945
chargedcredited to income statement 09 76 69 136
exchange differences – – 51 51
other movement – – 72 72
at 31 december 2008 36 352 1442 1830
chargedcredited to income statement 671 236 94 813
acquisition of subsidiaries 25 1408 21 – 1387
exchange differences – – 49 49
other movement – – 213 213
at 31 december 2009 2043 137 1798 108
deferred corporation tax included us68 million of deferred uk petroleum revenue tax 2008 us81 million and us1163 million
of deferred uk corporation tax 2008 us290 million related to decommissioning provisions in the uk the majority of the
remaining deferred tax balances arose as a result of temporary differences between the carrying values and tax bases of fixed
assets the other movement relates to the deferred effect of norwegian tax rebates
19 share capital
2009 2008
 million  million
balance at 1 january 736 735
shares issued in respect of rights issue nominal value 260 –
shares issued under employee share plans – 01
ordinary shares cancelled 26 –
balance at 31 december 970 736
 £12113 us19651 of ordinary shares were issued during 2009 relating to the company’s share option plans
2009 2009 2008 2008
50p shares £ 50p shares £
ordinary shares
authorised 315224564 157612282 315224564 157612282
calledup issued and fullypaid 114673066 57336533 82170460 41085230
the concept of authorised share capital was abolished under the companies act 2006 with effect from 1 october 2009 accordingly
amendments to the company’s articles of association will be presented to the shareholders for approval at the 2010 agm
rights issue
on 25 march 2009 the company announced its proposal to raise approximately £171 million us2522 million by way of a fully
underwritten rights issue under the proposal the company offered its shareholders the opportunity to acquire 4 new ordinary
shares for every 9 ordinary shares held at a price of 485 pence per new ordinary share the proposal was subject to
authorisation by shareholders which was obtained at a general meeting held on 20 april 2009 the offer period commenced on
21 april 2009 and closed for acceptance on 6 may 2009 dealing in the new shares began on 7 may 2009
sharebased payments
£12113 us19651 of ordinary shares were issued during 2009 relating to the company’s share option plans there has been no
new issue of shares in relation to the asset and equity plan or the long term incentive plan 19 share capital continued
share option plans
the company has share option schemes under which options to subscribe for the company’s shares have been granted to
certain executives and employees options granted are normally exercisable not less than three years after their grant and will
lapse on their tenth anniversary options cannot be exercised until predetermined performance conditions have been achieved
under the savings related share option scheme eligible employees with six months or more continuous service can join the
scheme employees can save to a maximum of £250 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
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 oneforone basis
2009 2008
weighted weighted
average average
options exercise price options exercise price
outstanding at the beginning of the year 189722 £469 418392 £385
adjustment for rights issue 44556 £426 – –
granted during the year 23190 £721 18292 £1084
lapsed during the year 12913 £926 105202 £584
exercised during the year 70082 £204 141760 £215
outstanding at the end of the year 174473 £472 189722 £469
exercisable at the end of the year 89324 £216 111750 £220
 there were 24226 ordinary shares issued under the group’s share option schemes during the year 2008 66411 the remaining 45856 ordinary shares
were issued from the premier oil plc employee benefit trust 2008 75349
the weighted average share price at the date of exercise for share options exercised during the year was £204 the options
outstanding at 31 december 2009 had a weighted average exercise price of £472 and a weighted average remaining
contractual life of 28 years
the fair value of the options granted during the year was determined using the blackscholes valuation model and is not
material
the group recognised a cost of us273 million and us201 million related to equitysettled sharebased payment transactions
in 2009 and 2008 respectively
asset and equity plan
the asset and equity plan is designed to reward employees for improvement in the asset value of the business and the market
value of the company over a threeyear period and is operated by reference to two bonus pools – an equity bonus pool and an
asset bonus pool the asset bonus pool is created by reference to the increase in the net asset value per share of the company
over a threeyear period and the equity bonus pool is created by reference to the increase in the equity market value per share of
the company over a threeyear period
full details about this plan have been provided in the remuneration report
the company uses a monte carlo simulation model to calculate the value of the equity bonus pool of the plan
the main assumptions used for the calculations are as follows
volatility 309 to 315
risk free rate of interest 44 to 49
historic market value growth factor 990 to 1090
for the asset bonus pool a discounted cash flow model based on the average oil price over the period is used to calculate the
final value of the pool and to estimate the value of future asset bonus pools
76
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009 77
premier oil plc 2009 annual report and financial statements
19 share capital continued
long term incentive plan
the long term incentive plan ltip was introduced to provide a longterm allemployee scheme which motivates all employees
and provides a longerterm perspective to the total remuneration package awards under the ltip comprise three elements
equity pool awards performance share awards that vest after the expiry of a threeyear performance period and a potential
matching award that vests at the expiry of a further threeyear performance period commencing at the end of the threeyear
performance period for equity pool and performance share awards
full details about this plan have been provided in the remuneration report
the company uses a monte carlo simulation model to calculate the value of the equity bonus pool of the plan and of the
performance share awards
the main assumptions used for the calculations are as follows
volatility 400
risk free rate of interest 33
correlation factor with comparator group 029
for the year ended 31 december 2009 the total cost recognised by the company for longterm incentive arrangements is
us461 million 2008 us256 million with a cumulative liability on the balance sheet of us284 million 2008 us163 million
a credit of us273 million has been recorded in equity 2008 us201 million for all equitysettled payments for the group like
other elements of remuneration this charge is processed through the timewriting 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 capitalised as directly
attributable to capital projects and part is charged to the income statement as operating costs prelicence exploration costs or
general and administration costs
ordinary shares
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
20 own shares
treasury esop
shares trust total
 million  million  million
at 1 january 2008 – 36 36
release of shares for longterm incentive arrangements – 50 50
acquired in the year 472 179 651
disposed of on exercise of options – 01 01
at 31 december 2008 472 164 636
release of shares for longterm incentive arrangements – 23 23
acquired in the year – 25 25
disposed of on exercise of options – 01 01
cancellation of ordinary shares 472 – 472
at 31 december 2009 – 165 165
the own shares reserve represents the cost of shares in premier oil plc purchased in the market 20 own shares continued
at 31 december 2008 the company held 2798186 ordinary shares as treasury shares all of these ordinary shares were
cancelled by the company on 23 march 2009
the esop trust shares are held by the premier oil plc employee benefit trust to satisfy options under the group’s share option
schemes the number of ordinary shares held by the premier oil plc employee benefit trust at 31 december 2009 was 1077711
2008 863339
21 notes to the cash flow statement
2009 2008
note  million  million
profit before tax for the year 799 2776
adjustments for
depreciation depletion amortisation and impairment 1808 1406
exploration expense 570 429
prelicence exploration costs 203 158
acquisition of subsidiaries 25 116 –
net operating charge for longterm employee benefit plans less contributions 02 30
provision for sharebased payments 273 201
interest revenue and finance gains 59 146
finance costs and other finance expenses 444 270
mark to market revaluation of commodity hedges 611 283
operating cash flows before movements in working capital 4535 4781
increasedecrease in inventories 103 79
increasedecrease in receivables 108 345
decreaseincrease in payables 155 217
cash generated by operations 4169 5422
income taxes paid 715 2031
interest income received 23 132
net cash from operating activities 3477 3523
analysis of changes in net debtcash
2009 2008
note  million  million
a reconciliation of net cash flow to movement in net debtcash
movement in cash and cash equivalents 731 83
proceeds from longterm loans 3530 –
repayment of longterm loans – 530
noncash movements on debt and cash balances 68 64
decreaseincrease in net cash in the year 4329 383
opening net cash 1173 790
closing net debtcash 3156 1173
b analysis of net debtcash
cash and cash equivalents 17 2506 3237
longterm debt 17 5662 2064
total net debtcash 3156 1173
 the carrying values of the convertible bonds and the other longterm debt on the balance sheet are stated net of the unamortised portion of the issue costs
of us31 million 2008 us37 million and debt arrangement fees of us158 million 2008 usnil respectively
22 capital commitments and guarantees
at 31 december 2009 the group had capital commitments on exploration and development licences totalling us2170 million
2008 us1180 million usnil as retainer fees for its alliance partners 2008 us01 million performance guarantees of
us61 million 2008 us95 million and customs guarantees of usnil 2008 us03 million
78
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009 79
premier oil plc 2009 annual report and financial statements
23 group pension schemes
2009 2008
 million  million
uk funded pension scheme 56 20
uk unfunded pension scheme 09 08
indonesia unfunded termination benefit scheme 70 40
total liability in balance sheet 135 68
funded benefit schemes
the group operates a defined benefit pension scheme in the uk – the premier oil plc retirement and death benefits plan the
scheme 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 as a consequence of being closed to new entrants the current service costs
of the scheme under the ias 19 – ‘employee benefits’ valuation will increase as the members approach retirement
the pension costs for the scheme are determined with the advice of an independent qualified actuary the most recent formal
valuation was undertaken as at 1 january 2008 using the attained age method and a marketrelated funding basis of which the
principal financial assumptions were investment return 59 per cent pa salary growth 54 per cent pa and pension increases 34
per cent pa the market value of the scheme’s assets was £149 million and on the specific method and assumptions adopted
the assets covered 91 per cent of the members’ accrued benefits based on projected pensionable salaries the current schedule
of contributions was effected in october 2008 the employer contributes at a rate of 25 per cent of pensionable salaries with no
additional monthly amounts the employer expects to contribute £98000 to the scheme in 2010
the following figures have been prepared in compliance with ias 19 – ‘employee benefits’ by an independent actuary on the
basis of membership data current as at 31 december 2009 but taking account of pension increases effected on 1 january 2010
the benefit obligations and service cost have been measured using the projected unit credit method and the pension expense
has been assessed on the basis that the group adopts the policy of fully recognising actuarial gains and losses during the period
in which they arise
the principal actuarial assumptions used were as follows
at 31 at 31
december december
2009 2008
 pa  pa
discount rate 56 60
salary growth 57 50
return on assets 49 58
price inflation 37 30
pension increases 37 30
defined benefit obligations and assets
at 31 at 31
december december
2009 2008
 million  million
value of funded benefit obligations 312 227
less fair value of scheme assets 256 207
liability in balance sheet 56 20 23 group pension schemes continued
changes in the present value of benefit obligations
2009 2008
 million  million
benefit obligation at 1 january 227 319
service cost excluding employee contributions 01 02
interest cost 15 17
benefits paid 07 10
actuarial lossesgains 49 21
currency translation effects 27 80
benefit obligation at 31 december 312 227
changes in the fair value of scheme assets
2009 2008
 million  million
assets at 1 january 207 293
employer contributions 02 30
actual return on scheme assets 32 32
benefits paid 07 10
currency translation effects 22 74
assets at 31 december 256 207
portfolio distribution and expected returns
2009 2008
expected expected
rate of return fair value rate of return fair value
 pa  million  pa  million
equities 70 95 84 67
bonds 50 115 64 80
cash 05 46 20 60
total at 31 december 49 256 58 207
pension expense
2009 2008
 million  million
service cost 02 02
interest cost 15 17
expected return on scheme assets 13 19
investment gainslosses 19 51
actuarial lossesgains 49 21
total pension expense for the year 34 30
a total loss of us34 million 2008 loss of us24 million was recognised directly in equity reserves during the year
reconciliation of balance sheet liability
2009 2008
 million  million
at 1 january 20 26
pension expense for the year 34 30
contributions paid 02 30
currency translation effects 04 06
at 31 december 56 20
80
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009 81
premier oil plc 2009 annual report and financial statements
23 group pension schemes continued
five year history of experience adjustments at 31 december
2009 2008 2007 2006 2005
 million  million  million  million  million
value of defined benefit obligation 312 227 319 314 281
fair value of scheme assets 256 207 293 280 211
deficit in the scheme 56 20 26 34 70
experience adjustments on scheme liabilities
amount – lossgain 06 01 – 06 01
percentage of scheme liabilities 2 0 0 2 0
experience adjustments on scheme assets
amount – gainloss 19 51 04 02 16
percentage of scheme assets 7 25 1 1 8
unfunded benefit schemes
in indonesia the group operates a service severance and compensation pay scheme under a collective labour agreement with
the local workforce this is an unfunded postemployment defined benefit scheme in nature
in addition the group is paying an unfunded pension to a former director of the company 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 2009 of the
future payments projected to be made in respect of uk unfunded pensions is us09 million 2008 us08 million a total loss
of us01 million 2008 gain of us03 million was recognised directly in equity reserves during the year
defined contribution benefit 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 us20 million 2008 us22 million represents contributions
payable to these schemes by the group at rates specified in the rules of the scheme
24 related party transactions
transactions between the company and its subsidiaries associates and joint ventures which are related parties have been
eliminated on consolidation and are not disclosed in this note
directors and executive remuneration
the remuneration of directors and other key members of management during the year is highlighted below further information
regarding the remuneration of individual directors is provided in the audited part of the remuneration report
2009 2008
 million  million
shortterm employee benefits 53 47
postemployment benefits 04 05
other longterm benefits 16 06
73 58
25 acquisition of subsidiaries
on 21 may 2009 the premier oil plc group through its subsidiary premier oil group ltd completed the acquisition of the entire
issued share capital of oilexco north sea ltd onsl and its whollyowned subsidiary oilexco north sea exploration ltd onsel
the group funded the acquisition and associated costs by way of
• a 4 for 9 rights issue of new ordinary shares at a price of 485 pence per share to raise gross proceeds of approximately
£171 million us2522 million
• new credit facilities consisting initially of a us175 million 18month bridge facility a us225 million threeyear revolving credit
facility and us630 million and £60 million us97 million threeyear letter of credit facilities and
• the group’s existing cash resources 25 acquisition of subsidiaries continued
onsl is an oil and gas exploration and production company active in the uk with its producing properties located in the uk
central north sea the acquisition has provided the group with a greater presence in the north sea strengthening the group’s
existing operations in that area by adding a material package of assets comprising existing producing fields development
projects of existing discovered reserves and a portfolio of exploration prospects together with high quality uk operatorship
capabilities
the transaction has been accounted for by the purchase method of accounting with an effective date of 21 may 2009 being the
date that the group gained control of onsl the fair values of the identifiable assets and liabilities have been reassessed since
the half year to reflect additional information which has become available concerning conditions that existed at the date of
acquisition in accordance with the provisions of ifrs 3 – ‘business combinations’ the final fair values together with the changes
since the half year are set out in the following table
provisional
fair values
as included in
the half yearly final
report adjustment fair values
 million  million  million
net assets acquired
property plant and equipment – oil and gas properties 5690 825 4865
deferred tax asset 1465 57 1408
current assets 923 222 1145
current liabilities 396 – 396
deferred tax liabilities 21 – 21
longterm provisions 1257 114 1143
total acquired net assets 6404 546 5858
total consideration 5741 01 5742
excess of fair value over cost 663 547 116
 total consideration also includes us630 million of cash paid by the group which is held in trust for future abandonment obligations and direct acquisition
costs of us105 million
 this excess of fair value over cost has been recognised immediately in the consolidated income statement for the year under review and has been offset
by related acquisition expenses of us60 million
the principal adjustments from the half year valuation were a reduction in the carrying value of the shelley field in oil and gas
properties recognition of additional preacquisition receivables and determination of fair value for inventories acquired on
completion
the final payments made by the group at completion amounted to us5007 million after adjusting for certain payables
receivables and other items which have occurred between the effective date and completion
onsl and onsel contributed us10 million to revenue and us240 million to profit before tax for the period between the
date of acquisition and the half yearly balance sheet date on 1 july 2009 the assets were transferred from onsl into another
group company as part of an internal restructuring of the group
if the acquisition of onsl had been completed on the first day of the financial year group sales revenues for the year would
have been us6864 million as the acquired subsidiary was in administration prior to the acquisition it is impracticable to
calculate a fair estimate of cost of sales and hence it is not possible to provide a pro forma profit before tax amount for the
combined group since 1 january 2009 similarly appropriate amounts are not available for carrying values of assets liabilities and
contingent liabilities immediately prior to the acquisition
due to the inherently uncertain nature of the oil and gas industry the assumptions underlying the final assigned values are
judgemental in nature
82
premier oil plc 2009 annual report and financial statements
notes to the consolidated financial statements continued
for the year ended 31 december 2009 83
premier oil plc 2009 annual report and financial statements
we have audited the parent company financial statements of premier oil plc for the year ended 31 december 2009 which comprise
the parent company balance sheet the parent company statement of total recognised gains and losses and the related notes 1 to 14
the financial reporting framework that has been applied in their preparation is applicable law and united kingdom accounting
standards united kingdom generally accepted accounting practice
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
respective responsibilities of directors and auditors
as explained more fully in the statement of directors’ responsibilities the directors are responsible for the preparation of the parent
company financial statements and for being satisfied that they give a true and fair view our responsibility is to audit the parent
company financial statements in accordance with applicable law and international standards on auditing uk and ireland those
standards require us to comply with the auditing practices board’s ethical standards for auditors
scope of the audit of the financial statements
an audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement whether caused by fraud or error this includes an
assessment of whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently
applied and adequately disclosed the reasonableness of significant accounting estimates made by the directors and the overall
presentation of the financial statements
opinion on financial statements
in our opinion the parent company financial statements
• give a true and fair view of the state of the parent company’s affairs as at 31 december 2009
• have been properly prepared in accordance with united kingdom generally accepted accounting practice and
• have been prepared in accordance with the requirements of the companies act 2006
opinion on other matters prescribed by the companies act 2006
in our opinion
• the part of the remuneration report to be audited has been properly prepared in accordance with the companies act 2006 and
• the information given in the report of the directors for the financial year for which the parent company financial statements are
prepared is consistent with the parent company financial statements
matters on which we are required to report by exception
we have nothing to report in respect of the following matters where 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 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
other matter
we have reported separately on the group financial statements of premier oil plc for the year ended 31 december 2009
matthew donaldson senior statutory auditor
for and on behalf of deloitte llp
chartered accountants and statutory auditors
london
united kingdom
24 march 2010
independent auditors’ report to the members
of premier oil plc 84
premier oil plc 2009 annual report and financial statements
parent company financial statements balance sheet
as at 31 december 2009
2009 2008
note  million  million
fixed assets
property plant and equipment 3 – 661
investments in subsidiaries 4 5532 5532
total fixed assets 5532 6193
current assets
debtors
amounts falling due within one year 5 01 90
amounts falling due after one year 5 172 –
deferred tax asset – due after one year – 86
total current assets 173 176
creditors amounts falling due within one year 6 285 256
net current liabilities 112 80
total assets less current liabilities 5420 6113
creditors amounts falling due after more than one year 7 – 3496
net assets excluding pension liability 5420 2617
provision for liabilities 8 21 99
pension liability 9 65 28
net assets including pension liability 5334 2490
capital and reserves
calledup share capital 11 970 736
share premium account 12 2237 97
profit and loss account 12 1566 1122
capital redemption reserve 12 43 17
equity reserve 12 518 518
total equity shareholders’ funds 13 5334 2490
the financial statements were approved by the board of directors and authorised for issue on 24 march 2010
they were signed on its behalf by
s c lockett
a r c durrant
directors
statement of total recognised gains and losses
for the year ended 31 december 2009
2009 2008
note  million  million
profit for the financial year 231 870
pension costs – actuarial losses 9 35 21
total recognised gains and losses relating to the year 196 849 85
premier oil plc 2009 annual report and financial statements
notes to the parent company financial statements
for the year ended 31 december 2009
1 significant accounting policies
basis of accounting
the separate financial statements of the company are presented as required by the companies act 2006 they have been prepared
under the historical cost convention and in accordance with applicable united kingdom accounting standards and law
the financial statements have been prepared on the going concern basis further information relating to the going concern
assumption is provided in the report of the directors
the principal accounting policies are summarised below they have all been applied consistently throughout the year and
the preceding year
investments
fixed asset investments in subsidiaries and associates are shown at cost less provision for impairment
pension costs
the company operates a defined benefit pension scheme which requires contributions to be made to a separately administered
fund the scheme was closed to new members aside from the provision of insured death in service benefits in 1997 the company
accounts for pension costs in line with financial reporting standard frs 17 – ‘retirement benefits’
the amounts charged to operating profit regarding the defined benefit scheme are the current service costs and gains and
losses on settlements and curtailments past service costs are recognised immediately in the profit and loss account if the
benefits have vested if the benefits do not vest immediately the costs are recognised over the period until vesting occurs
the interest costs and the expected return on the assets are shown as a net amount of other financial costs or credits adjacent
to interest actuarial gains and losses are recognised immediately in the statement of total recognised gains and losses
pension scheme assets are measured at fair values and liabilities are measured on an actuarial basis using the projected unit
credit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent
currency and term to the scheme liabilities
the actuarial valuations are obtained at least triennially and are updated at each balance sheet date the resulting defined benefit
asset or liability net of related deferred tax is presented separately after other net assets on the face of the balance sheet
foreign exchange
transactions denominated in foreign currencies 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 yearend are reported at the rates of
exchange prevailing at the yearend 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 profit and loss account
cash flow statement
no cash flow statement is prepared for the company under frs 1 – ‘cash flow statements’ as the cash flows of the company
have been included in the group cash flow statement of premier oil plc
related party transactions
the company has taken advantage of the exemption available under frs 8 – ‘related party disclosures’ with regard to the
nondisclosure of transactions between group companies
sharebased payments
the company has applied the requirements of frs 20 – ‘sharebased payment’ in accordance with the transitional provisions
frs 20 has been applied to all grants of equity instruments after 7 november 2002 that were unvested as of 1 january 2005
the company issues equitysettled and cashsettled sharebased payments to certain employees equitysettled sharebased
payments are measured at fair value at the date of grant the fair value determined at the grant date of the equitysettled
sharebased payments is expensed on a straightline basis over the vesting period based on the company’s estimate of shares
that will eventually vest
fair value is measured by use of the binomial model the expected life used in the model has been adjusted based on
management’s best estimate for the effects of nontransferability exercise restrictions and behavioural considerations
a liability equal to the portion of the goods or services received is recognised at the current fair value determined at each
balance sheet date for cashsettled sharebased payments
sales revenue
sales of petroleum production are recognised when goods are delivered or the title has passed to the customer
tax
current tax including uk corporation tax and foreign tax is provided at amounts expected to be paid or recovered using the
tax rates and laws that have been enacted or substantively enacted by the balance sheet date 86
premier oil plc 2009 annual report and financial statements
notes to the parent company financial statements continued
for the year ended 31 december 2009
1 significant accounting policies continued
deferred tax
deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date
where transactions or events have occurred at that date that will result in an obligation to pay more or a right to pay less or to
receive more tax with the following exceptions
• provision is made for deferred tax that would arise on remittance of the retained earnings of overseas subsidiaries associates
and joint ventures only to the extent that at the balance sheet date dividends have been accrued as receivable and
• deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will
be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted
deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing
differences reverse based on tax rates and laws enacted or substantively enacted at the balance sheet date
fixed assets
oil and gas assets
a development and production assets
development and production assets are accumulated generally on a fieldbyfield basis and represent the cost of developing
the commercial reserves discovered and bringing them into production
the cost of development and production assets also includes the cost of acquisitions and purchases of such assets directly
attributable overheads finance costs capitalised and the cost of recognising provisions for future restoration and
decommissioning
depreciation of producing assets
the net book values of producing assets are depreciated generally on a fieldbyfield basis using the unitofproduction
method by reference to the ratio of production in the period and the related commercial 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
pipelines are depreciated on a unitofthroughput basis
b impairment of development and production assets
an impairment test is performed whenever events and circumstances arising during the development or production phase
indicate that the carrying value of a development or production asset may exceed its recoverable amount
the carrying amount 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 flows of each field are interdependent
c decommissioning
provision for decommissioning is recognised in full at the commencement of oil and gas production the amount recognised
is the present value of the estimated future expenditure a corresponding tangible fixed asset is also created at an amount
equal to the provision 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 reflected as an adjustment to the provision and the fixed asset
stock and underlift
nonproduction related stocks are valued at the lower of cost or net realisable value under and overlifts of crude oil are
recorded at market value
derivative financial instruments
the company accounts for derivative financial instruments in line with frs 25 – ‘financial instruments disclosure and
presentation’ and frs 26 – ‘financial instruments recognition and measurement’
the company uses derivative financial instruments derivatives to manage its exposure to oil price fluctuations all derivatives
are initially recorded at cost including transaction costs derivatives are subsequently carried at fair value all changes in fair
value are recorded as financial income or expense in the year in which they arise
fair value is the amount for which a financial asset liability or instrument could be exchanged between knowledgeable and
willing parties in an arm’s length transaction 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 87
premier oil plc 2009 annual report and financial statements
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 premier oil plc reported a profit for the financial year ended 31 december 2009 of us231 million 2008 profit of
us870 million
the auditors’ remuneration for audit services to the company was us10000 2008 us10000
3 property plant and equipment
oil and gas
properties
north sea
 million
cost
at 1 january 2008 975
additions during the year 15
at 1 january 2009 960
additions during the year 09
disposals during the year 969
at 31 december 2009 –
amortisation and depreciation
at 1 january 2008 183
charge for the year 116
at 1 january 2009 299
charge for the year 61
disposals during the year 360
at 31 december 2009 –
net book value
at 31 december 2008 661
at 31 december 2009 –
amortisation and depreciation for oil and gas properties is calculated on a unitofproduction 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 fieldbyfield 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
on 30 june 2009 the company’s interest in the kyle field was transferred to another group company
4 fixed asset investments
2009 2008
 million  million
cost and net book value
subsidiary undertakings 5532 5532 88
premier oil plc 2009 annual report and financial statements
notes to the parent company financial statements continued
for the year ended 31 december 2009
4 fixed asset investments continued
the company has investments in the following 100 per cent owned subsidiaries which principally affected the profits or net assets
of the group to avoid a statement of excessive length details of investments which are not significant have been omitted
country of incorporation
name of company business and area of operation or registration
premier oil group ltd intermediate holding company uk scotland
premier oil finance jersey ltd convertible bond issuing company jersey jersey
premier oil holdings ltd intermediate holding company uk england and wales
premier oil overseas bv intermediate holding company netherlands netherlands
premier oil uk ltd exploration production and development uk scotland
premier oil exploration ltd exploration production and development uk scotland
premier oil natuna sea bv exploration production and development indonesia netherlands
premier oil kakap bv exploration production and development indonesia netherlands
premier oil sumatra north bv exploration production and development indonesia netherlands
premier oil pakistan holdings bv intermediate holding company netherlands netherlands
pkp exploration ltd exploration production and development pakistan england and wales
pkp kadanwari 2 ltd exploration production and development pakistan cayman islands
pkp kirthar 2 bv exploration production and development pakistan netherlands
premier oil vietnam offshore bv exploration production and development vietnam netherlands
premier oil vietnam llc exploration production and development vietnam united states of america
premier oil norge as exploration production and development norway norway
 held directly by premier oil plc all other companies are held through subsidiary undertakings
 formerly premier pict petroleum ltd
5 debtors
2009 2008
note  million  million
trade debtors – 49
other debtors – 37
prepayments and accrued income 01 04
total debtors due within one year 01 90
amounts owed by subsidiary undertakings due after one year 7 172 –
total debtors 173 90
the amounts owed by subsidiary undertakings comprise a loan which bears interest based on libor and which is not secured
this loan is denominated in us dollars and falls due for repayment in 2012
the carrying values of the company’s debtors approximate their fair value
6 creditors amounts falling due within one year
2009 2008
 million  million
other taxation and social security 144 144
other creditors – 23
accruals and deferred income 141 89
285 256
the carrying values of the company’s creditors approximate their fair value 89
premier oil plc 2009 annual report and financial statements
7 creditors amounts falling due after more than one year
2009 2008
note  million  million
amounts owed to subsidiary undertakings 5 – 3496
the amounts owed to subsidiary undertakings at 31 december 2008 comprised a loan which bore interest based on libor and
which was not secured the loan was denominated in us dollars and was repaid during the year
8 provision for liabilities
2009 2008
 million  million
asset and equity plan
at 1 january 33 36
provision in the year 21 33
reclassification of provision to creditors falling due within one year 33 36
at 31 december 21 33
decommissioning costs
at 1 january 66 90
provision for abandonment 01 03
unwinding of discount on decommissioning provision 01 03
exchange differences 09 24
disposals 75 –
at 31 december – 66
total provisions 21 99
the company currently operates an asset and equity plan to reward employees for improvement in the asset value of the
business and the market value of the company over a threeyear period further details of this plan are disclosed in note 11
9 pension liability
2009 2008
 million  million
uk funded pension scheme 56 20
uk unfunded pension scheme 09 08
total liability in balance sheet 65 28
the company operates a defined benefit pension scheme in the uk – the premier oil plc retirement and death benefits plan
the scheme 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 as a consequence of being closed to new entrants the current service costs
of the scheme under the frs 17 – ‘retirement benefits’ valuation will increase as the members approach retirement
the pension costs for the scheme are determined with the advice of an independent qualified actuary the most recent formal
valuation was undertaken as at 1 january 2008 using the attained age method and a marketrelated funding basis of which the
principal financial assumptions were investment return 59 per cent pa salary growth 54 per cent pa and pension increases 34
per cent pa the market value of the scheme’s assets was £149 million and on the specific method and assumptions adopted
the assets covered 91 per cent of the members’ accrued benefits based on projected pensionable salaries the current schedule
of contributions was effected in october 2008 the employer contributes at a rate of 25 per cent of pensionable salaries with no
additional monthly amounts the employer expects to contribute £98000 to the scheme in 2010
the following figures have been prepared in compliance with frs 17 – ‘retirement benefits’ incorporating the amendment
announced in december 2006 by an independent actuary on the basis of membership data current as at 31 december 2009 but
taking account of pension increases effected on 1 january 2010 the benefit obligations and service cost have been measured
using the projected unit credit method 90
premier oil plc 2009 annual report and financial statements
notes to the parent company financial statements continued
for the year ended 31 december 2009
9 pension liability continued
the principal financial assumptions adopted for this actuarial valuation were
rate of investment return 59 pa
rate of salary increases 54 pa
rate of pension increases 34 pa
employee benefit obligations
the amounts recognised in the balance sheet are as follows
at 31 at 31
december december
2009 2008
 million  million
present value of funded obligations 312 227
fair value of scheme assets 256 207
deficit before allowing for deferred tax 56 20
the amounts recognised in profit and loss are as follows
2009 2008
 million  million
current service cost 02 02
interest on obligation 15 17
expected return on scheme assets 13 19
total 04 –
actual return on scheme assets 31 32
a total loss of us34 million 2008 loss of us24 million was recognised directly in the statement of total recognised gains and
losses during the year
changes in the present value of the defined benefit obligations are as follows
at 31 at 31
december december
2009 2008
 million  million
opening defined benefit obligation 227 319
service cost excluding employee contributions 01 02
interest cost 15 17
actuarial lossesgains 49 21
benefits paid 07 10
currency translation effects 27 80
closing defined benefit obligation 312 227
changes in the fair value of scheme assets are as follows
at 31 at 31
december december
2009 2008
 million  million
opening fair value of scheme assets 207 293
expected return 13 19
investment gainslosses 19 51
employer contributions 02 30
benefits paid 07 10
currency translation effects 22 74
closing fair value of scheme assets 256 207 91
premier oil plc 2009 annual report and financial statements
9 pension liability continued
major categories of scheme assets as a percentage of total scheme assets are as follows
at 31 at 31
december december
2009 2008
equities 37 32
bonds 45 39
cash 18 29
principal actuarial assumptions at the balance sheet date
at 31 at 31
december december
2009 2008
discount rate 56 pa 60 pa
expected return on scheme assets 49 pa 58 pa
salary growth 57 pa 50 pa
price inflation 37 pa 30 pa
pension increases 37 pa 30 pa
mortality pcxa00 with ‘long cohort’ pcxa00 with ‘long cohort’
projection min 1 projection min 1
improvements improvements
sensitivity to changes in assumptions
changes to the assumed discount rate would have a significant effect on the value placed on the defined benefit obligations
as at 31 december 2009 a one percentage point change in this assumption would have had the following effects on the closing
defined benefit obligation
discount rate
56 pa discount rate discount rate
as used for report 46 pa 66 pa
 million  million  million
defined benefit obligation 312 391 265
5 year historic record
2009 2008 2007 2006 2005
 million  million  million  million  million
defined benefit obligation 312 227 319 314 281
fair value of scheme assets 256 207 293 280 211
deficit in the scheme 56 20 26 34 70
experience adjustments on scheme liabilities 06 – – 06 01
experience adjustments on scheme assets 19 51 04 02 16
unfunded pensions
in addition the company is paying an unfunded pension to a former director of the company 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 2009 of the future
payments projected to be made in respect of unfunded pensions is us09 million 2008 us08 million a total loss of us01 million
2008 gain of us03 million was recognised directly in the statement of total recognised gains and losses during the year
10 capital commitments and guarantees
at 31 december 2009 the company had commitments for performance guarantees totalling us01 million 2008 usnil usnil
as retainer fees for its alliance partners 2008 us01 million and customs guarantees of usnil 2008 us03 million
the company together with certain subsidiary undertakings has jointly guaranteed the group’s borrowing facilities consisting of
a us388 million revolving credit facility a £60 million us972 million letter of credit facility and a us175 million term loan and
us130 million revolving credit facility all maturing in march 2012 2008 us275 million and £53 million us77 million 92
premier oil plc 2009 annual report and financial statements
notes to the parent company financial statements continued
for the year ended 31 december 2009
11 share capital
2009 2008
 million  million
balance at 1 january 736 735
shares issued in respect of rights issue nominal value 260 –
shares issued under employee share plans – 01
ordinary shares cancelled 26 –
balance at 31 december 970 736
 £12113 us19651 of ordinary shares were issued during 2009 relating to the company’s share option plans
2009 2009 2008 2008
50p shares £ 50p shares £
ordinary shares
authorised 315224564 157612282 315224564 157612282
calledup issued and fullypaid 114673066 57336533 82170460 41085230
the concept of authorised share capital was abolished under the companies act 2006 with effect from 1 october 2009 accordingly
amendments to the company’s articles of association will be presented to the shareholders for approval at the 2010 agm
rights issue
on 25 march 2009 the company announced its proposal to raise approximately £171 million us2522 million by way of a fully
underwritten rights issue under the proposal the company offered its shareholders the opportunity to acquire 4 new ordinary
shares for every 9 ordinary shares held at a price of 485 pence per new ordinary share the proposal was subject to authorisation
by shareholders which was obtained at a general meeting held on 20 april 2009 the offer period commenced on 21 april 2009
and closed for acceptance on 6 may 2009 dealing in the new shares began on 7 may 2009
sharebased payments
£12113 us19651 of ordinary shares were issued during 2009 relating to the company’s share option plans there has been no
new issue of shares in relation to the asset and equity plan or the long term incentive plan
share option plans
the company has share option schemes under which options to subscribe for the company’s shares have been granted to
certain executives and employees options granted are normally exercisable not less than three years after their grant and will
lapse on their tenth anniversary options cannot be exercised until predetermined performance conditions have been achieved
under the savings related share option scheme eligible employees with six months or more continuous service can join the
scheme employees can save to a maximum of £250 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
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 oneforone basis
2009 2008
weighted weighted
average average
options exercise price options exercise price
outstanding at the beginning of the year 189722 £469 418392 £385
adjustment for rights issue 44556 £426 – –
granted during the year 23190 £721 18292 £1084
lapsed during the year 12913 £926 105202 £584
exercised during the year 70082 £204 141760 £215
outstanding at the end of the year 174473 £472 189722 £469
exercisable at the end of the year 89324 £216 111750 £220
 there were 24226 ordinary shares issued under the group’s share option schemes during the year 2008 66411 the remaining 45856 ordinary shares
were issued from the premier oil plc employee benefit trust 2008 75349 93
premier oil plc 2009 annual report and financial statements
11 share capital continued
the weighted average share price at the date of exercise for share options exercised during the year was £204 the options outstanding
at 31 december 2009 had a weighted average exercise price of £472 and a weighted average remaining contractual life of 28 years
the fair value of the options granted during the year was determined using the blackscholes valuation model and is not material
the company recognised a cost of us273 million and us201 million related to equitysettled sharebased payment
transactions in 2009 and 2008 respectively
asset and equity plan
the asset and equity plan is designed to reward employees for improvement in the asset value of the business and the market
value of the company over a threeyear period and is operated by reference to two bonus pools – an equity bonus pool and an
asset bonus pool the asset bonus pool is created by reference to the increase in the net asset value per share of the company
over a threeyear period and the equity bonus pool is created by reference to the increase in the equity market value per share of
the company over a threeyear period
full details about this plan have been provided in the remuneration report
the company uses a monte carlo simulation model to calculate the value of the equity bonus pool of the plan
the main assumptions used for the calculations are as follows
volatility 309 to 315
risk free rate of interest 44 to 49
historic market value growth factor 990 to 1090
for the asset bonus pool a discounted cash flow model based on the average oil price over the period is used to calculate the
final value of the pool and to estimate the value of future asset bonus pools
long term incentive plan
the long term incentive plan ltip was introduced to provide a longterm allemployee scheme which motivates all employees
and provides a longerterm perspective to the total remuneration package awards under the ltip comprise three elements
equity pool awards performance share awards that vest after the expiry of a threeyear performance period and a potential
matching award that vests at the expiry of a further threeyear performance period commencing at the end of the threeyear
performance period for equity pool and performance share awards
full details about this plan have been provided in the remuneration report
the company uses a monte carlo simulation model to calculate the value of the equity bonus pool of the plan and of the
performance share awards
the main assumptions used for the calculations are as follows
volatility 400
risk free rate of interest 33
correlation factor with comparator group 029
for the year ended 31 december 2009 the total cost recognised by the company for longterm incentive arrangements is
us260 million 2008 us128 million with cumulative liability on the balance sheet of us111 million 2008 us95 million
a credit of us273 million has been recorded in equity 2008 us201 million for all equitysettled payments of the group like
other elements of remuneration this charge is processed through the timewriting 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 capitalised as directly attributable
to capital projects and part is charged to the profit and loss account as operating costs prelicence exploration costs or general
and administration costs 94
premier oil plc 2009 annual report and financial statements
notes to the parent company financial statements continued
for the year ended 31 december 2009
11 share capital continued
ordinary shares
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
12 share capital and reserves
share capital
share premium profit and redemption equity
capital account loss account reserve reserve total
 million  million  million  million  million  million
balance at 1 january 2008 735 94 723 17 518 2087
issue of ordinary shares 01 03 – – – 04
purchase of shares for esop trust – – 179 – – 179
purchase of own shares – – 472 – – 472
profit for the year – – 870 – – 870
provision for sharebased payments – – 201 – – 201
pension costs – actuarial losses – – 21 – – 21
balance at 31 december 2008 736 97 1122 17 518 2490
issue of ordinary shares 260 2262 – – – 2522
expenses of issue of ordinary shares – 122 – – – 122
cancellation of ordinary shares 26 – – 26 – –
purchase of shares for esop trust – – 25 – – 25
profit for the year – – 231 – – 231
provision for sharebased payments – – 273 – – 273
pension costs – actuarial losses – – 35 – – 35
balance at 31 december 2009 970 2237 1566 43 518 5334
in june 2007 premier oil finance jersey ltd a 100 per cent subsidiary of the company issued convertible bonds at a par value
of us250 million these bonds are convertible into ordinary shares of the company at any time from 6 august 2007 until six
days before their maturity date of 27 june 2014
at the initial conversion price of £1582 per share there were 8003434 ordinary shares of the company underlying the bonds in
april 2009 the conversion price was adjusted from £1582 per share to £1356 per share as a result of the company’s 4 for 9 rights
issue of new ordinary shares at the adjusted conversion price of £1356 per share there are 9337340 ordinary shares of the
company underlying the bonds
if the bonds have not been previously purchased and cancelled redeemed or converted they will be redeemed at par value on
27 june 2014 interest of 2875 per cent per annum will be paid semiannually in arrears up to that date 95
premier oil plc 2009 annual report and financial statements
13 reconciliation of movements in shareholders’ funds
2009 2008
 million  million
opening shareholders’ funds 2490 2087
issue of ordinary shares 2522 04
expenses of issue of ordinary shares 122 –
purchase of shares for esop trust 25 179
purchase of own shares – 472
profit for the year 231 870
provision for sharebased payments 273 201
pension costs – actuarial losses 35 21
net addition to shareholders’ funds 2844 403
closing shareholders’ funds 5334 2490
14 own shares
treasury esop
shares trust total
 million  million  million
at 1 january 2008 – 36 36
release of shares for longterm incentive arrangements – 50 50
acquired in the year 472 179 651
disposed of on exercise of options – 01 01
at 31 december 2008 472 164 636
release of shares for longterm incentive arrangements – 23 23
acquired in the year – 25 25
disposed of on exercise of options – 01 01
cancellation of ordinary shares 472 – 472
at 31 december 2009 – 165 165
the own shares reserve represents the cost of shares in premier oil plc purchased in the market
at 31 december 2008 the company held 2798186 ordinary shares as treasury shares all of these ordinary shares were
cancelled by the company on 23 march 2009
the esop trust shares are held by the premier oil plc employee benefit trust to satisfy options under the group’s share option
schemes the number of ordinary shares held by the premier oil plc employee benefit trust at 31 december 2009 was 1077711
2008 863339 96
premier oil plc 2009 annual report and financial statements
five year summary
financials 2009 2008 2007 2006 2005
accounting basis ifrs ifrs ifrs ifrs ifrs
sales revenues  million 6211 6552 5782 4022 3594
profit before tax  million 799 2776 1470 1566 1246
net profit for the year after tax  million 1130 983 390 676 386
cash flow from operating activities  million 3477 3523 2695 2448 1212
shareholders’ funds  million 9713 5989 5529 4491 3761
net debtcash including joint ventures  million 3156 1173 790 409 262
per share statistics
revenue per share centsshare 5719 6598
1
7051 4917 4378
earnings per share – basic centsshare 1041 990
1
476 826 470
earnings per share – diluted centsshare 1039 982
1
469 817 466
cash flow from operating activities per share centsshare 3202 3548
1
3287 2993 1476
reserves per share – yearend boeshare 235 229
1
258 186 199
issued ordinary shares – average million 1086 993
1
820 818 821
operations
production working interest basis kboepd 442 365 358 330 333
proved and probable reserves working interest basis mmboe 2552 2275 2115 1521 1635
employees – uk number 110 62 60 60 62
– overseas number 398 406
2
300 249 219
key indices
realised average oil price  per bbl 6630 9450 7230 6490 4838
average exchange rates £ 157 185 200 184 182
closing exchange rates £ 162 146 198 196 172
notes
1 the average issued ordinary shares for 2008 have been adjusted to reflect the bonus element related to the rights issue in 2009 the 2008 ‘per share statistics’
have been restated accordingly the ‘per share statistics’ for 2005 2006 and 2007 are as reported
2 the 2008 overseas employee numbers have been restated to reflect a reclassification of employee categories during 2009 and the inclusion of offshore staff
the numbers for 2005 2006 and 2007 are as reported
certain operations presented as discontinuing in 2006 were represented as continuing operations in 2007 the numbers for 2005 and
2006 have been restated accordingly 97
premier oil plc 2009 annual report and financial statements
number of number of
size of shareholding holders  shares 
1 – 5000 11594 9452 6505652 567
5001 – 10000 217 177 1530473 133
10001 – 50000 234 191 5359148 467
50001 – 100000 69 056 5196608 453
100001 – 500000 109 089 24190983 2110
500001 and over 43 035 71890202 6270
total 12266 10000 114673066 10000
dealing information financial calendar
seaq short code – pmo announcements
interim – august 2010
preliminary – march 2011
shareholder information
analysis of shareholding as at 24 march 2010
additional information 98
premier oil plc 2009 annual report and financial statements
oil and gas reserves
at 31 december 2009
working interest basis
north sea and middle
west africa eastpakistan asia total
oil and oil and oil and oil and oil ngls
ngls gas ngls gas ngls gas ngls gas
3
and gas
mmbbls bcf mmbbls bcf mmbbls bcf mmbbls bcf mmboe
group proved plus probable reserves
at 1 january 2009 224 19 23 322 248 675 495 1016 2275
revisions 14 1 02 7 02 – 14 8 02
discoveries and extensions
1
–– 05 3–– 05 3 10
acquisitions and divestments
2
304 15 13 – 95 9 386 24 430
production 57 3 02 36 04 18 63 57 161
at 31 december 2009 457 32 11 296 341 666 809 994 2552
total group developed and undeveloped reserves
proved on production 257 17 03 87 19 135 279 239 712
proved approvedjustified for development 57 5 05 127 228 337 290 469 1098
probable on production 89 6 02 50 05 23 96 79 232
probable approvedjustified for development 54 4 01 32 89 171 144 207 510
at 31 december 2009 457 32 11 296 341 666 809 994 2552
notes
1 includes reserves discovered at geyad egypt and kadanwari pakistan further discovered volumes at kadanwari together with discoveries at cá rˆ o ng – do
 
vietnam and grosbeak norway are included as 28 mmboe working interest contingent resources and are not shown here
2 includes acquisition of oilexco north sea ltd acquisition of additional 2125 per cent interest 25 per cent less 15 per cent pvep ‘backin’ in chim sáo
vietnam and sale of nw gemsa licence egypt
3 proved plus probable gas reserves include 71 bcf fuel gas
premier oil plc categorises petroleum resources in accordance with the 2007 spewpcaapgspee petroleum resource
management system spe prms
proved and probable reserves are based on operator thirdparty reports and internal estimates and are defined in accordance with
the statement of recommended practice sorp issued by the oil industry accounting committee oiac 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 vietnam mauritania and egypt on an entitlement basis reserves increased by 312
mmboe giving total entitlement reserves of 2290 mmboe as at 31 december 2009 2008 1978 mmboe this was calculated in 2009
using an oil price assumption of us750bbl 2008 us600bbl 99
premier oil plc 2009 annual report and financial statements
licence block operator po equity  field
congo marine ix marine ix premier 3150
indonesia buton japex 3000
kakap star energy pt 1875 kakap
natuna sea block a premier 2867 anoa
north sumatra block a pt medco 4167 alur siwah
ep malaka
tuna premier 6500
mauritania psc a
‡
block 3 and 4  5 petronas 462
shallow water
psc b
‡
block 4  5 deep water petronas 923
psc b chinguetti eea petronas 812
norway pl359 161 part 164 part lundin 3000
pl364 252 253 255 256 det norske 5000 frøy
pl374s 342 345 bg 1500 blåbaer
pl378 3512 3610 part wintershall 2000 grosbeak
pl406 83 91 1712 1810  1811 premier 4000
pl407 178 179 1711 1712 bg 2000 bream
187 1810
pl417
±
313 321 3610 wintershall 4000
pl496 77 710 premier 7000
pakistan production leases bolan mari gas 375 zarghun south
dadu bhp 937 zamzama
kirthar eni 600 badhra
kirthar eni 600 bhit
qadirpur ogdcl 475 qadirpur
tajjal eni 1579 kadanwari
philippines ragay gulf sc43
‡‡
sc43 pearl oil ragay 2100
united kingdom p077 2212a shell 5000 nelson
†
p087 227 premier 4650 nelson
†
p101 2321 north  south moth bg 5000 moth
– below bottom chalk
p110 2214a noneverest deep hess 2724
p119 1529a area p premier 6000 ptarmigan
p185 1522 rest of block nexen 5000 blackhorse
nonpalaeocene formation
p201 1621a premier 8500 balmoral
††

stirling
†††
and glamis
p201 1621a premier 10000 brenda above 7500ft
p213 1626 area p premier 10000 caledonia
p218 1521a nexen 4583 scott
††††
p218 1521a nexen 375 telford
†††††
p233 1525a premier 7000 nicol
p257 1425a talisman 152
p288 3121a 3126a f  g 3127a hess 1500 angus fife flora
p300 1426a bg 7000
p344 1621b northern area premier 5500
p344 1621b 1621c premier 4220 balmoral
††
and stirling
†††
p354 222a premier 3000
nonchestnut field area
p489 1523b nexen 5000 blackhorse
p534 986a 987a bp 1250 wytch farm offshore
††††††
p640 1524b conocophillips 5000
worldwide licence interests
as at 24 march 2010 100
premier oil plc 2009 annual report and financial statements
worldwide licence interests continued
as at 24 march 2010
licence block operator po equity  field
p748 292c cnr 4000 kyle
p758 3126c hess 3500 fife
p802 391a hess 1500 fife
p802 391b hess 3500 fergus
p811 1330b bg 7000
p815 1523d nexen 5000 bugle
p1042 1525b premier 10000 brenda
p1043 1525c premier 10000
p1095 1621d maersk 5000 bladon
p1114 2214b 2219b eon ruhrgas 4000 huntington
p1157 1525e premier 10000 brenda
p1181 2322b premier 5750
p1220 2123a sterling 6500 sheryl
p1260 222b premier 10000 shelley
p1298 1526b nexen 5000 kildare
p1420 2213b partial premier 7273
p1430 289 2810c encore 5000
p1431 296b premier 10000
p1466 1524c 1525f premier 10000
p1467 1525d maersk 5000
p1555 223a premier 10000
p1559 1523e premier 10000
p1620 2219c premier 5000
p1628 297b premier 10000
pl089 sy87b sy88b sy89b sy97b bp 1250 wytch farm onshore
††††††
sy98a sy99a sz7 sz8a
vietnam 12w premier 5313 chim sáo
0703 premier 4500
‡‡‡
cá rˆ o ng – do
 
10410905 premier 5000
†
unitised share of 166 per cent
††
unitised share of 7812 per cent
†††
unitised share of 6868 per cent
††††
unitised share of 2183 per cent
†††††
unitised share of 082 per cent
††††††
unitised share of 1238 per cent
‡
psc’s a and b excluding chinguetti were due to expire in 2009 but have been extended pending the conclusion of extension negotiations
‡‡
premier has withdrawn from the philippines sc43 joint venture partnership effective 31 december 2009 this process will be complete once philippines
government approval has been received
‡‡‡
subject to completion of government approval and farmout processes to transfer a 5 per cent interest to pan pacific petroleum vietnam pty ltd and a
10 per cent interest to petrovietnam exploration production corporation premier’s new interest will be 30 per cent
±
the pl417 joint venture has agreed to relinquish this licence and this will be complete once government approval has been received 101
premier oil plc 2009 annual report and financial statements
glossary
bbl barrel of oil
bbtud billion british thermal units per day
bcf billion cubic feet
boe barrel of oil equivalent
boepd barrels of oil equivalent per day
bopd barrels of oil per day
fpso floating production storage and offtake vessel
gsa gas sales agreement
hsfo high sulphur fuel oil
kboepd thousand barrels of oil equivalent per day
lti lost time injury
mmbbls million barrels of oil
mmboe million barrels of oil equivalent
mmscfd million standard cubic feet per day
mscf thousand standard cubic feet
psc production sharing contract
rwdc restricted work day case 102
premier oil plc 2009 annual report and financial statements
registered office
premier oil plc
4th floor
saltire court
20 castle terrace
edinburgh
eh1 2en
registered no 234781 scotland
head office
premier oil plc
23 lower belgrave street
london
sw1w 0nr
tel 00 44 020 7730 1111
fax 00 44 020 7730 4696
wwwpremieroilcom
auditors
deloitte llp
2 new street square
london
ec4a 3bz
solicitors
slaughter and may
one bunhill row
london
ec1y 8yy
stockbrokers
deutsche bank ag
winchester house
1 great winchester street
london
ec2n 2db
and
oriel securities ltd
125 wood street
london
ec2v 7an
registrars
capita registrars ltd
4th floor
erskine house
6873 queen street
edinburgh
eh2 4nr
shareholder enquiries
capita registrars
northern house
woodsome park
fenay bridge
huddersfield
hd8 0la
tel 0871 664 0300 uk
00 44 020 8639 3399
fax 00 44 01484 601512
email shareholderservicescapitaregistrarscom
 calls cost 10p per minute plus network charges
lines are open between 900am to 500pm mon – fri
contacts continued progress…
building three quality
businesses
“2009 was a year of important acquisitions increasing
production great strides in our development projects and
successful exploration drilling we have a busy and exciting
programme for 2010 which will continue to build on our
three growing regional businesses”
simon lockett chief executive
2009 highlights
from left to right
simon lockett chief executive
tony durrant finance director
neil hawkings operations director
andrew lodge exploration director
• production increased by 21 per cent to 442 kboepd 2008 365 kboepd
• reserves increased by 12 per cent to 255 mmboe 2008 228 mmboe reserves and
resources increased to 468 mmboe 2008 382 mmboe an increase of 23 per cent
• acquisitions completed in the uk and vietnam now successfully integrated and
outperforming expectations
• ongoing material progress on the chim sáo and gajah baru development projects
with first oil and gas on schedule for 2011
• five out of nine exploration and appraisal wells drilled were successful including
important discoveries in norway and vietnam
• record profit after tax of us1130 million 2008 us983 million including effects
of tax allowances acquired with oilexco
• operating cash flow of us3477 million 2008 us3523 million despite a 37 per
cent fall in brent oil price yearonyear
“being an oil and gas company brings a specific set of
challenges to doing the right thing but it is premier’s
priority to operate safely  to minimise our impact on the
environment and to build mutually beneficial relationships
with communities and countries the company is an industry
leader in these matters”
paul dennis group hses manager
designed and produced bymagee
wwwmageecouk
printed by fulmar colour
fulmar colour is fsc certified pefc certified and iso 14001 certified showing that it is
committed to all round excellence and improving environmental performance is an important part
of this strategy we aim to reduce at source the effect our operations have on the environment
and are committed to continual improvement prevention of pollution and compliance with any
legislation or industry standards
fulmar colour is a carbon neutral printing company
the review paper contains material sourced from responsibly managed forests certified in
accordance with the fsc forest stewardship council and is manufactured to iso 14001 and
emas ecomanagement and audit scheme international standards minimising negative impacts
on the environment
the annual report paper is made from 100 per cent ecf elemental chlorine free wood pulp
sourced from wellmanaged and renewed forests the mill generates a proportion of its renewable
power from water turbines it is fully recyclable and is manufactured within an iso 14001 certified
mill in the uk
cert no ttcoc002226
iso14001registered
dnvcertificationbv 013 continued progress…
building three quality
businesses
annual report and financial statements
year to 31 december 2009
premier oil plc 2009 annual report and financial statements
wwwpremieroilcom
premier oil plc
23 lower belgrave street
london sw1w 0nr
telephone 00 44 020 7730 1111
facsimile 00 44 020 7730 4696
premier today
we operate through three business units north sea asia and
middle eastpakistan each has a strategy designed to maximise
the opportunities available in these highly prospective regions
of the world each has demonstrated marked progress against
its strategy during 2009 with a doubling in production in the
north sea through the acquisition of oilexco record production
in pakistan combined with new exploration acreage in egypt
and significant progress on development projects and exploration
programmes in asia
looking to the future
the company is set to double in size as major
development projects come onstream in the north
sea and asia these will take the company to its
stated production target of 75000 boepd with more
than one billion potential barrels of prospective
resources in the portfolio to be drilled in the next five
years and ongoing work to identify new areas in
which to bring to bear premier’s particular skills and
expertise the company is wellplaced to deliver
substantial growth into the future
19342009


Summary:
 04
premier oil plc 2009 annual report and financial statements
chief executive’s review
group strategy
five years ago the then new management team established a number of strategic
objectives for future growth of the business
• increasing our production from 33 thousand barrels of oil equivalent per day kboepd
2005 to 50 kboepd
• monetising previously discovered resources through commercial negotiation and field
development
• adding to the portfolio of development projects and discoveries through exploration
success
• seeking valueadding acquisitions in core areas and
• creating strong regional businesses with full capability in production development and
exploration operations
over the subsequent fiveyear period premier has made significant strides in meeting all
these objectives
• 2009 production averaged 442 kboepd exceeding 50 kboepd in the second half of the
year projects now under development are expected to add a further 25 kboepd by 2012
• booked 2p reserves have increased by 45 per cent and reserves and resources have
more than doubled over the fiveyear period
• premier’s chim sáo discoveries in vietnam in 2006 and 2007 have been followed up with
2009 successes in vietnam and norway further drilling in norway and vietnam and
other exploration targets in the uk and indonesia are included in the 2010 programme
• acquisitions in 20067 and in 2009 coinciding with periods of relatively low oil prices
have been completed successfully in the uk indonesia and vietnam and
• the north sea and asia regional businesses are wellestablished we are actively seeking
opportunities to extend from our pakistan business base across the middle east region
“2009 was a year of important acquisitions
increasing production great strides in our
development projects and successful
exploration drilling we have a busy and
exciting programme for 2010 which will
continue to build on our three growing
regional businesses”
simon lockett
chief executive 05
premier oil plc 2009 annual report and financial statements
building on the existing strategy we expect significant further growth over the coming years
• a production target of 75 kboepd from existing projects by 2013
• the potential to add significant further production in the mediumterm from projects
currently within the predevelopment portfolio
• an exploration programme targeting reserve additions of 200 mmboe net to premier
from existing geological areas of expertise and
• acquisition and new venture activity which will provide future growth potential based
on existing skills within the group
we expect to maintain a conservative balance sheet through the investment cycle
facilitating our growth opportunities
regionally our established business units have their own forward plans and strategies
asia
in asia we seek to develop the full potential for our
natuna sea and north sumatra gas positions in
indonesia and our growing presence in the nam con
son basin in vietnam our wellestablished presence
in the region will allow us to bring relationships
knowledge and technical skills to new business
opportunities in the area
middle eastpakistan
we seek to maximise the value of our high quality
pakistan producing gas fields extending our technical
skills to new regional opportunities including with our
regional joint venture partner emirates international
investment company llc eiic
north sea and west africa
following the oilexco acquisition and the successful start to our norwegian exploration
programme we plan to build on our existing producing asset base and operating capability
by bringing forward discovered reserves into the development portfolio and by exploiting
exploration opportunities in our core areas of the uk central north sea and the norwegian
north sea 06
premier oil plc 2009 annual report and financial statements
chief executive’s review continued
neil hawkings
operations director
operations review
production development and reserves
a strong increase in production was achieved in 2009 principally due to the acquisition of
the oilexco producing assets completed in may 2009 significant progress on the
development portfolio was also achieved with both gajah baru in indonesia and chim sáo
in vietnam achieving final project approvals both projects are now in the construction
phase with expected first oil and gas in 2011 existing producing fields together with new
production from our development projects will keep the company on track to achieve our
75000 boepd target in the mediumterm
in line with guidance average working interest production for the full year was 442 kboepd
2008 365 kboepd of which 74 kboepd came from the former oilexco production portfolio
acquired on 21 may 2009 also in the uk the kyle and wytch farm fields performed
strongly though the scott field remained at 2008 levels underperforming somewhat due to
facilities issues production in other areas remained steady as strong gas demand and good
production performance were experienced in both pakistan and indonesiasingapore
working interest entitlement
production boepd 2009 2008 2009 2008
asia 11050 11700 7300 7100
middle eastpakistan 16000 14550 15850 14550
north sea 16200 9300 16200 9300
west africa 950 950 800 800
total 44200 36500 40150 31750
in the wake of the global financial crisis and the significant fall in oil prices cost levels in the
industry also fell the company achieved material development project cost reductions by
optimising and retendering the chim sáo and gajah baru projects both these projects are
now under construction with first production scheduled for 2011 further progress on our north
sumatra block a project in indonesia could not be achieved because of a delay in the
production sharing contract psc extension this is expected to be resolved shortly but has
caused first gas to be delayed to 2012 premier and its partners are working on a fast track 07
premier oil plc 2009 annual report and financial statements
solution to develop the huntington field in the uk a former oilexco asset floating production storage
and offtake vessel fpso tenders are being evaluated alongside tieback options to nearby
infrastructure with concept selection expected imminently followed by sanction in the third quarter
of 2010 first oil is targeted for 2012
as at 31 december 2009 proven and probable reserves on a working interest basis based on premier
and operator estimates were 255 mmboe 2008 228 mmboe these reserves comprised 32 per cent
liquids and 68 per cent gas the equivalent volume on an entitlement basis amounted to 229 mmboe
2008 198 mmboe using a price assumption of us75 per barrel bbl brent 2008 us60bbl brent
booked reserve additions were driven principally by the acquisitions of oilexco and delek during the
year contingent resources at yearend increased by 59 mmboe to 213 mmboe 2008 154 mmboe
driven by resources within the acquired portfolios and by new resources added with the discoveries
at grosbeak in norway and cá rˆ o ng –
do
 
in vietnam
proven and 2p reserves and 2c
probable reserves contingent resources
mmboe mmboe
start of 2009 228 382
production 16 16
net additions and revisions 43 102
end of 2009 255 468
asia
in asia we are seeking to develop the full potential of our natuna sea and north sumatra gas
positions in indonesia and our growing presence in the nam con son basin in vietnam our well
established presence in the region allows us to bring relationships knowledge and technical skills
to all business opportunities in the area
indonesia
during 2009 the premieroperated natuna sea block a in indonesia sold an overall average of
153 billion british thermal units per day bbtud gross from its gas export facility up 8 per cent
on 2008 whilst the nonoperated kakap block contributed a further 42 bbtud gross liquids
production from the block a anoa field averaged 1920 barrels of oil per day bopd gross and
the kakap fields 3540 bopd gross overall net production from indonesia amounted to
11050 boepd 2008 11700 boepd on a working interest basis
significant progress has been made on the gajah baru project the first of three fields to be
developed to supply additional gas to singapore and batam under three new gas sales agreements
gsas signed in 2008 and reported previously a second tender for the engineering procurement
construction and installation epci contract was completed on 16 march 2009 with resultant gross
costs savings of approximately us100 million total capital expenditure for the gajah baru project
is forecast at around us700 million gross maximum routine gas sales will be in the order of 140
million standard cubic feet per day mmscfd and recoverable reserves from the three new fields are
expected to be 500 billion cubic feet bcf
fabrication of both the wellhead platform jacket and deck continue in batam the project was 33
per cent complete at yearend for the construction phase slightly ahead of schedule development
well drilling is scheduled to commence in october 2010 and the project remains on track to deliver
first gas on schedule in october 2011
on the nonoperated north sumatra block a following approval of the plan of development for
the alur siwah alur rambong and julu rayeu gas fields in 2008 front end engineering design
feed studies were completed in 2009 and work continues on optimising the project prior to epci
bids negotiation of fullytermed agreements for use of exxonmobil facilities for transportation of
gas and liquids continued however the ministerial decree relating to the psc extension remains
unsigned the delay is impacting the project schedule with first gas scheduled for 2012 from alur
rambong and 2013 from alur siwah 08
premier oil plc 2009 annual report and financial statements
chief executive’s review continued
vietnam
substantial progress was made during the year with the chim sáo development the lower
oil prices at the end of 2008 prompted a review of the chim sáo project in which the well
design and producing facilities were optimised lowering capital expenditure estimates and
a new fpso supply contract was negotiated the redesigned project has all the necessary
partner and government approvals and the prime contracts for epci fpso and the drilling
rig have been executed at yearend the chim sáo platform jacket was 83 per cent
complete and its topsides 51 per cent complete on schedule to allow the main facilities to
be installed in summer 2010 work on the conversion of the lewek emas into an fpso
commenced in the keppel shipyard development drilling is expected to start in mid2010
and the fpso to be installed in the second quarter of 2011 first oil production is forecast
for mid2011 project costs are in line with budget
petrovietnam exploration production corporation pvep exercised its backin right for a
15 per cent equity in block 12w in april 2009 premier increased its interest in the block
to 53125 per cent through the acquisition of delek which completed in july 2009
india
no progress has been made in 2009 with the government of india in signing the ratna
licence premier will close its representative office in delhi in 2010
north sea and west africa
the acquisition of oilexco in may 2009 significantly increased premier’s presence in the
north sea adding some 60 mmboe of reserves and resources and a capable operating
team in the uk the acquired assets have been integrated with our existing uk portfolio
and are managed from the new premier office in aberdeen which opened in december
premier’s office in stavanger in norway continues to focus on the current norwegian
exploration programme and the integration of our significant technical database across the
north sea the north sea business unit also manages our remaining assets in west africa
uk
total north sea production was 16200 boepd for 2009 2008 9300 boepd of which 7400
boepd was generated by the acquired oilexco portfolio this represents production from
the acquisition completion date of 21 may 2009 averaged over the full year
there has been a strong underlying performance from wytch farm and kyle both of which
performed ahead of expectations in 2009 the wytch farm oil field contributed 2770 boepd
net production to premier representing a 7 per cent reduction on last year but still producing
ahead of expectations the operator has temporarily suspended further drilling on wytch
farm while the inventory of future drilling targets is upgraded it is anticipated that investment
in drilling will resume in early 2011 production from kyle was 2660 boepd 2008 2500
boepd without significant field investment during 2009
the scott field produced 3240 boepd 2008 3525 boepd underperforming expectations
as a result of both facilities issues and the failure of the first of the four well infill programme
two of the successful infill wells produced relatively high levels of hydrogen sulphide h
2
s
and at the end of 2009 the operator was focusing on the management of h
2
s levels
in the area surrounding the scott field premier is cooperating with other interest owners to
progress the development of a series of discoveries over the scott facility the partners in
bugle agreed to drill an appraisal well which was spudded in february 2010 premier will
have a 50 per cent equity share in block 1523d which contains the original bugle discovery
the cost of the well is shared equally with the participants in the neighbouring block
1523c if successful the bugle field will be tied back to scott along with the smaller
blackhorse discovery 09
premier oil plc 2009 annual report and financial statements
premier took control of the balmoral floating production vessel fpv following the oilexco acquisition
and as a result of detailed analysis three key risers were replaced during the annual shutdown
period as part of a longerterm replacement programme which will be completed in 2011
further work was carried out on the balmoral platform to increase the capacity of the gas lift power
generation and water handling systems the burghley field will be tied into these facilities in the
third quarter premier is working on a balmoral field infill opportunity that will be matured in 2010
following the acquisition of the oilexco portfolio premier successfully negotiated a new contract
with sevan marine asa pertaining to the shelley field the sevan voyageur fpso was hooked up
to the field and commenced production on 6 august at an initial rate of 11000 boepd at yearend
the rate had dropped to around 2200 boepd it is anticipated that the field abandonment will
commence in 2010
on the huntington development project fpso bids were received in december and are
currently being evaluated along with tie backs to infrastructure in the vicinity it is expected that the
development concept will be selected imminently with project sanction occurring before yearend
2010 it is anticipated that premier will hold the dominant equity position in the field
norway
on the frøy project in norway the joint venture pursued two new work programmes the first
was to reevaluate the standalone development concept in the light of substantial changes in the
contractor market which occurred as a result of the financial crisis in 2008 and the related drop in oil
price and industry activity this work indicated that a reduction in costs is feasible and is now being
pursued in the 2010 work programme in parallel the joint venture entered into an area cooperation
study with statoil and total who also hold reserves in the area this study was recently completed
and may lead to further consideration of tieback opportunities and potentially a joint project for
frøy with one or more other fields given successful outcomes of the work on either option a
project sanction decision could be taken in 2010 with first oil targeted for 2013
mauritania
in mauritania 2009 production from the chinguetti field averaged 950 boepd net to premier 2008
950 boepd net higher than earlier expectations the operator continues to assess production
performance from the field
the joint venture partnerships are currently in discussions with the mauritanian government to
extend the existing pscs covering the remaining potential in the area in particular the operator is
undertaking gas development studies for the banda and tevet fields including potential domestic
gas markets with the aim of concluding this work during 2010 the operator is also reevaluating
the tiof field development concept options
middle eastpakistan
our middle eastpakistan business unit seeks to maximise the value of our high quality pakistan
producing gas fields and to extend our technical skills to new regional opportunities including with
our regional joint venture partner eiic the joint venture company premco is based in abu dhabi
pakistan
average production of 15720 boepd in 2009 surpassed the previous record average production
of 14550 boepd in 2008 by 8 per cent gas demand in 2009 increased yearonyear and was
met primarily from additional production capacity at the zamzama and bhitbadhra fields this
was achieved through new infill wells gas plant expansions and shorter maintenance periods
the qadirpur gas field produced an average of 4150 boepd in 2009 2008 4060 boepd the
project to enhance qadirpur plant capacity was commissioned in january 2009 and has resulted
in reduced maintenance downtime a compression project was initiated in 2009 to mitigate the
declining field deliverability completion is expected by august 2010 as scheduled permeate
gas of low heating value will be supplied to sui northern gas pipelines ltd from february 2010 10
premier oil plc 2009 annual report and financial statements
chief executive’s review continued
for utilisation at engro’ s newly constructed power plant near qadirpur this supply of permeate
gas will also reduce the quantity of gas flared at the qadirpur field additional standby
permeate compressors will be installed at qadirpur during 2010 to ensure continuous
supply of the permeate gas during 2009 eight new production wells were successfully drilled
and connected to the production system including production from the sml horizon of the
qadirpur deep1 exploration well
the kadanwari gas field produced an average of 1250 boepd in 2009 2008 1225 boepd
the k14b well was completed and tied into the system in 2009 helping to sustain field
production levels in the year as a result of successful negotiations with the government the
kadanwari lease expiry date was extended for a further 10 years to 2022 whilst capping
the gas price at an equivalent price of us850 per million british thermal units the lease
extension will now allow full exploitation of the discovered gas reserves two additional
wells k19 and k20 were also drilled during 2009 k19 has discovered new gas and came
onstream in march 2010 with an initial flowrate of 22 mmscfd k20 did not initially flow
due to tight reservoir properties but following fracturing has shown positive results
the zamzama gas field produced an average of 6890 boepd in 2009 2008 6075 boepd
after modifications the phase2 plant was recommissioned in march 2009 and achieved
production of 127 mmscfd of high calorific value gas further modifications were planned
for november 2009 to increase the capacity to 150 mmscfd but these have been deferred
to april 2010 in order to maximise gas revenues during the high winter gas demand
period the zamzama north well commissioned in march 2009 as well as two infill wells
drilled during the year were tied into the production system resulting in 13 per cent higher
production in 2009 than in 2008
the bhitbadhra gas fields produced an average of 3430 boepd in 2009 2008 3190 boepd
the increase was due to higher available plant capacity as well as acceptance by the buyer
of some sales gas at slightly less than specification in order to satisfy their own commitments
during the high gas demand in winter the drilling of the bhit10 well in april 2009 and
installation of wellhead compressors on some wells allowed field deliverability to be
maintained at a high level the bado jabal1 exploration well did not encounter commercial
gas in its primary targeted zones and was sidetracked to be completed as an additional
producer in the badhra gas field from the existing mughalkot reservoir first gas was
achieved in march 2010
feed was completed in 2009 for the zarghun south gas field development first gas is
scheduled for the fourth quarter of 2011 substantially all of premier’s capital and operating
costs for its 375 per cent working interest are carried by the operator
egypt
first oil was achieved at the end of february 2009 from two al amir se wells on the nw
gemsa licence in egypt this was followed by successful appraisal of the al amir se area
and the exploration discovery at geyad on the same block in total the block produced an
average of 2880 bopd gross for the period to 23 december 2009 on this date premier
completed the sale of its 10 per cent interest in the permit to sea dragon energy inc for a
final consideration of us148 million recording a profit on sale of us84 million 11
premier oil plc 2009 annual report and financial statements
exploration review
exploration is a fundamental part of premier’s growth strategy with a target to add over
200 mmboe of net 2p reserves by 2015 the exploration strategy is to focus on areas
and geological themes where premier has demonstrable skills and expertise namely the
exploration of rift basins in asia and the north sea and onshore foldbelt provinces
as exemplified by premier’s acreage in pakistan and eastern indonesia
in 2009 premier participated in nine exploration and appraisal wells of which five were
successful successes included the new oil and gas discoveries at cá rˆ o ng – do
 
vietnam
and grosbeak norway appraising the resource base in the bream discovery norway
and stepout drilling adding reserves to the kadanwari field pakistan
premier continues to acquire the best quality data sets in support of the exploration and appraisal
drilling campaigns and in 2009 acquired over 1800km² of 3d to advance the interpretations in
preparation for 20102011 drilling in vietnam and indonesia the acquisition of oilexco presented
an opportunity to purchase 3d data sets across the uk central north sea which when combined
with the premier data sets in norway have established a competitive seismic database across the
whole of the central north sea uk and norway in support of the longerterm growth ambitions
three new licences were acquired in the uk sector of the central north sea
the 2009 exploration and appraisal programme delivered a contingent resource base of
approximately 29 mmboe subject to further appraisal at an overall success rate of 55 per cent
asia
vietnam
cá rˆ o ng –
do
 
crd the first well drilled by premier in block 0703 intersected approximately
90m net oil and gas pay within multiple stacked reservoir layers two of which were tested
and flowed oil at a combined rate of 3265 bopd plus 81 mmscfd gas through a 4864”
choke with no water production
premier acquired and processed 1006km² 3d seismic over the eastern third of block 0703
to determine future exploration and appraisal activity premier’s second exploration well
cá rˆ o ng vàng located 6km from crd was drilled to a total depth of 3980m brt and
intersected the reservoir intervals on prognosis however wireline logging indicated the
well did not encounter significant hydrocarbons and the well was plugged and abandoned
andrew lodge
exploration director 12
premier oil plc 2009 annual report and financial statements
the results of the wells are now being integrated with the 3d seismic to determine the best
location to appraise crd and to identify future exploration drilling targets for 2011 drilling
during 2009 pan pacific petroleum vietnam pty ltd acquired 5 per cent and pvep acquired
10 per cent of premier’s equity in block 0703 in consideration of their funding part of
premier’s residual 30 per cent interest of the crd well both transactions will require
approval from the government of vietnam which was requested in early 2010
elsewhere in vietnam the block 12w exploration acreage outside the chim sáo and dua
field areas was surrendered in november 2009 at the end of the statutory exploration period
and planning started for the acquisition of 3d seismic data on block 10410905 in 2010
indonesia
on the premieroperated tuna block plans have been updated following the success
in premier’s vietnam block 0703 immediately to the north in the nam con son basin
following interpretation of the 2400km 2d an 850km
2
3d seismic survey was acquired
in september 2009 interpretation of this survey is ongoing prospect selection will follow
ahead of drilling two exploration wells in 2010
on natuna sea block a a fiveyear exploration plan has been developed for the block
and due to rephasing of the nearby development drilling programme the anoa deep
exploration well will now be drilled in 2011
elsewhere on the japexoperated buton block the 250km 2d seismic survey begun in
2008 was completed by midyear prospect maturation is currently under way and a well is
planned for the fourth quarter of 2010 on the medcooperated north sumatra block a
further work to define prospects for drilling in 2011 is ongoing
premier continues to review opportunities to expand its acreage position in indonesia
and joint study activities under three agreements with migas the indonesian government
authority in north merak offshore java east asahan onshore sumatra and east
bangkanai onshore kalimantan were completed in 2009 the east bangkanai review
has justified followup work to be completed in early 2010
philippines
in the nonoperated sc43 licence premier relinquished its 21 per cent participating interest
and withdrew from the licence at the end of 2009
north sea and west africa
uk
the oilexco acquisition significantly increased premier’s uk exploration portfolio to a total
of 38 blocks from this expanded portfolio premier plans to drill three exploration and
appraisal wells in 2010 the bugle north well is in licence p815 block 1523d and spudded
in february catcher is a paleocene amplitude play in licence p1430 block 289 and is due
to spud in april premier is in advanced discussions with an interested party to farm down a
15 per cent equity in block 289 as part of ongoing portfolio management activity premier
will retain a 35 per cent equity in the licence
in early 2010 premier secured a 50 per cent equity and operatorship of block 2219c
containing the oates and bowers prospects block 2219c covers an extension of the prolific
paleocene forties reservoir unit 10km south of the huntington development a well on the
oates prospect will spud in june 2010
premier was awarded two further licences as part of the uk 25th licence round the two
licences awarded were p1628 block 297b near the kyle field and p1559 block 1523e
adjacent to the scotttelford production facilities block 297b contains the paleocene
prospects gladius and scutum whilst block 1523e has the upper jurassic cornet and
corniche prospects
premier is now looking to the uk 26th licence round announced in february 2010 as an
opportunity to grow the uk exploration portfolio for future drilling campaigns in 2011 and beyond
chief executive’s review continued 13
premier oil plc 2009 annual report and financial statements
norway
in 2009 premier participated in its first two exploration and appraisal wells in norway both of which
were successful the programme is continuing into 2010
on pl407 an appraisal well on the bream field was drilled and penetrated 185m net pay and
tested at a maximum flow rate of 2516 boepd this has provided sufficient information for the joint
venture to start development planning and the concept screening phase was completed in 2009
a decision on commerciality and further progression of the project will be taken in 2010 on the
nearby premieroperated pl406 licence preparations were advanced for the drilling of the
gardrofa prospect in the third quarter of 2010
on pl378 a discovery was made at grosbeak the well encountered oil and gas pay in the brent
and sognefjord formations respectively preliminary recoverable volumes range from 25 to 190
mmboe the grosbeak discovery will be appraised in the fourth quarter of 2010 and an exploration
well will be drilled to test the adjacent gnatcatcher prospect
since yearend a well on the greater luno prospect on pl359 encountered oil shows but has been
plugged and abandoned as a noncommercial well on pl374s a well on the blåbaer prospect
proved oil in the lower jurassic reservoir rocks which is being appraised with a sidetrack well
premier continues to evaluate options to grow the exploration portfolio in norway and the apa
and norway 21st licence rounds will be reviewed in 2010
congo
on the premieroperated marine ix licence the frida exploration well was drilled to a target depth
of 3250m wireline logging indicated that the well did not encounter significant hydrocarbons and
the well was plugged and abandoned in advance of the well premier reduced its equity in the
block to 315 per cent and consequently reduced the net financial exposure in the well to us84
million the results of the frida well are being incorporated into the existing 3d seismic database
prior to deciding whether to enter the next exploration phase in the fourth quarter of 2010
sadr
premier awaits resolution of sovereignty issues before pursuing exploration activities in this
prospective area the four sadr licences currently remain in force majeure
middle eastpakistan
pakistan
the k19 exploration stepout well was drilled in the nonoperated kadanwari lease the well
encountered 12m of high quality net gas pay in the esand interval of the lower goru formation
the esand interval tested gas at a maximum flow rate of 31 mmscfd at a flowing wellhead pressure
of 3743 psig with a 4064” choke the well was tied into the system in march and is producing gas
at a rate of 22 mmscfd
the bado jabal1 exploration well was drilled in 2009 in area a of the badhra block as a
deepening to the mughalkot reservoir development well this 5000m deep well identified both
lower goru and chiltan target formations but commercial quantities of gas were not encountered
since yearend a well targeting the pirkoh limestone in the qadirpur licence has been drilled it
reached target depth in march and is being plugged and abandoned as a dry hole
egypt
in the nonoperated nw gemsa licence a well on the geyad prospect in may encountered oil
bearing sands in the kareem formation and the field commenced production shortly thereafter
the shehab1 prospect on the same block was dry due to the lack of materiality of the block to
premier as a whole premier’s 10 per cent equity in the licence was sold for a consideration of
us148 million in december 2009
egypt continues to represent a target growth area for the company and consistent with our focus on rift
basin geology premier successfully bid for the south darag block in the gulf of suez in the egyptian
general petroleum corporation egpc 2009 bid round the block is in the process of being awarded
to premier subject to formal government approvals a work commitment comprising seismic
reprocessing geological and geophysical studies will be carried out during the initial exploration period