Premier Oil provides a trading and operations update ahead of its 2010 Preliminary Results, which will be announced on 24 March 2011.

Simon Lockett, Chief Executive, commented: "Premier made excellent progress in its development and exploration activities during 2010. It is pleasing to start 2011 with exploration success at Varadero, which has given us even greater confidence in reaching our medium-term production target of 100,000 boepd. We look forward to a busy year as we continue to build our asset base."

Production 2010 saw strong production performance from fields in Indonesia and Pakistan, supported by growing gas demand in Singapore and Pakistan. This was offset by increased maintenance activity in the North Sea, particularly during the second half of the year. Estimated average production for the full year 2010 was 42.8 thousand barrels of oil equivalent per day (kboepd) (2009: 44.2 kboepd). Group production for the full year 2011 is expected to be in the range of 45-50 kboepd.

Gas production in Indonesia exceeded expectations and there was increasingly strong demand from Singapore. Block A's sales for the year averaged a record 160 billion British thermal units per day, a share of approximately 45% of deliveries, against a contractual share of 37%, under the existing Singapore gas sales contract.

Gas demand in Pakistan remained strong and 2010 production was in line with expectations. In recent weeks, we have experienced record production levels of 16.3 kboepd as we have successfully completed ongoing front-end compression projects and the drilling of further exploration and development wells on the Kadanwari field.

In December, several maintenance-related issues impacted UK production negatively. It was decided to shut down the Balmoral facility in mid-December in order to perform certain urgent maintenance activities. Production is currently expected to resume on 1 February. Scott field oil production was constrained during December as the gas export route was not operational due to shut-down valve issues. Full gas export resumed on 7th January. At Wytch Farm, the field was shut-down due to a leak on an in-field flowline discovered in mid-November. The operator has performed a full pipeline integrity study and production is expected to resume in the second half of January. 2010 production for the UK averaged 15.6 kboepd.

In Mauritania, the Chinguetti field has continued to perform above expectations averaging 8.8 kboepd (gross) for the year.

Balance sheet position Following the completion of a refinancing of the majority of Premier's bank debt in November, Premier has increased liquidity, with year-end cash resources and undrawn bank facilities (including letter of credit facilities) estimated at US$1.2 billion. The net debt position at year-end is expected to be around US$410 million, assuming a valuation of the outstanding convertible bond of US$220 million.

Development assets

Progress on Premier's three principal development assets continues to be in line with expectations and project schedules. First oil and gas from these projects is scheduled for 2011 or early 2012. These will support Premier's stated target of 75,000 boepd for 2012. Planned spend on production and development projects for 2011 is around US$525 million though this may increase as new projects are sanctioned.

Chim Sáo (Vietnam, Premier 53.125%, operator) The project remains on schedule for 1 July first oil and in line with originally budgeted costs. The FPSO conversion was around 85% complete at year-end and the facility is expected to leave the yard in mid-April. Development drilling continues to be on schedule.

Gajah Baru (Indonesia, Premier 28.67%, operator) At year-end, the project was 74% complete, on budget and on schedule for first gas in line with the contract schedule on 1 October. Development drilling continues according to schedule and is planned to complete in February. The Central Processing Platform construction is progressing satisfactorily ahead of the jacket load-out planned for May. Modifications to the Onshore Receiving Facility are on track for first gas date.

Huntington (UK, Premier 40%) The project has been sanctioned by joint venture partners and received approval by DECC on 15 November 2010. The FPSO charter party has been executed and upgrade work on the FPSO has commenced at the yard in Norway. Long lead items for the topsides and key subsea equipment are on order. A drilling rig contract has been awarded and development drilling is planned to commence in April 2011. Installation activities are planned for summer 2011 with the FPSO due to arrive in the field late in the third quarter or early in the fourth quarter. First oil is planned for late 2011/early 2012.

Pre-development assets

Asia North Sumatra (Indonesia, Premier 41.67%) Preparation on the invitations to tender for the EPCI contract have continued and their issue is imminent. First gas is expected in mid-2013.

Pelikan/Naga (Indonesia, Premier 28.67%, operator) Geotechnical surveys have been completed. Front End Engineering and Design (FEED) for the wellhead platforms, for the pipelines and for the subsea work has commenced. The project plan envisages first gas from both fields in late 2013 with gas being sold under the existing contracts to Singapore and Batam.

Dua (Vietnam, Premier 53.125%, operator) The FEED for the project and detailed cost analysis has commenced ahead of anticipated project sanction later this year.

North Sea Solan (UK, Premier option to participate 40%) Construction bids for the subsea tank have been received and are expected for the jacket imminently. Topsides FEED is in progress. Project sanction is expected in March 2011.

Frøy (Norway, Premier 50%) Work continues to mature the existing preferred concept, conduct pre-FEED work with third parties regarding the tieback opportunities, and to study the potential for improved recovery via gas injection.

Rochelle (UK, Premier 50% in Block 15/26b, 25% in Block 15/26c) Following on from the successful wells drilled last year, discussions relating to a tie-back of the field to the Scott platform are continuing between the field owners and the Scott partnership.

Bream (Norway, Premier 20%) Formal concept selection is targeted this quarter as previously planned, but is dependent on confirmation of the availability of the preferred production unit.

Exploration

In 2010 Premier drilled 12 exploration wells of which seven were successful. Notable successes included the Catcher wells on Block 28/9 in the UK. These were supplemented by the Varadero success on the same block announced in early January. Current programmes are focused on the UK, Norway, Egypt and Vietnam. Planned exploration and appraisal spend for 2011 is around US$200 million on a pre-tax basis.

2011 Exploration and appraisal programme

There are at least 20 wells currently drilling or planned for the remainder of 2011

Norway The Gnatcatcher well spudded on 24 December and is expected to reach its objective within the next week. The Grosbeak appraisal on the same block is scheduled to spud in March or April.

A letter of award has been issued for a drilling rig for the Gardrofa well, which is planned to commence drilling in the third quarter of this year.

UK Following the successful Varadero well previously announced, the next well on Block 28/9 will be either Burgman or Catcher North, with the drilling order dependent on the weather window available to move the rig from the Varadero location. The success at Varadero has de-risked several of the remaining untested prospects on the licence which could add considerable reserves to a Catcher development.

Egypt Following the agreement with Hess Corporation Inc. to farm in to 20% of the North Red Sea Block 1 concession, the Cherry well on the block has been spudded. A result is expected towards the end of the first quarter.

Vietnam The CRD appraisal well will now be spudded ahead of the Tuna drilling programme in Indonesia, using the same rig, the Ocean General, which is already located in Vietnam following its previous engagement. This well is expected to spud around the end of January.

Indonesia The two-well drilling campaign on the Tuna Block is now scheduled to commence later in the first quarter after the CRD appraisal in Vietnam has been completed.

The Benteng-1 well on the Buton licence is scheduled to spud in April 2011.

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