Premier Oil baron reveals the full drama behind the biggest find in decades – and somehow resists the urge to holler
In his modest offices in a quiet street in London’s Victoria, Tony Durrant speaks in the measured tones of a former banker.
This summer, though, he could have whooped like a Texas oil baron in cowboy boots and a Stetson hat because boy, did he strike oil – up to two billion barrels of the black stuff.
It was one of the biggest finds in the shallow waters of the Gulf of Mexico for decades. And the strike couldn’t have come at a better time for Premier Oil.
The company had only just finished talks with its lenders, a group of 40 banks, after more than a year of wrangling over its $2.8 billion (£2 billion) debt. So the boss grins from ear to ear as he remembers that day in July.
‘There was a buzz of excitement, everyone was chattering furiously and that’s always a good sign. You know from the moment you hit the top of the reservoir whether you’ve struck oil or water because the rock is different.
Then the longer the drilling continues and the deeper it gets, the better it is. In our case we’d continued till we got to the equivalent height of The Shard. All of that height was the right stuff, oil-bearing rock,’ he says.
The discovery meant Durrant could breathe a little easier.
Premier had been caught out by the drop in the price of oil and racked up huge debts developing $1.6 billion Catcher field in North Sea Under its new deal with its banks, Premier has to use the cashflow from the 80,000 barrels of oil a day it pumps to repay its debts for the next couple of years.
But after that it can continue with its exploration and production schedule including in Mexico, the North Sea and the Falkland Islands.
‘The banks understand that if we don’t keep moving forward we will disappear,’ says Durrant.
He is keen to dispel the public perception that Premier’s other key location, the North Sea, is in decline. This is simply at odds with reality, says Durrant. ‘As much as 40 per cent of reserves in the North Sea have not been produced.
The major oil companies have decided the UK North Sea is not their playground but that leaves opportunities for companies our size.
‘Over the last 12 months you have a generation of new players, some quoted companies like us, but at least three or four private equity firms investing in existing management teams doing reasonable sized acquisitions.
So there are at least half a dozen new firms that are committed to investing in the North Sea now.’
Premier discovered the Catcher oil field in 2010 and bought German energy giant E.On’s North Sea assets for $120 million in 2016. The firm currently produces 45,000 barrels a day in the North Sea and this is set to rise to more than 50,000 when the Catcher field comes on stream later this year.
The industry may have had to pare back operations in the face of a falling oil price, but costs have fallen sharply at the same time. That means it’s now viable to recover oil and gas from the North Sea. ‘We needed $35 a barrel to cover costs in 2012, and now it’s only $20,’ he says.
The oil price has fallen from $116 a barrel to about $55 after Saudi Arabia opened the taps three years ago. It aimed to protect its share of the world’s oil market by forcing rival rapidly growing US shale oil producers out of business. American shale oil firms need higher oil prices to make their operations economical.
Now Saudi Arabia and other big oil-producing countries believe their plan has worked. They are scaling back production to push oil prices up again.
Production information on American shale oil, which accounts for five million barrels out of a worldwide production of 95 million, is readily available and any slowdown is evident, says Durrant.
However, information on oil production across the rest of the world is less clear cut. ‘But I strongly believe the rebalancing of supply and demand is well under way,’ says Durrant. ‘So I think petrol is going to get more expensive for motorists – but I think the retailers do a pretty good job of jumping on any hint that the oil price is recovering anyway.’
Premier’s other projects include its Sea Lion field, jointly being developed with AIM- listed exploration company Rockhopper, 150 kilometres north of the Falkland Islands in the South Atlantic.
Durrant expects to make a final investment decision on the $1.5 billion scheme next year. Britain defeated Argentina in its war over possession of the islands in 1982.
Argentina continues to try to make life awkward. ‘As a project we have never needed Argentina, we don’t physically touch Argentina and we don’t use Argentinian companies. We have discovered 500 million barrels in the North Falkland basin but will develop 220 million barrels in the first phase.
These are fields which will produce for 25 years with first oil probably in 2022,’ he says. ‘This is a once in a lifetime opportunity for the Falklands to establish 100 years’ worth of revenue potential for everything they want to do in future – it’s a kind of sovereign wealth fund for the islands.’
He gives short shrift to the likes of Mark Carney, the Governor of the Bank of England, who have warned that oil companies’ reliance on fossil fuels risks leaving them with ‘stranded assets’ they cannot exploit as the world turns towards greener energy.
‘It’s easy to talk about making all cars electric but no one talks about how power will be generated to supply electrification. Renewable energy does not plug the hole in
future energy supplies. I don’t think the oil and gas industry has a ticking clock over it at all,’ he says. After his summer of good fortune, Durrant, who took home £1.4 million last year, can
afford to take a robust view of the world. After all, he has followed the maxim of the famous oil baron J Paul Getty: ‘Rise early, work late – strike oil.’
Premier had been caught out by the drop in the price of oil and had racked up its huge debts developing the $1.6 billion Catcher field in the North Sea. That meant white knuckles and wakeful nights for Durrant.
‘We lost $1 billion cashflow as a result of the oil price being lower than expected. Consequently, we had a billion dollars more debt than anticipated. Did I lose sleep?
Sometimes you don’t even get to sleep.
‘I know very personally that June 2014 was the peak of the oil price because that’s when I took over at Premier. It started to fall very soon after. But I knew we had a good business, we were just caught out by the commodity cycle,’ he says.
The Zama discovery off the Tabasco coast, in a consortium formed with a Mexican and a US firm at a cost to Premier of just $16 million, came at an opportune moment, sending Premier’s shares one third higher.
‘We certainly enjoyed telling our banks about it,’ he says. ‘We’ll see first oil in 2022 or 2023,’ he says.