On Thursday, Premier Oil (OTCPK:PMOIY) reported net income for the first half of 2014 rose 7% to $172.7 million, following strong oil production from its North Sea oil fields. Average production for the first half of 2014 was 64,900 barrels of oil equivalent per day (boepd), which exceeded the company's expectations of around 60,000 boepd. New production from recently commissioned oil fields in Vietnam, UK and Indonesia and an end to its problems associated with the Huntington oil field in the North Sea helped the company exceed last year's average production of 58,600 boepd. Management has maintained its full year production guidance at 58,000 to 63,000 boepd, on uncertainty related to the completion of the summer maintenance programs.
A combination of high oil prices and increasing production helped drive operating cash flow up 35% on the same period last year, to $499.4 million. With strong operating cash flow, Premier Oil can fund its growing capital expenditure programme to develop existing oil fields and finance additional exploration spend. Premier Oil's Solan project, which is situated west of the Shetland Islands, is currently in the final stages of execution. Subject to favorable weather conditions, production should begin in the fourth quarter of this year. The initial gross production rate for the Solan field is estimated to be 24,000 boepd, and Premier Oil owns a 60% stake. Together with the company's additional developments in Vietnam, Norway and the Falkland Islands, Premier oil remains on track for its medium term production target of 100,000 boepd.
In my previous article on the company, "Premier Oil: Medium Term Production Target Of 100,000 BOE Per Day Remains Intact", I presented the bullish case for the company given its strong cash flow generation and the impact of commissioning new projects. At the time, Premier Oil had suffered production setbacks, and the company traded at a significant discount to its peers. With the improvement to operating cash flow and the optimistic outlook for increasing oil production, Premier Oil remains an attractive play in the mid-cap oil exploration and production sector.
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