annual report and accounts ...premier oil plc 23 lower belgrave street london sw1w 0nr tel: +44...

Premier Oil plc23 Lower Belgrave StreetLondonSW1W 0NRTel: +44 (0)20 7730 1111Fax: +44 (0)20 7730 4696www.premier-oil.com

www.premier-oil.comAnnual Report and AccountsYear to 31 December 2006

Annual Rep

ort and A

ccounts 2006

Designed and produced by greymatter williams and phoa, London. Photography by Mike Abrahams.

This annual report is printed on totally wood free paper from fully sustainable managed forests.

Premier is a leading FTSE 250 independent exploration and production company with oil and gas interests in Asia, Middle East and Pakistan, the North Sea and West Africa.

Our strategy is to add significant value per share through exploration and appraisal success, astute commercial deals and asset management.

Contents

Highlights 1Chairman’s statement 2

Section 1: PerformanceFinancial review 4Operational review 7Social performance summary 16Health, safety, environment and security summary 18

Section 2: GovernanceBoard of directors 20Corporate governance report 21Report of the directors 26Remuneration report 28Statement of directors’ responsibilities 38

Section 3: Financial statementsIndependent auditors’ report – group 39Accounting policies 40Consolidated income statement 44Consolidated balance sheet 45Consolidated cash flow statement 46Notes to the accounts 47Independent auditors’ report – company 67Parent company financial statements 68

Section 4: Additional informationFive year summary 79Shareholder information 80Oil and gas reserves 81Worldwide licence interests 82Contacts 84

� Operational•ExcellentexplorationresultsinIndonesiaandVietnam

withsevenoutof��successfulwells;•Goodprogressondevelopmentprojectsincluding

gassalesagreementsinIndonesia;•Threesuccessfulacquisitionsaddinglowcostbarrels;•Productionmaintainedat33kboepd;•Reservesandcontingentresourcesincreasedby

25percentto289mmboe;•NewacreageacquiredinIndonesia,Norway,Congo,

UKandVietnam.

Financial•ProfitaftertaxandEPSup75percenttoUS$67.6million,

82.6centspershare;•Operatingcashflowup�02percenttoUS$244.8million

(2005:US$�2�.2million);•FieldoperatingcostsstableatUS$6.0perbarrel

(2005:US$5.9perbarrel);•StrongbalancesheetwithnetcashofUS$40.9million

(2005:netdebtofUS$26.2million).

2007Outlook•Significantprogrammeofhighimpactwellsunderway;

upto�5explorationwellsplanned;•Keymilestonesonninedevelopmentprojectsduring

theyear;•Productionexpectedabove35kboepd,ontrackto

achieve50kboepdinmedium-term;•NewjointventurecompanyinMiddleEastexpected

tobuildonopportunitiesintheregion;

•EncounteredhydrocarbonsinPakistan(Qadirpurdeep)andIndonesia(IbuLembu),workongoing.

Highlights

Premier OilAnnualReportandAccounts2006

Highlights


2 Financial and operating performanceContinuingstrengthinoilandgasprices,especiallyinthefirsthalfoftheyear,supportedsalesrevenuesfromcontinuingoperationsofUS$358.8millionin2006(2005:US$359.4million).OfparticularnotewasthehighgasdemandinPakistanwhichledtorecordgasproduction.

ProfitaftertaxfortheyearwasUS$67.6million(2005:US$38.6million)reflectinghigherrealisedoilandgasprices.OperatingcashflowaftertaxandinterestwasUS$244.8million(2005:US$�2�.2million)whichfullyfundedourinvestmentsinexplorationanddevelopmentactivitiesandouracquisitionactivityintheyear.Netcashat3�December2006wasUS$40.9million(2005:netdebtofUS$26.2million).

Averageproductionfortheyearwasstableat33,000barrelsofoilequivalentperday(boepd)(2005:33,300boepd)andfinishedtheyearwithafinalproductionrateof34,300boepdthroughincreasedgasvolumesinPakistan.TheChinguettifieldinMauritaniawassuccessfullybroughton-streaminFebruary2006,butsubsequentlyproducedbelowexpectationsasaresultofreservoircomplexities.Followingareviewandthirdpartyapproaches,ithasbeendecidedtopursuesalediscussionswithalimitednumberofpartiesforourMauritanianassets.ThereforethefinancialresultsofouractivitiesinMauritaniaarereportedseparatelyfromallcontinuingoperationsintheattachedfinancialstatements.

Subsequenttoyear-endweexercisedapre-emptiverighttoacquireafurtherinterestintheScottfield.Oncompletion,thisinterestwilladdapproximately5,000boepdtoourcurrentyearproduction.

InadditiontothisincreasedinterestintheScottfield,wearepleasedtohavecompletedtwoseparatepurchasesofinterestsinNorthSumatraBlockAinIndonesia.Together,thesetakeourequityintheblockto4�.67percent.Theblockcontainsseveralundevelopedgasfieldswhichwillbedevelopedtosupplyexistinglocalfertiliserplants.AMemorandumofUnderstanding(MoU)forthesaleofthisgashasalreadybeensigned.ThereismuchfurtherprospectivityontheblockandinNorthSumatragenerally.

Oilandgasprovenandprobablebookedreservesamountto�65millionbarrelsofoilequivalent(mmboe),including�3mmboeacquiredwiththeScottfieldinterestsubsequenttoyear-end(2005:�64mmboe).Followingoursuccessfulexplorationactivityduringtheyear,andthecompletionofthetwoacquisitionsinNorthSumatra,totalreservesandresources,whichincludediscoveriesnotyetbookedpendingcommercialisation,haveincreasedtoanestimated289mmboe(2005:232mmboe).

Ourexplorationprogrammein2006deliveredsevensuccessesoutof��wells(includingtwosidetracks)atlessthantheplannedspendofUS$50million.OfparticularencouragementwerethetwodiscoveriesinVietnam,DuaandBlackbird.OurteamsinHoChiMinhCityandelsewherearenowmovingrapidlyintoplanningthedevelopmentofthesediscoveries.ThecontinuingsuccessinIndonesia,whereasoperatorwehavedrilled�3outof�5successfulwellsinthelastsevenyears,isalsopleasingandwearefollowingupwithanextensiveprogrammeofexploration,appraisalanddevelopmentin2007.

Beyondthesignificantcurrentyearplans,itisimportanttobuildafutureprogrammeofdrillingopportunities.Tothisend,wehaveaddedgoodqualitynewacreageinCongo,UK,VietnamandIndonesiaand,inearly2007,receivedfivenewawardsinthe2006NorwegianAPALicensingRound.DuringtheyearwequalifiedasanoperatorontheNorwegianContinentalShelfandthenewawardsincludeourfirstoperatedblock.

Chairman’s statement

Premier’sresultsfor2006reflecttheimpactofourqualityproducingassetsathigheroilandgasprices.Ourcommercialandoperatingsuccessesduringtheyearhavesignificantlyaddedtothisstrongbase.

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3Wecontinuetofocusonimprovingourconsistenthealth,safetyandenvironmentalperformanceandyetagainarepleasedtostatethatwehavebeatenourowntargetsinthisarea.

Shareholder returnsDuring2006Premiersharesincreasedinvalueby52percent.Overthefiveyearsto3�December2006,Premier’ssharepricehasincreasedby645percent.Thecompanycontinuedtobeatop�0performerintheFTSE250overthesameperiod.Thisexceptionalperformancehasreinforcedourpolicytorewardshareholdersprincipallythroughsharepricegrowthandtoutilisecashflowwithinthebusiness.

TheBoardannouncedon7December2006,thatithadterminatedalldiscussionsregardingapossibleofferforthecompanyfollowingtheearlierreceiptofapreliminaryandconditionalproposal.TheBoardremainsextremelyconfidentthatthepursuitofthecompany’sstrategyofhighimpactexplorationanditsgrowingportfolioofdevelopmentprojectswillcontinuetobeoflong-termbenefittoshareholders.

Board changesDuringtheyearwewerepleasedtoannouncetheappointmentofProfessorDavidRobertsasanon-executivedirector.Davidhasover30yearsexperienceinallaspectsofexplorationworldwideandwillprovideinvaluabletechnicalinputatBoardlevel.

Twonon-executivedirectors,AzamAlizaiandIanGray,retiredafter�0yearsontheBoard.Weareenormouslygratefulfortheircontributionsoverthislongperiodoftime.

OutlookItispleasingtoreportearlysuccessesindeliveringonthestrategictargetssetoutbytheBoardinSeptember2005.Inparticular,withgoodprogressonourdevelopmentprojectswefeelincreasinglyconfidentthatourproductionwillexceedthemedium-termtargetlevelof50,000boepd.Inaddition,thediscoveriesinVietnamareearlyevidencethatourexplorationstrategy–focusingoureffortsonatleastfourhighimpactwellsperyear–isbearingfruit.

2007promisestobeanotherexcitingyearforPremieraswecontinuetopursueourstrategy.WehavealreadyacquiredinterestsinexistingfieldssuchasNorthSumatraBlockAinIndonesia,andtheScottfieldintheUK.OurdrillingcampaignfortheyearisunderwaywithearlysuccessesinPakistanandIndonesiaandwithcurrentactivityinGuineaBissau,IndiaandtheUK.AdditionalwellswillfollowlaterintheyearinPakistan,IndonesiaandGabon.WewillbereturningforafurtherprogrammeinVietnamduring2008.IamconfidentthatwewillachievefurthersignificantmilestonesduringtheyearinourdevelopmentprojectsinNorway,Indonesia,PakistanandVietnam.

Thestrengthofourperformancehasgeneratedanexcellentsetoffinancialresultsandmaintainedoursolidbalancesheetposition.Wewillmaintainthisdisciplinedapproachasweenteraperiodofsignificantgrowth.

Sir David John KCMGChairman

During2006Premiersharesincreasedinvalueby52percent.Overthefiveyearsto3�December2006,Premier’ssharepricehasincreasedby645percent.

Chairm

an’s statement


4 Economic environment2006sawfurtherstrengthinoilandgascommoditypricesreachingapeakearlyinthesecondhalfoftheyear.TheBrentoilprice,whichbegantheyearatUS$58.9perbarrel(bbl),averagedUS$65.4/bblreachingapeakofUS$78.6/bblduringAugust.Gaspricesworldwidewerealsoboostedaccordingtothedegreeoflinkagewithcrudepricing.Theearlypartof2007hasseensomeweaknessinspotpricingwitharelativelywarmstarttotheyear.ForwardpriceshaveremainedaboveUS$60/bbl.

Strongcommoditypricesandincreasedindustryactivitylevelshavecontinuedtoputpressureonbothoperatinganddevelopmentcosts.Rigratesandotherdrillingservicecostsremainathistoricallyhighlevelsandshortagesofkeyvesselsandequipmentarecontributingtoprojectdelays.Theindustryisrespondingtocostandavailabilityissuesbyseekingoutnewengineeringandcommercialapproachestooptimiseuseofavailableresources.

Income statementProductionlevelsin2006,onaworkinginterestbasis,averaged33,000boepdcomparedto33,300boepdin2005.In2006thisincludedanaverageof2,400boepdfromtheChinguettifieldinMauritania.Onanentitlementbasis,whichallowsforadditionalgovernmenttakeunderthetermsofourProductionSharingContracts(PSC),productionwas28,900boepd(2005:28,700boepd).RealisedoilpricesaveragedUS$64.90/bblcomparedwithUS$48.38/bblinthepreviousyear.

Gasproductionaveraged�27millionstandardcubicfeetperday(mmscfd)(22,000boepd)duringtheyear,approximately67percentoftotalproduction.AveragegaspricesforthegroupwereUS$5.��perthousandstandardcubicfeet(mscf)(2005:US$3.82/mscf).GaspricesinSingapore,whicharelinkedtoHighSulphurFuelOil(HSFO),havemovedbroadlyinlinewithcrudepricing,averagingUS$9.43/mscf(2005:US$7.90/mscf)duringtheyear.

Totalsalesrevenuefromalloperationswas�2percenthigherthan2005atUS$402.2million(2005:US$359.4million)asaresultofthehigheraveragecommodityprices.ExcludingrevenuesofUS$43.4millionfromtheChinguettifield,salesrevenueforcontinuingoperationswasUS$358.8million.

CostofsalesdecreasedtoUS$�26.6millioncomparedtoUS$�76.5millionin2005.Theyear-endinventorypositionmovedfromastockoverlifttoanunderliftposition,drivenbythetimingofliftingsaroundeachyear-end,resultinginacredittocostofsalesofUS$22.3million(2005:chargeofUS$25.9million).Afterexcludingthisstockeffect,underlyingunitoperatingcostswerestableatUS$6.0perbarrelofoilequivalent(boe)(2005:US$5.9/boe)despitethegeneralriseinthecostenvironmentfacedbytheindustryinfuel,materialandwagecosts.UnderlyingunitamortisationamountedtoUS$6.3/boe(2005:US$5.5/boe).

ThecostofsalesandoperatingcostfiguresexcludethoserelatingtoMauritania,whichareseparatelyreportedinthebalancesheetandincomestatementasassetsheldforsale.TheresultsoftheMauritanianoperationincludeaone-offadjustmentforabonusofUS$9.2millionpaidtotheMauritanianauthoritiesonrenegotiationofthePSCdocumentationandalossonreclassificationasassetsheldforsaleofUS$8.�million.

Financial review

Operating cash flow

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5AdministrativecostsfellbyUS$3.0milliontoUS$�6.6million.ThisincludedachargeofUS$5.7millioninrespectofcurrentyearandfutureprovisionsforlong-termincentiveplans.

OperatingprofitswereUS$�78.5million,a4�percentincreasefromtheprioryear.FinancechargesnetofinterestincometotalledUS$5.7million(2005:US$�.�million).Pre-taxprofitswere37percenthigheratUS$�72.8million(2005:US$�25.8million).ThetaxationchargetotalledUS$86.7million(2005:US$86.3million)despitehigherprofitsbenefitingfromthefavourableresolutionofcertainoutstandingprioryearprovisions.Basicearningspersharefromcontinuingoperationsamountedto�05.3cents,anincreaseof��9percentonthepreviousyear.

Cash flowCashflowfromoperatingactivities,includingtheassetsheldforsale,amountedtoUS$244.8million,upfromUS$�2�.2millionin2005.ThesecashflowsincludedpaymentsofUS$3�.9millionreceivedfromthejointventureinPakistan(2005:US$47.�million).

Capitalexpenditureandpre-licenceexplorationexpenditureintheyearwasUS$�75.7million(2005:US$�44.4million).ThisspendincludedtheUS$�7.0millioncostofourfirstacquisitioninNorthSumatraBlockAinIndonesia(anequityinterestof�6.67percent)whichwascompletedinMarch2006.ExplorationspendingwasUS$46.9millioninlinewithourstatedtarget.

Netcashinflow,beforemovementsrelatedtofinancing,amountedtoUS$69.�million(2005:US$23.2millionoutflow).

Net cash positionNetcashat3�December2006amountedtoUS$40.9millionagainstanetdebtpositionofUS$26.2millionatthepreviousyear-end.Thiscomprisedcashbalancesandshort-terminvestments.Asaresultofthisstrongcashposition,theUS$275millioncreditfacilitywasundrawnatyear-end.Togetherwithitsstrongcashflowfromproducingassets,thecompanyisinanexcellentpositiontofundanincreasedexplorationanddevelopmentprogrammeoverthenextfewyears.

Hedging and risk managementTheBoard’spolicyremainstolockinoilandgaspricefloorsatalevelwhichprotectsthecashflowofthecompanyandthebusinessplan.Suchfloorsarepurchasedforcashorbysellingputoptionsataceilingpricewheremarketconditionsareconsideredfavourable.Alltransactionsarematchedascloselyaspossiblewithexpectedcashflowstothecompany;nospeculativetransactionsareundertaken.

Hedgesutilisingcollarswerepreviouslyenteredintofortheperiod�January2006to3�December20�0coveringninemillionbarrelsofoil(mmbbls).TheaveragefloorpricewasUS$37.42/bblwithaceilingpriceofUS$�00/bbl.Inaddition,384,000metrictonnes(mt)ofHSFO,representingtheequivalentofaroundathirdofIndonesiangasproductionfortheperiod�January2006to3�December2009wascoveredatafloorpriceofUS$200/mtandaceilingpriceofUS$480/mt.

Performance

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6 Duringthecourseof2006thevolume,pricingandmaturityofthesetransactionswerekeptunderreviewandchangesmadewheremarketconditionswerefavourable.Asat3�December2006,hedgescovered7.2millionbarrelsofliquidsfortheperiodto3�December20�0atanaveragefloorpriceofUS$38.55/bblandaceilingpriceofUS$�00/bbl.Afurther�.2millionbarrelsarecoveredfortheperiod�January20��to3�December20�2atafloorofUS$4�/bblandacapofUS$�00/bbl.Onthegasside6�2,000mtofHSFOarehedgedfortheperiod�January2007to30June20�2atafloorlevelofUS$245/mtandaceilingpriceofUS$500/mt.UnderInternationalFinancialReportingStandards(IFRS)IAS39,thesehedgesarerequiredtobemarkedtomarketatthebalancesheetdate.TheaggregatevaluationisaUS$0.3millionliability(2005:US$�.6millionasset)generatingaUS$�.9millionchargeinthe2006incomestatement.

SincethegroupnowreportsinUSdollars,exchangerateexposuresrelateonlytosterlingreceiptsandexpenditures,whicharehedgedindollartermsonashort-termbasis.ThegrouprecordedagainofUS$0.�milliononsuchhedgingatyear-end.

Cashbalancesareinvestedinshort-termbankdeposits,managedliquidityfundsandcommercialpapersubjecttoBoardapprovedlimits.Thegroupundertakesaninsuranceprogrammetoreducethepotentialimpactofthephysicalrisksassociatedwithitsexplorationandproductionactivities.Inaddition,businessinterruptioncoverispurchasedforaproportionofthecashflowfromproducingfields.

Key performance indicators

2006 2005 Change

LTIandRWDCfrequencyrate* 1.24 �.02 Up22%Production(kboepd) 33 33 –Cashflowfromoperations(US$) 244.8 �2�.2 Up�02%Operatingcostperboe(US$) 6.0 5.9 Up2%Gearing(%)** 0% 7% Down7%Realisedoilpriceperbarrel(US$) 64.9 48.4 Up34%Realisedgaspricepermcf(US$) 5.11 3.82 Up33%

* Losttimeinjuryandrestrictedworkdaycasespermillionman-hoursworked.

** Gearingisnetdebtdividedbynetassets.

Financial review continued


7Production and reserves2006hasseenkeymilestonesinanumberofourdevelopmentprojectsandinitialsuccessinourhighimpactexplorationprogramme.Thesearematerialstepsforwardinachievingourmedium-termproductiontargetof50,000boepdandingrowingourportfoliooffourregionalbusinesses.

Workinginterestproductionfor2006averaged33,000boepd.Comparableproductionfrom2005was33,300boepd.Productioncomprised33percentliquidsand67percentgas,withPakistanandIndonesiaeachaccountingforaround37percentand35percentofthetotalrespectively,theUK2�percentandWestAfricatheremainder.Onanentitlementbasis,groupproductionfortheyearwas28,900boepd(2005:28,700boepd).

Working interest Entitlement

Production(boepd) 2006 2005 2006 2005

NorthSea 6,850 9,750 6,850 9,750MiddleEast-Pakistan 12,150 ��,500 12,150 ��,500Asia 11,550 �2,050 7,800 7,450WestAfrica 2,450 – 2,100 –Total 33,000 33,300 28,900 28,700

Asat3�December2006provenandprobablereserves,onaworkinginterestbasis,basedonPremierandoperatorestimates,were�52mmboe.OnaproformabasistheScottfieldacquisitionwouldincreasereserveestimatesto�65mmboe.

Proven and probable Reserves and contingent reserves (mmboe) resources (mmboe)

Startof2006 �64 232Production (�2) (�2)Netadditionsandrevisions – 69End of 2006 152 289Scottacquisition* �3 �3Proformatotal �65 302

* Expectedtobecompletedinthefirsthalfof2007.

Atyear-end,reservescomprised�8percentliquidsand82percentgas,andtheequivalentvolumeonanentitlementbasisamountedto�32mmboe(2005:�46mmboe).

Bookedreserverevisionsrepresentthewrite-downof5mmboefromtheChinguettifieldinMauritania,offsetbyanincreaseinbookedreservesfromtheAnoafieldinIndonesiafollowingstrongofftakevolumesbythebuyersundertheexistingGasSalesAgreement(GSA).DiscoveriesmadeintheyearinVietnamhavenotbeenrecordedinbookedreserves,pendingcompletionofongoingappraisalandcommercialisationwork.Thesevolumes,togetherwithothersintheprocessofbeingcommercialised(includingunsoldgasinIndonesiaandotherdiscoverieswhichhavenotyetreceiveddevelopmentsanctionelsewhere)giveincreasedtotalreservesandcontingentresourcesof289mmboe(2005:232mmboe).

Exploration and appraisalPremier’sachievementingrowingitsexplorationportfolioinrecentyearsyieldedaseriesofexplorationsuccessesin2006andtheopeningupofsignificantfollow-onopportunities.Thecompanyhasalsocontinuedtoseekandsign-upnewprospectiveareasinitsNorthSea,WestAfricaandAsiaregions.

Operational reviewPerform

ance

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8 In2006Premierdrilled��explorationandappraisalwellswithasuccessrateofover60percent.InVietnamwedrilledthreewellsresultinginasuccessfulappraisalwellandtwonewexplorationdiscoveries.InourIndonesianWestNatunaBlockswemadethreediscoveries.FiveofthesesixwellswerePremier-operated,andPremier’sE&Asuccessratehascontinuedtoexceed50percentsince2000.InIndonesiawehavenowdrilled�3outof�5successfuloperatedexplorationwellssince2000.TheBlackbirdoildiscoveriesarethefirstinthevicinity,andopenupsubstantialfutureopportunitiesacrosstwolargetranchesofmostlyunexploredacreageinVietnam(Block�2andBlock7&8/97)andanotherlargetrancheinIndonesia(theTunaBlock),awardedinMarch2007.

ThesesuccessesinAsiahaveconfirmedthevalidityofourstrategyofextendingtheknowledgewehavegainedovermanyyearsfromourinterestsintheIndonesianNatunaSeaareaintotheneighbouringVietnamesewaters.Inaddingacreagearoundtheworldduring2006–inVietnam,inIndonesia,inCongoandinNorway–wehavebeenmindfulofstayingwithinourareasofcompetency.

PremierplannedtospendnomorethanUS$50milliononseismicanddrillingin2006.Inordertoensureabroadexposuretohighrewardprospectsand,atthesametime,keepthecostexposuredown,weundertookseveralfarmoutsreducingourequityinprojectsinreturnforfundingcurrentexplorationonfavourableterms.Theseprojectsincludefarmoutsforthe2006wellsinVietnamBlock�2EandW,andforthe2007wellsinGuineaBissau,theUKCSPeverilwellandthePhilippinesRagayGulfSC43licence.

2007seesaveryactiveexplorationprogramme,withEspinafre-�andEirozes-�beingdrilledoffshoreGuineaBissau,Peveril-�intheUKCS,Masimpur-3targetingalargestructureinNEIndia,severalexplorationwellsinIndonesia,adeep-waterwellinIndusoffshorePakistan,awellonourThemisBlockinGabon,andprogrammesunfoldinginVietnamfor3Dacquisitionandmorewellsdrillinginlate2007andthrough2008.The2007programmewillincludeupto�5wellsatanestimatedpre-taxcostofUS$�00million(post-taxandrecoveries:US$70million).

AsiaIndonesiaPremier’scoreassetinIndonesiaisitsinterestintheWestNatunaGasproject,whichsuppliesgasunderalong-termgassalescontracttoSingapore.ThisisheldthroughequityinterestsintheNatunaSeaBlockAandtheKakapPSCs.

In2006,Premier-operatedNatunaSeaBlockAsoldanoverallaverageof�30billionBritishthermalunitsperday(BBtud)grosswithafurther66BBtudgrossaveragesoldfromthenon-operatedKakapfieldsunderthesameagreement.OilproductionfromAnoaaveraged2,58�barrelsofoilperday(bopd)gross(2005:3,023bopdgross)withthereductionduetonaturaldepletionoftheoilreservoirs.OilproductionfromKakapaveraged6,998bopdgross(2005:7,263bopdgross).

Overall,netproductionfromIndonesiaamountedto��,550boepd(2005:�2,050boepd)withAnoaandKakapcontributing7,890boepdand3,660boepdrespectively.

Premier’scommitmenttohealth,safetyandenvironmentalperformancewasdemonstratedwiththeawardofOHSAS�800�andretentionoftheISO�400�certificationandIndonesia’s‘PROPERBlue’rating.

Operational review continued

Asia

India

Vietnam

Philippines

Indonesia


Performance

9TheWestLobewellheadplatformwasinstalledinApril2006withhook-uptakingplaceinMay2006.TheSeadrill-5jack-updrillingrigarrivedonlocationattheplatforminAugust2006todrillfourgasproductionwellsintotheWestLobeoftheAnoafield.AllwellsachievedtheirobjectiveswithfirstgasflowingfromtheplatforminDecember2006.Duringthedrillingcampaignanopportunitywastakentoappraiseanun-drilledpotentialoilreservoirinthecentralareaoftheAnoafield.Thewellsuccessfullyencounteredandevaluateda67ftoilcolumnbeforebeingsidetrackedtotheplannedgasdevelopmentlocationforthewell.Planningisnowunderwayforthedevelopmentoftheoildiscoverywithawellexpectedtobedrilledinthefirsthalfof2007whichisexpectedtoaddinitiallyupto2,000bopd(gross)toAnoaproduction.

NegotiationsforfurthergassalesfromNatunaSeaBlockAcontinuewithprospectivebuyersintheregionandwearetargetingsalesofgasfrom20�0totheSingaporepetrochemicalsector.DiscussionshavealsobeenheldwithPLN,theIndonesiannationalpowercompany,tosellgasdomesticallytoBatam.Weexpecttomovetodefinitivegassalesagreementsontheseprojectsduringthesecondhalfof2007.

The2006Indonesianexplorationdrillingcampaignresultedina�00percentsuccessratewithagasdiscoveryinMacanTutul-�andthediscoveryandtestingofoilandcondensaterichgasatLembuPeteng-�.LembuPetengformspartofatrendofstructuresthatstretcheseasttotheexistingLembu-�discovery,datingfrom�984.Furtherexplorationandappraisalwellsonthetrendareplannedfor2007toestablishthesignificanceanddevelopmentpotentialofthisareaaspartofthedrivetoensuremaximumvalueisextractedfromtheNatunaSeaBlockAasset.TechnicalstudieswerealsocarriedoutacrossotherareasonBlockAtoidentifyadditionalpotentialdrillingtargetsforthe2007drillingcampaign.Anumberofprospectshavebeenhighlightedforfurtherassessmentwiththefinalprogrammedependentonongoingworkandresultsoftheearlywells.

Duringtheyear,Premieracquireda�6.67percentstakeintheNorthSumatraBlockAPSC.InitiallyPremierpartneredwithJapexandMedcoholdingequalinterests.Afteryear-endPremierincreaseditsstakeinthePSCto4�.67percentbyjointlypurchasingtheConocoPhillipsshareofthePSCwithMedco.TheacquisitioncostforthetwotransactionswasUS$53million.

TheacreagecontainsundevelopeddiscoveriesontheAlurSiwah,AlurRambong,andJulyRayeufields,withcertifiedreservesofover650billioncubicfeet(bcf)ofgas.Thereissubstantialupsidefromaround20identifiedexplorationprospects,withtotalprognosedunriskedpotentialreservesof�.5trillioncubicfeet(tcf)gross,EnhancedOilRecovery(EOR)opportunitiesthroughredevelopmentofoldabandonedoilfields,aswellasfromthepossibledevelopmentofthegiantKualaLangsagasfield.SubjecttocompletingaGSA,firstgasisexpectedtocommenceinearly20�0,supplyingfeedgastotwofertiliserplantsinNorthSumatra.

InDecember,PremierwasawardedaninterestintheButonPSCinSouthEasternSulawesi.TheButonPSCcovers3,396km2andliesonthesouth-easternsideofButonIsland,Sulawesi,Indonesia.Itisanunderexploredblockinanonshorefrontierarea.Oilseepsareprolificovertheislandandvolumesofexpelledoilaresufficienttounderpinthecommercialasphaltminingoperationsthathavebeenongoingontheislandsincecolonialtimes.Theacreagehaspotentialformultipletargetsonstructuresthatareknowntoexistfromsatelliteimageanalysis.Ourinitialworkprogrammewillfocusonidentifyingprospectstosupportahighimpactdrillingopportunityin2009.PremierispartneredbyJapexandKUFPECinthisPSC,andholdsa30percentnon-operatedinterest.


�0 VietnamPremierdrilledthreesuccessfulexplorationwellsasoperatorandacquiredover�,500kmof2DmarineseismicdataonBlock�2.Thefirstdiscovery,Dua-4X,drilledinthenorthoftheDuafield,confirmedtheextentofanoilaccumulationfirstdiscoveredin�974withtheDua-�Xwell.Dua-4XwasthensidetrackedtodelineatethenorthernhalfoftheDuafield.TherigwasthenmovedtodrilltheDua-5XwellwhichintersectedoilinmultiplereservoirsinthesouthernpartoftheDuafield.Tworeservoirzonesweretestedandflowedatacombinedrateof6,947boepd.Dua-5Xwasthensuspendedasapotentialproducer.

Thesecondexplorationstructuretobedrilledwas20kmtothesouthwestatBlackbird,wherewell�2E-CS-�Xdiscoveredoilinmultiplereservoirzones,twoofwhichweretestedatacombinedrateof6,569boepd.Thiswellwassidetrackedtodelineatetheextentofthehydrocarbonbearingreservoir.Followingthisexplorationsuccess,PremierhascommencedappraisalanddevelopmentstudiesforeachoftheBlackbirdandDuadiscoveries.Oilinplaceacrossthetwodiscoveriesiscurrentlyestimatedtobeintherangeof�80to620mmbbls,ofwhichapproximately80mmbblsrepresentsmostlikelyrecoverablevolumes.Withfirstoilcurrentlyscheduledfor20�0,Premierhascommencedpre-developmentstudiesforbothfieldsandaprogrammeof3DseismicacquisitionisexpectedtocommenceinApril2007toclarifythevolumetricuncertaintyontheBlackbirdfield.TheDuafieldisalreadycoveredby3Dseismicdataacquiredin2005.The3DareawillbeextendedbeyondtheBlackbirdfieldtodefineotherprospectsaheadofthenextphaseofexplorationdrilling,likelytobein2008.Premierholdsa37.5percentexplorationworkinginterestinBlock�2,withpartnersSantos(37.5percent)andDelek(25percent).

InDecember,PremierexercisedanoptiontoacquirefromVAMEXa45percentworkinginterestin,andoperatorshipof,Block7&8/97.Block7&8/97islocatedimmediatelytothesoutheastofBlock�2intheNamConSonBasin.Interpretationof2DmarineseismicdatafromBlock7&8/97hasdemonstratedtheexistenceofthesameplayelementswhichcreatepetroleumprospectivityinBlock�2andthepotentialfornumerouslargestructuressuitableforhighimpactwelllocations.

IndiaDrillingcommencedonthehighimpactMasimpurprospectinAssamon2�January2007.Workisunderwaytoprepareforthedrillingoftwofollow-upwellstoMasimpuronthelargeHailakandiandKanchanpurgasprospects.RoadandsiteconstructionhasbegunatHailakandifollowingenvironmentalapprovals.PremierisoperatoroftheCacharBlockandholdsa�4.5percentworkinginterest.

AlloutstandingissueshavebeenresolvedbetweenthepartnersregardingthedevelopmentoftheRatnaoilfields,offshoreMumbai,anddocumentationleadingtotheformalsignatureofthePSCisbeingprogressedthroughtheministriesconcerned.Premierholdsa�0percent(carried)workinginterestintheRatnafields,estimatedtocontainaround80mmbbls.

PhilippinesDuring2006,PremieroperatedtheSC43licenceintheRagayGulfareaofSELuzonprovincewitha42.5percentworkinginterest.Seismicreprocessing,geologicalstudiesandpreparatoryworkforawellontheMonteCristoprospecthavebeencarriedout.GeologicalworkledtotheidentificationofanewprospectivetrendinthePanaonLimestoneformationandmarineseismicacquisitionisplannedin2007topursuethispromisinglead.Subsequenttoyear-end,Premierhasfarmedout2�.5percentofits42.5percentinteresttoPearlEnergyandPNOCinexchangeforacarryintheforthcomingwell,nowexpectedinthefirsthalfof2008.



��

EgyptPakistan

Middle East-Pakistan MiddleEast-PakistanPakistanTherecordproductionlevelachievedin2005wasexceededduring2006.ProductionnettoPremierin2006was�2,�50boepd,anincreaseof6percentover2005(��,500boepd).TheincreaseinproductionwasmainlyduetohighersalesfromtheZamzamafield,fromexceptionallyhighgasdemand.

Qadirpurproducedanaverageof3,866boepd,forPremier’snetinterestof4.75percent(2005:3,807boepd).TheprojecttoenhanceQadirpurplantcapacityfrom500mmscfdto600mmscfdwasongoingthrough2006andfirstgasfromthatincreasedcapacityisexpectedbytheendofDecember2007.ATermSheethasbeensignedwiththegasbuyer,SuiNorthernGasPipelinesLimited,toincreasetheAnnualContractQuantity(ACQ)fromtheexisting450mmscfdto550mmscfd.TheQadirpurDeep-�wellhasbeendrilledtoadepthof4,68�metres.Thewellencounteredhydrocarbonsinseveralzonesandwassuspendedwhenhigherthananticipatedtemperatureswereencountered.Specialistequipmenthasnowbeenorderedandtestingonthewellwillresumelaterin2007.

OnKadanwari,theK-�5wellwastiedbacktotheprocessingplant.Theadditionalproductionfromitcompensatedforthenaturaldeclineofthefieldandalsoprovidedsomeproductionredundancy.Thefieldproducedanaverageof�,200boepdduring2006(2005:�,228boepd)forPremier’sinterestof�5.79percent.ToexploitadditionalreservesinKadanwari,twowells(K-�6and�8)areplannedtobedrilledinthefirsthalfof2007.

Zamzamaproducedanaverageof4,�40boepd,nettoPremier,during2006fromits9.375percentinterest.Thiswassome�3percenthigherthanthepreviousyear(2005:3,677boepd).Workcontinuedin2006ontheZamzamaPhase2developmenttomakeavailablegross�50mmscfdhighcalorificvaluesalegasinthethirdquarterof2007.

TheproductionlevelintheBhitfield,fromPremier’s6percentworkinginterest,was2,944boepdin2006(2005:2,788boepd).AsupplementalGSAtoincreasetheBhitACQfrom270mmscfdto300mmscfdhasbeensignedbythegasbuyerSuiSouthernGasCompanyLimited(SSGCL)andbyjointventurepartners.TheBhitplantcapacityisbeingenhancedto3�5mmscfdtoallowacceleratedBhitfieldproductionandproductionofBadhrareservesstartingbytheendofthefourthquarterof2007.

InZarghunSouth,negotiationsontheGSAweresuccessfullyconcludedwiththegasbuyer,SSGCL,forthesaleof22mmscfdgasfromthefield.Thefielddevelopmenthascommencedandfirstgasisplannedforthefirstquarterof2009.Premier’sinterestof3.75percentiscarriedbytheoperator(otherthanforgovernmentcommitments)duringthedevelopmentandproductionphasesofthefield.

EgyptInEgypt,theAlAmir-2wellwasdrilledtoappraisethe2005AlAmirdiscoveryontheonshoreNorthWestGemsaConcession.Thediscoverywell,AlAmir-�,hadflowedoilatover750bopdfromtheSouthGharibFormation.TheAlAmir-2wellconfirmedoilatthesamereservoirlevel.However,ontest,thewellflowedwaterandoilatsub-commercialratesandwaspluggedandabandoned.TheAl-FagrwildcatwellwaspluggedandabandonedafterMDTtestswererun.Althoughshowswererecordedwhiledrillingandlogsdisplayedpossiblehydrocarbonsaturationsinthetargetsection,nohydrocarbonswererecoveredontest.Subsequenttoyear-end,Premierhasexercisedanoptionwiththeoperator,Vegas,toreduceitsinterestto�0percentintheblockwhichentitlesPremiertoapartialrefundofpastcosts.Premiercontinuestoparticipateinexplorationlicensingroundsandfarm-indiscussionswithaviewtobuildingonitspositioninEgypt.

Performance


�2 Ournewbusinesseffortscontinuetobefocusedonbuildingexistingrelationshipsintheregion.InFebruary2007wesignedanMoUwithEmiratesInternationalInvestmentCorporation(EIIC),anAbuDhabiinvestmentcompany,withaviewtoacquiringnewinterestsinAbuDhabiandelsewhereintheregion.

NorthSeaIntheNorthSea,Premieriscontinuingtopursuetheestablishedstrategyofseekingouthighimpactexplorationopportunitieswhilemaximisingthevaluefromitsexistingproducingassets.

UKProductionintheUKin2006amountedto6,850boepd(2005:9,750boepd)representing2�percentofthegrouptotal(29percentin2005).Thisrepresentsadecreaseofsome30percentonlastyear’slevelduetoacombinationofnaturaldeclineandspecificoperationalproblems.

TheWytchFarmoilfieldcontributed3,205boepdnetproductiontoPremier,down20percentonlastyear.In2006,theproductionperformancewasseverelyimpactedbyanumberofseriouswellfailures.InJanuary,theF05well,producing3,000bopdgross,failedandrequiredaworkover.ThewellwasbroughtbackonstreaminMarch.TheM07wellwascompletedandbroughtonproductioninFebruarybutwassuspendedduetoasuspectedcollapsedhole.Thesubsequentinterventionwasunsuccessfulandthewellwasredrilledandproductionre-establishedinJune.Year-endproductionrecoveredto27,000boepdgross(3,300boepdnet).Theoperator,BP,isplanningtocompletetwonewwellsandfourworkoversduring2007,togetherwithvariousplantupgradesandanewofficefacility.

NetproductionfromKylewas�,962boepd,down46percentonlastyear.Gasproductionremainedbelowtheannualtargetformostoftheyear,however,thiswascompensatedbyhigheroilproductionthatenabledKyletodeliverinlinewiththeannualcompositeproductionbudget.There-perforationoftheKyle-�5wellwasdelayeduntilOctoberandwhencompletedproduceddisappointingresults.TheK-�6wellthatwasscheduledtobedrilledin2006hasbeenrescheduledto2008.Thegasliftprojectthatwasoriginallyplannedtocommencein2006hasnowslippedandisexpectedtobecompletedinMay2007.ConcurrentlyfacilityupgradesarebeingundertakenonthePetrojarlBanffhostprocessingfacility.

IntheFifearea,Premier’snetproductionamountedto�,�56bopdfromtheFife,Fergus,FloraandAngusfields.TheAngusfieldwassuspendedinSeptemberafteraninterventionfailedandremainssuspendedsubjecttothejointventuredeterminingtheforwardstrategyforthisasset.TheFifeFPSOfixedcontracttermendsinDecember2007withdiscussionscurrentlyunderwaywithBluewatertoexercisethecontractextensionoption.

ScottandTelfordaccountedfortheremainderofnetUKproduction.InDecember,thecompanyreceivednotificationofHess’intentiontosellits20.05percentequityinterestintheScottfieldtoNexenPetroleumUK.PremierhassinceadvisedHessthatitispre-emptingtheproposedtransaction.UponcompletionoftherelevantSaleandPurchaseAgreement,Premier’sworkinginterestwillbecome2�.83percenteffective�January2007,representinganaverage2007entitlementof5,000bopdatexpectedproductionrates.

DetailedevaluationoftheUKexplorationportfoliocontinuedthroughout2006workingondevelopingtheprospectstodrillablecandidatesfor2007and2008,specificallyinBlocks23/22b(P��8�)and2�/7b(P��77)intheCentralNorthSea.Furthergeologicalandgeophysicalworkintegratedwithacomprehensivecommercialevaluationon


North Sea

UnitedKingdom

Norway


Performance

�3theSouthernNorthSeaportfolioofBlocks44/2�c,44/26b(P��84),Blocks42/�0,42/�5(P�229)andBlocks43/22b,43/23,43/27b,43/28and43/29(P�235)resultedinPremierhavingfulfilledtheworkobligationsfortheselicences,relinquishingtheminDecemberasnocommercialviablehydrocarbonprospectswereidentified.Integrationoftheresultsfromthe2�/6a-7wellonthePalominoprospectinlicenceP�048,whichwaspluggedandabandoneddryinJanuary2006,arebeingintegratedintotheadjacentlicenceP��77evaluationtoassesstheremainingprospectivity.

Premier’s�00percentequityintheFifeareaBlocks39/�cand39/2cwassuccessfullyfarmeddowntoa30percentequitylevelcarriedthroughtheforecastcostsofthePeverilprospectwell,whichspuddedon26March2007totesttheJurassicFulmarsandsinasimilarsettingtotheAngusfield.SignificantfollowonpotentialisprovidedbyBlocks39/�band39/7(P��52)whereadditionalprospectshavebeenidentifiedonthereprocessed3Dseismic.

TwolicenceapplicationsweremadebyPremierintheUK24thLicensingRoundcoveringBlocks�5/23c,�5/24a,�5/25fand�5/29e.InFebruary2007itwasannouncedthatPremierhadbeenawardedasplitportionofthe�5/24aapplicationarea.

NorwayThefivelicencesawardedtoPremierintheAPA2005LicensingRound,arebeingprogressedthroughtheworkprogrammestenderedtoreachcriticaldecisionpoints:drillordropforthreeofthelicencesbytheendof2007;accelerationofapossiblewellononelicenceanddevelopmentapprovalfortheFrøypotentialredevelopment.Theselicencesofferaspectrumofredevelopment,appraisalandexplorationopportunitieswhichhavethepotentialforbothearlyproductionandhighimpactexploration.ThefiveAPA2005licencesconsistofBlocks35/�2and36/�0licencePL378;Blocks�6/�(part)and�6/4licencePL359,Blocks34/2and34/5licencePL374(s),Blocks34/4(part)and34/5licencePL375,andBlocks25/2,25/3,25/5and25/6PL364Frøy.

TheFrøyfieldwasabandonedin200�byapreviousoperatorinamuchloweroilpriceenvironmentandduetotheimminentabandonmentofthenearbyFriggfieldtowhichitwastiedback.TheFrøyfieldisthesubjectofextensiveredevelopmentstudieswithplanstoseekearlydevelopmentapprovals.

PremierwasveryactiveintheAPA2006LicensingRound,submittingapplicationsforfivepotentiallicences.ThelicenceroundannouncementinJanuary2007confirmedthatwehadbeensuccessfulinsecuringfivenewlicences,includingtwolicencesintheverycompetitiveBreamdiscoveryarea.ThelicenceinterestsobtainedintheAPA2006Roundareasfollows:

Block no. (or part block no.) Working interest % Operator

�7/8,9,��,�2&�8/7,�0(Breamappraisal) 20 BritishGas7/�2,8/3,9/�,�8/�0&�8/��(Breamexploration) 40 PremierOil3�/3,32/�,36/�0 40 Revus35/9(part) 25 Nexen35/8 �5 Nexen

TheBreamappraisalareacontainstheBreamdiscoverywhichistobeappraisedbyawellwithadeclarationofdevelopmentbytheendof2008.ContingentuponasuccessfulappraisaloftheBreamstructure,thepartnershipgroupwilldrillafurtherexplorationwelltotargetadditionalresourcesidentifiedinthishighlyprospectivearea.


�4 PremiersuccessfullyqualifiedasanoperatorinNorwayin2006andtheawardasoperatorfortheBreamexplorationacreagereflectsPremier’scommitmenttodevelopabusinessinNorway.Thelicencehasafive-yearfirst-termdurationrequiring3Dseismicacquisitionandafirmwell.

Blocks3�/3,32/�and36/�0areadjacenttothePL378licenceandhelpinthedevelopmentofacoreareaaroundtheTampenSpurforPremier.TheremainingtwolicenceawardsareadjacenttotheGjøafieldwhichiscurrentlybeingdevelopedandoffersomeinterestingstratigraphicpotential.

WestAfricaMauritaniaTheChinguettioilfieldstartedproductioninWoodsideoperatedPSCBon24February2006ataninitialrateof70,000bopd(5,600bopdnettoPremier).Thefieldislocatedin800mofwatersome90kmwestofthecapitalNouakchott.

Theinitialdevelopmentofsixproductionwellsandthreewaterinjectorsdidnotperformtoinitialexpectationsin2006.Thisistheresultofgreaterthanexpectedreservoircompartmentalisationduetoreservoirgeometryandcomplexstructure.Productionattheendof2006wasintheregionof22,000bopd(�,780bopdnettoPremier).RemedialactiontoincreaseproductioncommencedinlateDecemberwiththedrillingoftheChinguetti-�8well.Thiswellencountered35metresofnetoilpay,closetoexpectations,andwasbeingcompletedattheendofthereportedperiod.Additionaldevelopmentdrillingisplannedinthethirdandfourthquarterof2007,withuptosixwellsbeingconsidered,whichwouldextendthedrillingcampaigninto2008.

Theperformanceoftheinitialdevelopmentwellshashadanimpactontheexpectedreservesofthefield,withtheoperator’sprovenandprobablereservesbeingreducedfromthepre-developmentexpectationof�23millionbarrelsofoil(mmbo)to62mmbo.Furtherrevisionsareexpectedasaresultofa3Dhigh-resolutionand3Dseismicsurveythatistocommenceinthefirsthalfof2007overthefield.Premierexpectsthat,asaresult,the2Preserveswillberevisedupwardsinthecourseoftheyear.Thereservesarealsoexpectedtoincreasewithfurtherphasesofdevelopmentdrilling,ifcommerciallyviable.

In2006,theMauritaniangovernmentchallengedcertainamendments(avenants)toWoodsideoperatedconcessions,includingthoseinwhichPremierhasaninterest(PSCsAandB).ThisresultedinthejointventuressigningrevisedPSCswiththeMauritaniangovernmentinJune2006,underwhichthefiscalprovisionsinthecontractswerealteredtoreflectthehigheroilpricesprevailingatthattimeatanetcosttoPremierofUS$9.2million.

TwoexplorationwellsweredrilledinPremier’sMauritanianacreage,Dore-�inPSCBandColin-�inPSCA.Bothwellsfailedtoencounterhydrocarbons.Athirdwell,Kibaro-�,whichhadbeenplannedtotestaCretaceousobjectiveinPSCA,wasdeferredto2008duetorigschedulingnecessitatedtodrilltheChinguetti-�8well.

InDecember,followinganumberofapproaches,theBoarddeterminedthatourinterestsinMauritaniawereunlikelytogeneratehighimpactexplorationopportunitieswhichareourkeytargetsintheregion.Accordingly,wehavedecidedtoconductanauctionwithaviewtothesaleoftheasset.TheresultsoftheMauritanianoperationhave,therefore,beenclassifiedseparatelyinthefinancialstatementsunder‘assetsheldforsale’.


West Africa

SADR

Mauritania

GuineaBissau

Gabon

Congo


Performance

�5GuineaBissauDuring2006processingofthe20053DseismicdataovertheEirozesprospect,andre-processingoftheexisting3DseismicovertheEspinafreprospect,werecompleted.ThetwodatasetswereinterpretedtomaturetheEspinafreandEirozesprospectsfordrilling.

TheGlobalSantaFejack-uprig‘Baltic’wascontractedforatwowellprogrammecommencinginthefirstquarterof2007.TheEspinafre-�wellwaspluggedandabandonedon23March2007afterencounteringholestabilityproblems.Thesecondwell,Eirozes-�,wasspuddedon3�March2007.

Asuccessfuloutcometotheprogrammecouldleadtoasignificantincreaseinvalueandenhancetheprospectivityofanumberoflookalikeprospectsontheblock.

GabonIn2006bothexisting2Dand3DseismicdataontheSterlingEnergyoperatedThemisPermitwerere-processed.Theresultsoftheinterpretationofthisre-processeddatahavebeenincorporatedintoablock-wideunderstandingoftheprospectivitytomatureaprospectfordrilling.Premier,asdrillingoperatorforthejointventure,hascontractedtheGlobalSantaFe‘Adriatic6’,todrillthisexplorationwell,whichwilltakeplaceduringthethirdquarterof2007.

DatainterpretationandstudiesontheDussafuPermithavebeencarriedoutduring2006leadingtodevelopmentofaleadsandprospectsportfolio.Thiswillbeusedtofindpotentialtargetsfordrillinginthefourthquarterof2007,orthefirstquarterof2008.

CongoDuring2006,Premierwasawardeda58.5percentoperatedworkinginterestinBlockIX,withitsjointventurepartnersOphirEnergyCompanyLimitedandtheCongonationaloilcompany,SNPC.ThePSCwasratifiedbytheCongoleseParliamenton5October2006.Theblockcontainsseveralprospectswithhighimpactexplorationpotential.Technicalevaluationisongoingwiththeexpectationthatthefirstwellontheblockcouldcommencein2008.

SADRThecompany’sexplorationassetsintheSaharawiArabDemocraticRepublic(SADR)remainunderforcemajeure,awaitingresolutionofsovereigntyunderaUnitedNationsmandatedprocess.


�6 Premieriskeenlyawareofitsresponsibilitiesasacorporatecitizen.BackedbyastrongBoard-levelcommitment,wehavedesignedandimplementedacoherentsetofpoliciesthatlaydowntheprinciplesbywhichwemanageouroperations,ourrelationshipswithcommunitiesandourimpactontheenvironment.

Weareengagedinthebusinessoffindingandproducingoilandgas.Morespecifically,wespecialiseincarryingoutthistaskinremotelocationsanddevelopingcountrieswhereboththerisksandrewardsmaybegreaterthaninlesshazardousandmorematurecountries.Ouraimistomanagetherisksandmaximisetherewardstothebenefitofallourstakeholders.Allofourinvestmentandoperationaldecisionstakeaccountofthesocialandenvironmentalimpactsthattheywillcause.

Ourcommitmenttocorporatesocialresponsibilityisstructuredtocreatealignmentbetweenourcommercialobjectivesandtheethicalstandardsthatwebelievearenecessarytomaintainourreputation.Aspartofthiscommitment,weregularlypublishinformationaboutoursocialandenvironmentalperformance.During2006,wecontinuedtoworkcloselywithlocalcommunities,businesspartnersandregulatoryauthoritiestomakeapositivedifferencewithinthelocalitieswhereweoperate.

Social initiativesInIndonesia,wefundedandparticipatedinaJakarta-basedinitiativeaimedatimprovingthefutureprospectsofstreetchildren.Thisincludedtheprovisionofconstructiveactivitiesforthechildren,facilitatingeducationalopportunities,andstrengtheningthecommunity’sabilitytodevelopsustainablelocalinitiativestoaddresstheirneeds.ThisprogrammewasimplementedbySavetheChildrenUSA–withwhomwehaveaglobalpartnership–andlocallybasedNGOs.

OnMatakIsland,wherewehavehadanoperationsbasesince�998,wehavecontinuedtopursueoursustaineddevelopmentprogrammefocusedonimprovingpublichealthandeducationfacilitiesforthecommunity.ThenewhealthclinicinthevillageofPayamalan,fundedbyPremierandmanagedbythelocalauthorities,hassignificantlyupgradedthestandardofhealthcareontheisland.

WedonatedmoneytohelplocalcommunitiestobuildsheltersinYogjakartaafteranearthquakedestroyedmanyhomes.WealsodonatedmoneytothePhilippinesRedCrosstohelptheirreliefeffortsfollowingTyphoonDurianinlate2006.

InIndia,wesupportedseverallocalschoolsinAssambydonatingneweducationalequipment,rebuildingplaygroundsandsupplyingnewfurniture.Afterlocalcommunityconsultation,weupgradedaccessroadsandwatersupplies,andprovidedfirstaidtrainingandinformationonsnakebites,malariaanddysenterytokeycommunityrepresentatives.

InVietnam,Saigon’sChildren’sCharityandPremieropenedtwoclassroomsforTanHungPrimarySchoolintheDongPhuDistrict,BinhPhuocProvinceincollaborationwiththelocalEducationDepartmentofBinhPhuoc.46childrenaged5to�2,mostofwhomarefromethnicminorities,willattendthisnewschool.

Climate changeAsacompanywithastrongawarenessoftheimpactouroperationshaveonthosearoundus,wehavearesponsibilitytoexamineourpositionwithrespecttoclimatechange.Webelievethatweshouldcontinuetolookforwaysinwhichwecanhelpaddressglobalconcernsaboutthisissue,atthesametimeasstrivingtomeettheworld’sgrowingdemandforenergy.Wehavedevelopedastrategicapproachwhichwebelievewillenableustomaintainouroperationalefficiency,whileminimisingourimpactontheenvironment.

Firstly,wemonitor,measureandreportouremissions,andhavebeencontributingsafetyandenvironmentaldatatotheInternationalAssociationofOilandGasProducers(OGP)

Social performance summary


Performance

�7forthepastfiveyears.Thenwemanagetheemissionsfromouroperations,inaccordancewithourpolicyofminimisingthereleaseofhydrocarbongasesthroughventingandflaring,asfarasreasonablypracticable.

Wearecontinuouslymakingeffortstoimproveenvironmentalperformanceacrossallourofficesaroundtheworld.AtourLondonHeadOffice,forexample,wehavechangedourelectricityserviceprovider,sothatallourelectricityisnowsuppliedfromrenewablesources.Wehavelaunchedaschemetoreducethevolumeof‘hardcopy’companyinformation(includingtheAnnualReport)sentouttoshareholdersandstakeholdersbyencouragingthemtoreceivethisinformationelectronically.Underthisscheme,wehavepledgedtodonate£�toClimateCareforeveryshareholderthatregistersfore-communication.ClimateCare(www.climatecare.org)isanot-for-profitorganisationthatfundsglobalsustainableenergyandforestrestorationprojectsaimedatreducinggreenhousegases.

An ethical approach to business AtPremierweseethesocialandpoliticaldimensionsofourbusinessnotonlyaspotentialrisks–areasfordamagelimitation–butaspotentialopportunities.Wecontinuetoincorporateanawarenessofenvironmental,socialandpoliticalissuessystematicallyintothewaywemakedecisionsandcarryonouroperations.

Weareanactiveparticipantintheglobaldialogueoncorporatesocialresponsibilityissues.AsasignatorytotheUnitedNation’sGlobalCompact(www.unglobalcompact.org),wehavemadeanundertakingtoparticipateinarapidlygrowingmovementtounderpinglobalmarketswithuniversalprinciplesandtherebyhelprealisetheSecretaryGeneral’svisionofamoresustainableandinclusiveglobaleconomy.WeareaparticipantintheUNEnvironmentalProgramme’sProteusProject,whichseekstocreateasystemformonitoringandmanagingbiodiversityissuesonaglobalbasis.WesupportMonashUniversity’sCentreforHumanRights,whichmonitorsandreportsonhumanrightsissuesaroundtheworld.

InJune2006wepublishedourbaselineSocialandEnvironmentalReport,thefirstsincethecompanywasrestructured.Thisreporthighlightedourinitiativesinlocalcommunitiesalongwithourenvironmentalandsafetyperformances.ThepreparationsforournextSustainabilityReportarealreadyunderway.Asaframeworkforthisdocument,wehavedecidedtouseacombinationoftheGlobalReportingInitiative(GRI)guidelinesandtheInternationalPetroleumIndustryEnvironmentalConservationAssociation’s(IPIECA)socialandenvironmentalperformanceindicators.

CorporatesocialresponsibilityhasbothpracticalandethicaldimensionsforPremier.Itisaboutdoingtherightthingaswellasmanagingriskandprotectingourreputation.Itisaboutinvestinginthecommunity,protectingtheenvironmentandcreatingaculturewhichpromotesfairness,understandingofothersandapositiveapproachtolife.

PeopleWeaimtoattract,developandretaintalentedandcommittedpeopleinordertomaintainthecapabilityofthegrouptodeliverourbusinessobjectives.Ourpolicyistoensureequalopportunityincareerdevelopment,promotion,trainingandrewardforallofouremployees.Weaimtoensurethatallouremployeesunderstandourbusinessgoalsandourvalues.

Asaninternationalgroup,webelievethatourworkforceshouldreflectthecommunitiesinwhichweoperate.Itisthereforeimportantthatweincreasethequalityandexperienceofourlocalemployeesinordertoincreasethenumberoflocalleadersthroughoutthegroup.Wearethereforerunningprogrammesdesignedtoensurethatasmanyofourlocalstaffaspossiblearegiventheopportunitytospendtimeworkinginotherofficesinthegroupandthusdevelopagreaterperspectiveofouractivities.


�8 Activity highlightsAtPremier,wearecommittedtoprovidingasafeplaceofworkforallouremployeesandcontractors.OurHealth,Safety,EnvironmentandSecurity(HSES)policyis‘toensurethattheimpactofouractivitiesonthehealthandsafetyofouremployees,andofallpersonnelaffectedbyandinvolvedinouractivities,willbereducedtoalevelthatisaslowasreasonablypracticable;tomaintainthesecurityofourpersonnelandassets;andtostrivetoachieveexcellenceinenvironmentalperformance’.WeareextremelypleasedtoreportthatourexcellentHealthandSafetyperformancerecordhasbeenmaintainedforanotheryear.

Oursuccessisnotjustmeasuredbyourcontinuedimprovementinmeasurablekeyperformanceindicators(KPI)butalsothroughaccreditationbythirdpartiesofourcapabilities.

In2004Premier’sglobaldrillingfunctionwasthefirstintheindustrytoachievecertificationtobothISO�400�andOHSAS�800�.In2005ourIndonesianproductionoperationsalsoachievedISO�400�.In2006ourdrillingfunctionretaineditscertificationandourIndonesiaproductionoperationsretainedISO�400�andachievedOHSAS�800�.

ISO�400�isaninternationalstandardtowhichacompany’senvironmentalmanagementsystemmaybecertified.OHSAS�800�isastandardtowhichacompany’shealthandsafetymanagementsystemmaybecertified.CertificationdemonstratesthatanaccreditedcertifyingbodyhasindependentlyverifiedthatPremier’smanagementsystemsfullycomplywiththestandard.SuccessfulcertificationandongoingsurveillanceauditsconfirmPremier’scommitmenttocontinuetomeetthehigheststandardswhereverwedrilloroperate.TheregulatoryauthoritiesintheUKandNorwaynowrequireoperatorstohaveestablishedhealth,safetyandenvironmentalmanagementsystems.ThiscertificationconfirmedPremierasfullycompliantintheUKandcontributedtothesuccessfulawardofoperatorshipstatusinNorway.

Health and safety PremierisfullycommittedtoexcellentHSESperformanceandrecognisesthatthisrequiresspecialistresources,particularlyinnewandremoteareaswhereincreasedeffortmayberequired.OurHSESfunctionisheadedbyaGroupHSESManagerbasedinthecorporateheadquartersinLondon.HeissupportedbydedicatedlocalHSESteamsinIndonesiaandIndiaandrovingteamsofretainedadvisorsforothercountriesofoperation.Theseteamshavebeenselectedfortheirindividualexpertiseinseismic,drilling,constructionandproductionoperationsbothonshoreandoffshoreandarefurthersupportedbyretainedspecialistsinareassuchasquantitativeriskassessment(QRA)andenvironmentalimpactassessments.In2006wecontinuedspecialisttraininginemergencypreparedness,andregularlytestedemergencyresponseplanstoensurereadiness.Theseskillsandresourcesformanessentialpartofourworldwidecrisismanagementteamsandbusinesscontinuityplans.

TheprimaryhealthandsafetyKPIusedbyPremieristhelosttimeinjuryfrequency(LTIF).However,weprefertoreportoursafetyperformanceintermsofbothlosttimeinjury(LTI)andrestrictedworkdaycase(RWDC)frequencytobettercaptureoursafetyperformancetrends.In2006weworkedsome3.3millionman-hours,up�4percentfrom2.9millionin2005.TheresultantcombinedLTIandRWDCfrequencywas�.24permillionman-hoursfortheyearwhichwasmarginallyworsethan2005(�.02).The2006performancerepresentsa�5percentimprovementfrom2004(�.43),whichwebelievedemonstratesasustainedimprovementovertime.

Health, safety, environment and security summary


�9InthearenaofprocesssafetywerevisedthesafetycaseweintroducedfortheAnoafieldinIndonesiatoincludethenewWestLobewellheadplatform.Weenhancedourmaintenancemanagementsystemtoidentifyandcapturesafetycriticalequipmentperformanceandweareworkingtowardsafullverificationschemetoconfirmthatequipmentperformancemeetstheexpectationsinthesafetycase.In2007wewillhaveanewinitiativeontheidentificationandindepthanalysisofincidentsand,asimportantly,nearmisseswhichhavethepotentialtocausefatalityormajorenvironmentalorassetdamage(HighPotentialIncidents).

Welookedhardatthehealthofallpersonsworkingoffshoreorinremoteareasandthefitnessforworkhealthexaminationstheyundertake.Wenowencourageallemployeestoincludeastresscardiogramtesttoconfirmthattheydonothaveanyincipientheartconditions.Wherepracticableweareexpandingthisprogrammetoincludeallconsultantsandcontractors.Throughourtravelriskassessmentprocessweareendeavouringtoensureallbusinesstravellersaremadefullyawareoftheinoculationsnecessaryattheirdestination,anyspecificornewhealthrisksandappropriatecontingencymeasures.Thisisparticularlyrelevantwhentravellingtomosquito-proneareasorareaswithknowncasesofdiseaseoutbreaksuchasBirdFluorCholera.

EnvironmentIn2006therewere29reportedenvironmentalincidentsworldwide.Mostoftheseincidentsinvolvedsmallspillsofhydraulicoil,dieselorchemicalstothedeckandwerenotdischargedoverboard.Weincurredonlyonesignificantincident,whichinvolvedthespillofsome40barrelsofoil-basedmudtoseafollowingawellkick.Thespillhadaveryminoreffectontheenvironmentandquicklydissipated.However,thisincidentwasclassifiedas‘highpotential’andhasbeenthoroughlyinvestigatedandcorrectiveactionsimplementedtopreventitrecurring.

In2003Premierstartedtocollateenvironmentalperformancedataforpublicreporting.Weincludedthisinthe2004PremierSustainabilityReportandfollowedtheGlobalReportingInitiative(GRI)reportingframework.In2004and2005weimprovedonthisstrategyandpublishedthefindingsinourSocialandEnvironmentalResponsibilitiesReport,issuedlastyear.Thecollationofperformancedatahascontinued.Withthesecomprehensivedatasetswearenowinapositiontoidentifyhistoricaltrendsandlookatannualandfiveyearlyforecasts.Inlinewithourstrategyofreducingourcarbonfootprint,wearelookingspecificallyatatmosphericemissionsandhaveidentifiedandmeasuredallgreenhousegasesemanatingfromouroperations.Withthisinformationwemaynowhighlightareaswhereweshouldconcentrateonimprovementsandsettangibleimprovementtargetsforthefuture.

2005sawusincludebiodiversityinourcorporateHSESPolicy.WehavedeliveredonthispolicyandincluderiskstolocalbiodiversityaspartofourEnvironmentalImpactAssessment(EIA)process.WhereverpracticablewehaveengagedwithlocalstakeholderstoensurethatwehavethebestbaselinedataavailableandthatthisisreflectedinourEIAs.

SecurityWehavenowembeddedsecuritythreatassessmentsaspartofourriskmanagementprocessandarepleasedtoreportthattherewerenomajorsecurityincidentsduringtheyear.Wehavetakentheopportunitythisyeartointegrateoursecurity,businesscontinuity,disasterrecoveryandemergencyresponseprocesses.WeconductedexercisesinLondontosimulatethelossoftheheadofficeduetofireorterroristincidentandtheseconfirmedthatwewouldbeabletocontinuebusinesswithoutsignificantimpact.

Performance


20 Tony Durrant(48),joinedPremierinJune2005.AfterqualifyingasaCharteredAccountantwithArthurAndersen,hejoinedLehmanBrothersinLondon,initiallyasanoilsectoranalyst.HejoinedtheinvestmentbankingdivisionofLehmanin�987andfrom�997wasaManagingDirectorandHeadoftheirEuropeanNaturalResourcesGroup.Inthisrole,hemanagedbothclientrelationshipsandnumeroustransactionsforavarietyofEuropeanandNorthAmericanclients.Heisanon-executivedirectorofClipperWindpowerplc.HejoinedthePremierBoardon�July2005asFinanceDirector.

Ronald Emerson(60),joinedPremier’sBoardasanon-executivedirectorinMarch200�.Hehasheldanumberofseniorpositionsinthebankingsector,includingrolesatBankofAmerica,NomuraBankand,mostrecently,withStandardCharteredBankwherehewasChiefExecutiveoftheirMalaysiaoperationsbeforebecomingtheGroupHeadofCorporateBanking.HewasaSeniorAdvisortotheBankofEnglandbetween�997and�998,andtotheFinancialServicesAuthoritybetween�998and2000.Heisanon-executivedirectorofAceEuropeanGroupLtd,aBermudabased,NewYorklistedinsurancecompany.MrEmersonisChairmanofPremier’sAuditandRiskCommittee,andamemberoftheRemunerationandNominationCommittees.

Neil Hawkings(45),joinedPremierin2005aftermorethan20yearswithConocowhereheworkedinavarietyofengineering,commercialandmanagementrolesaroundtheworld,undertakingassignmentsintheUK,DubaiandIndonesia.HejoinedthePremierBoardon23March2006asOperationsDirector.

Sir David John(68),becamenon-executiveChairmanon�March�998.Hewasnon-executiveChairmanoftheBOCGroupplcfromJanuary�996untilJanuary2002andiscurrentlyChairmanofBalfourBeattyplcandtheBritishStandardsInstitution.SirDavidisaMemberoftheCBI’sInternationalAdvisoryBoard,andistheChairmanofPremier’sNominationCommittee.

Robin Allan(47),joinedPremierfromBurmahOilin�986,workinginitiallyasageologist.AftertechnicalandnewventureroleshespentsixyearsinSouthEastAsia,initiallymanagingPremier’sAsianexistingandnewventurebusinessandlaterbecomingPremier’sCountryManagerinIndonesia.HebecameamemberofthePremierBoardon9December2003asDirectorofBusinessDevelopment.

Scott Dobbie(67),joinedPremier’sBoardasanon-executivedirectorinDecember2000.Hehasacareerbackgroundinstockbroking,asManagingDirectorofWoodMackenzieandsubsequentlyChairmanofNatWestSecurities.HeiscurrentlyChairmanoftheSecurities&InvestmentInstitute,TheEdinburghInvestmentTrustplcandofStandardLifeEuropeanPrivateEquityTrust.HeisalsoaCommissioneroftheJerseyFinancialServicesCommission.MrDobbieisamemberofPremier’sAuditandRisk,RemunerationandNominationCommittees.

Simon Lockett(42),ChiefExecutive,joinedPremierin�995fromShellandhasworkedinavarietyofrolesforPremier,includingthemanagementofinvestorrelations,asCommercialManagerinIndonesiaandasCountryManagerinAlbania.HebecameamemberofthePremierBoardon9December2003asOperationsDirector.SimonLockettwasappointedChiefExecutivewitheffectfrom24March2005.

John Orange(64),joinedPremier’sBoardasanon-executivedirectorinFebruary�997.Heheldavarietyofseniorinternationalmanagementandlegalpostsduringhis30yearswiththeBPGroup.MrOrangeisPremier’sseniorindependentnon-executivedirector,ChairmanoftheRemunerationCommitteeandamemberoftheAuditandRiskandNominationCommittees.

Professor David Roberts(63),joinedPremieron28June2006asanon-executivedirector.ProfessorRobertshasover30yearsexperienceinallaspectsofexplorationworldwideandextensiveknowledgeofdeepwaterareas,sedimentarybasins,stratigraphyandprospectassessment.Hespent22yearswithBPinanumberoftechnicalroles,includingGlobalExplorationAdviserandDistinguishedExplorationAdviser.OnhisretirementfromBPin2003,ProfessorRobertsestablishedhisowngeoscienceconsultancy.HeisavisitingprofessorandfellowofRoyalHolloway,UniversityofLondon,theUniversityofSouthamptonandIFPschoolinParis.Heisanon-executivedirectorofGETECHplc.ProfessorRobertsisamemberofPremier’sRemunerationandNominationCommittees.

Board of directors


Governance

2�Compliance and the role of our BoardThecompanyhasestablishedproceduresandpoliciestoensurecompliancewiththecodeprovisionssetoutinSection�oftheCombinedCodeonCorporateGovernance(the‘Code’).AsrequiredbytheCode,wereportbelowonhowthemainandsupportingprinciplesoftheCodehavebeenappliedthroughouttheyearandexplainanyareaswherewehavenotcompliedwithanyoftheCode’sprovisions.Whilethisisanimportantexercise,theBoarddoesnotbelievethatgoodgovernancecanbedefinedmerelyintermsofcompliancewithasetofrules.TheoverallpurposeoftheBoardistorepresentthecompany’sowners,ensurethatthecompany’sstrategicobjectivesareproperlypursuedandthemajorbusinessrisksareactivelymonitoredandmanaged.ThisgoesbeyondregulatorycomplianceandputstheinterestsofourshareholdersastheBoard’sprimaryfocus.

TheBoardconsidersthatthecompanyhascompliedwiththeprovisionsoftheCodethroughouttheyearunderreview(andsubsequentlyuptothedateofthisreport)exceptinthoseareasmentionedbelow.

The BoardTheBoardofDirectorscurrentlycomprisestheChairman,theChiefExecutive,threeotherexecutivedirectorsandfourindependentnon-executivedirectors.BriefbiographicaldetailsofeachdirectorandanoteoftheirBoardcommitteemembershipsaresetoutonpage20.

TheChairman’sroleispart-timeandheisanon-executivedirector.HiskeyresponsibilityistheeffectiverunningoftheBoard.BetweenBoardmeetingstheChairmanisresponsibleforensuringtheintegrityandeffectivenessoftheBoard/Executiverelationship.ThisrequiresregularcontactwiththeChiefExecutivebetweenBoardmeetings,aswellascontactwithotherBoardmembers,shareholders,jointventurepartnersandhostgovernments.In2006,theChairmanvisitedseveralofthecompany’soverseasoperationstomeetseniorindustryandgovernmentrepresentatives.TheChairmanandthenon-executivedirectorsmeetperiodicallywithouttheexecutivedirectorspresentandthenon-executivedirectorsmeetonceayearwithouttheChairman.

ThedivisionofresponsibilitiesbetweentheChairmanandtheChiefExecutivehasbeenclearlyestablished.

Premierisaninternationalbusinesswhichhastomanageavarietyofpolitical,technicalandcommercialrisks.ItisthereforeimportantthattheBoardcontainstheappropriatemixofskillsandexperiencetomeetthesechallenges.Thenon-executivedirectorscomefromdiversebusinessbackgrounds,withsignificantexpertisecoveringinternationaloilandgasmanagement,stockbroking,bankingandexploration.Thenon-executivedirectorsareencouragedtohavedirectcontactwiththecompany’sseniorexecutivesbetweenBoardmeetingsandalso

encouragedtovisitthecompany’soperationsabroadinordertofamiliarisethemselveswiththeiractivitiesandtomeetlocalmanagement.TheBoardvisitedthecompany’soperationsinVietnaminJanuary2007andfurthervisitstootherregionalofficesarebeingarranged.

TheBoardisresponsibleforoverallgroupstrategy,acquisitionanddivestmentpolicy,approvalofmajorcapitalexpenditureprojects,corporateoverheadcostsandconsiderationofsignificantfinancingmatters.Followingthereviewin2005ofstrategyandorganisation,theBoardhascontinuedtofocusitseffortsin2006onstrategicissueswhichwillcreateshareholdervalue,monitoringperformanceagainstagreedobjectivesanddiscussingfuturebusinessopportunities.

TheformalagendaforeachBoardmeetingissetbytheChairmaninconsultationwiththeChiefExecutiveandtheCompanySecretary.FormalBoardandBoardcommitteeminutesarecirculatedtoalldirectorsatthenextBoardmeeting.Boardmembersreceiveamonthlyreportofthecompany’sactivitieswhichincorporatesanupdateontheannualbudgetandprogressagainstmajorobjectives.Inaccordancewiththeauthoritygivenunderthecompany’sArticles,thecompanyhasestablishedastandingcommitteeoftheBoard,consistingofanytwodirectors,tocarryoutroutinebusiness.TheminutesofallmeetingsofthiscommitteearecirculatedtotheBoard.

ThereareformalandtransparentproceduresfortheappointmentofnewdirectorsanditistheresponsibilityoftheNominationCommitteetoconsiderBoardcompositionandsuccessionplanning,includingtheappointmentandreappointmentofdirectors.MrJRWOrange,whoisChairmanoftheRemunerationCommittee,isthecompany’sseniorindependentnon-executivedirector.Inthisrole,heisavailabletoshareholderswhohaveconcernsthatcannotberesolvedthroughdiscussionwiththeChairmanorChiefExecutive.MattersreservedforBoarddecisionareclearlylaiddowninwriting,includingtheappointmentoftheCompanySecretarywhoisresponsibleforensuringthatBoardproceduresandrulesareapplied.FormalproceduresareinplacetoenableindividualBoardmemberstotakeindependentadvicewhereappropriate.Detailsoftheexecutivedirectors’servicecontractsandthenon-executivedirectors’lettersofappointmentarelaidoutintheRemunerationReportonpage29.

Thecompanyhasdirectors’andofficers’liabilityinsuranceinplace.

Thecompanyhasgrantedindemnitiestoallitsdirectors,tothefullestextentpermittedbyapplicablelaw.

Corporate governance report


22 Executive CommitteeTheBoardhasdelegatedtheday-to-dayrunningofthegrouptotheChiefExecutivewhohasestablishedanExecutiveCommitteetoassisthiminthisrole.ThecommitteeismadeupofeachoftheexecutivedirectorsandtheCompanySecretary.TheExecutiveCommitteeischairedbytheChiefExecutive.

TheresponsibilitiesoftheExecutiveCommitteeincludethedevelopmentofgroupstrategyforapprovalbytheBoard,portfoliomanagementandthemonitoringofperformanceagainstthetargetssetbytheBoard.Atitsweeklymeetingsitalsoreviewshealth,safety,environmentalandsecurityperformanceandoperationalbusinessperformancereports.ThecommitteeisalsoresponsibleforreviewingtheinformationprovidedtotheBoard.

Fourregionalbusinessunits–NorthSea,WestAfrica,MiddleEast-PakistanandAsia–wereestablishedin2005inordertomanageeffectivelytheincreasinggeographicalspreadofbusinessinthegroup.EachbusinessunitisheadedbyaregionalbusinessmanagerwhodeliversagainstspecificstrategiesandperformancetargetssetbytheExecutiveCommittee.

Board performance evaluationTheBoardanditsdirectorsaresubjecttoregularappraisal.Theaimistoimprovebothindividualcontributionsandgroupachievement.

TheBoardcarriedoutaquestionnaire-basedevaluationprocessin2006.Themainareascoveredbythisprocesswere:• contributiontotestinganddevelopmentofstrategy;• leadershipandculture;• internalcontrolandriskmanagement;• performanceagainstobjectives;• effectivenessofinternalandexternalrelationships;• meetingarrangementsandprocesses;• qualityandtimelinessofinformation;• boardandcommitteecomposition;and• inductionandtraining.

TheresultsoftheevaluationwerereviewedbytheChairmananddiscussedindetailbytheBoard.Theresultswereextremelypositive.Themainissueraisedbytheevaluationwasthemixofskillsandexperienceneededatnon-executiveleveltoassistthecompanyinachievingitsgoals.TheconclusionsoftheBoardformedthebasisoftheprofilesputtogetherbytheNominationCommitteefortheongoingtaskofrefreshingthecompositionofthenon-executiveBoard.Thisprocessisdescribedmorefullyinthenextsection.

Non-executive directors Thenon-executivedirectorsbringindependentjudgementtobearonissuesofstrategy,performanceandresourcesincludingkeyappointmentsandstandardsofconduct.Non-executive

directorscompriseoveronehalfoftheBoard.Selectionofsuitablenon-executivedirectorsisamatterforBoardapprovalfollowingrecommendationsmadebytheNominationCommittee.

Werequirethatallournon-executivedirectorsarefreefromanyrelationshipwiththeexecutivemanagementofthecompanythatcouldmateriallyinterferewiththeexerciseoftheirindependentjudgement.IntheBoard’sview,allournon-executivedirectorsfulfilthisrequirement.Itdeterminedallsixwhoservedduring2006tobeindependentdirectors.

MrJRWOrangewasappointedtotheBoardin�997.WhilsthisserviceexceedsthetermreferredtointheCode,theBoardconsidersthathisexperienceandlong-termperspectiveofPremier’sbusinesscontinuestoprovideamostvaluablecontributionandthatitbenefitsfromhisinputtotheBoard’sdeliberations.

TheBoardisstronglyoftheviewthattheimportantqualitieswhenconsideringtheissueofindependenceofnon-executivedirectorsareindependenceofspiritandobjectivityofmind,andthereforeregardsMrJRWOrangeasanindependentdirector.InaccordancewithCodeprovisions,hewillbeconsideredforre-electionattheAnnualGeneralMeeting.

SirDavidJohncompletednineyearsofserviceinMarch2007,andinaccordancewithCodeprovisions,hewillbeconsideredforre-electionattheAnnualGeneralMeeting.

TheBoard,inco-ordinationwiththeNominationCommittee,hasaddressedtheissueofongoingBoardsuccessionanddevelopment,andinparticular,therefreshingofthenon-executivedirectors.Externalsearchandrecruitmentconsultantsareutilisedtoidentifyappropriatecandidates.Interviewswereconductedwithanumberofsuitablecandidatesduringtheyear,andasaresultofthisProfessorDGRobertswasappointedasanon-executivedirectoron28June2006.TheBoardhadintendedtocontinuetheprocessofseekingothernon-executivecandidatesinthefourthquarterof2006,butthiswasputonholdasaresultofthetakeoverspeculationsurroundingthecompany.Thisprocesshasbeenresumedandisnowbeingactivelypursued.

Re-election of directorsInaccordancewiththecompany’sMemorandumandArticlesofAssociationonethirdofdirectorsretireeachyear,withtheirreappointmentbeingsubjecttotheapprovalofshareholders.Thisrequiresdirectorstosubmitthemselvesforre-electionatleasteverythreeyears.Inaddition,anynon-executivedirectorhavingheldofficeformorethannineyears,willbesubjecttore-electiononanannualbasis,andanydirectoraged70oroverwhowouldnototherwiseberequiredtoretire,mustretirebyrotation.

Corporate governance reportcontinued


Governance

23Board committeesTheBoardhasestablishedanAuditandRiskCommittee,aRemunerationCommitteeandaNominationCommittee,eachofwhichhasformaltermsofreferenceapprovedbytheBoard.Thetermsofreferenceforeachcommitteecanbefoundonthecompany’swebsite(www.premier-oil.com).TheCompanySecretaryprovidesadviceandsupporttotheBoardandallBoardcommittees.

Audit and Risk CommitteeAnobjectiveandprofessionalrelationshipismaintainedwiththeauditors,Deloitte&ToucheLLP.TheAuditandRiskCommittee,comprisingonlyofnon-executivedirectors,meetsatleastthreetimesayearforadetailedreviewofthegroup’saccountsanditsinternalcontrols.ItsmembersareMessrsRVEmerson(Chairman),SJDobbieandJRWOrange.MinutesofthemeetingsoftheAuditandRiskCommitteearedistributedtoallBoardmembers,allofwhomareencouragedtoattendmeetingsofthecommittee(asobservers)sincetheBoardbelievesthattheworkofthecommittee,particularlyintheareasofriskmanagementandinternalcontrol,isincreasinglyimportantforallBoardmembers.

TheAuditandRiskCommitteehasthreescheduledmeetingseachyear;theMarchmeetingreviewsthefullyearresultsforthepreviouscalendaryearandalsoreviewstheannualCorporateGovernancereport;theSeptembermeetingreviewstheresultsforthesixmonthperiodendingon30JuneandtheDecembermeetingplanstheauditworkfortheforthcomingyear.Thecommitteemetthreetimesin2006.

TheAuditandRiskCommitteeismainlyresponsiblefor:• reviewingthecompany’sinternalfinancialcontrolandrisk

managementsystems;fulldetailsofwhichareshownonpage24;

• reviewingaccountingpolicies,accountingtreatmentsanddisclosuresinfinancialreportstoensureclarityandcompleteness;

• overseeingthecompany’srelationshipwithitsexternalauditors,includingmakingrecommendationsastotheappointmentorreappointmentoftheexternalauditors,reviewingtheirtermsofengagementandmonitoringtheirindependence;and

• reviewingthecompany’swhistleblowingproceduresandensuringtheseareadequatelypublishedwithintheorganisation,thatthecommitteeChairmanispromptlyinformedofanyissues,andthattherearearrangementsinplacefortheinvestigationofanyallegedimproprieties.

TheAuditandRiskCommitteealsocarriedoutitsannualreviewintowhetheritisappropriateforthecompanytoestablishaninternalauditfunction.Thecommitteeplacesgreatemphasisontheimportanceofimbuingacultureofriskmanagementandcontrolatalloperatinglevelsinthebusinessandisconfidentthatthiscultureisinplace.Thecommitteetookaccountofthefactthatthecompanyobtainsindependentconfirmationofitsinternal

controlsfromavarietyofsources;theseincludejointventureandgovernmentauditsandtheuseofspecificreviewsusingthirdpartyspecialists.Thecommitteealsotookaccountofthebusinesscontrolsreviewsandriskmanagementprocess,morefullydescribedonpage24.Asaresult,thecommitteeconcludedthattherewasnoneedforadedicatedinternalauditresource.

TheAuditandRiskCommitteeregularlyreviewstheissueoftheindependenceofourexternalauditors,inthelightofthefactthattheyprovidetaxationadvicetothecompany.Inallservicespurchased,thegroupaimstoselecttheproviderwhoisbestplacedtodelivertheserviceintermsofqualityandcost.Thecommitteedoesnotbelievethattheprovisionoftaxationadvicetothegroupbytheexternalauditorcreatesathreattotheindependenceoftheauditprocess.Thisisprincipallybecauseneitherthenatureofthenon-auditservicenorthelevelofrelianceplaceduponitbythegroupcould,orcouldbeseento,impairtheobjectivityoftheexternalauditors’opiniononthefinancialstatements.Thecommitteealsorequirestheexternalauditortoconfirmthatinprovidingnon-auditservices,itcomplieswithEthicalStandardsoftheUKAuditingPracticesBoard.Thisconfirmationwasreceivedfor2006.

Remuneration CommitteeTheRemunerationCommitteenormallymeetsatleastthreetimesayearanddeterminestheremunerationoftheexecutivedirectorsandsenioremployees.Thegroup’sremunerationpolicyistoprovidealevelofremunerationwhichissufficienttoattractandretainemployeesofthelevelofexpertisewerequire.Inrelationtoexecutivedirectorsandsenioremployees,theobjectiveisthatasignificantelementoftheremunerationpackageislinkedtocorporateperformance.Nodirectorisinvolvedinsettinghisownremuneration.ThemembersoftheRemunerationCommitteeareMessrsJRWOrange(Chairman),SJDobbie,RVEmersonandProfessorDGRoberts.TheChairmanandtheChiefExecutiveattendbyinvitationwhenappropriate.Fulldetailsofthedirectors’remunerationareshownintheRemunerationReportonpages28to37.

TheroleoftheRemunerationCommitteeincludes:• consideringanddeterminingtheremunerationpolicyfor

executivedirectors;• withinthisagreedpolicy,consideringanddeterminingthe

totalcompensationpackageofeachexecutivedirectorofthecompany;

• consideringandadvisingonthegeneralprinciplesunderwhichcompensationisappliedtoemployeesofthecompany;

• determiningtheawardstobemadeunderthecompany’slong-termincentiveschemes;and

• determiningthepolicyforpensionarrangements,serviceagreementsandterminationpaymentstodirectors.


24 Asinpreviousyears,theprincipalfocusoftheRemunerationCommitteein2006hasbeentoensurethattheremunerationpackagesoftheseniorexecutivesaresetatlevelswhicharesufficienttoretainandattracthigh-qualityindividualsparticularlyatatimewhenthemarketfortheseindividualsisextremelycompetitive.

Thedeterminationoftheremunerationofthenon-executivedirectorsisamatterfortheBoard.

Nomination CommitteeTheNominationCommitteecomprisesSirDavidJohn(Chairman),MessrsSJDobbie,RVEmerson,SCLockett,JRWOrangeandProfessorDGRoberts.Thecommitteemettwicein2006.

TheroleoftheNominationCommitteeistoreviewthestructure,sizeandcompositionoftheBoardandmakerecommendationstotheBoardonthesemattersandtoputinplacesuccessionplanswithregardtobothBoardandseniorappointments.Thisinvolvesanongoingassessmentoftheappropriateskills-mixrequiredatBoardlevelinlightofthestrategyofthecompanyinthemedium-term.

TheBoardconsidersthatthemembershipoftheAuditandRiskCommittee,NominationCommitteeandRemunerationCommitteeareincompliancewiththeCoderecommendation,onthebasisthatitconsidersMrJRWOrangetobeindependent,notwithstandinghislengthofservice.

ThenumberofmeetingsoftheBoardanditscommitteesduring2006,andindividualattendancebydirectors,isshownbelow:

Board Audit Remuneration Nomination

NumberofMeetings 8 3 61 2Attendance SirDavidJohn 8 3* 4* 2MAKAlizai2 4 N/A N/A N/ARAAllan 8 N/A N/A N/ASJDobbie 8 3 4 2ARCDurrant 8 3* N/A N/ARVEmerson 7 3 5 2IGray3 4 � 4 2NHawkings4 8 N/A N/A N/ASCLockett 8 3* 4* 2JRWOrange 8 3 6 2ProfessorDGRoberts5 4 N/A 2 N/A

* Byinvitation

Notes:

� TherewerefivescheduledmeetingsoftheRemunerationCommitteeduringtheyear;theremainingmeeting(onlyattendedbyMessrsJRWOrangeandIGray)wascalledtoapprovethedetailofarrangementsapprovedinprinciplebyapriorscheduledmeetingofthecommittee.

2 MrMAKAlizairesignedfromtheBoardwitheffectfrom2�July2006.

3 MrIGrayresignedfromtheBoardwitheffectfrom2�July2006.

4 MrNHawkingswasappointedtotheBoardon23March2006andattendedalltheBoardmeetingsheldfromthatdate.HeattendedtwoBoardmeetings,byinvitation,priortohisappointment.

5 ProfessorDGRobertswasappointedtotheBoardon28June2006.

Internal controlThedirectorsareresponsibleforestablishingandmaintainingthegroup’ssystemofinternalcontrol.TheinternalcontrolsystemisregularlyreviewedbytheBoard.Internalcontrolsystemsinanygrouparedesignedtomeettheparticularneedsofthatgroupandtheriskstowhichitisexposed,andbytheirnaturecanonlyprovidereasonablebutnotabsoluteassuranceagainstmaterialmisstatementorloss.ThekeyprocedureswhichthedirectorshaveestablishedwithaviewtoprovidingeffectiveinternalcontrolrequiredbyCodeprovisionD.2.�aredescribedbelow.TheseprocedureshavebeeninplacefortheyearunderreviewanduptothedateofapprovaloftheAnnualReportandAccounts.

Management of business risks–Thisisanongoingprocess,inaccordancewithTurnbullguidance,andhasbeenestablishedforidentifying,evaluatingandmanagingrisksfacedbythegroup.Thisisbasedoneachbusinessunitandcorporatefunctionproducingariskmatrixwhichidentifiesthekeybusinessrisks–financial,operational,environmental,socialandpolitical–theprobabilityofthoserisksoccurring,theirimpactiftheydooccurandtheactionsbeingtakentomanagethoseriskstothedesiredlevel.Riskacceptanceandreductionobjectivesaredefinedwithparticularattentiongiventosafetyandenvironmentalfactors,andappliedtoensurethattherisksareatalevelthatisaslowasreasonablypracticable.

Thedirectorsreceiveassurancedirectlyfromthebusinessunitsandfunctionalmanagementthroughthecompletionofannualdeclarationsconfirmingcompliancewiththegroup’spolicies,proceduresandriskmanagementprocesses.Theseprocessesaredesignedtomanageratherthaneliminateriskoffailuretoachievebusinessobjectives.

Thecompanyhasadoptedaframeworkmodelforapplicationacrossthegroupandanannualreportisproducedoncompliancewiththatmodelandwiththegroupriskmanagementprocess.ThereportispresentedtotheAuditandRiskCommittee.

Monitoring–Acomprehensivecontrolmanualisinforcewhichregulatesawiderangeofday-to-dayactivitiesbothintheUKandoverseasofficesincludingenvironmentalcontrols,healthandsafetyregulationsandpoliticalrisks.Theapplicationofinternalcontrolproceduresisreviewedduringvisitstotheoverseasofficesbyheadofficestaff.Auditsarecarriedoutbypartnersinjointventuresfromtimetotime.

Aprocessofbusinesscontrolreviewshasbeendevelopedandimplementedacrossthegroup.Thisprocessisdesigned,interalia,toprovideassurancetotheBoardthatthecompanyisembeddingeffectiveriskmanagementintoitsoperations.ThereportofeachreviewispresentedtotheAuditandRiskCommittee.

Corporate governance reportcontinued


Governance

25During2006thekeybusinessrisksidentifiedwereformallydiscussedbytheExecutiveCommitteeonaperiodicbasis.Thisprocesswillcontinueduring2007.

TheBoardwillreceiveregularreportsonanymajorproblemsthathaveoccurredandhowtheriskshavechangedovertheperiodunderreview.

Management structure–TheBoardhasoverallresponsibilityforthegroupandthereisaformalscheduleofmattersspecificallyreservedfordecisionbytheBoard.Eachexecutivedirectorhasbeengivenresponsibilityforspecificaspectsofthegroup’saffairs.TheexecutivedirectorstogetherwithkeyseniorexecutivesconstitutetheExecutiveCommitteewhichnormallymeetsweekly.

Corporate accounting–Responsibilitylevelsarecommunicatedthroughoutthegroupaspartofcorporateaccountingandanauthorisationmanualwhichsetsout,interalia,authorisationlevels,segregationofdutiesandothercontrolprocedures.

Quality and integrity of personnel–Theintegrityandcompetenceofpersonnelisensuredthroughhighrecruitmentstandardsandsubsequenttraining.

Budgetary process–ThereisacomprehensivebudgetingsystemwithanannualbudgetapprovedbytheBoard,coveringcapitalexpenditure,cashflow,theincomestatementandbalancesheet.Monthlyresultsarereportedagainstbudget,andrevisedforecastsfortheyeararepreparedregularly.

Investment appraisal–Thegrouphasclearlydefinedproceduresforcapitalexpenditure.Theseincludeauthoritylevels,commitmentrecordsandreporting,annualbudgetanddetailedappraisalandreviewprocedures.Theauthorityofthedirectorsisrequiredforkeytreasurymattersincludingchangestoequityandloanfinancing,interestrateandforeigncurrencypolicyincludingforeigncurrencyhedging,oilpricehedging,chequesignatoriesandopeningofbankaccounts.Comprehensiveduediligenceworkiscarriedoutifabusinessoranassetistobeacquired.

During2006,theBoardreviewedthegroup’ssystemofinternalcontrolandissatisfiedthatallthecontrolsinplaceareadequatetoprovidereasonableassuranceagainstanymaterialmisstatementorloss.Thereviewisconductedonaregularbasisandchangesaremadetointernalcontrolsystemstocaptureanynewrisksorexposuresarisingasaresultofchangestothebusinessorthebusinessenvironment.

Going concern Aftermakingenquiriesandinthelightofthegroup’sloanfacilities,thegroupbudgetfor2007andthemedium-termplans,thedirectorshavereasonableexpectationthatthegrouphasadequateresourcestocontinueoperationsfortheforeseeablefuture.Thegoingconcernbasisfortheaccountshasthereforecontinuedtobeadopted.

Communication with shareholdersCommunicationwithshareholdersisgivensignificantattention.Extensiveinformationaboutthegroup’sactivitiesisprovidedintheAnnualReportandAccountsandtheInterimReportwhicharesenttoshareholders.ThecompanyhasalsoproducedaseparatebrochureineachofthelastfouryearshighlightingPremier’scapabilitiesandbusinessprinciples.Thesedocumentsareavailabletoallshareholders.

Thecompanylaunchedane-communicationsserviceallowingallshareholderstoregistertoreceivecommunicationsbye-mail.Foreachregistrationprocessed,thecompanywilldonate£�toClimateCare,anorganisationthatfundsprojectsthatreducegreenhousegases.Allshareholdersareencouragedtoregisterfore-communicationsatwww.premier-oil-shares.com.Thecompanyalsopostedonitswebsite,guidelinesadvisingshareholdersofhowtodealwithpotentialBoilerRoomscams,whereshareholdersmayhavereceivedunsolicitedphonecallsconcerninginvestmentmatters,oftenwherecallershavestatedtheyworkforasubsidiaryof,oronbehalfofthecompany.Shareholderswereadvisedtobewaryofanyunsolicitedadvice,offerstobuysharesatdiscount,oroffersoffreeanalysisreports,asthecompanydoesnotretaintheservicesofanysuchbusinessforthesepurposes.

Thereisregulardialoguewithinstitutionalinvestors,andtheChairman,ChiefExecutiveandFinanceDirector,whoarethedirectorsresponsiblefordealingwithshareholders,ensurethatothermembersoftheBoardreceivefullreportsofshareholdermeetings.Enquiriesfromindividualsonmattersrelatingtotheirshareholdingandthebusinessofthegrouparewelcomedandaredealtwithinatimelymanner.AllshareholdersareencouragedtoattendtheAnnualGeneralMeetingtodiscusstheprogressofthegroup.Thecompanyalsomaintainsawebsite(www.premier-oil.com)whichprovidesdetailedinformationonthegroup’sactivities.

ByorderoftheBoardSCHuddleCompanySecretary2�March2007


26 Thedirectorssubmittheirreportandtheauditedgroupaccountsfortheyearended3�December2006.

Results and dividendsThegroup’snetprofitfortheyearamountedtoUS$67.6million(2005:profitofUS$38.6million).Adividendisnotproposed.

Principal activitiesTheprincipalactivitiesofthegroupareoilandgasexploration,developmentandproduction.Thegroupoperatesthroughsubsidiaryundertakingsandjointventures,detailsofwhichareshownonpage54.

Business reviewThecompanyisrequiredbytheCompaniesActtosetoutinthisreportafairreviewofthebusinessofthegroupduringthefinancialyearended3�December2006,thepositionofthegroupattheendoftheyearandadescriptionoftheprincipalrisksanduncertaintiesfacingthegroup(‘businessreview’).TheinformationthatfulfilstherequirementsofthebusinessreviewcanbefoundwithinthefollowingsectionsofthisAnnualReportandAccounts:Financialreviewonpages4to6,Operationalreviewonpages7to�5,Socialperformancesummaryonpages�6to�7,andHealth,safety,environmentandsecuritysummaryonpages�8to�9,whichareincorporatedinthisreportbyreference.TheChairman’sstatementandFinancialreviewalsoincludedetailsofexpectedfuturedevelopmentsinthebusinessofthegroupanddetailsofthekeyperformanceindicatorsusedbymanagement.

Annual General MeetingThecompany’s5thAnnualGeneralMeeting(AGM)willbeheldonFriday�8May2007at��.00am.TheNoticeoftheMeetingaccompaniesthisreport.

Share capitalThecompany’sauthorisedsharecapitalis£�57,6�2,28�.475comprising3��,904,002OrdinarySharesof50penceeachand9,487,3�7Non-VotingConvertibleSharesof�7.5penceeach.

Theauthoritygiventothedirectorstoallotsharesatthe2006AGMwasgrantedforaperiodofoneyear.Therewere�64,39�OrdinarySharesissuedunderthegroup’sshareoptionschemesduringtheyear.AresolutionwillbeputtotheforthcomingAGMtorenewthisauthority.

Atthe2006AGM,authoritywasalsogiventothedirectorsforoneyeartoallotsharesforcasheitherinconnectionwitharightsissueorofupto5percentofthethenissuedsharecapitalasifstatutorypre-emptionrightsdidnotapply.AsimilarresolutionwillbeputtotheimpendingAGMtorenewthisauthority,althoughatthepresenttimethedirectorsdonothaveplansforanyissueofshares,otherthantosatisfyshareawardsmadeunderthecompany’slong-termincentiveschemes.

Attheendoftheyear229,966,530sharesintheauthorisedOrdinarySharecapitalofthecompanywereunissued.

TheAGMheldin2006authorisedthepurchasebythecompanyofupto�2,266,895sharesandthebalanceofthisauthoritywillremainavailableuntiltheforthcomingAGM,whenthegrantingofasimilarauthoritywillbeproposed.

DirectorsDirectorsholdingofficeduringthefinancialyearwere:• MrAzamAlizai(resigned2�July2006)• MrRobinAllan• MrScottDobbie• MrTonyDurrant• MrRonaldEmerson• MrIanGray(resigned2�July2006)• MrNeilHawkings(appointed23March2006)• SirDavidJohn(Chairman)• MrSimonLockett(ChiefExecutive)• MrJohnOrange• ProfessorDavidRoberts(appointed28June2006)

Directors’ election and rotation:• ProfessorDGRoberts,havingbeenappointedsincethe2006

AGMisrequiredbytheArticlesofAssociationtostandforelectionattheforthcomingAGM;

• MessrsSJDobbieandSCLockettarethedirectorsretiringbyrotation,and,beingeligible,willofferthemselvesforre-electionattheAGM;and

• SirDavidJohnandMrJRWOrange,asnon-executivedirectorswithmorethannineyearsservice,willretireundertheprovisionsoftheCombinedCode,and,beingeligible,willofferthemselvesforre-electionattheAGM.

Biographicaldetailsofalldirectorscanbefoundonpage20.

Thecompanyhasgrantedanindemnitytoallitsdirectorsunderwhichthecompanywill,tothefullestextentpermittedbylawandtotheextentprovidedbytheArticlesofAssociation,indemnifythemagainstallcosts,charges,lossesandliabilitiesincurredbythemintheexecutionoftheirduties.

Report of the directors


Governance

27Directors’ interestsBeneficialinterestsofdirectorsholdingofficeattheyear-end,andoftheirfamilies,inOrdinarySharesofthecompanyaresetoutbelow:

�January2006 ordateof 3�December At 21 MarchName appointment 2006 2007

RAAllan �4,�62 �9,�92 56,666SJDobbie �0,000 �0,000 10,000ARCDurrant 30,200 33,456 56,906RVEmerson �0,000 �0,000 10,000NHawkings 3,892 4,�04 25,186SirDavidJohn� �6,700 �6,700 16,700SCLockett 34,802 45,9�3 98,216JRWOrange 5,000 5,000 5,000ProfessorDGRoberts – – –

Notes:

� Thisincludes�,700OrdinarySharesheldbySirDavidJohn’swife.

Directors’interestsinshareoptionsareshownintheRemunerationReportonpages28to37togetherwithdetailsoftheremunerationofalldirectorswhoservedduringtheyear.

Substantial shareholdersAt2�March2007thecompanyhadreceivednotificationfromthefollowinginstitutionsofinterestsinexcessof3percentofthecompany’sissuedOrdinaryShareswithvotingrights:

Notified Notified number of percentage of voting rights voting rights

Schroderplc 8,094,087 9.88%Avivaplcandsubsidiaries 4,720,954 5.76%Legal&GeneralGroupplc(Group) 3,�43,704

annual report and accounts ...premier oil plc 23 lower belgrave street london sw1w 0nr tel: +44...

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