Last week's shock trading statement from BP provided a stark reminder of the miseries of being in the oil industry. The grim combination of geopolitical and geological uncertainty takes a relentless toll on performance, and if BP can't get it right, what hope is there for anyone else?
But Premier Oil relishes these challenges. It is the UK's largest player in the rapidly dwindling sector of exploration and production (E&P), and has made its living taking risks with the world's most volatile commodity. Chief executive Charles Jamieson is an industry veteran whose decades in the business have taught him to be sanguine: "You have to be problem-friendly because, believe me, you get them every day. This is the industry that keeps the lights on, so it has to be robust. What makes it especially tough is that the Good Lord, in his wisdom, didn't put all the oil in OECD countries."
This is a truth that has shaped perceptions of Premier for many years. The company's historic approach to looking for oil has been to dig in the places that the majors have either missed or are not prepared to take a risk with. As Jamieson puts it: "We make it our job to find niches. It's great to be first somewhere but the difficulty is that there is virtually nowhere left on earth where you're going to be first." The strategy has given Premier a portfolio of operations from Indonesia to Pakistan to West Africa, and first-hand experience of doing business in unstable places.
None of these places, however, has generated as much controversy as Burma, whose human rights record and military junta have destroyed the reputation of any western company doing business there. Two weeks ago, however, Premier drew a line under that with a deal – negotiated painfully over 18 months and claimed by Jamieson as "win-win" – that removes it from the country entirely. Amerada Hess and Petronas are cancelling their combined 50 per cent holdings in Premier, and in return get the Burma projects.
The same bodies that once attacked Premier for its Burmese interests have now praised the deal, but Jamieson is determined it should be seen as a business decision, made in the interests of shareholders. He dismisses the wilder allegations that his company used forced labour as "unadulterated rubbish".
"Of course, after all the criticism we've had, people are going to say the decision was based on pressure from outside, but I can state categorically that it was a purely commercial decision. It's been an easy hit for commentators and the press because Myanmar [the govern- ment's official name for Burma] is an international pariah. Nobody ever looked at the good things this company did there."
He describes a series of community programmes, schools projects, other ventures and a number of human rights reports sent to the Burma government. "People always sneer when we tell them about those, but the government there has taken those reports to heart."
Nevertheless, Jamieson admits that his company's share price – now sitting at a four-year high – is very much about perception. The deal, which he calls a "second chance", has in effect opened up Premier Oil shares to a wider field of potential investors, including those who had avoided the stock as part of ethical investment strategies.
But the deal has other perception-changing features. As Jamieson explains: "It knocks on the head the three things that stopped people investing in Premier before: Myanmar, control and debt."
Debt and "hopeless over-stretching" has been a long-standing area of analysts' criticism of Premier, but with that now largely solved by the restructuring, the control issue is the one getting oil watchers interested. They have seen the large end of the E&P sector – the likes of Lasmo and Enterprise Oil – being snapped up by the majors, and logic suggests Premier will be next. The Amerada-Petronas stake previously made a purchase unlikely, but that barrier is now gone.
Although Jamieson asserts he is not actively looking for Premier to be bought, he admits his duties as a chief executive might include that: "It is management's job to make sure that if we are going to be bought, we're going to be taken out at a good value for shareholders. It's a simple fact. In this business, the more successful you are, the more likely you are to be taken out."
It is certainly true that Premier, with its solid gas production base and wide portfolio of assets, would make a tempting prospect. At the centre of BP and Shell's recent woes has been the business of hitting production targets, and gobbling up a well-spread E&P play is a traditional answer.
Jamieson believes one of Premier's chief strengths is retaining the same exploration team that has brought in so many successful oil strikes over the years, and managed to avoid the risky business of "wildcat" drilling without proper research. "Your chances with wildcats are about the same as betting on a 33-1 shot in the 2.30 at Ascot," he says.
However tight his management, Jamieson agrees that his company does suffer from its massive exposure to the fluctuating prices of crude oil. "Unfortunately, shareholder value is not about waving a magic wand," he says. "You take decisions like a super-tanker: you can't turn them round in a couple of minutes."
Premier was a particular victim of the Asian crisis of 1997-98, which pushed crude prices down to $10 per barrel. It was this crisis that gave rise to the Amerada and Petronas stakes, and the current price of around $30 has clearly helped a great deal. Jamieson now steers clear of making predictions about the oil price, and accepts that Iraq could change everything.
He agrees that not many would choose the risk-filled and highly political business of oil exploration, but is confident that within the industry he is the best at working out which particular rocks contain the black stuff. He recalls his first lecture at business school, where he was told about the critical importance of survival: "Yes, it is all about survival. Obviously you have to be a bit lucky."