Premier Oil’s sale of its stake in the Wytch farm field is a “good deal” that will help lower the company’s debts, analysts have said.
They said the sale would have a “positive impact” on the balance sheet of Premier, which recently completed a long, drawn-out refinancing.
Responding to media speculation, Premier said last month that it had reached an agreement on the sale of its 33.8% stake to a “third party”.
Yesterday, Premier confirmed that a sale and purchase agreement had been entered into with Verus Petroleum.
The London-listed firm said Wytch farm, an onshore oil field in Dorset which has been producing since 1979, had fewer near-term growth prospects than its other assets.
The deal includes a £150million ($200million) cash consideration, while Verus takes on the abandonment and decommissioning liabilities. This releases Premier from letters of credit totaling £55million, which were held for field abandonment liabilities.
Mark Wilson, equity analyst at Jefferies, said Premier was right to “take the offer and move on”.
Mr Wilsons said the Premier had managed to secure double the value it had paid for an additional 3.71% stake in the asset in July.
Nathan Piper of RBC Europe said he had expected the assets to fetch £110million.
Premier chief executive Tony Durrant said yesterday that the sale would significantly reduce the firm’s net debt and “generate material value” for shareholders.
The exploration and production company had net debts of £2billion at the end of June.
James Carmichael, oil and gas analyst at Peel Hunt, said Wytch Farm was a “perfectly good asset and cash flow stream”.
However, Mr Carmichael said the field didn’t fit Premier’s strategy of focusing on its operated positions.
He said: “It has to be seen as a good deal for the company as they are realising the pre-tax value of the asset and accelerating the debt reduction process.”
Mr Carmichael said the debt reduction process should accelerate next year once Premier’s North Sea Catcher field is brought onstream.
Further asset disposals could also come into play, Mr Carmichael said. He cited the recent Zama discovery offshore Mexico, thought to contain 1billion barrels, as a candidate for divestment.
Premier holds a 25% interest in the block.
Recommended for you
Read the latest opinion pieces from our Energy Voice columnists
- Opinion: EY’s Derek Leith on what to expect from the Budget
- Opinion: Carbon capture and storage – put the kettle on
- Opinion: Ensuring effective digital platforms in the energy sector
- Opinion: ‘We woke up to a very new climate reality when Donald Trump won the election’
- Opinion: The digital revolution is here, and oil and gas needs to catch up