Premier Oil said today it is “re-engaging” with stakeholders about its proposed North Sea acquisitions and extensions to debt maturities in light of current market conditions.
The London-listed firm has also lowered its full-year production guidance and deferred or adjusted schedules for a number of projects.
First gas from its flagship Tolmount project in the southern North Sea has been pushed to the second quarter of 2021, from the end of 2020, partly due to a lockdown of the Rosetti yard where the platform is being built.
The acquisitions, agreed earlier this year and worth £660 million, included BP’s stakes in the Andrew and Shearwater fields and a further 25% of the Tolmount project from Dana Petroleum.
Premier said it would pay for the acquisitions with a £380m equity fundraising, existing cash resources and an “acquisition bridge facility” of £228m.
The company also announced its desire to extend credit facilities to 2023.
Premier’s largest creditor, Asia Research and Capital Management (ARCM), opposed the plans, arguing the firm should focus on cutting its debts, rather than making acquisitions.
Last month, a judge in Edinburgh sided with Premier, sanctioning the creditor schemes of arrangement required to implement the transactions, funding arrangements and credit maturity extensions.
ARCM has since appealed the decision at the Inner House of the Court of Session in Edinburgh. The deals cannot go through until that process concludes.
Premier said on Wednesday morning that it was “confident” in the strength of its legal case and expects the court to dismiss the appeal.
However, the firm’s board believes it “prudent to re-engage with its stakeholders regarding the proposed transactions and extension to its May 2021 credit maturities in light of current market conditions”.
James Carmichael, energy analyst at Berenberg, said after the judge’s ruling on April 29 that it wouldn’t be a surprise if Premier Oil wanted to renegotiate the terms of the deal with BP.
Premier also used today’s update to say that its production guidance for 2020 had been revised to 65-70,000 barrels of oil equivalent (boe) per day from 70-75,000 previously due to an unplanned shutdown at the Catcher field in the central North Sea, since restored, and the Huntington field coming offline. The FPSO which serves that field will depart mid-2020.
Premier said its production had not been “materially impacted” by Covid-19.
Development drilling at Catcher North and Laverda has been deferred as part of Premier’s plans to lower its 2020 capex.
But drilling started on the Varadero infill well earlier this week, which will help maintain production from the Catcher area.
Premier’s capex for this year has been lowered to £270m from its original guidance of £380m.
Operating costs will come in at around $18 per barrel, down from $21 per barrel.
Thirty percent of Premier’s 2020 production is hedged at $60 per barrel, while the company has £130m of cash and £270m of undrawn facilities to call upon.
Its net debt stood at £1.55 billion at the end of April.
Premier has entered discussions with its lending group to address its covenant profile with a view to securing any necessary waivers.
Chief executive Tony Durrant said: “We are proactively managing the business in these challenging times and remain focused on the welfare, health and safety of our people.
“We continued to generate free cash flow during the period and, based on the current forward curve, expect to be broadly free cash flow neutral for the full year, benefitting from our hedging programme and action taken to reduce our expenditure.”
Stuart Lamont, investment manager at Brewin Dolphin Aberdeen, said: “The focus for Premier Oil over the last five years or so has been on its debt obligations – the impact of Covid-19 on demand for oil and, subsequently, the commodity’s price has only accelerated that in recent months.
“Premier’s share price fell nearly 90% peak to trough in the year to date; while it has made a slight recovery as the market begins to show signs of stability, it remains one of the most shorted stocks by investors.
“There are some positives to be taken from today’s update in a slight reduction to debt, good hedging positions, a sizeable decrease in planned capex, and free cashflow.
“However, conversations with lenders are still to be had and the need to re-engage with stakeholders regarding the purchase of further assets in the North Sea could act as clouds over Premier in the short-term.
“The company remains precariously poised at the moment, with its shares heavily linked to the oil price.”