Page 12 - Euroil Week 19 2020

EurOil INVESTMENT EurOil
Premier’s North Sea deals on the rocks
UK
Premier will consult its stakeholders.
UK-BASED Premier Oil’s plan to acquire $871mn in North Sea assets is on the rocks, with the company asking one of the sellers BP to lower its price.
In a trading update on May 13, the producer also said it was consulting with shareholders, creditors and brokers about the deal “in light of current market conditions.”
Premier unveiled deals in January to acquire BP’s Andrew Area and Shearwater assets for $625mn, and buy an extra 25% stake in the Tol- mount field it operates from South Korea’s Dana Petroleum for $191mn plus $55mn in contingent payments.
The deals were in trouble even before the March oil price collapse. Premier’s biggest credi- tor, Hong Kong-based hedge fund Asia Research and Capital Management (ARCM), said the moves were too risky, arguing that the company would do better to focus on reducing its debts. Premier’s net debt stood at $1.91bn at the end of April, dwarfing its market capitalisation of around $280mn.
ARCM took the matter to court and in late April, the Court of Session in Edinburgh, Scot- land, said it should be left up to the market to decide whether Premier should follow through with the purchases. ARCM responded by appealing against the decision.
“While Premier remains confident in the strength of its legal case and expects the court to dismiss the appeal, the 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,” the firm said.
The assets in question boast operating
expenditure of less than $20 per barrel of oil equivalent (boe), meaning their output is still profitable even at today’s low prices. Even so, the market outlook has altered beyond recognition since the deals were first announced in January. Front-month Brent was trading at around $70 per barrel, but has since slumped to around $30, and it could take years for prices to recover to their former level.
Premier expects to be free cash flow neutral this year despite the slump in prices, it said in its trading report, thanks to a hedging programme that pegs the price of 30% of its production at $60 per barrel. It also has $160mn in unrestricted cash and $330mn in undrawn debt facilities.
The company is looking to obtain a waiver from its lender on covenant tests, used by banks to check if the producer’s debt is under three times its core earnings. Premier is on course to breach this limit.
On the operational side, Premier said it was producing 70,100 barrels of oil equivalent per day (boepd) towards the end of April as a result of an unplanned outage at the Catcher field that has now come to an end. Its output was also affected by the closure of the Hun- tington field.
Premier has reduced its 2020 production forecast to 65,000-70,000 boepd from 70,000- 75,000 boepd, and has postponed the launch of the Tolmount project until the second quarter of 2021, in light of the coronavirus (COVID-19) crisis. It has a 50% stake in the field.™
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w w w . N E W S B A S E . c o m Week 19 14•May•2020