Page 6 - Euroil Week 11 2020

EurOil COMMENTARY EurOil
Premier in spotlight after
oil price crash
Debt is a key concern as producers battle to protect their cash reserves
UK
WHAT:
Premier has sought to calm investors after a slump in its share price.
WHY:
The indebted company’s breakeven point is higher than current prices, although it has a large hedge position.
WHAT NEXT:
A number of producers have cut capex for 2020 in order to protect their cash flow.
LONDON-LISTED Premier Oil says it can weather the storm of low oil prices, despite a steep fall in its share price.
Premier saw its shares more than halve in value when markets opened on March 9, fol- lowing Saudi Arabia’s move to slash its oil export price after the collapse in OPEC+ talks. Its stock traded at GBP0.2621 per share on March 9, down from GBP0.616 on March 6, and continued fall- ing to GBP0.23 on March 10 and GBP0.2297 ($0.28) on March 12.
The producer, active in the North Sea, the Asia-Pacific region and the Americas, issued a statement on March 13 stressing that its financial position was solid, in an attempt to calm inves- tors. The response was positive, with Premier’s shares rallying by 85% in early trading.
The company said it had “significant liquid- ity,” with unrestricted cash of $135mn and undrawn facilities of around $330mn at the end of February. It has also used “hedging” to lock in around a third of its oil and gas sales this year. Its cash flow breakeven point in 2020 is $47 per barrel.
Benchmarks are currently trading at between $30 and $35 per barrel.
Premier also believes it can slash $100mn off its capital expenditure plan for 2020, based
on initial analysis. If such a saving is made, then the company said it expected to be broadly cash flow neutral this year even if oil averages $35 per barrel.
Premier saw its post-tax profits increase by almost a quarter in 2019 to $164mn, despite lower prices, thanks to the company hedging a good deal of its oil production. It was one of only a handful of major oil companies to expand revenues without also growing production. Its guidance for 2020 remains almost unchanged at 70-75,000 boepd.
The firm saw output slip by 2.6% to 78,400 barrels of oil equivalent per day (boepd) last year, owing to declines in Indonesia, Pakistan and Vietnam.
Acquisitions
Premier announced two North Sea acquisition deals in January worth $871mn that will see it acquire BP’s shares in five fields and raise its stake in the Tolmount gas project by acquiring an interest from South Korea’s Dana Petroleum. But one of its top creditors, Hong Kong-based ARCM, has tried to thwart the purchases, claim- ing they are too risky given Premier’s current $2bn net debt. It has also taken issue with Pre- mier’s plan to extend its debt maturities to 2023.
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w w w . N E W S B A S E . c o m Week 11 19•March•2020