Page 7 - Euroil Week 11 2020

EurOil COMMENTARY EurOil
Premier has secured backing from the major- ity of its creditors to proceed with the deals, but ACRM has taken the matter to court, with the case due to be heard on March 17.
The creditor, which owns more than 15% of Premier’s debt and has a 17% short position on its shares, released its own statement on March 12, once again urging the producer to change course.
“Premier Oil should be focusing on its cash flow position and protecting the balance sheet as a matter of priority,” the lender said. “We encour- age the company to engage with its creditors to find a long-term solution which would signifi- cantly reduce leverage and provide a stable bal- ance sheet, from which the company could then prudently pursue growth opportunities.
ACRM noted that the deals were negotiated last year using forward prices of around $70 per barrel for Brent and GBP5.0 per mmBtu for UK gas.
“We believed these estimates were unrealistic at the time and are even more unrealistic today,” it said.
The creditor claimed Premier cold lose more than $1mn in cash per day with oil prices below $40 per barrel. Its 2020 budget, ACRM said, has been set at a $60 per barrel price and so it will have no “meaningful” cash flow in 2020.
“The current forward curve for the rest of
2020 is $42.7 per barrel, $17.3 per barrel lower the company’s $60 per barrel estimate. In its full-year presentation on March 5, the company stated that every $5 per barrel change in the oil price results in a $60mn change in free cash flow,” ACRM continued.
The creditor estimates that based on the cur- rent forward curve, Premier’s cash flow position would therefore be around $200mn worse than it projected in its presentation.
The producer had $150mn of cash on balance at the end of December, but this does not include its $398.2mn of undrawn facilities.
Debt in focus
Premier is not the only mid-sized producer now in the spotlight following the oil price crash. Africa-focused Tullow Oil is saddled with $2.8bn of net debt, and suffered a $1.7bn loss in 2019. Announcing its results on March 13, Tullow said it would cut its staff by 35%, reduce capital expenditure by 30% and slash exploration spending by 45%, following an “intense year.”
A number of US shale producers are also heavily leveraged, including Apache, Occidental Petroleum and Noble Energy. All three operators announced steep cuts to capex during the past week. Cash flow will be a key watchword if cur- rent prices persist.™
PIPELINES & TRANSPORT
Hungary to take extra Russian gas
HUNGARY
Hungary is looking to boost purchases to 4.2bcm per year.
HUNGARY will take delivery of a further 2.2bn cubic metres (bcm) of gas from Gazprom this year, meaning the country’s full supply needs are met, Minister of Foreign Affairs and Trade Peter Szijjarto said at a joint press conference with Russian Foreign Minister Sergey Lavrov in Moscow on March 18.
The sides have already agreed on the delivery of 1.5 bcm of gas in 2021, but talks are starting on boosting that volume to 4.2 bcm, he added.
Hungary is interested in taking delivery of Russian gas through the Turk Stream pipeline, running under the Black Sea, from the end of next year, if possible, he said.
As an initial step to achieve this, Hungary is building a 15 km stretch of pipeline from the Ser- bian border connecting to the national gas trans- mission system, eventually allowing the delivery of 6 bcm of gas, he added.
As Hungary’s long-term gas contract with Gazprom will expire in 2021, Budapest is look- ing to diversify its import sources to reduce dependency on Russian gas. Besides establishing two-way interconnectors with its neighbours, it is seeking alternative sources as a ballast to
leverage lower prices from Gazprom.
Budapest has offered to buy a 25% stake in the LNG terminal in Krk, but only if it can acquire gas from the terminal at a competitive price,
according to Hungarian officials.
Washington has pushed Hungary and other
regional countries to buy American LNG from the Krk terminal as it is worried about Russia’s influence in the region. The US administration says Russia uses gas pipelines to solidify its con- trol over the security and the stability of Central and Eastern Europe. ™
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