Debt-laden Premier Oil gave investors reason for cheer in Thursday business after announcing it was finalising an accord with its lenders to repay its huge debts.
In its latest trading update the London-based explorer advised that a comprehensive term sheet for refinancing was in the final stages of negotiation with banks and private bondholders.
Premier Oil noted that “refinancing of the Group’s debt has taken longer than anticipated but will, once completed, put Premier in good stead to reinvest in the business while, at the same, time paying down debt.”
Although the firm’s net debt pile is considerable — this currently stands at a staggering $2.8bn — today’s news provides a chink of light at the end of the tunnel. Premier Oil is looking to seal the terms of the deal by the end of the year, with the new refinancing scheduled for implementation during the first quarter of 2017.
And in a further boost to its balance sheet, Premier Oil announced that capital expenditure for 2016 would fall below its prior forecast of $730m. And the budget for exploration and development activities would more than halve next year, to $300m, the company said.
Premier Oil’s Natuna Field, off the coast of Indonesia. Photo: Premier Oil.
Perky Production News
Today’s debt repayment news was not the only reason for celebration, Premier Oil also furnishing the market with bubbly production news.
The fossil fuel giant announced that output has averaged 69,000 barrels of oil equivalent per day in the year to date, with production currently running above 80,000 barrels per day.
Consequently Premier Oil remains on track to meet its previous gull-year guidance of between 68,000 and 73,000 barrels per day, it advised.
Despite operational issues at its Solan field, where Premier Oil has been forced to constrain production due to water injection problems, better-than-expected performance at its Huntington, Chim Sáo and Natuna Sea Block A operations have offset these issues.
And in other reassuring news, Premier Oil announced that its Catcher asset remains on track for maiden oil next year.
While today’s news provides some much-needed relief for its shareholders, I believe the outlook for Premier Oil still remains extremely murky.
Sure, the scheduled start-up at Catcher should help drive group production through the roof from next year. And Premier Oil said today that it “plans to be cash flow positive at oil prices above $50 per barrel driving debt reduction.”
But a rising US rig count, combined with receding hopes for a much-needed OPEC output freeze, threatens to keep oil values hemmed in below this psychologically-critical level. Brent crude was last changing hands around $47 per barrel.
While the City may expect Premier Oil to bounce back into the black next year, I remain highly sceptical of any earnings turnaround given the oil market’s flaky fundamentals. And given the firm’s debt-laden balance sheet, I reckon Premier Oil is far too risky at the present time.