Premier Oil considers renegotiating lending terms
Premier Oil is considering attempting to renegotiate its banking terms with its lenders in the coming weeks as it seeks to avoid breaching its covenants before the summer, its chief executive has said.
Tony Durrant said the independent oil and gas company was cutting costs to meet its loan repayments — but may also open discussions with its banks to secure more breathing space.
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Premier, like many of its rivals, has taken a hit as the price of oil has crashed, and on Thursday announced more than $1bn of writedowns to the value of its assets. The price of a barrel of Brent crude has fallen from $115 in summer 2014 to under $35 now.
“By the midyear, with oil at $45 a barrel, we do not have a covenant issue. But if it stays at $35, we do,” said Mr Durrant.
He added: “We are already talking to our banks about the Eon deal [to buy the utility company’s North Sea oil and gasfields for $120m]. It would not be challenging to flip that into a covenant discussion.”
Premier said on Thursday that it had lost $829.6m in 2015 — up from $362.5m in 2014 — after making just over $1bn of writedowns, largely to the value of its Solan project in the North Sea.
The company has net debt of $2.2bn, four times what analysts believe it will make in underlying earnings this year. It said on Thursday that it still had $400m of cash and $850m of unused borrowing.
In an effort to avoid breaching its existing lending terms, Premier is hoping to cut total costs of $150m in 2016, although Richard Rose, its finance director, said he hoped to make more than that.
The company is also hoping to sell more of its assets, including its operations in Pakistan.
Mr Durrant said that by the end of the decade, Premier would be focused only on Vietnam, Indonesia, and the UK North Sea, where its is completing a deal to buy all of Eon’s fields. The company is now discussing that sale with its lenders, and hopes to finalise the process before the end of April.
One of Premier’s biggest fields by 2020 will be the Solan project that it has been developing to the west of Shetland. But the company said on Thursday that there had been a further delay in that process, pushing back the first flow of oil from later this month to the end of March.
Mr Durrant said poor weather had been the cause of that delay, rather than any technical problems.
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