Sector News

Premier Oil scraps dividend after 2014 loss but eyes North Sea deals

February 26, 2015
(Reuters) – Premier Oil has scrapped its dividend and reduced investments after slipping into the red on the back of a steep decline in oil prices but Chief Executive Tony Durrant said he had the money to buy new assets in the North Sea this year.
The London-listed firm, whose operations stretch from the Falkland Islands to Indonesia, reported a worse-than-expected $210.3 million loss on Thursday mainly due to impairment charges of $328 million relating to some of its fields in the North Sea.
Its shares fell more than two percent in early trading in London but reversed course later in the session, trading up 0.8 percent at 175.3 pence at 1012 GMT.
Oil producers across the globe are dealing with the consequences of a halving in crude prices since June and players have announced investment and job cuts to reduce costs as they are making less money.
“As we enter 2015 with a significantly lower oil price than in recent years, the Board believes it is not prudent to propose a dividend payment for the full year,” said Premier Oil Chairman Mike Welton in the company’s full-year results statement.
Last year, the firm paid a 5 pence per share dividend.
“(This) move frees up around $40 million of liquidity and should ultimately be appreciated as a sensible step to enhance balance sheet resilience,” said analysts at Deutsche Bank.
Premier Oil will also reduce capital expenditure (capex) this year to $920 million from $1.2 billion last year, Finance Director Richard Rose said in a presentation to analysts.
The company plans to save in excess of $600 million over the coming three years, of which $285 million will come from capex, he added.
It has already managed to renegotiate payments for the use of drilling rigs, with rates 25-40 percent lower, Chief Executive Tony Durrant told Reuters.
Despite its 2014 loss, Premier Oil plans to take advantage of the weak oil environment to snap up valuable assets mainly in the North Sea, Durrant added.
“We are expecting in the second half of the year to see opportunities to add to our asset base when the market is potentially quite weak,” he said.
The oil producer had $1.9 billion of cash and undrawn facilities at the end of 2014.
Premier Oil is placing its turnaround hopes on successful drilling results from the Falklands in the South Atlantic to help boost its shares, which have halved since the oil price started falling in June.
Its 2015 drilling campaign in the Falklands, which remains controversial due to the islands’ unresolved sovereignty dispute between Britain and Argentina, is set to start late next week, Premier Oil said.
Like many of its peers, Premier Oil has increased its forward sales to hedge its price exposure, having sold 50 percent of its 2015 liquids production at an average price of just under $98 per barrel.
Premier Oil has also announced on Thursday it is on the look-out for a new exploration director to replace Andrew Lodge who will leave the firm on June 30. 
By Karolin Schaps (editing by Vincent Baby)

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