The collapse in the oil price, down 60% in seven months, is already leading to job cuts and project delays.
Tullow Oil, down 10.8p at 358.1p, has slashed capital expenditure and there were reports on Tuesday it planned to cut some of its 2,000 staff.
Now Premier Oil, whose operations range from Vietnam to the Falklands, has said it plans to take a $300m impairment charge against its assets, and will cut jobs and investment to reduce costs.
Its capital spending in 2015 will be down 40% at $600m, it said in a trading update, and it expected production to fall from 63,600 barrels in 2014 to 55,000. This excludes the North Sea Solan field, expected to come on stream during the year, and also reflects the sale of the Scott area in the North Sea.
Chief executive Tony Durrant said:
Premier is in a strong position to weather a period of oil price weakness due to its long term cash flow generation.
This is delivered from a stable production base with low cash operating costs (less than $20 a barrel) supported by a significant 2015 hedging programme, a tax advantaged position in the UK and a favourable debt structure. Premier has also responded to the sharp fall in the oil price with a broad programme of cost reductions and the postponement of discretionary spend.
We will continue to invest in high quality projects only if they are robust at our conservative oil price assumptions and if their cost base reflects the current oil price environment.
It also said it would postpone a share buyback programme pending a recovery in the oil price.
Premier shares have dropped 2.6p to 134p and analysts at SP Angel said:
Today’s trading update should provide some solace to the company’s investors, not least because of the fact that the balance sheet should be strong enough to see it through this period of low oil prices. While the forward development programme is going to result in further production, the reserves update will result in a significant write down in volumes, which will inevitably have a commensurate impact on the share price.
We firmly believe that the outlook is very bright for the company, but we also believe that the pressure on the shares in the near term will see the share price struggle to make any headway.
Furthermore, we are still of the opinion that the best way to return value to shareholders is directly, not through financial engineering, and we are always sceptical about management teams that talk about share buybacks in this manner.
Still, a small gripe for what otherwise is a company in a solid position for the medium to longer term, so much so, it could well be a tasty morsel for somebody.