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Premier Oil’s financial reboot expected in weeks

January 12, 2017

Premier Oil’s major lenders are poised to hit the reset button on the debt-hit UK oil explorer within weeks after agreeing the commercial terms to one of the most complex financial restructuring deals in the North Sea’s history.

After nine months of talks over Premier’s $2.8bn (£2.28bn) debt pile the oil company announced that lenders had agreed the terms of its refinancing and will receive the long-form term sheet for approval by early next month.

The lender group comprises 40 banks and teams of advisers making up around 80pc of Premier’s investors. Its approval will offer a new lease of life for the explorer after a two-year downturn in the oil market.

Premier’s chief executive Tony Durrant said he would be “astonished” if any further changes were required to the proposed restructuring plan at this stage.

“The terms really haven’t moved much in the last few months. We’re now into the rather painful process of paperwork but by mid-February we should have entered into lock-up with our private lenders,” he said.

Premier had expected to unveil its full-scale financial restructuring by the end of September last year but City sources said “the sheer administrative task” of co-ordinating the deal against a backdrop of a shaky oil market recovery has dragged on longer than expected.

Premier revealed in its market update today that the lenders will be offered equity warrants – which they could use to buy further shares from the company at a better-than-market rate – in order to sweeten the deal. But Mr Durrant said that the offer would be a small part of the refinancing and would not be materially dilutive for existing shareholders.

The explorer plunged deep into debt after heavy investments in new oil projects and the acquisition of fields from German energy giant Eon, just as global oil prices plunged to 12-year lows.

The investment has paid off in record oil production of 71,400 barrels of oil last year compared to production of 57,600 barrels in 2015. Premier is hoping to top that in the year ahead by boosting production at its struggling Solan oil field and bringing a new North Sea project onstream.

Mr Durrant said that the company’s Cather project, a floating production rig west of the Shetland Islands, is “in good shape and is moving full steam ahead” to begin producing its first oil at the end of the year.

However Solan’s second well has disappointed investors with consistently lower than expected flows, which the company admitted would probably remain constrained until at least 2018.

Analsyts at Cenkos said: “Solan is turning into a real white elephant, with poor production levels and remedial work required on water injection in order to get production.”

Premier is confident that it will be able to boost production by increasing the capacity of water pumps that create the pressure needed to draw oil up through the well, but it will have to wait until the summer to undertake the work due to dangerous conditions off the Shetland coast in winter.

By Jillian Ambrose

Source: The Telegraph

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