Wednesday 13 May 2020 9:26 am

Premier Oil to seek lower price for BP North Sea fields acquisition

Premier Oil will seek a lower price for its acquisition of two North Sea oil fields from BP due to the decline in prices for the commodity, its chief executive has said.

In January the oil explorer announced a $625m (£509m) deal to buy Andrew Area and Shearwater assets from the major, based on a $350m capital raise.

Read more: Premier Oil defends state of finances amid low oil prices

The deal had met with ire from one of the firm’s debt holders, hedge fund ARCM, which failed to block a scheme allowing Premier to extend its debt for an additional two years.

However, speaking to Reuters as the firm released a trading update this morning, chief executive Tony Durrant said that Premier would now seek a reduced price for the fields.

In addition, the firm said it would “re-engage with stakeholders around proposed transactions and 2021 credit maturities”.

Durrant added that he was confident that Premier’s banks would waive its so-called covenant test in June, which checks whether a firm’s debt is more than three times its core earnings.

The firm’s debt pile currently stands at $1.91bn, with liquidity of $160m in cash and $330m in undrawn facilities.

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Despite the slump in oil prices, which have dropped roughly two-thirds this year, Durrant said Premier was on course to be cash flow neutral due to its oil hedging programme.

Under the initiative, 30 per cent of the firm’s production this year is protected at a price of $60, with 50 per cent of all second quarter production hedged at $64.

Durrant said: “We are proactively managing the business in these challenging times and remain focused on the welfare, health and safety of our people.  

“We continued to generate free cash flow during the period and, based on the current forward curve, expect to be broadly free cash flow neutral for the full year, benefitting from our hedging programme and action taken to reduce our expenditure.”

Read more: Premier Oil creditor doubles down on opposition to acquisition plan

Stuart Lamont, investment manager at Brewin Dolphin, said that although there were some positives from the update, Premier remained “precariously poised”:

“Conversations with lenders are still to be had and the need to re-engage with stakeholders regarding the purchase of further assets in the North Sea could act as clouds over Premier in the short-term”.

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