Premier Oil’s Balance Sheet Under Strain, Lender Says

(Bloomberg) --

Premier Oil Plc needs to review its debt obligations as it could lose more than $1 million in cash per day with oil prices below $40 per barrel, according to its largest creditor.

The U.K. explorer is seeking court approval for the acquisition of oil and natural gas fields in the North Sea and the extension of more than $2 billion debt maturities to 2023.

The plans, however, seem far-fetched following crude’s biggest collapse in a generation this week. At current levels, the company could burn through $1.2 million in cash per day, Asian Research & Capital Management said on Thursday. Premier held $151 million of cash reserves at the end of 2019 and an additional $314 million in undrawn facilities.

“Premier Oil should be focusing on its cash flow position and protecting the balance sheet as a matter of priority,” ARCM said Thursday in a statement. “We encourage the company to engage with its creditors to find a long-term solution which would significantly reduce leverage and provide a stable balance sheet.”

The hedge fund owns more than 15% of Premier’s debt and also holds a short position on 17% of the explorer’s shares. ARCM has campaigned against Premier’s proposal to invest in North Sea assets and is seeking in court to block the firm’s plans, which are supported by the majority of remaining creditors. A hearing on the case is scheduled in Edinburgh on March 17.

Premier Oil declined to comment.

The London-based producer has a cash breakeven price of $47 a barrel, of which $18 is allocated to capital expenditure. When oil prices fall, companies typically tighten their belts by reigning in costs.

Read more: Premier Oil Wins Lender Backing in Its Quest to Extend Debt

Premier Oil negotiated the acquisitions in the autumn of 2019 using high forward prices, ARCM said in the statement. “We believed these estimates were unrealistic at the time and are even more unrealistic today.”

The purchase is based on oil-price assumptions of around $60 to $70 a barrel for the next five years, and gas price estimates of 40 pence to 57 pence (41 cents to 73 cents) per therm in the same time frame. Brent crude prices were trading at $33.42 at 12:03 p.m. London time.

Premier Chief Executive Officer Tony Durrant said on March 3 that the company would not change its oil price forecast of $65 a barrel for this year and 2021. That was before talks between the Organization of Petroleum Exporting Countries and Russia collapsed last week and no new production curbs deal was agreed.

If the court approves Premier Oil’s plan, management will ask for shareholder backing for the acquisition and a $500 million capital increase, which is currently three times its market capitalization.

To contact the reporters on this story: Luca Casiraghi in London at lcasiraghi@bloomberg.net;Laura Hurst in London at lhurst3@bloomberg.net

To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net, Helen Robertson, Christopher Sell

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