(Alliance News) - Premier Oil PLC on Friday reiterated its annual production guidance and said that it is evaluating a reduction its 2020 capital expenditure programme due to the sharp drop in oil prices.
Brent oil was quoted at USD34.04 a barrel early Friday, up from USD32.82 late Thursday. Brent started 2020 around USD66 mark, but the price has dropped significantly in recent weeks amid lower demand due to coronavirus and a breakdown in a output-limiting accord between Organization of the Petroleum Exporting Countries and other big producing nations.
Shares in Premier Oil were up 24% at 15.68 pence each in London on Friday morning. Year-to-date shares have lost around 84% in value.
The company, which has oil and gas interests in UK, Asia, Africa and Mexico, said it continues to perform well with production to the end of February of 76,600 barrels of oil equivalent a day.
For 2020, the company's annual output guidance has been retained at between 70,000 to 75,000 barrels of oil equivalent a day, excluding the proposed in the North Sea, UK.
In early January, Premier announced the purchase of the Andrew Area and Shearwater fields in the UK North Sea from oil major BP PLC. It also said it would raise its stake in its existing Tolmount field.
The acquisitions are to cost the company a combined USD820 million. A court hearing is scheduled to start Tuesday next week to decide whether or not to sanction the deal.
Asia Research & Capital Management, a Hong Kong-based hedge fund, on Thursday had called on Premier Oil to abandon the planned acquisitions.
The hedge fund, which is Premier's largest creditor and has a 17% short position on Premier's shares, has - not for the first time - called on the firm to abandon the acquisitions to focus on its balance sheet and cash flow. Premier made no comment on the ARCM statement Thursday when contacted by Alliance News.
In terms of current trading, the company on Friday said it has hedged around 30% of its 2020 oil and gas entitlement production at an average oil equivalent price of USD60 per barrel, including 40% of first half oil production at USD64 per barrel.
Premier Oil said it continues to have significant liquidity and has unrestricted cash of USD135 million and undrawn facilities of USD330 million as at the end of February.
"Premier's 2020 cash flow breakeven price is under USD50 per barrel and a USD5 per barrel move in the oil price point forward is expected to result in a USD50 million move in free cash flow on a full year basis. This includes the benefits of the hedging programme and is based on capex guidance of USD470 million and new operating cost guidance of USD20 per barrel of oil equivalent," the company said.
For 2020 capital expenditure programme, Premier is hoping to save at lease USD100 million.
Assuming a USD100 million cost reduction and a USD35 per barrel oil price for the remainder of 2020, the company expects to be broadly cash flow neutral in 2020. The cash flow guidance excludes dispoals and the proposed UK acquisitions.
Premier reported annual results last week, showing a 35% fall in pretax profit despite 13% revenue growth. Production was 78,400 barrels of oil equivalent per day, at the upper end of guidance.
By Tapan Panchal; tapanpanchal@alliancenews.com
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