FT article on PMO, TLW and ENQ16 Mar 2020 12:37
Donato Paolo Mancini in London. The combined market capitalisation of London-listed energy companies Premier Oil, EnQuest and Tullow Oil has tumbled to less than £500m in the past week, laying bare the devastation the Saudi-Russia price war has wrought on the sector. The three companies, once backed by a loyal band of retail investors in the UK, commanded a combined valuation as high as £17bn just eight years ago but have struggled since oil slumped from more than $100 a barrel in 2014. The price crash, which has seen Brent crude halve in value since January to just $33 a barrel, now threatens to scuttle their plans to reduce debt should the coronavirus pandemic and price war keep oil markets under pressure.
“Now that we are in a $30-handle world, at least for the foreseeable future, the question around the more indebted exploration and production companies?.?.?.?is really one of survivability, and what equity dilution may occur in that quest,” analysts at Numis said. That bleak outlook is already being reflected in share prices, which plunged last week as the oil price crashed. Over the past month, Premier has plummeted 85 per cent, while Tullow dropped 76 per cent and EnQuest fell 63 per cent. Friday’s market session offered some relief, with EnQuest and Premier gaining 6.7 per cent and 27 per cent respectively. Tullow shed 12 per cent, however.
“They’re pretty well-hedged for the short term. They can weather price falls easily,” said David Round, an analyst at BMO Capital Markets. But he added: “The question is how long this goes [on] for.”
For Premier the slump could not have come at a worse time. The company is scrambling to close two North Sea deals worth almost $900m and complete a $2.9bn refinancing. On Thursday, Asia Research and Capital Management, a Hong Kong hedge fund, called on Premier to abandon the planned acquisitions saying they had been negotiated using forward prices for oil and gas that “were unrealistic at the time and are even more unrealistic today”. ARCM, which is Premier’s largest lender but also has a giant 17 per cent short position in its shares, is pushing for the group to find a “solution which would significantly reduce leverage” and will try to quash the company’s refinancing plan at a court hearing next week. Stéphane Foucaud of Auctus Advisors said Premier was attempting to fund the acquisitions with an equity issue that would be bigger than the company’s Friday market cap of £134m. Premier Oil declined to comment.
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