ADVFN Continued23 Jul 2019 13:31
Premier has dug itself out of a big financial hole in recent years by a combination of a good debt for equity deal, recovery in the oil price, but also very good operational performance of the Catcher project in the North Sea, which is a traditional FPSO project. Premier has commented a number of times very positively how the Sealion project is technically very similar to Catcher.
Premier have demonstrated clear ability to do both sale and purchase deals and fund new projects, despite the constraints they operate with as they pay down debt, and they have acknowledged the potential to sell the Zama asset. To me Premier have positioned themselves as Operator whenever they can – non-operated assets have featured highly in their disposals. With Zama being non-operated monetising this asset by way of sale would be consistent with recent moves. I am not sure what the carrying value of Zama is but it looks to me to be around the $150 million dollars. With some 810 million barrels gross P50 (202 million to Premier), I can see this asset having a value significantly greater than carrying value. It can be sold for cash and profit booked.
Even if Premier can book profit and raise cash, why sell Zama to develop Sealion? First and foremost in my view is the asset value carried on the balance sheet. The 2018 accounts declare $648 million of balance sheet asset in the Falklands. That is a very material chunk of the total assets. If Premier do nothing with the asset, then at some point this would need to be written off. That would hurt and is a real incentive to get Sealion moving. Premier will be the operator on Sealion of course.
So I can see very good reason why Premier will take Sealion forward, and I can see financial options to make this happen, but i think a further twist will occur prior to FID.
I have long held the view that a 3rd party will farm into Sealion. Premier has stated that is their wish, and I can see to Rockhopper taking part in a farm down has significant attraction. Rockhopper has 40% of the Sealion Phase 1a development, but 64% of the later Phases. These include the Isobel / Elaine complex where oil has been found, but further appraisal is needed. Fundamentally Rockhopper has always been an explorer and having cash to drill wells will always hold attraction. So I can see Premier farming down to cover the equity investment required, over and above the vendor and export credit guarantee funding, and Rockhopper farming down to get some cash to drill more holes in the ground. Of course an incoming partners gets a slice of the reserves post FID and a slice of the appraisal and exploration assets.
The final shape of any deal is pure guesswork at this stage, if only because Premier and Rockhopper agreed in 2106 that Rockhopper would pay offset development carry fees to re-set the Phase 1a returns at 50/50 NPV. I can see all of this being up for grabs.
My calculation of NPV10 to Rockhopper of just Phase 1a is a very large number
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