Malcy on PMO29 Aug 2020 22:40
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“ Premier Oil- Dear Santa…
Interims today from Prems nothing new, production 67.3 kboepd in line with lowered estimates for full year guidance of 65-70 kboepd pre any BP assistance. Operationally, as has been the case for some time, Premier has been excellent and even feel able to say the ‘S’ word as they say that the Solan P3 well will be onstream in September at c.10/- kboepd. Tolmount infrastructure is being wheeled out and it’s only the Covid that has pushed back first gas to Q2 2021. Net debt reduced to $1.97bn in the period with fcf of $25m.
Of much more significance was the first proper look at the refinancing and to me it looks like a once and for all change which should change Premier significantly if it gets through. First and foremost it deals with the funding of the BP acquisition, now on much better terms it allocates an equity raise of $230m for that and once done, shorter term production will be boosted.
There is also a further raise and to avoid any doubt, I quote ‘a further $300 million of new equity concurrently raised to reduce debt of which $205 million will be underwritten by Premier’s senior creditors who would convert existing debt into equity to the extent that the $300 million is not raised from existing shareholders in a pre-emptive offer or from new investors’.
To raise up to $530m albeit partially underwritten will obviously be a stretch, the shares down 25% odd today leave a market cap of sub £250m. But there are significant mitigating circumstances and a view of Premier after the issues make interesting reading. They will be paying only 8.34% which is more than fair and certainly ticks the first box. Another tick is the senior creditors partially underwriting some of the deal, they know that it is in the company’s best interest to reduce debt.
This will provide a much longer term debt scenario, viz until 2024, and I feel that the company are using perfectly conservative and acceptable forward oil prices and achievable hurdle rates. The covenant profile is <1x covenant leverage ratio by y/e 2024 (18m forward curve, $65/bbl LT) or 2.2x covenant leverage ratio by y/e 2024 (18m forward curve,$55/bbl LT).
Premier is already an efficient and very well operated play in the sector, it goes without saying that without the debt mountain it would be a much bigger company regardless to a certain degree of market situations. Current assets are subject to stringent operating costs and with the gradual cessation of its more expensive production, along with upcoming production growth such as at Tolmount with low levels of committed capex gives significant flexibility.
This is before any synchronicity from the BP assets, growth in Asian production at Andaman and I am assuming the sale of the Zama ‘World Class’ asset and that Sea Lion works but in the medium term.”
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