Premier Oil Seeks $530m
By J Brock (FINN)
Premier Oil is seeking $530m from shareholders as part of a $2.9bn refinancing that the group hopes will end concerns over its finances. $300m of the funds will be used to pay down part of the company’s $2.4bn debt, left over from the last oil price crash in 2014 when, despite concerns, Premier was developing a capital-intensive project.
What’s left over will fund the acquisition of several North Sea assets from BP, advertised in January this year, and renegotiated in June after commodity prices slumped largely because coronavirus pandemic triggered a sharp fall in demand globally. The market had been prepared for the equity raise for the BP assets but news of the additional $300m pushed Premier’s shares down 20 percent on Thursday morning.
The moves may be “dilutive for shareholders in the short term” but were in the “long-term interests of the company,” said Stuart Lamont, investment manager at Brewin Dolphin.
Fortunately, senior creditors have agreed to underwrite $205m of the additional $300m and will convert debt to equity if fresh funds cannot be raised from new or existing shareholders. The plan is part of a refinancing of Premier’s $2.9bn debt facilities, not all of which are drawn down, which would extend their maturities from May next year to March 2025.
Dependent on raising $325m of equity, excluding the $205m underwritten by creditors, the refinancing is hoped to put an end to the “balance sheet overhang that Premier has suffered with for the last few years”, according to Tony Durrant, Premier’s Chief Executive. Mr. Durrant stressed that the company would increase its production by 40,000 barrels of oil equivalent a day over the next 12 months as a result of the acquisition of the BP assets and a new North Sea gas development starting up next year. He admitted securing a fresh deal with lenders “had been a concern” after Brent crude fell from almost $70 a barrel in early January to below $20 in April.
There had been nervousness among so-called independent oil companies that bank finance would be harder to secure in the future as lenders examine their fossil fuel policies, even before the coronavirus pandemic.
Refinancing, which is subject to shareholder approval, was announced alongside Premier’s Oil’s half-year results, published in FINN earlier this week. Premier made a pre-tax loss of $334.8m, against a $119.9m profit a year earlier, which it put down to weaker commodity prices, several write-offs and lower year-on-year production, although the latter was within the company’s forecast range.
Sources: London Stock Exchange, Reuters, Financial Times, London Times, Proactive Investors UK, and Investors’ Chronicle.