Premier Oil sacrifices shareholder payouts for relaxed debt terms
By Karolin Schaps
LONDON (Reuters) – Premier Oil has agreed to not pay dividends for two years under a renegotiation of agreements with banks and bondholders designed to increase its financial flexibility against a backdrop of sharply lower crude prices.
The London-listed company, which has net debt of $2 billion and whose operations stretch from the Falkland Islands to Indonesia, had already scrapped dividend payments earlier this year after it slipped into the red on the back of a steep decline in oil prices.
Its shares slid to a near 12-year low of 91.2 pence in early trade before bouncing to be up 1.6 percent at 97.71 pence by 0802 GMT.
“We expect the relaxed financial covenants to increase investor confidence in Premier’s ability to access undrawn debt facilities,” said analysts at Deutsche Bank, who recommend buying the stock.
Premier Oil’s move to renegotiate its debt conditions, relating to the extent its debt repayments are covered by earnings, shows oil companies and their lenders are concerned about oil prices remaining weak for longer.
“There was a possible risk that in a period of ongoing sustained low oil prices Premier Oil might breach one of its financial covenants within the next 12 months,” the company said in a statement.
Premier Oil’s financial situation remains stretched and the company reported a $375.2 million post-tax loss for the first six months of the year, following steep impairment charges on its Solan project in the North Sea.
Premier Oil’s revenue stream is expected to improve from the fourth quarter when Solan is expected to come on stream. Its Catcher field, also located in the North Sea, is planned to start producing in 2017.
Premier Oil said it was expecting bids for its Pakistan business, which it put up for sale last month, by Oct. 30 and to conclude a deal by the end of the year.
(Editing by David Holmes)