Premier Oil cuts debt more quickly than expected, ups capex guidance

Premier Oil posted record production for 2018, helping the outfit to turn a profit and cut debt more quickly than anticipated, even as it moved ahead on developing several new prospects, bumping up its plans for capital expenditures in the process.

For the 2018 calendar year, output clocked-in at a record 80,500 barrels of oil equivalent per day, as expected, with management guiding towards a further 5% increase in 2019, after 8,000 boepd-worth of disposals, to 75,000 boepd, the same level as in 2017.

The company's bottom line meanwhile swelled for net profits of $133.4m (consensus: 161m), versus -$253.8m of red ink during the previous year.

Capital expenditures for the year came in slightly below consensus at $353m (consensus: $355m), but for 2019 Premier was now guiding towards $340m in outlays on capex, up from the $290m it had guided towards at the beginning of January.

At 3.1 times' the company's operating profits, net debt was a smidgen higher than the 3.0 covenant leverage ratio that markets had anticipated, but nearly half the prior year level of 6.0 times.

Premier cut net debt by $393m over the course of 2018 to reach $2.3bn, which was more than had been agreed with the company's lenders, helped by $73m of selective non-core asset disposals and the early exchange of a convertible bond.

It was also in-line with previous guidance from management and expected to fall by another $250m-$350m over the next 12 months.

Indeed, the outfit's own 2019 guidance for free cash flow of between $250m-350m might see the company's debt pile fall below $2.0bn (consensus: $2.2bn), analysts at Jefferies said.

Key to the above were the 30% higher cash margin barrels that were expected thanks to the increased proportion which was expected to flow from the UK.

Those higher cash margin barrels would also help offset lower group output and higher operating costs.

Analysts also noted the company's assertion that production for the year-to-date was running at 89,000 boepd, with Jefferies saying that it brought with it "the possibility of guidance upgrades".

On that note, company management also appeared to hint at potential upgrades to its estimates of the recovery potential at its Catcher oilfield.

As of 0803 GMT, shares of Premier Oil were 3.52% higher to 76.5p.

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