Premier Oil swings to loss but investors welcome easing of debt terms

Shares in Premier Oil surged in late trade, having edged lower earlier in the day, as investors welcomed news that the company has renegotiated its debt covenants, as it swung to a pre-tax loss in the first half on impairment charges and lower oil prices.

The exploration and production company posted of a pre-tax loss of $214.7m compared with profit of $50.4m in the same period last year. Analysts had been expecting a profit of around $44m.

Revenues were down to $577m from $884.7m and the group booked impairment charges of $385.3m, up from $144m in 2014.

Net debt was marginally lower at $2.09bn from $2.12bn.

The average oil price for the first half was $57.8 a barrel, down significantly from $108.9 a barrel last year. Meanwhile, production was a little lower than last year, at 60,400 barrels of oil equivalent per day compared with 64,900.

The company maintained its full-year production guidance at 55,000 barrels of oil equivalent per day and said its Solan field was on track for first oil in the fourth quarter of 2015, while the Catcher field is on track for 2017.

Although the company posted a loss, shares were up 16% to 112p at 1535 BST with analysts pointing to increased confidence that Premier can access undrawn debt facilities, after it said it has renegotiated debt covenants with banks and bondholders to mid-2017, giving the group more time to deal with weak oil prices.

Under the terms of its agreement with the lending group, Premier has agreed not to pay out a dividend for two years.

Premier said on Thursday that there was a possible risk that in a period of ongoing sustained low oil prices it might breach one of its financial covenants within the next 12 months.

Chairman Mike Welton said: “In the second half, we will remain focused on managing our balance sheet as we continue to invest in our approved projects. In particular, we look forward to first oil from Solan later this year.

“With new, untaxed production from Solan, our aim is to manage the business such that we are able to deleverage the balance sheet while continuing to ensure the integrity of our production assets and to invest in our Catcher project, even in a conservative oil price environment.”

Goodbody Stockbrokers said: “While the backdrop of falling oil prices is clearly weighing on the sector, confirmation that the Solan development remains on track for initial production in Q4 and amended covenant headroom should provide some respite for the share price.”