Premier Oil swings to loss ahead of Chrysaor merger

Premier Oil reported operating cash flow of $630m (£450.99m) in its full-year results on Thursday, down from $1.08bn year-on-year, as it swung to a loss following some one-off non-cash charges.

The London-listed firm said its net cash outflow in 2020 totalled $90m, with year-end net debt widening to $2.08bn from $1.99bn.

It recorded a loss after tax of $1.3bn for 2020, after a $164m profit after tax in 2019, with the loss driven by one-off non-cash charges including $817 million related to the partial derecognition of its UK ring fence tax losses and allowances, which were expected to be re-recognised on completion of the Chrysaor merger.

Operating costs excluding leases were $12.2 per barrel of oil equivalent in 202, with full year total capital expenditure including decommissioning totalling $315m, reflecting savings and deferrals of more than $250m for the year.

The board guided for 2021 operating costs excluding leases of $15 barrel of oil equivalent, unchanged from its previous update.

It said 2021 total capital expenditure was expected to be around $300m, up from a previous forecast for $275m, which it put down to the phasing of some costs from 2020, and an increased decommissioning spend in the Balmoral area.

Premier reported total gross debt of $2.7bn, which included letters of credit and certain hedging liabilities to be repaid and cancelled on completion of the merger with Chrysaor.

Operationally, the company said production in 2020 averaged 61,400 barrels of oil equivalent per day down from 78,400 barrels per day in 2019.

Its guidance for 2021 of between 61,000 and 66,000 barrels of oil equivalent per day, excluding Chrysaor, was reiterated.

At Tolmount, the platform had been installed and the first of four development wells successfully completed during the year, with first gas on track for the second quarter of 2021, adding between 20,000 and 25,000 net barrels of oil equivalent per day once at plateau later in 2021.

The board said the company had retained its “significant” growth optionality, with front-end engineering and design completed, unitisation progressed and project sanction targeted for the end of the year at Zama in Mexico.

At Tuna in Indonesia, a fully-funded appraisal of the approximately 100 million barrels of oil equivalent field would start in the second quarter, while at Sea Lion in the Falkland Islands, a licence extension and farm down arrangements had been agreed.

Premier also noted the “highly encouraging” results from new 3D seismic data sets across its exploration acreage in Indonesia and Mexico.

Looking ahead, Premier was building up to its proposed merger with Chrysaor to create the London-listed Harbour Energy, which would have forecast combined net debt on completion of $2.9b, down from a previously-expected $3.2bn.

The board said that reflected higher commodity prices and a full take-up of Harbour Energy shares by creditors.

Completion of the Chrysaor merger was expected on 31 March, with shares to be readmitted to trading on 1 April as Harbour Energy.

“While 2020 saw Premier's exploration and appraisal drilling campaigns deferred, the group was highly encouraged by the seismic data it received across its Indonesian, Mexican and UK licences,” said finance director and interim chief executive officer Richard Rose.

“Premier is particularly excited about its first exploration well on its Andaman Sea acreage which is scheduled to be drilled in the first half of 2022 and which is targeting a multi-TCF gas play with access to commercial markets.”

Rose said Harbour Energy would be able to fund and realise value from Premier's “top-tier” development and exploration portfolio.

“These projects will compete for capital with existing projects within Chrysaor's portfolio as well as new business development opportunities.”

At 0832 GMT, shares in Premier Oil were down 4.59% at 28.48p.