Premier Oil rises 3.3% after taking full ownership of Solan field

Premier has acquired Chyrsaor’s interest in the Solan field for nil upfront consolidation. In return, Premier will make a payment of up to $3m a year and royalty payments totalling up to $100m after allowing for the repayment to Premier of the notional outstanding loan of $530m plus accrued interest.

As a result of this transaction, Premier will consolidate 100% of the Solan field's production, revenues and capex in its financial results. Premier currently estimates that the royalty payments and the Net Profits Interest would become payable at an average oil price above $75 per barrel and $100 per barrel, respectively.

Premier also said that it has entered into an agreement with FlowStream Commodities, whereby FlowStream will make a $100m upfront payment to Premier in return for the proceeds from 15% of production from the Solan field for a period of time, the duration of which is dependent on the Solan field's production levels and future oil prices.

Societe Generale, which rates the stock at ‘sell’, said the market had been expecting a restructuring of the Solan loan for some time, given the cost of over-runs and delay to first oil for the project.

It said that consolidation of Chyrsaor’s interest will allow Premier to include the earnings before interest, tax, depreciation and amortisation coming from the additional 40% stake in the calculation of its net debt/EBITDA financial covenant.

In addition, the agreement with FlowStream introduces a new funding option that further strengthens the balance sheet,” it said.

“However, we think that consensus is unlikely to value the additional 40% interest in the field as being equal to the value of the loan ($530m plus accrued interest). This may result in consensus core NAVs being revised downwards by up to around 7%,” the brokerage added.