Stretched Premier Oil looks to BP asset purchase after 20% output drop in H1

UK independent Premier Oil's upstream production dropped by 20% in the first half of the year to 67,000 b/d of oil equivalent, it said July 15, as it looks to boost production with a protracted deal to buy BP assets and the refurbishment of a West of Shetland field.

Premier had already reduced its guidance on likely annual output, to 65,000-70,000 boe/d, following a 20-day gas plant outage at its flagship Catcher field in the North Sea. It is heavily reliant on Catcher for its UK production, having shut down a number of late-life fields, and due to the poor performance of its West of Shetland Solan field, although it receives additional volumes from operations in Indonesia and Vietnam.

The company's UK production was down 22% at 47,000 boe/d in H1.

However, Premier is hopeful of a boost from its purchase of BP's operating stake in the Andrew hub in the North Sea, along with its minority stake in Shell's Shearwater gas and condensate hub, which is currently being redeveloped.

Its formal output guidance for the year does not include an expected contribution from the BP assets.

The purchase should add 17,000 boe/d from the targeted completion date for the deal, of September 30, ahead of the Shearwater redevelopment coming on stream next year, Premier said.

In addition, it has been drilling a new well aimed at reviving Solan, which came on stream in 2016 at a development cost of $2 billion, but has only ever produced a few thousand barrels a day of oil; Solan output averaged 1,700 b/d in the first half of the year. The new well is due on stream by the end of September and should add 10,000 b/d of production, Premier said. It is the sole license holder.

Financially, Premier said it was in a solid position, having reduced its capital expenditure plans this year by 28% to $340 million, and negotiated a two thirds drop in the headline price for the BP assets, to $210 million.

Its main creditor, Asia Research & Capital Management, which fought the original deal, is buying 82 million new shares to be issued by Premier for some GBP22 million ($28 million) as part of the renegotiated deal, which involves rescheduling the company's debt.

Premier's net debt stood at $1.97 billion at the end of June, nearly four times its current market capitalization.

"The continued underlying performance of our core assets along with the decisive action we have taken to reduce our expenditure during the first half has resulted in our net debt remaining broadly flat, despite significantly weaker commodity prices during the period," CEO Tony Durrant said. "This, together with the expected agreement on the amendments to our credit facilities and the completion of the value-accretive BP acquisitions, positions us well to benefit from a recovering oil price."