Premier Oil21 Discussion Threads

[sogoesit] 19/8/2016 10:42

From yesterday's Chronic Investor:

"Premier's debt showdown drags on
Half-year results from Premier Oil (PMO) opened with a series of short statements from chief executive Tony Durrant. Lower oil prices, he says, have been addressed by "a step change in production levels and a leaner operating cost base", while an expanded portfolio and hike in production guidance "will drive free cash flow generation" in 2016.

Given the scale and urgency of Premier's imminent debt restructuring, it's reassuring that Mr Durrant and his team have distilled the firm's operations and purpose into such clear terms. But worryingly, investors were again denied firmer details on the re-financing of $2.63bn (£2bn) in net borrowings, down only marginally on the first quarter mark, save that the group has made "substantial progress with [the] lending group on the principal terms".

At the end of this month, Premier must again open its books to covenant stress tests which require net debt to not exceed profits by 4.75 times. Given that measurement was waived at the end of June, Premier will be hoping that a hike in top-end average annual production to 73,000 barrels a day, together with favourable currency impacts on sterling-denominated debt and capital expenditure will help lenders' optimism.

Prior to these results, analysts at JPMorgan Cazenove were forecasting a full-year pre-tax loss of $64m, giving a loss per share of 5¢, against losses of $830m and $2.09 in 2015.

PREMIER OIL (PMO)
ORD PRICE: 78p MARKET VALUE: £397m
TOUCH: 77.5-78p 12-MONTH HIGH: 115p LOW: 19p
DIVIDEND YIELD: nil PE RATIO: na
NET ASSET VALUE: 167¢* NET DEBT: 308%
Half-year to 30 Jun Turnover ($m) Pre-tax profit ($m) Earnings per share (¢) Dividend per share (p)
2015 577 -214.6 -73.4 nil
2016 394 110 33.9 nil
% change -32 - - -
Ex-div: na

Payment: na

*Includes intangible assets of $1.17bn, or 229¢ a share £1 = $1.31

IC VIEW:
With debt negotiations set to rumble on, and few definitive signs that the recent rally in Brent crude to $50 a barrel can be sustained, we're still not tempted by this high-risk situation. Hold.
Last IC view: Hold, 78p, 18 May 2016"

[steve73] 18/8/2016 14:51

Page 53 of the 2015 FY results offers the following details of our debts as at dec 2015... I'm sure I recall seeing the rates as well, but I can't find them now.. might be in the detailed numbers, but you'll have to look - sorry! (or it may have been for a completely different company..!!!) There may be more recent figures in todays H1 but I've not been through it in enough detail as yet..

Quote..>>
Balance sheet position
Net debt
Net debt at 31 December 2015
amounted to US$2,242.2 million
(2014: US$2,122.2 million), with
cash resources of US$401.3 million
(2014: US$291.8 million).
Net debt
(US$ million) 2015 2014
Cash and cash
equivalents 401.3 291.8
Convertible bonds1 (232.9) (228.5)
Other debt1 (2,410.6) (2,185.5)
Total net debt (2,242.2) (2,122.2)
1 The carrying amounts of the convertible bonds
and the other long-term debt on the balance
sheet are stated net of the unamortised portion
of the issue costs of US$0.3 million (2014: US$0.4
million) and debt arrangement fees of US$28.1
million (2014: US$27.4 million) respectively.
Long-term borrowings consist of
convertible bonds, UK retail bonds,
senior loan notes and bank debt.
During the period, Premier bought
back US$148 million and €40 million
of its US private placement notes at a
discount to par, repaid a US$300 million
term loan maturing in the second
quarter of 2015 and repaid €20 million
of the Schuldshein notes. Premier
retains significant cash and undrawn
facilities which, at 31 December 2015,
were US$401.3 million and c.US$850
million

[sogoesit] 18/8/2016 13:50

I agree that $45 b/even is the critical issue.
The problem is the bank loan debt which appears to be part at fixed interest and part at Libor plus.
If management were pro-active one would think, given the low interest rate environment, they would re-structure this debt much like FMG have successfully done in the iron ore market. There is "talk" in the press about "re-structuring" but all management do is "talk" about the maturity extensions and covenants. But then, I can't find the actual interest rate break-down so I have no clarity on this.
BUT the interest paid on, say $2.8 bn, is $97.3 million for the half-year. That's equivalent to 14% pa.!!

On another front, from my info., they aren't currently in the market to sell assets.
Retail bonds are repayable in 2020; about $234m but in Sterling.

I agree, below $45/bbl, the equity is probably worthless.
On an operating basis they need about 13,500 bbl/day to service debt interest and 48,500 bbl/day to service Opex (total 62,000 bpd) at $40/bbl.

The bonds are however up to near their recent highs today.

[hpcg] 18/8/2016 11:00

I thought the pertinent part of the report was the $45 cash flow positive statement. Naive calculations give a pay back period of the debt, $2.8 billion, assuming 95,000 boe / day:

46 80 years
47 40 years
48 26 years
49 20 years
50 16 years
55 8 years
60 5 years
65 4 years

So at current oil prices both debt and equity are worthless. With the strip for the next 5 years, approx 55, the debt is worth about 50% ish? One really wants to see spot at 65 to be a happy debt holder, whilst 60 is probably OK.

This very much back of the envelope and just a gross estimation. Oil prices this autumn are critical; hold 50 and things look good, drop back to mid 40s and it is back in the mixer. The sharp moves in share price and bond price as oil dropped from 52 to 39 and then went back to 50 indicate that this area is the inflection point, and hence debt and equity values change at option like rates.

[sogoesit] 18/8/2016 10:31

Well, it's there...
I don't comment but note that banks still allow them to draw-down and spend Capex.
So they are accommodative.
(I hold the bonds, from £66; no equity)

[steve73] 18/8/2016 08:39

Don't read too much into a "going concern" comment - companies will usually keep stating that right up until they go under....

Not that I'm suggesting PMO are at any risk of this happening - IMO.

Pretty good set of H1 figures given the low OP in the period, and confirmation that Solan P2 will commence today.

[sogoesit] 18/8/2016 07:33

Going Concern Statement from today's Half Year Report

"Going concern

The Group monitors its funding position and its liquidity risk throughout the year to ensure it has access to sufficient funds to meet forecast cash requirements. Cash forecasts are regularly produced based on, inter alia, the Group's latest life of field production and expenditure forecasts, management's best estimate of future commodity prices (based on recent forward curves, adjusted for the Group's hedging programme) and the Group's borrowing facilities. Sensitivities are run to reflect different scenarios including, but not limited to, changes in oil and gas production rates, possible reductions in commodity prices and delays or cost overruns on major development projects. This is done to identify risks to liquidity and covenant compliance and enable management to formulate appropriate and timely mitigation strategies.



At 30 June 2016, the Group continued to have significant headroom on its borrowing facilities. However, whilst the Group expects to have sufficient liquidity available under these existing facilities during the next 12 months, the Group's projections currently indicate that a breach of one of the financial covenants within the Group's borrowing facilities is likely to arise in respect of the next covenant testing period which, as part of the lender discussions outlined below, has been revised from the 12 months ending 30 June 2016 to the 12 months ending 31 August 2016.



Discussions with Premier's lending group are ongoing and management expect the testing date for the financial covenants to continue to be deferred until modified terms for the financing facilities are agreed. Management also expect, based on the discussions held to date, that the modified terms will involve a relaxation of financial covenants such that there is a reasonable expectation that the Group will be able to live within the terms of the amended facilities for the foreseeable future. However, in the event that the testing of the financial covenants is not deferred or if a suitable agreement cannot be reached with the lending group and a breach of a financial covenant were to arise, under the existing terms of the group's financing facilities, the Group's debt holders on all of the Group's facilities will have the right to request re-payment of the outstanding debt and to cancel the relevant facilities.



The risk that the Group will be unable to defer the testing of the current financial covenants until appropriate modification of the terms of its financing facilities is agreed with the lending group in order to avoid a breach of covenant or that such appropriate modification of the terms cannot be agreed is a material uncertainty which the Financial Reporting Council Guidance on Risk Management, Internal Control and Related Financial and Business Reporting requires us to report may cast significant doubt upon the Company's ability to continue to apply the going concern basis of accounting.



Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group will be able to secure an appropriate modification to the terms of its financing facilities to avoid a covenant breach. Therefore, the Group and Company are expected to have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the 2016 Interim Report and Accounts. Accordingly, the Directors continue to adopt the going concern basis of accounting in preparing these consolidated financial statements."

[spacecake] 26/6/2016 18:21

What now ?

[deanroberthunt] 23/6/2016 15:08

Oil is now above 50 bucks.....test is 30th June, it's going to be tight on the EBITDAX/Debt @4.75

[sogoesit] 17/6/2016 15:48

Had a request for disclosure of ownership today from the issuer.
Asking what it was for was told that Premier wanted to know in the event that any discussions would be held with bond holders.

This is an excerpt from Chronic Investor article of 18 May 2016 by Alex Newman:


"In 2015 results published at the end of that month, Mr Durrant was forced to warn that persistently low oil prices could result in “a further relaxation of our main financial covenants”. Breaching covenants is a two-fold risk, as it not only increases the chance of one loan's default, but could trigger other covenant breaches in separate loans. And loans are something Premier Oil possesses in spades. As of this month, the £400m market cap company's net debt stood at $2.2bn (£1.5bn).


The company, along with its lenders, is deep into a mid-year review of those covenants. When we met with Mr Durrant last week, he said the talks had been productive and “at $45 a barrel, we may not need an amendment”, but admitted Premier is “on the cusp” and the situation is “too close for comfort”. One possible outcome might involve a partial repurchase of bonds, though this would need to be sanctioned by Premier’s banks. It also would place a greater strain on cash."

Note the "repurchase of bonds".

[sogoesit] 26/5/2016 17:26

They'll be worth 93 sooner than I thought...
Upwards (price) and downwards (yield)!

[badtime] 26/5/2016 11:51

Fat finger trade at 93

[badtime] 26/5/2016 08:55

Well Amaretto these have done rather well since your warning ...any others?

[sogoesit] 20/5/2016 18:19

Premier Oil's Tightrope Walk
INVESTORS CHRONICHLE
By Alex Newman , 18 May 2016

Long-term shareholders of cash-strapped oil producers have a lot in common with the sector’s bankers at the moment. While few investors will be flattered by the comparison, quite simply, neither lenders nor equity holders want to crystallise what for many are likely to be losses.

Investors who backed producers before the oil price began to drop – or at almost any point during its decline – could well be looking at a paper loss. Lenders face a similar conundrum: they can either call in covenant-stretched loans and risk a messy insolvency and restructuring, or hope things improve and risk recovering less interest than expected.

It’s a situation which Premier Oil ’s (PMO) investors and bankers know all too well. The inflection in the oil price cycle – and its delayed effects – has crashed several independent oil companies, and brought numerous others to the precipice. In February, with crude at $27 a barrel, Premier’s chief executive Tony Durrant wondered if his firm might be next.



Warning shot

In 2015 results published at the end of that month, Mr Durrant was forced to warn that persistently low oil prices could result in “a further relaxation of our main financial covenants”. Breaching covenants is a two-fold risk, as it not only increases the chance of one loan's default, but could trigger other covenant breaches in separate loans. And loans are something Premier Oil possesses in spades. As of this month, the £400m market cap company's net debt stood at $2.2bn (£1.5bn).


The company, along with its lenders, is deep into a mid-year review of those covenants. When we met with Mr Durrant last week, he said the talks had been productive and “at $45 a barrel, we may not need an amendment”, but admitted Premier is “on the cusp” and the situation is “too close for comfort”. One possible outcome might involve a partial repurchase of bonds, though this would need to be sanctioned by Premier’s banks. It also would place a greater strain on cash.




Cash is king

Cash is central to the lenders’ judgement, which has to factor in several moving parts. First is the ramp-up in the Solan gas field, west of the Shetlands, which achieved first oil on 12 April. Mr Durrant has set an internal target for his engineers of 20,000 barrels of oil equivalent per day by the end of June, once the second producing well is on stream. Providing there are no hiccups – and with operating costs of around $15 a barrel – this should prove a vital source of cash flow.

Another source of cash has been secured through January’s $120m purchase of E.ON 's (Ger: EOAN) North Sea assets. The deal has given Premier significant reserves, and 15,000 new barrels of hedged oil a day and operating costs of just $20 a barrel. It has also been cited by several analysts as an implicit signal that lenders will support Premier in covenant talks, as the acquisition required their sign-off.

The third - and most important - factor in the negotiations is the oil price, which has recently shown signs of recovery. On Monday, Brent crude hit a six-month high of $49.47 amid worries of supply outages in Venezuela and Nigeria, falling storage figures and the closure of oil fields affected by the wildfires in Alberta, Canada. Naturally, further cuts to global supply will be good for the debt discussions and Premier's shares, which are in effect a highly-geared play on the oil price.

Finally, lenders and management will be looking to see if further cost savings can be made. As well as a cull of some rig crews’ slightly suspect helicopter booking practices, further capital expenditure cuts could be made to the Catcher project, while general and administrative costs are anticipated to fall further.



Uphill battle

All this still leaves a number of upcoming debt maturities: $307m in 2017, $362m in 2018, and $1.47bn in 2019, and almost $600m between 2020 and 2024. Under normal circumstances, according to Mr Durrant, re-financings would occur a year ahead of maturity dates, meaning a placing later this year is possible. Prior to that, Premier will need to broker a truce with its lenders, an event which FirstEnergy Capital analyst Stephane Foucaud believes “will be resolved at a cost of a few million dollars penalty”.

[edwardt] 13/5/2016 08:38

lets hope so - appears that the recent deal was a bit of a master stroke of luck. Its debt covenant accretion was its main draw for me, think we have a plan to get over the line in 4 years but still dependant on oil going /holding to at least 55 bucks imo.

[sogoesit] 12/5/2016 15:15

Agreed Edwardt,
Dived in at 66 finally.
Should survive another 4 years or so... to pay me back.

[edwardt] 03/5/2016 09:37

why anyone would risk buying the equity when the bonds give enough bang for your buck is beyond me.

[badtime] 29/4/2016 09:52

It's a small amount ..I'll take the risk..but thanks for your concern

[amaretto1] 28/4/2016 21:34

U r being sucked in to a OIL bull trap !!

[badtime] 28/4/2016 20:53

Having seen your posts on the PMO thread don't bother answering...fruitcake lol

[badtime] 28/4/2016 08:09

Amaretto...not sure what answer u r expecting

[steve73] 28/4/2016 07:36

thanks lonrho..

[lonrho] 28/4/2016 07:31

Steve73

There is no stamp duty on buying these bonds.

[steve73] 28/4/2016 03:26

Anyone know if there's stamp duty to pay when buying these?