Premier Oil Plc gained the most in almost 16 years as plans to cut debt and boost production from the North Sea eased concerns about the impact of lower crude prices on the company’s balance sheet.
“The priority with current oil prices is to reduce net debt, defer some of the new projects and continue to generate cash flows,” Chief Executive Officer Tony Durrant said Thursday in a phone interview.
Premier renegotiated financial covenants with banks and bondholders because it said there was a “possible risk” low prices might result in it breaching one of them over the next 12 months. While the company’s investments in 2016 will be half the level planned for this year after crude plunged more than 50 percent over the past year, Premier reiterated that the Solan field in the North Sea would start operations on schedule in the fourth quarter.
“The worst will be behind in terms of balance sheet concerns for the company once the Solan field starts generating cash flows in November,” says Stephane G Foucaud, managing director, institutional research, FirstEnergy Capital LLP who maintained his outperform recommendation on the stock. “The management is doing what it said it would do.”
Premier shares rose as much as 20 percent, the most since April 1999, and were trading up 17 percent at 112.6 pence as of 3:46 p.m. in London. That pared the stock’s losses this year to 33 percent.
Deutsche Bank AG said the relaxation of financial covenants would boost investor confidence in Premier’s “ability to access undrawn debt facilities.” The company’s net debt was $2.09 billion at the end of June, down from $2.12 billion six months earlier.
Premier said that under the terms of its agreement with lenders, it was “restricted” from proposing a dividend. The company suspended payouts in February posting a loss last year.
Premier, with assets in the North Sea and Falkland Islands, plans capital spending of $500 million in 2016, down from $1.14 billion this year.
“We have continued to capture sustainable savings in our operating costs, to defer discretionary capex,” the company said.
The company reported a first-half net loss of $375.2 million compared with a profit of $172.7 million a year earlier. Sales fell 35 percent to $577 million.
Oil and gas production averaged 60,400 barrels equivalent a day, down from 64,900 barrels a year earlier. Premier sold assets at the end of last year in the Scott, Telford and Rochelle fields in the North Sea, which accounted for 3,700 barrels a day of output.
Premier’s ability to expand production depends on when the first oil flows from the Solan field in the North Sea, Bloomberg Intelligence analyst William Hares said in a note Aug. 18. The North Sea, where many fields first tapped in the 1960s are now depleted, is one of the world’s most expensive areas to operate.