WTI $42.93 +4c, Brent $45.37 -9c, Diff -$2.44 -13c, NG $2.43 +1c
Perfectly mixed yesterday as the EIA inventories did not match with those from the API the night before. Indeed whilst crude drew modestly it was the product numbers that were slightly odd, after the huge gasoline build from the API the EIA showed a 3.3m draw, an 8.3m swing which can only unwind in coming weeks.
At the JMMC meeting it was all very low key, with a rap over their members knuckles they suggested that the pace of the demand rebound was ‘slower than expected’ and they were concerned about a second wave of COVID-19. Leaders praised the 97% adhesion rate but warned that it needs to stick.
The companies say that Rathlin Energy as operator of PEDL 183 has submitted screening requests for two new potential hydrocarbon well sites West Newton C and West Newton D. These will determine whether they will require EIA’s and screening options will be available following consideration of the East Riding of Yorkshire Council Planning Department.
‘The Humber region is the UK’s largest energy hub, contributing £18bn towards the UK economy along with 27% of the UK’s oil refinery capacity’ and is the companies believe that the West Newton field has the potential to provide local feedstock to the the project.
Given that these foreign imports come at a higher cost to the UK and with an increased carbon footprint, it seems like a pretty straightforward, even obvious opportunity for the local area to acknowledge.
Premier Oil- Dear Santa…
Interims today from Prems nothing new, production 67.3 kboepd in line with lowered estimates for full year guidance of 65-70 kboepd pre any BP assistance. Operationally, as has been the case for some time, Premier has been excellent and even feel able to say the ‘S’ word as they say that the Solan P3 well will be onstream in September at c.10/- kboepd. Tolmount infrastructure is being wheeled out and it’s only the Covid that has pushed back first gas to Q2 2021. Net debt reduced to $1.97bn in the period with fcf of $25m.
Of much more significance was the first proper look at the refinancing and to me it looks like a once and for all change which should change Premier significantly if it gets through. First and foremost it deals with the funding of the BP acquisition, now on much better terms it allocates an equity raise of $230m for that and once done, shorter term production will be boosted.
There is also a further raise and to avoid any doubt, I quote ‘a further $300 million of new equity concurrently raised to reduce debt of which $205 million will be underwritten by Premier’s senior creditors who would convert existing debt into equity to the extent that the $300 million is not raised from existing shareholders in a pre-emptive offer or from new investors’.
To raise up to $530m albeit partially underwritten will obviously be a stretch, the shares down 25% odd today leave a market cap of sub £250m. But there are significant mitigating circumstances and a view of Premier after the issues make interesting reading. They will be paying only 8.34% which is more than fair and certainly ticks the first box. Another tick is the senior creditors partially underwriting some of the deal, they know that it is in the company’s best interest to reduce debt.
This will provide a much longer term debt scenario, viz until 2024, and I feel that the company are using perfectly conservative and acceptable forward oil prices and achievable hurdle rates. The covenant profile is <1x covenant leverage ratio by y/e 2024 (18m forward curve, $65/bbl LT) or 2.2x covenant leverage ratio by y/e 2024 (18m forward curve,$55/bbl LT).
Premier is already an efficient and very well operated play in the sector, it goes without saying that without the debt mountain it would be a much bigger company regardless to a certain degree of market situations. Current assets are subject to stringent operating costs and with the gradual cessation of its more expensive production, along with upcoming production growth such as at Tolmount with low levels of committed capex gives significant flexibility.
This is before any synchronicity from the BP assets, growth in Asian production at Andaman and I am assuming the sale of the Zama ‘World Class’ asset and that Sea Lion works but in the medium term.
Reading this back makes it sound a touch messy, it is far from that, indeed the company deserves to succeed with these bold and imaginative measures. It really does reset Premier’s capital structure and it is in the best interests of all parties to make it work. The structure is smart and would have been easier without short sellers and a market like this year has brought. As I have said many times, operationally Premier has been absolutely world class for some years, if the refinancing could get done it would be a vehicle impossible not to own…
Word reaches me from reading some TR1 notices at Block Energy big calls have been made and that there may be even more troops approaching the gates. Indeed this is definitely one to watch as Fitzpatrick and others close to him appear to be growing their holdings. Indeed with the shares up some 75% in around a month it looks like the buyers have been busy little bees…
It seems so far away but the Premier League fixtures for next season have been published today. Star feature on weekend one is Liverpool v Leeds, the Cottagers host the Gooners and Chelski go to the Seagulls. With no Manc clubs playing due to Euro competitions Liverpool have a tough start, after Leeds they are away at Chelski then host the Gooners…