Premier Oil hit by falling prices as activist fund battles on

Premier Oil, the explorer in a bitter battle with its biggest lender, today declared it had produced record amounts of oil from the North Sea but was hit by weaker gas and oil prices.

The group said profits fell to £79.5 million last year compared with £102.5 million the previous year. However, it said it had made progress on reducing its huge debt pile, from £2.33 billion in 2018 to £1.99 billion.

Premier’s statement contained a warning it would breach its banking covenants if the oil price remained low and its planned takeover of BP and Dana resources in the North Sea failed to go ahead.

Chief executive Tony Durrant added a failure of planned asset sales to that list.

Hedge fund ARCM, which is Premier’s biggest lender, has cast doubt on whether Premier will be able to complete its promised disposals and is attempting to stop the North Sea takeovers. It says they are based on wildly over-optimistic forecasts of cashflow and fail to account for the costs of decommissioning the old fields when they are spent.

Within minutes of Premier issuing its results, ARCM responded with detailed claims that Premier’s pledge of $1 billion free cashflows would actually be only $400 million, even based on the gas and oil price before the recent coronavirus-induced collapse.

Premier today left its forecast for the oil price in 2020-2021 at $65 a barrel. Today the price of crude was $50.94, down 19 cents.

ARCM also doubts Premier’s ability to pull off the sale of its Mexican asset called Zama, which has hit delays amid a row over who should have access to its reserves and operatorship.

Durrant said “multiple” bidders were still in the process and said the sale may have to go to arbitration, which could start next week and take 125 days.