Premier Oil has moved a step closer to sealing the biggest debt refinancing deal in the North Sea since the oil price crash after its main lenders reached provisional agreement on terms for keeping the UK company afloat.
More than 40 banks have been wrangling for months with Premier — and among themselves — over the company’s debts, which stood at $2.8bn at the end of October, as low oil prices have strained its balance sheet.
Premier said on Thursday that it had received a term sheet from its main group of lenders, accounting for about 85 per cent of borrowings, and was on course to reach final agreement by the end of the year and complete the refinancing early in 2017.
A deal to extend the maturities of Premier’s loans and relax its covenants — such as limits on its debt-to-earnings ratio — are crucial if the company is to complete development of its new Catcher oilfield in the North Sea.
The high-stakes negotiations are being closely watched as an important test of the City of London’s willingness to support the UK oil and gas sector as the slump in crude prices, which started in mid-2014, drags on.
EnQuest, another North Sea producer, last month agreed a $400m refinancing needed to keep development of its Kraken oilfield on track, but Premier has found it harder to reach a deal.
Mark Wilson, analyst at Jefferies, said the receipt of a term sheet from creditors was “a positive signal” of “light at the end of the refinancing tunnel”.
Under the revised terms, the maturities of all existing loans would be extended to 2021 or later in return for a 1.5 per cent increase in interest payments and stronger security and governance controls for lenders.
The company must now seek agreement from its convertible and retail bondholders but Mr Wilson said the main obstacle — reaching consensus among the 40-strong main creditor group — had now been cleared.
Tony Durrant, Premier chief executive, said: “Refinancing of the group’s debt has taken longer than anticipated but will, once completed, put Premier in good stead to reinvest in the business while, at the same time, paying down debt.”
Premier said Catcher was on course to start production next year and total expected capital expenditure on the project was now $1.7bn — almost a quarter lower than when first approved. Production from existing operations was on track to meet its full-year guidance for 68,000-73,000 barrels of oil equivalent a day.
“The company is benefiting from a step change in production with a significantly lower cost base while excellent progress has been made on the Catcher project,” Mr Durrant said.
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