By Kristy Dorsey

North Sea production by area heavyweight Premier Oil is set to increase by two-thirds by the end of next year after unplanned outages drug average daily UK production down to 45,000 barrels of oil equivalent (boe) during the first half of 2020.

Publishing its results for the six months to the end of June, London-listed Premier said the slump against 58,100 boe in the same period a year earlier was due in large part to a 20-day unplanned outage in its Catcher Area fields. Production was further depressed as the planned shut-down of the Huntington and Kyle fields was brought forward.

Meanwhile, its Tolmount gas development experienced delays after the Italian yard in charge of producing the topsides and jacket for the project was forced to close for more than a month because of the Covid-19 pandemic. These have now been completed and offshore installation of the platform is on track for the end of September to early October.

The company said that bringing Tolmount to plateau rates, together with new production from Solan and planned acquisitions from BP, will take Premier’s UK production to more than 75,000 boe per day later in the second half of 2021.

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The acquisition from BP, which includes stakes in the Andrew and Shearwater assets, will be fully funded by a $230m issue of equity. On top of that, Premier said yesterday that it will ask shareholders for a further $300m as part of a deal to refinance its $2.9 billion (£2.2bn) debt pile.

The news sent shares in Premier tumbling by nearly a quarter to close yesterday’s trading at 25.7p.

The extra $300m will go towards paying off some of the debt, while Premier creditors have also agreed to extend the deadline on the remainder from May 2021 to March 2025. Premier said the refinancing proposals will reset its capital structure and provide a “runway” to “materially reduce debt over time”.

The group’s strategy is to increase its presence in the UK, where it has accumulated $4.1bn of tax losses that can be offset against future production profits. Stuart Lamont of investment firm Brewin Dolphin Aberdeen said the restructuring goes some way towards answering how Premier will reduce its “vast” debt pile during a prolonged period of low oil prices.

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“Today’s proposed refinancing provides a path towards that aim, while acknowledging that the commodity price may be lower for longer,” he said. “As well as seeking to raise $230m from shareholders to finance the re-negotiated acquisition of BP’s North Sea assets, Premier is aiming to raise a further $300m of new equity to tackle its debt.

“While this may be dilutive for shareholders in the short term, it is also in the long-term interests of the company. All of this, however, has to be agreed with shareholders – Premier has come a long way, but there is still substantial ground to cover.”

During the six months to the end of June, Premier made a pre-tax loss of $334m after booking charges of $639m. That compared to a profit of $119m in the same period a year earlier.

The bottom line was hit by lower production, lower oil and gas prices and non-cash impairments. The lion’s share of the latter came from $222m in exploration write-offs.

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Premier suspended its exploration projects during the first half, along with development at the Sea Lion asset near the Falkland Islands. It has agreed to sell off part of its stake in that project, though the deal still requires approval from authorities.

The company generated revenues of $530.6m during the first half, down 40% year-on-year as total production fell to 67,300 boe per day from 84,100 previously. It is sticking to its guidance of 65,000-70,000 boe for the year as a whole.

Premier chief executive Tony Durrant said the company has taken “decisive action to safeguard our people and our assets”.

“We have reduced our expenditure which, together with our hedging programme and the continued underlying performance of our assets, resulted in us generating free cash flow for the period, despite the collapse in commodity prices,” he said.

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“The BP acquisitions and our proposed long-term refinancing will position Premier to benefit from materially rising near-term production, additional free cash flow generation and a strengthening balance sheet, against a backdrop of a recovering oil price.”

The deal with BP was originally agreed in January at a price of $625m cash. Following the plunge in commodity prices from March, when the coronavirus pandemic took hold, BP accepted significant changes to the agreement.

Premier will now pay $210m upon completion, with a further $115m due depending on future oil and gas prices. BP’s share of the potential decommissioning liabilities has been cut to $240m from $600m.

The deal shows that some firms still see long-term potential in North Sea assets, but only at the right price.