Premier Oil mulls reduction in capex programme amid oil price volatility
In light of the current market volatility, the UK oil and gas company, Premier Oil, is looking into its ability to reduce the capex programme for 2020 with the possibility to save at least US$100 million.
In an update on the 13th March, Premier said that its assets continued to perform well with production to the end of February of 76.6 kboepd.
Full-year production guidance of 70-75 kboepd is reiterated, before the impact of the proposed UK acquisitions.
Premier has hedged approximately 30 percent of its full-year 2020 oil and gas entitlement production at an average oil equivalent price of US$60/bbl. This includes 40 percent of the group’s oil production for the first half of the year hedged at US$64/bbl.
The group has unrestricted cash of US$135 million and undrawn facilities of approximately US$330 million, as at the end of February.
Premier’s 2020 cash flow breakeven price is under US$50/bbl and a US$5/bbl move in the oil price point forward is expected to result in an approximately US$50 million move in free cash flow on a full-year basis.
This includes the benefits of the hedging programme and is based on capex guidance of US$470 million and new operating cost (including leases) guidance of approximately US$20/boe.
As well as maintaining liquidity, Premier is focused on managing its forward covenant position which could be impacted by ongoing oil price weakness.
According to Premier, discussions are already underway regarding the group’s ability to reduce its 2020 capex programme. Initial analysis suggests that at least US$100 million of savings and deferrals is achievable with potential for further reductions.
Assuming a US$100 million reduction in planned 2020 capex and US$35/bbl oil price for the remainder of the year, the group would expect to be broadly cash flow neutral in 2020. This does not take into account positive cash flows from the proposed UK acquisitions or potential disposal proceeds.
With regards to the Premier’s proposed acquisitions and extension to the group’s credit facilities, the court hearing to sanction the creditor schemes of arrangement is scheduled to start on the 17th March. Premier said it would provide an update on the next steps in the process once the sanction hearing has taken place.
Other oil and gas companies have also already announced its plans to reduce spending in 2020 due to the volatility in the oil market exacerbated by the oil price war and the outbreak of the coronavirus, including Apache Corporation, Murphy Oil, and Noble Energy.
Source: Offshore Energy Today