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UK-based independent E&P Premier Oil has reached a refinancing debt deal with its lenders that will give the troubled North Sea producer much needed breathing space, at the same time providing lenders with “enhanced economics and certain governance controls.” The deal, according to the FT, is the biggest of its kind among North Sea field operators.
Premier Oil had debt totaling US$2.8 billion at end-2016, with cash and credit at just US$600 million. As part of the deal now reached, the company has undertaken to keep its net debt below US$2.95 billion by the end of 2018. For their part, the bondholders have agreed to allow the company to keep its debt to earnings ratio at 7.5 times until the end of 2017, which should be reduced to 5 times by the end of 2018.
The negotiations over the refinancing deal have been going on since last year. The company said that following the deal, it will revise its funding structure in a way that will make possible the reduction of debt and growth in production, which over the past 12 months averaged 80,000 barrels of oil equivalent daily.
The deal involves a revision of the terms of Premier’s convertible bonds and new terms for its retail bonds, plus an extension of the bond maturities to 2021 at the soonest. By the end of February, the company will circulate a long-form term sheet among lenders – 40 banks account for 85 percent of Premier’s debt – for approval. The scheme needs a minimum of 75 percent of lenders to approve it. The finalization of the agreement should take place by the end of May.
Like many other North Sea operators, Premier Oil has been pressed heavily by the low oil prices since 2014, as oil and gas fields in the area carry higher production costs than in other oil-rich regions, and cash is tight for new investments. Now Premier Oil is prioritizing cash flow generation and the development of at least one new field, Catcher, to boost production and revenues.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.