Premier Oil “retains significant liquidity” despite concerns voiced by a major investor that the firm is “running out of cash”, according to a new trading update.
A statement, released by Premier Oil due to the current market volatility, said the firm’s assets “continue to perform well”.
One of the firm’s major investors Asian Research & Capital Management (ARCM) claimed on Thursday that Premier Oil could ” burn through $1.2 million in cash per day”.
It added that the company’s plans plans “seem far-fetched” in the aftermath of a collapse in crude prices this week.
Premier revealed in January it had struck deals to buy £660 million worth of North Sea oil and gas fields, including stakes in the central North Sea Andrew and Shearwater fields.
The firm said in a statement: “Premier has hedged 30% of its full year 2020 oil and gas entitlement production at an average oil equivalent price of $60/bbl.
“This includes 40% of the group’s oil production for the first half of the year hedged at $64/bbl. A full schedule of the group’s hedging programme is set out at the end of this statement and is consistent with that released in the Group’s 2019 Full Year results.
“The Group retains significant liquidity. It has unrestricted cash of $135m and undrawn facilities of $330m, as at the end of February.
“Premier’s 2020 cash flow breakeven price is under $50/bbl and a $5/bbl move in the oil price point forward is expected to result in a $50m 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 $470m and new operating cost (including leases) guidance of c. $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.
“Discussions are already underway regarding the group’s ability to reduce its 2020 capex programme. Initial analysis suggests that at least $100m of savings and deferrals is achievable with potential for further reductions.
“Assuming a $100m reduction in planned 2020 capex and $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.”
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