As debt shrinks, Premier Oil looks to growth

LONDON (Reuters) - As Premier Oil PMO.L makes progress on shrinking its debt pile, it is turning its attention to growth from its UK Tolmount gas field and by looking at buying existing production in the North Sea.

“We would aim to continue to participate in the UK North Sea going forward. And it does seem that there are going to be some opportunities coming up in the next six to 12 months to grow the business through acquisition,” Chief Tony Durrant told Reuters in a phone interview.

“It’s going to be biased towards production... We want the cash flow from newly acquired assets,” he said, adding he would expect Premier’s banks to support such a move.

Oil majors such as BP BP.L and Total TOTF.PA have also shown renewed interest in investing in North Sea assets in recent months as the oil price has rebounded and energy companies recover after slashing production costs following the oil price slump of 2014.

In a trading statement on Thursday, Premier said its board had approved its UK North Sea Tolmount project, which will exploit 540 billion cubic feet of gas and target peak production of 50,000 barrels of oil equivalent per day.

“Letters of interim agreement (for Tolmount) have been signed with the platform and pipeline contractors and the terminal for onshore gas processing selected. Premier’s board approved the Tolmount project in June and formal sanction by partners is scheduled for the third quarter,” Premier said.

Tolmount and projects in Mexico are crucial to the future growth of Premier’s output, which it reiterated would average 80,000-85,000 barrels of oil equivalent per day this year.

In Mexico, Premier snapped up much sought after blocks in the Zama basin containing up to 800 million barrels and said on Thursday that it expects regulatory approval for its appraisal programme this quarter before starting to drill in the fourth quarter.

It has been focussing on cutting debt, which stood at $2.65 billion at the end of last month, down from around $2.7 billion at the end of last year.

“Full-year debt reduction is estimated at between $300 million and $400 million at current oil prices,” Premier said in its trading statement.

It expects its covenant leverage ratio, calculated as net debt plus letters of credit over earnings before interest, tax, depreciation and amortisation, to fall to three times EBITDA by the end of this year and 2.5 times EBITDA by end of March 2019, it said.

Reporting By Shadia Nasralla; Editing by Susan Fenton