The launch of production at Premier’s flagship Catcher field by the end of the year would be a major boost for the company as it looks to tackle its debt pile, reports Sam Wright from London
Premier Oil successfully deployed and linked its floating production storage and offloading (FPSO) vessel BW Catcher at the Catcher oilfield in the North Sea on October 23. The development has raised hopes that the company might be able to bring the delayed project online by the end of 2017.
This followed a successful hook-up of the submerged turret production (STP) mooring buoy system, with a successful rotation test completed three days earlier. Sources close to the project say that commissioning activities have now commenced in parallel to a final pull-in of risers and umbilicals.
Mobilising the FPSO into position has been the main holdup in the process of getting Catcher online following delays in its construction. The vessel was built by Japan’s IHI and Norwegian FPSO provider BW Offshore.
Premier’s plan is to ramp up production from Catcher first, followed by the satellite Varadero and Burgman fields nearby over the next three to four months. Catcher is comparatively stable, with a low gas to oil content. Peak production from the field is estimated to be 60,000 bpd of light crude, with the field estimated to have a productive lifespan of around 10 years. This should enable the company to hit its production target of 75,000 boepd in 2017, with some estimates suggesting that Catcher will triple Premier’s production in the North Sea. The FPSO will be on a seven-year charter with Premier, with a processing capacity of 60,000 bpd and storage capacity of 650,000 barrels. It will be linked up to 20 undersea wells in 91 metres of water.
Total capital expenditure on the project was initially projected to be around US$2.2 billion, but this has been cut back significantly thanks to cost savings in production and is now forecast to be US$1.6 billion. Premier owns 50% of the field and is the operator, with Cairn Energy holding a 30% stake and MOL holding the remaining 20%. The final development plan for the project was approved in June 2014, following Premier’s purchase of the fields as part of two purchases of Oilexco and EnCore Oil in 2009 and 2012 respectively.
Even if Catcher were to encounter further delays, Premier now also has the 1 billion barrel Zama-1 field in Mexico in its portfolio. This field, which was discovered in July, ought to reassure investors that the company has a bedrock of assets on which it build some production momentum.
Debt and restructuring
Nevertheless, after a difficult few years, Premier is pinning much hope on Catcher, as are its shareholders, with the company’s share price jumping noticeably following its previous announcement that production could begin before the end of 2017. The company has been heavily in the red for some time, with a reported debt in excess of US$2.7 billion that has weighed heavily on operations.
Despite these challenges, a combination of supportive lenders and improved efficiency has allowed it to become cashflow positive and begin reducing its net debts. This has led investors to believe that when Catcher comes online, deleveraging will accelerate.
In May, Premier said it expected to slash its debts significantly in 2018 by exceeding its 2017 production target and cutting spending across the board as part of a restructuring programme. This was followed by a major sale of the company’s 33.8% stake in the Wytch Farm onshore oilfield for around US$200 million and its release of letters of credit adding up to US$75 million. As a consequence of the subsequent deal with Premier’s large and diverse creditor group, the company has until May 31, 2021 to repay its debts and must keep net debt at 8.5 times its earnings until the end of 2017.
The fact that these debts remain on the books is an indication of how hard Premier was hit by oil price crash, which left many companies in difficult or unsustainable positions. Nonetheless, Premier’s CEO, Tony Durrant, has high hopes that Catcher will be among the developments that leads to a change in fortune. Speaking to Energy Voice in July, he clarified his plans for the future. “We’re just about to finish this refinancing which has been protracted and rather painful but it sets us on a course for the next five years with our lender groups. We don’t have any debt to repay in the next five years. And broadly speaking, what we have done is agreed a business plan over the next five years, and that business plan splits roughly into two phases.
“The first phase takes us through to the beginning of 2019. We bring the Catcher field on stream later this year which will generate cash flow. We’ve got no immediate capex commitments beyond Catcher and we will be repaying debt. Subject to the oil price being halfway decent, we will get our balance sheet back in reasonable shape by the beginning of 2019.”
Phase two will then involve selective reinvestment to begin building back up once the debts are cleared. This still remains some time off owing to the size of Premier’s debt, even with the increased production from Catcher and output from its existing assets.
Despite the interest surrounding the installation of the FPSO, Premier has so far refrained from confirming publicly that delivery is set for the end of the year, although there is thought to be some optimism that this will be possible. At the same time, some industry voices have said that while some work is still required, an end-of-year target is actually feasible, and that first oil on or around Christmas Day is a possibility.
If this target can be met, it will do a great deal to reassure its creditors that the company is on the right track. Premier has said previously that it could generate a profit in 2017 on the back of higher oil prices and output, asset sales and reduced spending. A profitable performance for the year combined with the start up of Catcher would mean the company was in fairly good shape for the start of 2018.