Premier Oil will move ahead with plans to develop one of the largest new gas field discoveries in the southern North Sea in recent years.
The FTSE 250 oil producer told investors that its board of directors cleared the Tolmount project to move ahead last month, more than two years since it paid £120m to snap up E.On’s clutch of North Sea assets in the depths of the oil market crash.
The deal plunged Premier Oil into protracted negotiations with its lenders to overhaul the financial covenants on its nearly $3bn debt pile.
But the long-term strategic value of the project has whet the appetite of city analysts which believe Tolmount, together with Premier’s Catcher North Sea project, is set reignite cash flows into the business.
Catcher’s gas production has reached a steady rate of 60,000 barrels of oil equivalent a day and Premier expects work on Tolmount to begin later this year before producing gas in 2019.
Overall, Premier’s production has averaged 76,100 barrels a day this year and is likely to reach an average of 90,000 barrels a day for 2018 as a whole.
The production boom has allowed the explorer to wipe almost half a billion pounds from its debt pile since the end of last year, and said that as much as £300m more could be shaved off by the end of 2018.
Meanwhile, Premier’s billion-barrel discovery at the Zama field in Mexico has opened the door to potentially lucrative partnership deals in the basin once the final appraisals have been undertaken.
Tony Durrant, the company’s chief executive, said reaching plateau production at Catcher has been “an important milestone” for Premier.
“This, coupled with the ongoing strong performance from our underlying portfolio and our continued focus on cost control, will result in significant free cash flow generation and material debt reduction in the second half,” he said.
“We can also look forward to the formal sanction of our high value Tolmount project and the appraisal of our world class Zama discovery, both of which have the potential to deliver significant future growth," he added.
The group returned to the FTSE 250 earlier this year after crashing out of the index during the oil industry's recent downturn.
Alasdair Ronald, at investor Brewin Dolphin, said financial institutions have become “increasingly positive on the prospects for Premier Oil”.
“The reduction of debt has been a focus of management and the news on this will have been well received,” he said.