Wednesday 11 May 2016 12:08 pm

Premier oil share price slides despite oil production topping forecasts as debt concerns linger

Premier Oil said today that it could beat its full-year production target after hitting record-high output levels, as it continues to shrink operating costs.

It hit production levels of 78,000 barrels per day (bpd) last weekend, putting it on course to smash its 65,000-75,000 bpd full-year target. It also cut costs by 10 to 20 per cent more than planned.

"Strong production performance from our existing assets, together with the contribution from the E.On assets and the Solan field means that we now expect production for the year to be better than we originally anticipated," Tony Durrant, chief executive of Premier, said.

"This, along with continued cost savings, positions us well to maximise our current cash flow as we remain focused on managing our balance sheet in the current oil price environment."

But its shares slumped as much as 4.7 per cent to 66.5p per share this morning, before recovering slightly to 69.25p.

"I suspect it's because the market was hoping for covenant renegotiation," Kate Sloan, senior oil & gas analyst at Macquarie, told City A.M.

She expressed confidence that this will take place within the next six to eight weeks, because the banks recently allowed Premier to take on more debt will the E.On deal.

Last month, Premier completed the acquisition of E.On's North Sea oil and gas fields for $120m (£83m). It previously said the deal would lead to "significant" production and cashflow increases this year and in 2017.

Stephane Focaud, an analyst at FirstEnergy, also told City A.M. that he couldn't pinpoint why the shares were down, however there has been talk that the company could do a rights issue later this year to prop up its balance sheet.

The Times reported in February that Premier's lenders could force it to tap shareholders in a rescue rights issue later this year.