Life has been very difficult for the heavily indebted Premier Oil (PMO) and EnQuest (ENQ) this year, but recent events suggest there may be some hope for shareholders in both energy groups.
After months of delays, Premier has entered what we are told are the "final stages of negotiation" with banks and private bondholders over the refinancing of its $2.8bn (£2.3bn) net debt. Changes will include an extension of maturities until at least 2021, a relaxation of financial covenants until the Catcher field comes on stream and "enhanced economics to lenders", although a deal with convertible and retail bondholders has not yet concluded. A term sheet, signed by lenders representing some 85 per cent of borrowings, should come into effect at the beginning of 2017.
Meanwhile, EnQuest has completed an £82m open offer and placing at 23p, first announced in October as part of a $400m financing and capital restructuring package to keep the group afloat. Like Premier, EnQuest is hopeful that a grace period can buy it enough time for several of its projects to start generating cash. One of those milestones was reached on Monday with first oil from the Scolty/Crathes development. Those cash flows - which will be significant given the initial unit operating costs of just $15 a barrel - should be supplemented by production from the Kraken field in the first half of 2017. At that point, EnQuest can start to pay down its enormous borrowings.
However, so tight are the cash positions of the two companies that their futures could be severely dented by a further drop in the oil price. As an increase in the price of Brent crude indicated this week, optimism has been building ahead of an Opec meeting in Vienna on Wednesday, which is expected to see the cartel's members agree to a production cap after two years of surging supplies.
