Top city analysts are betting on a stay of execution for Premier Oil as the deeply indebted explorer continues talks with its lender group.

Premier’s mid-year covenant review is crucial for the London-based oil explorer, which has a market cap of around £300m and is shouldering debt of over £2bn, but ahead of its first quarter trading update this week investors say early signs are pointing in its favour.

Macquarie equity analyst Kate Sloan said Premier is now “unlikely to face a company-destroying backlash” from its lender group after the company completed its £120m acquisition of North Sea gas assets from Germany’s Eon earlier this week.

Premier raised eyebrows by swooping on the gas field stakes in January, at a time when the assets were worth more than the company itself, and immediately began canvassing its creditor for their approval.

“The support which has been given to the company over its Eon gas asset purchase mean the lenders are taking a longer term view of the relationship. It would make no sense to support an acquisition of that size and then, a few months later, ask for your money back,” Ms Sloan said.

“The banks will still probably look to take their pound of flesh, however, in the form of additional fees,” she added.

Jefferies analyst Mark Wilson said the performance of Premier’s Solan gas field in the coming weeks will also be crucial for the explorer’s debt covenant and working capital position discussions.

The Solan field, in the West of Shetland basin, produced first oil in mid-April but Mr Wilson said “May is the bigger month” and analysts will be waiting for the first full tanker of oil to flow from the field before the end of the month.

Premier is banking on Solan producing 10,000 barrels a day by the second half of the year and says it expects its total production to reach 65,000 to 70,000 barrels a day for 2016.

Premier stock plummeted to a third of its current value at under 70p a share earlier this year as the global oil market hit twelve year lows, but is returning to form in line with the tentative oil price recovery.

The share price on Friday was 65 pence, more than triple its January lows of 19 pence but still just a third of its 185 pence price a year ago.