Premier Oil Plc - Decent Growth Opportunities, with Robust Interim Production

Premier Oil Plc (LON: PMO) is a London, United Kingdom-based Oil & Gas Exploration and Production Company, with interest in South East Asia, North Sea, Mexico, Brazil, and the Falkland Islands.

The Company will announce H1 FY2020 results on 20 August 2020.

Recent News

On 20 July 2020, Premier Oil announced the signing of SPAs (sale and purchase agreements) for the acquisition of BP's interests in Shearwater assets and Andrew Area with BP. The Company will pay $210 million to BP after completion of acquisitions.

Update on Trading and Operational Performance (15 July 2020)

The Group stated that the average production for the first half of 2020 stood at 67,300 barrels of oil equivalent per day (boepd), with annual production guidance in the range of 65,000-70,000 boepd. Solan P3 was successfully drilled and is expected to be on-stream in September 2020, with the forecasted increase in production rate by around 10 kbopd in Q4 FY2020.The BP acquisition approved by creditors is projected to add 17,000 boepd from the targeted completion date of 30 September 2020. The Group expects a 2020 capital expenditure of US$340 million, an operating expenditure of US$12 per barrel of oil equivalent and lease costs of US$6 per barrel of oil equivalent, reflecting a savings and deferrals secured of US$240 million. The Company’s net debt decreased to US$1.97 billion as at the end of June 2020. PMO forecasts a positive free cash flow for the full year at the current forward curve.

Share Price Performance


Daily Chart as of July 29, 2020, before the market close (Source: Refinitiv,Thomson Reuters)

Premier Oil Plc shares were trading at GBX 36.68 at the time of writing before the market close (at 1:44 PM GMT+1) on 29 July 2020 and up by 1.89% versus the previous day closing price. Stock 52 week High and Low were GBX 120.70 and GBX 10.02, respectively.

From the technical standpoint, 14-day RSI is currently in an oversold zone, which means there is a good potential for a short term rebound in the stock price.

Key Risks

Recent Coronavirus outbreak could hamper the supply chain and impact the business of the Group. Also, the decline in oil prices can impact the cash generation and profitability of the Company. Furthermore, the performance is also dependent on the production stoppages and equipment failures.

Valuation Methodology


*Peers: Genel Energy Plc, EnQuest Plc and Hurricane Energy Plc.

*Currency exchange rate taken for 1 USD = 0.77039 GBP.
 
Conclusion

The Group remained discipline, while investing in the new projects, as the recent macro-economic factors are making the environment more challenging. The Company is benefitting from the hedging programme and taking effective action to reduce the expenditures. The Group is into a discussion with creditors for long-term extension of credit maturities. Moreover, the Group expects positive free cash flow for the full year. Furthermore, the completion of the value-accretive BP acquisitions will give a benefit from a recovering oil price.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance at the current price of GBX 36.68 (as on 29 July 2020, before the market close at 1:44 PM GMT+1) and will recommend fresh buying at the right time.
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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