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Solan on track for Premier

Premier Oil has been making operational headway in the first half of 2015
July 14, 2015

Premier Oil (PMO) has put its Pakistan business up for sale after receiving an "attractive" offer from an unnamed party, according to its most recent trading update. The driller's interests in Pakistan include holdings in producing gasfields and could be worth in the region of $150m (£97m), based on an evaluation from RBC. The company will now open up the floor to any rival bidders.

IC TIP: Hold at 142p

What's new
■ Positive drilling in the Falkland Islands
■ Pakistan interests up for sale
■ Solan field developments

Premier's share price ticked up marginally following the update, despite news that weak oil prices would reduce first-half revenue by about a third. Shareholders can take heart from news that Premier continues to trim its operating costs, while net debt has been maintained at $2.1bn. Average production hit a creditable 60,300 barrels per day in the first six months, although that figure will pull back due to scheduled maintenance and natural attrition.

Premier has secured Chrysaor's 40 per cent interest in the Solan field, West of Shetland, for nil upfront consideration. In return, Chrysaor will receive a payment of up to $3m a year, offset against any subsequent royalty payments and net production interest. A separate contingent arrangement was brokered with FlowStream Commodities, which will add $100m to Premier's coffers in return for the proceeds from 15 per cent of Premier's production from the field for a period determined by production levels and oil prices. First oil is due in the fourth quarter.

 

Barclays says…

Outperform. No one is getting carried away, but Premier's trading update demonstrated strong operating performance. This should provide investors with comfort that management is on top of the challenges within its control. That said, the prevailing oil price outlook remains an ongoing threat to the debt-levered production/development business model. We continue to view Premier favourably on the premise of gradual oil price recovery, but remain conscious that this outlook is dependent on delivery of the Solan development - a driver of cash-flow growth though 2016. We reiterate our overweight rating and 250p price target.

 

Deutsche Bank says…

Buy. Production of is 1 per cent below our estimates but around 10 per cent ahead of full-year guidance of 55,000 barrels a day (excluding Solan), which has been maintained. First-half operating costs of $150m are 30 per cent lower year on year, and above our expectations. As expected, the development capital spend has been revised higher to reflect Premier's increased ownership at Solan. Our target price (of 215p) is based on our risked net asset value of 311p a share and target price to NAV multiple of 0.7 times. Premier trades at a 20 per cent discount to the sector on this basis.