What's new
■ $300m non-cash impairment on oil assets
■ Record production revealed for 2014
■ 2015 development spending cut by 40 per cent
Premier Oil (PMO) said it would take a $300m (£198m) fair value write-down on its assets and has asked North Sea contractors to take a 10 per cent pay cut in response to Brent crude's downward path. With one eye on the oil price, Premier has put the lid on any near-term discretionary drilling, but is still moving ahead with plans to drill eight wells this year. Overall, planned development spending for 2015 is expected to be 40 per cent down on last year. Management also said that a share buyback programme was to be postponed, pending a recovery in the oil price.
It wasn't all gloom on the news front, though. This month's operating update also revealed that Premier achieved record production last year: 63,600 barrels of oil equivalent per day (boepd), an increase of 9 per cent on the previous year. The development programme remains broadly on track, which will boost production over the long run. But the sale of non-core North Sea assets will trim output to about 55,000 boepd in 2015 - excluding the Solan field, which is now expected to come onstream in the second quarter.
UBS says...
Buy. We cut our commercial NAV estimate by 10 per cent after a disappointing trading update. The launch of the key North Sea Solan project has been delayed: it's now expected in the second quarter of this year rather than the final quarter of 2014. And capital expenditure will be higher than we modelled. Although some of Premier's North Sea assets are high-cost, its Indonesian and Vietnamese production is competitive, bringing group operating costs down to a respectable $18.50/boe. Premier also expects to bring operating costs down by at least 10 per cent in 2015. We expect EPS of $0.40 for full-year 2014, falling to $0.18 in the current year.
Deutsche Bank says...
Buy. Substantial progress has been made at Premier over the past 12 months, with the reliability of production restored, Sea Lion (Falklands) restructured and non-core disposals delivered. Yet concerns over the balance sheet in a low oil-price environment and an absence of growth have driven a material sell-off in the shares. To some degree, this can be explained by an oil-biased portfolio, a higher cost-base relative to North Sea peers and the stretched balance sheet. However, with the shares at a 50 per cent discount to core NAV (224p), we think the principal risks are largely priced in and see a value opportunity for long-term investors.
