After a period of disposals, stalled investments and endless bondholder meetings, Premier Oil (PMO) is starting to resume normal service. It’s a gradual process. Catcher is now at a 70,000 barrel-a-day (boepd) plateau, although rising output from the North Sea field in the first half of 2018 was more than offset by asset sales and mature field declines. Production fell 7 per cent year on year, thereby flattening cash flow generation.
Still, Premier has reiterated a full-year production target of 80,000-85,000 boepd, and there is little sign – as yet – of cost inflation. Robust operating margins mean the independent could shave up to $400m off net borrowings before the year-end if Brent crude stays at $74 (£57) a barrel. Doing so would also require “almost perfect project execution”, according to finance chief Richard Rose, who told us a year-end net debt target of $2.3bn to $2.35bn might be more realistic.
De-leveraging remains a challenge, particularly after last year’s refinancing increased the interest rate margin and caused first-half finance costs to rise 39 per cent to $214m. As a result, capital budgets remain on a tight leash, a fact illustrated by the structuring of the Tolmount gas development in the Southern North Sea, which Premier and joint venture partner Dana Petroleum recently sanctioned. The project, which should arrive before 2021, promises 58,000 boepd of gross production at its peak, and will cost Premier just $120m in capital expenditure. The sacrifice will be a greater return for infrastructure partners.
Consensus forecasts are for adjusted pre-tax profits of $118m and EPS of 13.3¢ this year, rising to $332m and 30.1¢ in 2019.
| PREMIER OIL (PMO) | ||||
| ORD PRICE: | 126p | MARKET VALUE: | £976m | |
| TOUCH: | 125.7-126p | 12-MONTH HIGH: | 135p | LOW: 53p |
| DIVIDEND YIELD: | NIL | PE RATIO: | N/A | |
| NET ASSET VALUE: | 98¢* | NET DEBT: | 347% | |
| Half-year to 30 Jun | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2017 | 546 | -3.6 | 7.2 | nil |
| 2018 | 625 | -24.7 | 12.1 | nil |
| % change | +14 | - | +68 | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| £1=$1.29. *Includes intangible assets of $1.32bn, or 170¢ a share. | ||||
