Join our community of smart investors

Premier held back by acquisition fight

Oil producer's largest lender is fighting against 23,000bopd acquisition over balance sheet worries
March 6, 2020

Premier Oil (PMO) is under pressure from the low oil price and lenders fighting a credit extension and equity to raise to fund a major acquisition of producing North Sea assets.

IC TIP: Hold at 68p

The oil price fell below $50 (£39) a barrel (bbl) from the coronavirus demand hit, and even a proposed 1.5m-barrel-per-day supply cut from the Organisation of Petroleum Exporting Countries (Opec) was not enough for any major price improvement. 

Premier is coming off a positive year, with cash profits climbing around 20 per cent to $1.2bn. Net debt (excluding $733m in lease liabilities) was down 15 per cent to $1.99bn, although this will climb once again if the company can get its lenders to approve a $300m loan and $500m equity raise to fund the BP (BP.) acquisitions. The plan is to buy BP’s stakes in the Andrew Area and Shearwater assets for $625m and an additional 25 per cent share in the Tolmount Area project for $191m. 

The purchase ran into trouble when lender Asia Research and Capital Management (ARCM) challenged it over the debt it will add to the balance sheet. ARCM also holds a 17 per cent short position in Premier, the largest on the London Stock Exchange, which it says is for hedging purposes. The initial lender vote passed in February, but ARCM will use a sanction hearing in court on 17 March to push for a cancellation of the deal. 

Consensus estimates compiled by Bloomberg forecast 2020 cash profits as falling 15 per cent on last year’s figure to $1.05bn, while earnings per share will come down 39 per cent to 10.3¢. 

PREMIER OIL (PMO)   
ORD PRICE:18.53pMARKET VALUE:£156m
TOUCH:18.52-18.66p12-MONTH HIGH:20.9pLOW: 18.5p
DIVIDEND YIELD:nilPE RATIO:1
NET ASSET VALUE:135¢*NET DEBT:$2.72bn**
Year to 31 DecTurnover ($bn)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
20151.07-830-210nil
20160.94-41421.3nil
20171.04-366-52.6nil
20181.4015813.6nil
20191.5810318.8nil
% change+13-35+38
Ex-div:na   
Payment:na   

£1=$1.30. *Includes intangible assets of $1.1bn, or 140¢ a share **Includes lease liabilities of $733m