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Quiet on here

lse:pmo

#21

Yup, I just can’t see the shale boys continuing to drill themselves into oblivion when their shareholders are banging on the door demanding returns.

Their share prices are being hurt just like Premier’s, which should focus the mind in terms of cash allocated to production growth vs shareholder returns.


#22

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#23

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#24

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#25

Premier always getting targeted when sentiment is poor, we’ve got a massive debt pile and the lower the oil price go the more difficult it is for us to chip away at it. That said, the entire E&P space is getting hammered, the smaller and more indebted you are (premier) the worse you’re impacted, but let’s not pretend it’s just premier under-performing.

Personally, I think the current share price (arguably accurately) reflects the concerns about the oil price, demand growth, trade wars, economic growth, increases in US inventory and that shale production growth continues at pace. More specifically, the concern for Premier, is that with an oil price starting in the $50’s we’d struggle to pay down the debt within 2020. A good portion of this years debt reduction is already locked with the hedging, but a declining oil price next year would certainly pose some challenges.

I’ve been very wrong about the oil market and premier so far, so my opinions generally don’t mean much, but with oil demand still rising (albeit probably slower than before) then it would only take a shale slowdown to balance this market. Will that happen, who knows, but if they don’t and inventories continue to build then their equity valuations will get obliterated just like Premier’s.


#26

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#27

Agreed, PMO is and always was a leverage play vs Oil. It will always move more wildly than WTI/Brent because of the cash flow impact the change in those prices have and the debt issue. So potentially bigger upside but also bigger downside.

Needless to say, with short interest increasing as the price decreases (another 0.2% added on Tuesday) it probably could well overshoot to the downside IMHO but that’s the way it goes. A fair bit of consolidation going on in the North Sea in the last years, so at some point someone might see it as a potential takeover target at the right price but until then…guess its pretty binary.


#28

It is even quieter now… Good trading update this week and no comments. So thought I would add mine.

A good first half, with production, revenue, and debt reduction ahead of forecast. Second half looking more tricky. They have not upgraded their production forecast despite being well above the top of the range in H1. This implies they are expecting a much lower production in H2, around 70k boepd if the forecast is correct. That implies a large 20% decline from H1, presumably a lot more maintenance downtime but there must be some significant field decline in there too (plus Pakistan sale of course).

I would like to see a detailed forecast for H1 2020 and 2020 as a whole now. There is a lot of activity next year with FID on Zama, first gas on Tolmount, hopefully FID on Sea Lion as well, although I think that will be 2021 unless they monetise more assets. Zama sale is still a possibility. It should be worth a lot more now it is appraised and upgraded. If they did monetise it, how much of the proceeds would they keep for developing Sea Lion and how much would they use to pay off debt? And how would the market treat it? I doubt a sale of under £0.6bn would go down well because this is clearly a significant asset.

In summary, more steady progress. Slowly lowering the risk profile from reduced debt is good. But with so much talk of recession and the potential for POO to plummet under that scenario. There are still some significant risks here. But I still feel comfortable holding and it is still my largest holding.

DB


#29

Dbatey,

It was a good update, but we’ve still got too much debt and the market is concerned about lower prices ahead so no real market reaction.

The IEA and OPEC are both predicting a significantly oversupplied oil market in 2020 so you have to ask, why would anyone buy an over indebted oil company?!

I calculate at $50 oil for all of 2020 we’d be cash flow neutral (assuming similar CAPEX/ABEX/G&A etc) and that we’d be in breach of covenants…again. Unfortunately we know how that one ended for us shareholders last time. Maybe that’s why we’re once again one of the most shorted companies on the entire LSE?!

I’m looking at H1 shale company results to give an indication if they’re listening to the market and will slow their rate of growth, which would have a material impact on S&D balances for next year.

Surprising to me, analyst expect Pemex to take between 40%-50% of Zama following completion of the unitisation agreement. Although still an amazing find, it does dent my expectations on what our share would be fetch if sold. I would imagine somewhere closer to $400m would be a fair price based on that.

Personally, I think Zama should be sold, but only is Sea-Lion is given the green light, which appears to be tied to securing the export financing. I’d also be looking into the merits of making a bid for Rockrose energy, they have some significant UK production, which would be hugely beneficial in terms of utilising our tax losses but would negatives in terms of adding decomp costs to the balance sheet.

ATB.


#30

Yes, deathly quiet…and with another 1% short interest being declared this week (~8.3m shares) given average daily volume is ~10m shares that’s potentially ~20% of the volume being short sales. Definitely a healthy short interest being built up now standing at 5.42% with all 4 known participants adding.

So not surprising the share price is falling to new lows this year with this backdrop even if oil hasn’t.

However, some Bloomberg Research to share from the other day.

(Bloomberg Intelligence) –
THESIS: Premier Oil is delivering operational performance and deleveraging ahead of expectations, and we see rising organic free cash flow – backstopped by Catcher, its flagship U.K. North Sea project – to extend through 2H. Catcher has achieved plateau volume above vessel-nameplate capacity, and is exhibiting exceptional production efficiency of 99%. We look for year-end net debt of about $2 billion, achieving 2x annual Ebitda, representing a significant milestone for the company. Approval in 2020 for Premier’s next-growth stage, Zama, suggests first oil in 2022-23, with capacity of more than 150 kboepd (38 kboepd net). (08/14/19)

• 1H Production Averaged 84.1 Kboepd, Above High-End of 2019 Average-Production Guidance of 75-80 Kboepd
• BI Scenario Sees 2019 Ebitda at $1.06 Billion, Compares With Consensus of $1.05 Billion
• Sharply Improving Balance Sheet With 1H Net Debt at $2.33 Billion; Deleveraging to Continue to $2 Billion by Year-End
• 2019 Capex of $340 Million Unchanged

Premier’s pre-reported 1H average production of 84,100 boepd places the company well on track to meet or exceed the top end of its full-year guidance of 75,000-80,000 boepd, in our view. It also suggests potential for a guidance upgrade at 1H results. Performance continues to be led by Catcher (50% interest) in the U.K. North Sea, which is exhibiting unparalleled operating efficiency at 99% and reservoir performance in excess of vessel-design capacity, which has also facilitated lower operating-cost guidance of $12/boe (from $13). With free-cash flow extending through 2H, net-debt reduction is also on pace to meet or exceed guidance this year, and could be at-or-below the $2 billion milestone by year-end, equating to an impressive leverage ratio of about 2x Ebitda. (08/14/19)


#31

Looks like Bloomberg Intelligence have missed the impact of the unitisation agreement, Zama should end up being around 20k net to Premier if we take it through to production.

Tend to feel that we’re somewhat of a zombie company at these oil prices, not low enough (thankfully) to cause any major concerns with covenants but then not high enough to deliver any shareholder value, we’re simply burning through the reserves to pay the creditors back.

H1 results this week, will good to get a proper update and hopefully some challenging questions in the Q&A session about where Premier go from here.


#32

So a divestment of Zama and reduction of exposure to Sea Lion on the cards. I guess it makes sense as a decent reduction in debt would be good IMHO. Ok, lose some future growth potential but perhaps tricky to finance anyway given current debt levels. It would be good to get the debt to a more reasonable level whilst also reducing the financing costs currently being paid out so increasing cash flow. Good to see Catcher should also see an upgrade of reserves as well. Otherwise, all ticking along as well as could be expected.


#33

Webcast during the Q&A session has abruptly ended but the guys at Premier are sounding very bullish after a good set of results.

Cost to first oil for Sea-Lion has increased from $1.5bln to $1.8bln, which probably goes some way to explain the Zama sale.

No real mention about shareholders or why we’re one of the most shorted companies on the LSE, I doubt the share price is simply going to respond because they say everything’s going well.


#34

Perhaps the shorts are running for some cover today ! Twice the normal volume and a decent price rise leading technicals to be also on the positive side for a change.


#35

Who knows, they’ve probably made enough of us anyway not to worry. Would certainly be nice to see them come down over the next few months as the Zama sale progresses.