Premier Oil PLC (LON:PMO) (PMO.L) has released a trading and operations update today which has helped to push its stock price 3% higher.
The company’s Catcher production has reached levels in excess of 60 kbopd (gross) in recent days, which means that the company’s production rates have been over 90 kbopd.
During the first quarter, production averaged 74 kbopd, with a robust performance from the underlying portfolio putting the company on track to meet guidance for the full year of 80-85 kbopd.
Premier Oil has been able to maintain its low cost base. Alongside higher production and rising commodity prices, this is expected to generate strong free cash flow for the business in the second half of the year. This could help to reduce debt levels over the course of the year, as well as in 2019.
Capital spend is falling, although once balance sheet strength has been restored the company is expecting to make selective investments in future growth projects from 2020. If oil prices stay at their current level over the course of the year, a covenant leverage ratio of 3x EBITDA is forecast for the year end.
Premier Oil’s non-core asset disposal programme has continued. This could help to make it a more efficient business in my view which may have a stronger risk to reward ratio.
Looking ahead, volatility could be high for the company and for the wider oil and gas industry. The oil price has historically been difficult to predict in the short run, and this could mean that its financial and share price performance does not progress in a smooth fashion.
However, I’m upbeat about the prospects for the Premier Oil share price. I feel that the company has maintained its financial discipline and is delivering on its production growth. Alongside a higher oil price, this could put it in a good position to generate a rising valuation over the medium term.