Premier Oil PLC rises 5% on trading update: are further gains ahead?

Could Premier Oil PLC (LON:PMO) (PMO.L) deliver further share price growth?

Premier Oil PLC
Premier Oil PLC

The Premier Oil PLC (LON:PMO) (PMO.L) share price has risen by around 5% today following an investor update.

The company has confirmed that the sale of its interests in the Babbage Area to Verus Petroleum has now completed. The company has received £30.3 million after adjustments for Babbage cash flows collected since the effective date of 1 January 2018. As well as this, Verus will take on exploration commitments valued at $24 million.

Premier Oil will use the cash to pay down debt. This is a sensible move in my opinion, and could help to further de-risk the company’s balance sheet during what is an uncertain period for the oil and gas industry.

The company’s production year to date has averaged 79.4 kboepd (thousand barrels of oil equivalent per day). Production in November and December has been above forecast at 92 kboepd, with it being driven by high uptime across the producing portfolio. This includes a strong performance from Catcher, where production has averaged 68 kboepd, with the company having a 50% interest.

Premier Oil faces a relatively uncertain future in my view. The oil price has fallen significantly in the last couple of months, with Brent being $86 per barrel at the start of October and now trading at around $59. Uncertainty regarding the prospects for the world economy alongside Iranian sanctions waivers for eight countries seem to have hurt investor sentiment.

In the near term, I wouldn’t be surprised if there is further volatility and even declines for the oil price. Sentiment seems to be on a downward trend, and could prove to be persistent.

Over the long run, though, I believe the stock could have growth potential. While its debt levels are relatively high, it is working hard to reduce its leverage. Alongside a single-digit P/E ratio, I think its reward potential could be high. However, it remains a high-risk share in my eyes.

About Robert Stephens 5151 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page