An analyst at Deutsche Bank said Premier Oil PLC (LON:PMO) is operationally robust, but added the group’s refinancing remains a ‘drag’ on the share price.
Barclays’ David Mirzai, in a note, said: “The refinancing has come at a cost, with tradable warrants exercisable at a deep discount likely to act as a drag on near-term momentum and the convertibles diluting potential upside.”
Whilst retaining a ‘hold’ recommendation the analyst lifted his price target slightly to 75p from 74p, suggesting some 16% upside to the current price.
Premier Oil’s production portfolio, currently comprising between 70,000 and 75,000 barrels per day, is described by Mirzai as robust and diverse, while the analyst also highlighted the fact that there remains material growth potential from unsanctioned projects as well.
Post-refinancing the company will have to balance these potential growth projects against the new mandate from the lenders that are granting it leeway - in other words it will have to prioritise repayments.
Start-up of the Catcher Field, slated for later this year, will be catalyst for Premier to accelerate debt repayments, according to Mirzai, though he notes the potential for problems should more oil price volatility occur.
The analyst added: “the group’s 2017 break-even price was guided at c.$50/b Brent, which leaves discretionary expenditures exposed to volatility in the commodity. Even looking past this, although we like the Catcher field and the potential of the reservoir to outperform (plateau guided up 20% to 60kboe/d), investors can gain this exposure through partner Cairn Energy.”