Headlines
• Premier Oil (LON:PMO) – The Real Cost Pressure Yet to Come, But it is Strong Enough: We believe that the Company will come under more pressure as the hedging programme unwinds, but that it will survive and most likely emerge stronger for the experience. We believe that it remains one of the more attractive mid-tier independents globally, not just in the UK.
• Independent Oil and Gas (LON:IOG) – No Pressure Relief Just Yet, But on the Way: We believe that the shares will continue to come under pressure, which once this appraisal well is completed will be alleviated busy management's ability to talk knowledgably about the way forward and development plans, that way, the extent of funding requirements will be known and the returns have greater confidence.
• Ascent Resources (LON:AST) – Pressure Maintained, But Outlook Brighter: We believe that this round of financing should be the last before the development of the asset, and with the focus migrating towards a development scenario which might militate the capital costs and shorten the time to first sales, there could be a position where equity holders don't get further diluted.
News Items
Premier Oil (LON:PMO) – The Real Cost Pressure Yet to Come, But it is Strong Enough
Today's news from the Company is a solid update in that production is ahead of expectations and the programme for the rest of the year looks as if it will go according to plan, weather permitting. The next stage that the Company has to navigate is the period immediately after the current block of forwards come to an end, the position that the Company is then in will be the measure against which its immediate future will be decided.
In this context, one of the single largest follies undertaken by the management team was the share buyback, but we believe that the outlook remains strong and the space that the current hedging programme has provided has afforded sufficient time for the Company's address its structural cost base.
That said, we believe that there is still significant pressure on the Company, especially as Sea Lion's development continues to move forward a pace. However, on this point, we believe that the true test of the commitment to the field will come at FID, when it will be time to risk the balance sheet and increase the leverage to start the development programme.
We believe that the Company will come under more pressure as the hedging programme unwinds, but that it will survive and most likely emerge stronger for the experience. We believe that it remains one of the more attractive mid-tier independents globally, not just in the UK.
Independent Oil and Gas (LON:IOG) – No Pressure Relief Just Yet, But on the Way
Today's update is more positive than a lot from IOG have been in the past, and we believe that bar the obvious funding risks, which have been significantly reduced from the previous levels but still a concern, that it looks optimistic.
In this respect, we believe that if the funding concerns can be eliminated, the uptick in value for the Company would be significant, as skipper makes commercial returns even at these levels. The question for equity holders is how much further dilution will there be before that uptick becomes a steady build in value.
We believe that the shares will continue to come under pressure, which once this appraisal well is completed will be alleviated busy management's ability to talk knowledgably about the way forward and development plans, that way, the extent of funding requirements will be known and the returns have greater confidence.
Ascent Resources (LON:AST) – Pressure Maintained, But Outlook Brighter
There has been a long path for the Company to navigate to get to this point, and given the optimistic steps that have been taken recently, we believe that the end is in sight. The issue remains as to whether the Company will have the resources to stay the course, and in this respect, the news that the funding pressures are being addressed will go some way to improving the outlook.
As ever, cash flow is the lifeblood of any company, whether in the form of investor funding, as is the case here, or from the conduct of its businesses, access to which has been the key issue in the past. Now that the issues with access to the resources is making progressed, there is a sense that at some level at least, the Company is making progress.
We believe that this round of financing should be the last before the development of the asset, and with the focus migrating towards a development scenario which might militate the capital costs and shorten the time to first sales, there could be a position where equity holders don't get further diluted.