Why I’m selling the PMO share price and looking to buy GKP shares

Debt makes the big difference between the PMO share price and the GKP share price for me.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

I’ve always said that whenever you look back on a stock purchase that hasn’t gone well, you should re-examine your assumptions at the time and your reasons for buying. And if those have turned out to be wrong, it’s probably time to sell.

It can be hard to be that objective and to let go of a stock in which we’ve made an investment, both financial and personal. When I buy into a company, I tend to think of it as my very own, but that can create some problematic emotional attachment.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Changed mind

I got it wrong when I bought Premier Oil (LSE: PMO) shares in 2015, and I’ve finally admitted what I should have decided before now – it’s time to sell.

A 2% uptick Thursday in response to the latest trading update isn’t going to change my mind, even though full-year production now looks set to come in at the upper end of the company’s earlier 75–80,000 barrels of oil equivalent per day (boepd) guidance.

The flagship Catcher asset is on for 69,000 boepd with an operating efficiency of almost 100%, and has already reached cash payback just 22 months after first oil. The UK Tolmount field is on for first gas by the end of 2020, and the firm’s other prospects all sound like they’re progressing well.

But for me it’s all down to debt, and my erroneous assumption that oil prices would quickly get back to around $75 per barrel and that Premier would have paid down a lot more of its debt by now. Admittedly, a further reduction has brought that figure down to $2.03b at 31 October, but that’s still more than twice the company’s market cap.

I know it’s only a month ago that I was still seeing Premier Oil as a buy, but when I decide I’ve got something wrong, it’s only right that I put my hands up and say so.

Alternative buy?

While I do have a short list of top stocks I’d like to buy, I still fancy the idea of having one of the smaller oil companies in my portfolio, and the more I look at Gulf Keystone Petroleum (LSE: GKP) the more I like what I see.

I’ve previously examined the transformation that’s taken place at Gulf Keystone. At one point it looked like it could go bust over lack of payment from the Kurdistan Regional Government for the oil it was producing. Today, we see a company that’s receiving regular monthly payments, is on a modest price-to-earnings valuation, is in a healthy state of solvency, and is even paying dividends.

There are two key things I like about Gulf Keystone. One is that it does not carry net debt, unlike Premier Oil in particular and many other oil explorers in general. In fact, at the interim stage at 30 June, the firm reported net cash of $198.3m.

The other is that, despite falling oil production this year (due to things like maintenance), the company plans to raise its output to a new level of around 55,000 bopd by the second quarter of 2020 (from the 30–33,000 bopd expected this year). If that comes off, we could see a P/E dropping below eight.

Oh, and some of the lowest production costs in the business, so that’s three.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Alan Oscroft owns shares of Premier Oil. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Buffett at the BRK AGM
Investing Articles

I’m listening to Warren Buffett about investing for the future

How does Warren Buffett incorporate an uncertain future into his investment strategy? Christopher Ruane explores what he's learnt from the…

Read more »

Worker on sofa and team on laptop screen talking and discussion in video conference and dog interruption.
Investing Articles

The Alphabet share price has fallen 25%. Time to buy?

The Alphabet share price has fallen sharply in 2022 -- and our writer scents a buying opportunity for his portfolio.

Read more »

Close-up of British bank notes
Investing Articles

How I’d invest a Stocks and Shares ISA to target yearly dividends of £1,350

Our writer reckons he could invest a £20,000 Stocks and Shares ISA to generate substantial dividend income. Here's how he…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

UK shares to buy now: how I’d invest a £1,000 lump sum

Our writer highlights some shares to buy now for his portfolio that he hopes offer both growth and income prospects.

Read more »

Investing Articles

3 top FTSE 100 shares to buy in a recession

Our writer explores three FTSE 100 shares that could protect the value of his stock market portfolio in the event…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

Could I double my money with Rolls-Royce shares?

Rolls-Royce shares have been on a downward track this year amid ongoing-pandemic related challenges. But is now a good time…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

Down 50%, are Scottish Mortgage shares a bargain growth pick?

Scottish Mortgage shares have been on a steep downward track over the past six months. Down more than half, is…

Read more »

Note paper with question mark on orange background
Investing Articles

4 reasons why I would — and wouldn’t — buy Tesco shares for June

I’m looking for the best FTSE 100 shares to buy in early June. Is Tesco a brilliant blue-chip I should…

Read more »