The Motley Fool

The Premier Oil price has soared since I sold. Here’s what I’d do now

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.

Oil pipes in an oil field
Image source: Getty Images.

After deciding my purchase of Premier Oil (LSE: PMO) shares was a mistake, I finally got round to selling them in November. Since then, perhaps inevitably, the share price has climbed 35%.

The recent advances in the oil price in response to escalating tensions between the US and Iran have certainly helped, with a barrel of Brent Crude now selling at $68. But most of that rise came on Tuesday, with the price up 17% at midday to lead the day’s winners, after the FTSE 250 company released two juicy pieces of news.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Update

The first is a trading and operations update ahead of 2019 results, which are due on 5 March. Production came in at 78,400 barrels of oil equivalent per day (78.4 kboepd), at the upper end of the company’s expectations, and progress has been good at key assets.

First gas from the BIG-P prospect in Indonesia was on schedule and below budget, and initial gas from the North Sea Tolmount prospect is on schedule for the end of 2020. Premier’s current 50% stake in the latter is expected to add 20-25 kboepd, and that alone would raise total output by up to 32% over the 2019 figure.

Other existing prospects are going well, but my first thought was how Premier’s net debt is going? There’s been a further reduction of over $300m, dropping the total from $2.33bn to $1.99bn, in line with guidance.

In the words of chief executive Tony Durrant: “Premier’s strong operational performance in 2019 has generated significant free cash flow for the group enabling us to materially reduce our debt levels and to invest selectively in our portfolio for future growth.”

Acquisitions

But the bigger news is of further North Sea acquisitions. Premier is buying BP‘s Andrew Area and Shearwater assets for $625m, plus a further 25% of Tolmount from Dana Petroleum. The Tolmount purchase will cost $191m plus contingent payments of up to $55m. The firm is also proposing to extend its existing credit facilities to 30 November 2023.

This would all be fine for a company with net cash. But I see a big question over whether it makes sense for Premier to be investing such large sums in new assets while it’s still shouldering such high debts.

But on the plus side, the news assets are expected to generate over $1bn in free cash flow by the end of 2023, and that would come in very handy for tackling the debt.

Balance

It’s all a bit of a balancing act, and what does encourage me is that Premier appears to be looking at the longer term rather than just plodding along and not really doing much forward planning until the debt has come down further.

The risk is that weak future oil prices could have an adverse impact on debt, though the firm has estimated a combined operational expenditure from the new assets of less than $20 per barrel equivalent, so the risk is perhaps relatively low.

On balance, I think this is all good news for Premier shareholders, so do I regret selling? Well, I got my timing wrong (as I often do), but it’s never been part of my strategy to invest in hugely indebted companies. No, I’m best out.

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 has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.