The Motley Fool

Could Premier Oil PLC & Enquest Plc Collapse Like Afren Plc?

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.

Many investors were caught by surprise when Afren (LSE: AFR) admitted it might need to raise £200m from investors earlier this week — but the Nigeria-focused firm is unlikely to be the last casualty of low oil prices.

Two other firms which have been hit hard by the oil collapse are Premier Oil (LSE: PMO) and Enquest (LSE: ENQ): shares in both firms have fallen by around 50% over the last three months.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...


Enquest shares soared last week after the firm announced that its lenders had agreed to relax the terms of Enquest’s debt until mid-2017.

This may be a short-term lifeline for Enquest, which has net debt of $1bn, but the fact it was necessary suggests it won’t be enough to solve the problems the firm will face if oil prices stay low.

Bond investors seem to agree — according to Bloomberg data, the yield on Enquest bonds has risen from 5% in July 2014 to around 13% today.

The problem is that Enquest isn’t generating enough cash to fund its capital expenditure, let alone repay any of its debt. Enquest’s numbers suggest to me that despite making cuts, it will have to draw down significant amounts more debt during the coming year, in order to fund its planned expenditure of $600m.

This could leave Enquest unable to service its debt unless oil prices recover strongly — a big risk.

Premier Oil

Premier is a larger firm than Enquest, and should be in a stronger financial situation, in my view, but there are some similarities.

Premier spent $1bn on capital expenditure in 2014, and plans to spend $600m in 2015. Based on the firm’s most recent reported figures, I estimate that the firm’s operating cash flow from last year will be around $1bn, including one-off gains from asset sales of $147m.

Net debt is currently $2.1bn, with cash and undrawn facilities of $1.9bn.

Although a significant portion of Premier’s sales are gas, the firm has only hedged around 40% of its oil output for 2015. In my view this means that the firm is likely to have to draw down more of it debt to fund its operations and capex, creating a hefty repayment burden for future years — and putting the firm’s dividend at risk.

Premier vs Enquest

I think Enquest is at greater risk of Afren-style financial problems than Premier, but I’m not comfortable with either firm’s position, as both are already heavily indebted and likely to become more so this year.

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 daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended Afren. We Fools don't all hold the same opinions, but we all 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.