Sometimes it pays to have a former finance director at the top – and for an oil and gas company facing a dire collapse in crude oil prices that time is now. We talked to Premier Oil (PMO) chief executive Tony Durrant in December – not long after he replaced his long-standing predecessor Simon Lockett in June. Tight control on costs was already close to the top of the agenda.
Today’s interims are a demonstration of Durrant’s ability with the numbers and in a weak market the company is rewarded with a 1.7% advance to 97.2p. Although the company reports a larger than expected loss of $214.7 million – based on impairments to its oil and gas developments to reflect the lower oil price – operating cash flow for the first six months of 2015 comes in at $513 million, 12% above the consensus figure of $457 million.
The beat comes as the company has successfully pared spending. This could allay market concerns over the short-term funding of the company – with financial covenants also relaxed through to mid-2017, from 3.0 times net debt to EBITDA (earnings before interest, tax depreciation and amortisation) to 4.75 times until the end of 2016 and 4.5 times thereafter. Hedging continues to support high realised pricing with a post-hedge oil price of around $84 per barrel for the first half. These positions will now unwind but at a slower pace than previously thought – 60% of 2H15 volumes are hedged at $92 per barrel and 25% of 2016 volumes at $69 per barrel.
Deustche Bank, which reiterates a buy recommendation and 215p price target, comments: ‘A robust set of results from Premier with cash generation ahead of expectations, guidance on production and project delivery maintained and financial covenants relaxed. We expect the latter to increase investor confidence in Premier’s ability to access undrawn debt facilities, significantly reducing short-term balance sheet concerns and helping to close the c. 50% discount to our core NAV of 185p.’