RE: Brent4 Aug 2019 09:13
Barclays comments from the PMO board at the other place.
? Barclays downgraded UK explorer Premier Oil from “overweight” to “equal weight” with a 120p target. It said: “The current pace of free cash flow generation is not rapid enough to stop debt refinancing risks becoming a headwind for the stock.”
With Premier delivering operationally its 30 per cent discount to tangible net asset value might be expected to close, Barclays said. However, it forecast net debt to remain above two times the relevant earnings measure through 2020, complicating financing negotiations with lenders ahead of debt facilities maturing in 2021. A $5 move in the price of a barrel of Brent crude shifts Premier’s valuation by 20 per cent, it estimated.
“The good news is that we believe the portfolio has credible divestment candidates, while management also has a track record for accretive acquisitions. Our concern is that net debt of more than $2bn could cast an increasingly large shadow over an otherwise robust investment case the longer the market is left waiting for an inorganic solution to improve the balance sheet.”
Barclays
At the current pace of debt reduction Premier would take more than six years to clear 2019 year-end debt, which exceeds an estimated mid-case field reserve life of 5.6 years, Barclays said. It also highlighted that Premier traded at deeper discounts to net asset value during the 2016 and 2017 debt refinancing processes.
Premier’s minority stake in a discovery off the coast of Mexico would be the obvious disposal candidate with a value of about $290m, Barclays said. It also noted that while Premier’s south-east Asian fields had become peripheral to the business, they were still contributing about a quarter of core operating earnings so a good price would be needed.
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