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It’s Better to Travel than Arrive and Premier Oil has Arrived

By Lucian Miers | Saturday 11 February 2017


Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.


I resisted the temptation to short Premier Oil (PMO) a year ago, along with Afren, Gulf Keystone and Petroceltic as it was never in the same basket case league as that lot. I even hitched a brief ride North as it became clear that a wipe out was not going to happen. (In case I come across as arrogant or smug I should declare that I was short Hurricane Energy at the time which more than did for the Premier rise) 
 
But as the saying goes: it is better to travel than arrive and Premier has now arrived in that it has avoided a massive debt for equity swap and clearly given its shareholders a chance.

The shares hit just shy of a pound recently, a five bagger from the panic-station 20p low of 2016 and have since retreated to 80p to give a market cap of £400 million.

The company still carries a whopping £2.8 billion of net debt, and in return for extending its maturity to 2021, has granted to holders “enhanced economies and certain governance controls” meaning warrants over 90 million shares at 42.75p and higher interest payments. (Granted: it could have been a lot worse)

Premier says that it will be cashflow positive, after planned capex, with oil over $50 a barrel and will concentrate on shoring up the balance sheet for the next two years. That doesn’t leave much room for disappointment.
 
It would also appear that the company’s next big thing could be the Sea Lion project off the Falkland Islands. This is an area that has impoverished all but the fleetest of foot in the past and comes with massive risks. This means that there are likely to be many bumps in the road for Premier if it is to reach the promised land and I can see its shares drifting quite a bit further in the meantime.
 
For this reason, despite having big respect for the bosses who seem to have done well for their owners, I have gone short with a 100p stop. The right price for me is sub 50p.

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and ahead of a new shorting idea from Lucian Miers next week click HERE


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