When I bought some Premier Oil (LSE: PMO) shares back in September 2015 at 99p apiece, it was based on my thoughts that they were close to a maximum pessimism rating and that a recoveringoil price would help the company get its huge debt burden under control.
And well, the price plunged further and trading was suspended, though weve seen something of a recovery butwith oil stuck ataround $50 per barrel, Im still waiting for that to pick up.
This weeksupdate has given me a little more confidence, as the companys debt refinancing plan is coming together, with everything set to be concluded within the next couple of months. Net debt does still stand at a lofty $2.8bn, but strong production continuing into 2017 hasled chief executiveTony Durrant to say: We plan to be cash flow positive in 2017 with more significant debt reduction in 2018.
On the production front, Premier reiterated its current full-year guidance at 75,000 barrels of oil equivalent per day, but told us that current production is averaging 82,600 barrels, and that it will will provide updated production guidance once the summer maintenance period has been completed.
Many have taken that to mean guidance is likely to be upgraded, especially with PremiersCatcher fieldon trackfor first oil this year and itsZama exploration prospect looking setto spudthis month.
As I write, Premier shares are trading at 59.75p, and I really am thinking this could be close to the end of sub-60p levels and the finalising of the refinance deal and any upgrading of 2017 expectations might justbe the two events needed to bring about an upwards re-rating. Ill keep waiting for oil prices to rise.
Even bigger debt
The debt mountain pressing onTullow Oil (LSE: TLW) makes Premiers seem almost like small change. At Decemberof 2016, net debt stood at $4.8bn, though there has been a $750m rights issue since then.
That cash call shocked the market when it was announced, with observers still hoping thata renegotiated debt deal like Premiers might save the day, and the share price took a tumble. Since then its recovered a little to 201p, but were still looking at adecline in 2017 of 35% (while Premier shares are down 19% since the start of the year).
Cost savings and debt reduction arestill the order of the day, and Tullow is critically dependent on its reserve-backed lendingfacilities. But theres pressure on those, with the firmhaving agreed to reduce its revolving credit usage significantly in the coming 18 months, and its not at all certain that further rights issues wontbe needed.
But in the other lane in the race against time is Tullows production prospects. First oil from the firms TEN project helping produce positive free cash in the final quarter of 2016 marked a key point and it will hopefully help accelerate debt reduction this year.
After three years of reported losses, Tullow is finally expected to turn in a pre-tax profit this year, admittedly of only around 165m. But thatsexpected to rise to 300m a year later, and it could be the pivot point.
In terms of liquidity, I can still see it coming down to the wire, but I think were past the bottom for Tullow shares now.