Premier Oil hits high after output beat

Premier Oil has pumped less oil per day this year following the sale of the producing Scott area in the North Sea last summer. It was, however, still 9% more than the figure Premier anticipates for the full year, and shares in the North Sea and Falkland Islands operator have been marked 5% higher Wednesday at a five-month high.

Production averaged 60,200 barrels of oil equivalent per day (boepd) in the first four months of 2015, down from 65,800 boepd a year ago. But that is up from company guidance of 55,000 boepd for the year, which excludes the Premier-operated Solan facilities offshore West of Shetlands where first oil is expected for "later this year".

And Premier is sticking with that full-year target despite this early success. Outperformance was driven by high uptime at its Chim Sáo field in Vietnam, although offset by restricted production at the Huntington field in the UK Central North Sea. And planned maintenance over the summer will clearly impact output.

That hasn't stopped Deutsche Bank upgrading its own 2015 production forecast by 3% to 57,000 boepd.

There's encouraging progress at Solan, too. Hook up of the first pair of wells was completed in March and good productivity has been achieved using the Victory flotel in recent weeks with better weather. Drilling of the second pair of wells is due to begin mid-May. Deutsche still predicts start-up in the fourth quarter and a 4,500 boepd contribution to group volumes this year.

Elsewhere, results of the Isobel Deep well in the Falklands, Premier's second in a four-well campaign, are expected by the end of May. Results of the Anoa Deep appraisal well in Indonesia are expected later this quarter.

Net debt of $2.2 billion was unchanged from the year-end, although another increase in development expenditure forecasts from $700 million to $750 million is "disappointing but ultimately free cash neutral," says Deutsche.

Analyst Tom Robinson is sticking with his 210p target price based on a risked net asset value (NAV) of 297p and target price/NAV multiple of 0.7 times compared with 0.6 times currently.

"Key to closing a ~15% discount to core NAV is perception of execution risk at Solan and an upbeat outlook on commissioning should provide reassurance that first oil and ramp to plateau is on track," explains Deutsche's Robinson. "Maintain 'buy'."

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