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Premier Oil share price approaches major support level (PMO)

I have been optimistic about a Premier Oil (LSE:PMO) recovery for some time. Evidently, I was too forward-looking in my January coverage since prices have fallen right back off the £1.04 high. I do, however, stand by my analysis and believe Premier to be increasingly undervalued. The oil price is critical to Premier’s success with it being so heavily debt-laden. Concerns of a potential oil price rout caused by headline USA production and nerves about general market conditions have no doubt contributed to the sharp sell-off.

With Brent at £65 and no signs of the usual large inventory builds at this time of year in 2018 so far, there’s a strong case for oil bulls to remain positive. Add in the fact that Premier’s newly producing Catcher field is almost up to 60kbopd ahead of schedule and basic maths tells you the company will now be generating meaningful cashflow.

Significant debt reduction looks achievable this year and all eyes will be on the next trading and operations update from Premier for evidence of this. That is due to land on 16th May and I expect the share price to be ascending into that update. 62p looks to be nailed on support and I believe my previous target of £1.20 is still in play this year. If Brent heads anywhere near Goldman Sachs recent 6-month target of $82, then the debt reduction achievable would transform Premier’s fortunes faster than you can say ‘Backwardation’.

Author: Stuart Langelaan

The author of this piece owns shares in the company written about above

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