Shareholders of Premier Oil (LSE:PMO) have experienced a rollercoaster 12 month period and still, the drama continues to unfold with continued uncertainty and volatility. Last Wednesday’s RNS from Premier offered further details of the ongoing refinancing negotiations and it initially caused quite a frenzied debate amongst retail investors, especially when one Convertible Bond holder, Pyrrho Investments made their disapproval known.
However, over the past trading week, a sense of calm has developed and it’s almost certainly going to be followed by the proverbial storm. The SP has settled around 61p/62p which appears to be of little surprise to most since the best possible outcome for Convertible Bond Holders is for a Volume Weighted average Price (VWAP) of 62p or less to be maintained until 22nd March. This will achieve maximum gain should they choose to convert to equity at the stipulated price of 120% of the higher of either 62p or the VWAP calculated between 1st-22nd March.This has sparked much debate on how many of the Bond Holders will opt to convert at 74.4p (or above should the VWAP be above 62p). Most Bond Holders buy bonds because they prefer the security they provide over equity so the actual potential converters and subsequent dilution to equity may be considerably less than many fear. I suggest that the upside benefit to finally putting the refinancing issue to bed will likely outstrip any dilution.
With over 16% of shares out on loan (according to Euroclear stats), and shorts above 0.5% currently sitting at 7.4%, Premier is no stranger to shorting. But, the stage is set for a very interesting week with Premier Oil announcing its Final Results on Thursday.Brent has recovered to above $55/brl over the past 6 months and there’s a good chance the results will be better or as expected, especially as previously announced production year to date has increased to an average of over 79k boepd. We may also have an update on the crucial refinancing negotiations which as per the last RNS are already very close to being concluded. So it appears we are set for a potentially explosive week between the Bulls and Bears.
From a technical analysis perspective, PMO is almost at the bottom of a long-term price channel that stretches back to January 2016 when the share hit an all-time low of 19p. Shareholders and Shorters alike will remember that day very well; Premier was suspended as the BOD pulled the unexpected acquisition of EON out of the hat.14 months on and a close below 59.5p would confirm an exit from this long-term channel, with the next support level at 54.5p and the final battalion stationed at 48.5p to preserve Premier’s positive uptrend.
We will have to wait and see which support will get tested but there is still scope for further overselling on any weakness of sentiment, however with the clock ticking on the refinancing deal and potential confirmation that Premier is over the worst there is plenty of upside potential from here. The long-term channel, if preserved, suggests a year-end SP in the range of 80p-130p.
DISCLOSURE: The author of this article owns shares in Premier Oil.