Premier Oil PLC’s (LON:PMO) new Mexican oil discovery may in time prove to be company-defining but right now the investment case should still be about debt reduction, that’s the view of Barclays Capital analyst James Hosie.
On Wednesday, Premier shares rocketed after the mid-cap producer announced a new “world class” oil discovery offshore Mexico, with the Zama-1 exploration well unearthing an estimated 1bn barrel find.
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The well hit a gross oil bearing interval spanning 335 metres, with up to 200 metres of net oil bearing reservoir. The well will now be deepened to test further exploration targets.
Premier shares have advanced by almost 40% following the discovery news, which was followed by a group production update on Thursday (revealing an ahead of guidance performance of 82,100 barrels of oil equivalent per day).
“The Zama discovery has rightly got investors' attention, with the ongoing well chasing upside to the 300-500mmbbl Premier referenced as it presented one of the ten largest offshore oil discoveries made in the last five years,” Hosie said in a note.
“While the asset may become company-defining in time, we believe the H2 investment case is still focused on positioning Premier to accelerate debt reduction.
“Operating performance remains strong across the portfolio, with management holding back on raising 2017E production guidance despite running 9% ahead of its 75,000b/d target.”
Barclays target price was upgraded to 72p from 57p, with some 15p accounting for the first success at Zama. The broker, nonetheless, has yet to move its rating up from ‘equal weight’.
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