Shareholders in Premier Oil (LSE: PMO) have had a torrid time of late (as I know only too well, because I’m one). Since the end of 2015, the share price has collapsed by 60% to just 19p, with the plummeting price of oil making the company’s debts look more and more ominous.
But at the same time, are its assets looking ripe for a bottom-picking takeover attempt?
The omens have turned to reality this morning, with trading in Premier Oil shares suspended “pending an announcement of a potential acquisition of assets by Premier which may be classified as a reverse takeover under the FCA Listing Rules“.
Positive update
This comes hot on the heels of Premier’s recent update on the Isobel Deep well in the North Falklands basin, telling us that the “re-drill has successfully confirmed the oil discovery encountered in the original Isobel Deep well. In addition, this re-drill has discovered new hydrocarbons in additional sandstones“. Exploration director Robin Allan added:Â “We have encountered a substantial oil bearing interval, which confirms the potential of this part of the North Falkland basin as a standalone discovery“.
The problem right now is that Premier isn’t viable at current income levels as the price of Brent Crude has dipped to less than $30 per barrel, and the firm’s current debt levels are predicated on oil prices significantly ahead of today’s lows. It was looking increasingly likely that a new round of equity would be required to keep Premier Oil afloat, but that might have been short-circuited now, with a further announcement expected later in the day.
And even despite the inevitable longer-term recovery in the price of oil, investors like me can be squeezed-out in the short term.
What to do?
What should an investor who likes a bit of Oil & Gas excitement do? Well, I’m getting older and I largely prefer safer, high-dividend shares these days. But I still like the occasional shorter-term punt when I see a possible recovery situation, and that’s relatively harmless if I only allocate a small portion of my investments to such things.
We simply have to swallow such losses as they come – I’m something like 75% down on my Premier Oil investment right now – and accept them as the inevitable opposite of our finest successes. And the news underpinning the suspension shouldn’t be long in coming.