Premier Oil has slipped lower after another well disappointment.
The company has plugged and abandoned the Cyclone well in the north sea after it identified only residual oil, suggesting the rest leaked away.
This follows news a month ago that the Spaniards east well, operated by Premier, was also being abandoned. Premier's shares are down 0.6p at 331.8p, and analyst Simon Hawkins at N+1 Singer said:
Although this was a relatively low value well – we had just 5p at share in our valuation for Cyclone – this clearly represents another disappointment at a time when Premier is under pressure to firm up its exploration credentials. Premier said its drilling in the UK central north sea will now focus on the greater Catcher area, where it had success earlier this year with its Carnaby discovery.
We favour Premier on the back of its diversified business model providing a larger number of exploration catalysts than some of its peers and its determination to achieve aggressive production and reserves targets, which we expect to result in significant cash flow growth. However, despite trading at one of the largest discounts among its peer group to our main valuation metric, it is difficult to see that discount closing before the company delivers further exploration success, even if it is not transformational.
Rob Mundy at Liberum Capital issued a hold recommendation, saying:
[The Cyclone news caps] a disappointing 2012 with one discovery from seven UK north sea wells.
