The soaring Premier Oil share price and this North sea explorer are making investors rich

Oil rig
Oil rig

Faroe Petroleum(LSE: FPM) has been cooking with gas lately, its stock bubbling up 58% in the last year and 136% measured over two years. It is up another 2.37% today on publication of a positive set of interims for the six months to 30 June.

So Faroe, so good

Management highlighted the “significant resource upgrade” from its Iris Hades discovery, announced in April and its largest discovery to-date, adding 42m barrels of oil equivalent (mmboe). This helped to offset a drop in production to 12,402 barrels per day from its existing portfolio, due to temporary halts in production at Trym and Tambar in Q1. Adjusted revenue rose slightly from £95.5m to £102.2m as higher commodity prices offset lower production during the period.

The independent oil and gas explorer with a focus on Norway and the UK turned last year’s £300,000 operating loss into a profit of £82.5m. Net cash at 30 June stood at £82.6m, up from £75m at 31 December 2017.

Well on track

The £591m group’s exploration programme continues with six firm well prospects as CEO Graham Stewart hailed “a period of strong profitability, effective portfolio management and material exploration success.” The unrisked resource targeted by the firm’s six-well exploration campaign programme is estimated to be in the range of 80-150 million barrels, with its investment programme fully funded.

I was surprised and delighted to discover that I tipped this stock almost exactly one year ago, concluding that “if you think the oil price recovery is set to continue, Faroe might be a good way to play it”. The danger is that the recovery is complete and it may struggle to offer investors another great leap forwards.

Premier investment

A rising oil price floats all tankers and FTSE 250 listed Premier Oil(LSE: PMO) is up 96% over the last 12 months, leaving loyal investors gushing. August’s half-yearlies showed profit after tax more than doubling from $40.7m to $98.4m, while its worrisome net debt has been trimmed from $2.72bn to $2.65bn.

Cash flows from operations did fall slightly, from $282.7m to $276.6m, as asset sales, natural field decline and planned shutdowns cut production from 82,100 barrels a day to 76,200. Happily, rising oil prices offset that. The £1bn company has been working hard to shrink its net debt pile, which it reckons could be cut by a further $300m-$400m by the end of the year.

Catcher catch can

The key to Premier’s success is its Catcher field. It is now at plateau production rates topping 70,000 barrels a day which, together with higher commodity prices, is driving free cash flow and cutting net debt. CEO Tony Durrant said it remains focused on maintaining its low cost base and will continue to secure savings against budgeted expenditure.

Like many oilies, Premier is now reaping the benefit of major cost-cutting when oil slumped below $30 a barrel. Those who remained loyal during the dark days have been well rewarded, and it still trades at a forward valuation of just 8.4 times earnings. Back in March I said “absurdly cheap Premier Oil looks like an unmissable bargain stock”. I got that right too.

Capital Gains

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.