Sale of Premier Oil's Norwegian division leads to rating upgrade

Premier Oil’s planned sale of its Norwegian business has prompted Canaccord Genuity to upgrade the company from ‘sell’ to ‘hold’.

The FTSE 250 company on Monday announced it agreed to sell Premier Oil Norge AS to Det Norske for $120m (£79m), with the funds used to pay down the company’s debt.

The exploration and production group said the transaction, which is subject to government approval and is expected to be completed by year-end, “represents another step in Premier's previously stated programme of portfolio management”.

Canaccord Genuity said it is an excellent transaction for the company with a favourable outcome for Premier.

“We had given the Norwegian assets essentially no value, as a result of the combination of an EMV approach to asset valuation, our oil price assumptions (forward curve to '17, $70/bbl Brent from '18), and riskings.”

However it said it still has financial and operational concerns about the company.

“The $120m cash consideration will reduce our previously estimated projected net debt peak in '16 of c.$2.7bn (at $58/bbl Brent) by less than 5% - a useful but not particularly significant improvement,” it noted.

“In the short term, the successful delivery of Solan field production remains the critical operational event.

“In its November 12th update, Premier indicated that first oil from one producer is still expected before end '15, 'weather permitting', but the second producer now looks unlikely to contribute before mid '16 as it requires a sidetrack (anticipated in Q2 '16) following drilling problems in the original well.”

However Canaccord Genuity also raised the company’s target price from 75p to 80p to reflect the valuation benefit related to the Norwegian sale.

Shares in the company were trading at 75.1p, up 1.2p (1.62%), at 1115 GMT.