Premier in $871m North Sea spree; investor objects

UPDATE 3 — Shares of North Sea producer Premier Oil rose 15% on Tuesday after it announced plans to buy stakes in the Andrew and Shearwater North Sea oilfields from BP for $625 million and increase its stake in the Tolmount project in a deal with South Korea’s Dana worth $191 million.

Premier Oil said the proposed acquisitions would “be funded via a $500m equity raise which has been fully underwritten on a standby basis, existing cash resources and, if required, an acquisition bridge facility of $300 million.”

However, Premier Oil is facing opposition to its proposed acquisitions and a $2.9 billion refinancing plan from Hong Kong-based hedge fund Asia Research and Capital Management (ARCM), which holds about 15% of Premier’s debt and has a short position representing nearly 17% of its stock.

ARCM said it would “take all steps” to oppose the deals.

ARCM said in a statement that Premier’s management should instead prioritise “transactions that facilitate a significant deleveraging of the company’s highly levered balance sheet.”

Premier said the deals would generate more than $1 billion in free cash flow by the end of 2023, boost its output to more than 100,000 boed and add 82 million barrels of reserves and resources.

The proposed acquisitions are just the latest in a number of deals moving North Sea assets from oil majors to smaller firms.

Premier Oil CEO Tony Durrant said: “These acquisitions are materially value accretive for Premier and are in line with our stated strategy of acquiring cash generative assets in the UK North Sea.

“We look forward to realising the significant long-term potential of the Andrew and Shearwater assets through production optimisation, incremental developments and field life extension projects. 

“We are also pleased to have consolidated our interest in the high return Tolmount development where we see material upside.

“The cash flow generated from the acquired assets will also accelerate the deleveraging of Premier’s balance sheet.”

BMO analyst David Round said: “Today’s announcements have the potential to transform it (Premier) into one of the more investible names in the space.

“Not only will these deals add scale and growth, but importantly Premier’s deleveraging will accelerate towards much more manageable levels.”

In a statement, ARCM said: “ARCM notes Premier Oil’s announcement regarding the proposal for a scheme of arrangement to extend the debt maturity and approve certain acquisitions.

“As the company’s largest creditor, holding more than 15% across the company’s debt instruments with blocking positions in two of them, ARCM will take all steps to oppose the company’s proposal and will vigorously contest any attempt to implement such proposal via a scheme of arrangement.

“ARCM is deeply concerned about Premier Oil’s intention to pursue acquisitions as stated in its announcement, as they will only serve to increase risk for stakeholders.

“Premier Oil’s balance sheet is already highly levered, and the company is facing an impending May 2021 maturity of $2.55 billion of net debt as of the 2019 mid-year financials (comprising of $2.2 billion of “accounting net debt” and $371 million of letters of credit).

“Through its announcement this morning, whereby the company is seeking an extension through a court supervised Scheme of Arrangement, it appears to beacknowledging that it cannot repay the outstanding debt in accordance with its terms.

“ARCM believes that management’s immediate priority should be on transactions that facilitate a significant deleveraging of the company’s highly levered balance sheet, so that it may meet the debt maturities that its creditors have already extended once in the 2017 restructuring – as opposed to pursuing acquisitions that expose the company’s balance sheet to significant incremental risks.

“As such, ARCM will take all steps to oppose the company’s proposal and will vigorously contest any attempt to implement such proposal via a scheme of arrangement.”