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Oilman Jim's Private Blog


Premier Oil - Proposed UK North Sea Acquisitions

Premier is pleased to announce the proposed acquisitions of the Andrew Area and Shearwater assets from BP for US$625 million, and an additional 25 per cent. interest in the Premier operated Tolmount Area from Dana for US$191 million plus contingent payments of up to US$55 million (together the "Acquisitions"). Premier is also pleased to announce the proposed extension of its existing credit facilities to 30 November 2023.

In addition, Premier today provides a separate trading update ahead of its 2019 Full Year Results including the proposed farm-out of part of its Sea Lion and Tuna assets. 

Rationale and benefits of the Acquisitions

·    Add c.23 kboepd of cash generative production in 2019 with development upside; acquired assets forecast to generate over US$1 billion of free cash flow to end 2023

·    Add 82 mmboe of reserves and contingent resources at an implied cost of less than US$10/boe

·    Contribute to rising Group production out to 2024 with pro forma 2019 production in excess of 100 kboepd

·    Add low cost, low carbon emission assets with combined opex of less than US$20/boe

·    Accelerate the use of Premier's US$4.2bn tax losses

·    Materially strengthen Premier's financial position

o  Additional free cash flow accelerates debt reduction

o  Significantly reduce forward covenant leverage ratio towards 1x by 2022

·      Extension of existing, non-amortising facilities to late 2023

Asset highlights

·    Andrew Area (50%-100% interests in 5 fields, operatorship): currently producing c.18 kboepd (net to BP) with material near term upside through further development of the Andrew Lower Cretaceous reservoir

·    Shearwater (27.5% interest): significant producing and infrastructure hub, adding 25 mmboe of reserves and resources with incremental investment opportunities and tariff income

·    Tolmount (25% interest): consolidates interest in existing high return development, which is on schedule to deliver first gas by end-2020, with significant upside following recent drilling success at Tolmount East

The proposed Acquisitions will be funded via a US$500m equity raise (net of expenses) which has been fully underwritten on a standby basis, existing cash resources and, if required, an Acquisition Bridge Facility of US$300 million.  Premier expects that the equity raise will include both a placing and rights issue component with any shares issued under the placing qualifying for the subsequent pre-emptive rights issue. It expects to confirm the structure and terms in Q1 2020 following consultation with major shareholders.

Lender consent for the proposed Acquisitions, related funding arrangements and extension of credit facilities will be sought via two Court-approved schemes of arrangement (the "Schemes"). Of the creditors subject to the Schemes, 83.3 per cent. of Super Senior Commitments and 72.7 per cent. of the Senior Commitments have already committed to approve the Schemes. 

The Andrew and the Shearwater Acquisitions constitute a class 1 transaction. Shareholder approval for all of the Acquisitions and the equity raise will be sought at a general meeting expected to be held in Q1 2020.   The Directors believe that the Acquisitions represent a highly attractive opportunity and recommend that Premier's shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their holdings, at the general meeting. Premier will send a combined prospectus and circular to its shareholders convening the general meeting in due course. 

The Acquisitions have an effective date of 1 January 2019 and completion of all three Acquisitions is expected to occur by the end of Q3 2020.

Tony Durrant, Chief Executive, commented:

"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."

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