Chrysaor has agreed a reverse takeover of Premier Oil in a deal that will create the largest London-listed independent oil and gas group, as the industry consolidates amid a steep downturn and an uncertain future.
Under the terms of the debt-for-equity agreement laid out on Tuesday, Chrysaor will own at least 77 per cent of the combined group, with creditors in struggling Premier taking the second-largest share of the company. Premier shareholders will own less than 6 per cent.
Premier’s market capitalisation was $180m at the close of trading on Monday, with gross debt of $2.7bn.
Harbour Energy, the private equity-backed group led by former Royal Dutch Shell executive Linda Cook, has already turned Chrysaor into the largest oil and gas producer in the UK North Sea following a string of multibillion-dollar acquisitions in recent years, including the bulk of Shell and ConocoPhillips’ UK assets.
Ms Cook will lead the combined listed company, which will produce roughly 250,000 barrels of oil equivalent a day with reserves of 700m boed. It is also investing in carbon capture and storage in the UK, including the Acorn project in the north-east of Scotland.
But the combined company is not yet going down the road of larger competitors such as BP, which have committed to reducing their oil and gas production over time. Chrysaor’s output was forecast to naturally decline over the next five years to fewer than 150,000 barrels a day, according to Wood Mackenzie, but should now hold above 200,000 b/d.
“We’re not embarrassed to be an oil and gas company,” Ms Cook said. “The world still needs oil and gas, so there is an opening now for a large-scale independent oil and gas company.”
Chrysaor chief executive Phil Kirk, who has helped drive the company’s expansion, will become president as it aims to use Premier’s assets in Asia and Latin America as a basis for further growth, becoming a more global operation with potentially more acquisitions ahead.
“We are excited by the Premier assets in these regions,” Ms Cook said, adding that the company wanted to eventually pay a “meaningful dividend” to investors. “The sector is ripe for consolidation.”
Premier’s shares rose as much as 24 per cent on Tuesday before easing to a gain of about 5 per cent, as analysts broadly praised the deal. The company is seeking to compare the combined group to rivals in Norway such as Aker BP and Lundin Energy.
“Premier’s shareholders now have a stake in a company that is viable for the long term,” said Nathan Piper, head of oil and gas research at Investec. “It is a much stronger entity.”
The move comes as the oil industry tries to weather one of the worst downturns in decades, after the pandemic slashed demand for fuel and knocked oil prices sharply lower.
Premier chief executive Tony Durrant, who had tried to fight off an initial approach in September, said there had always been “a logic in putting the two companies together”.
Premier had previously been seeking to raise $530m in equity to pay down debt and buy some of BP’s North Sea assets with the aim of boosting cash flow, but was hamstrung by opposition from its creditors. Under the Chrysaor deal the BP transaction had been terminated, Harbour Energy said.
Hong Kong-based hedge fund Asia Research and Capital Management, Premier’s largest creditor as well as holding a sizeable short position in its shares, was involved in what Mr Durrant called “three-way” talks.
“In the current macro environment, raising capital is difficult,” Mr Durrant said, adding that he planned to step down at the end of the year.
“This is not classic slash and burn private equity, this is about investment.”
The deal brings Chrysaor a number of benefits, not least the ability to avoid an initial public offering at a time when oil and gas companies are out of favour with investors.
Two oil price slumps in five years have hammered an industry beset by concerns that demand could peak as electric vehicles gain traction but that argues the world will consume oil for decades to come.
Premier also has $4.1bn of previous losses Chrysaor will be able to use to offset its tax position in the North Sea.
Under the deal Premier’s creditors, which need to approve the transaction, will receive a cash payment of $1.23bn. The combined company will have group net debt of about $3.2bn.
https://news.google.com/__i/rss/rd/articles/CBMiP2h0dHBzOi8vd3d3LmZ0LmNvbS9jb250ZW50LzUyODliZTQwLTdhNDUtNDU5OC1iMTZiLTgzNTc3NzVhYTZkY9IBP2h0dHBzOi8vYW1wLmZ0LmNvbS9jb250ZW50LzUyODliZTQwLTdhNDUtNDU5OC1iMTZiLTgzNTc3NzVhYTZkYw?oc=5
2020-10-06 14:47:00Z
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