NORTH SEA heavyweight Premier Oil has dropped plans for a big acquisition amid the slump in the market triggered by the coronavirus but is pressing on with another one in the area.

Premier said it has decided not to proceed with a deal to buy a 25 per cent stake in the bumper Tolmount gas find for up to around $250 million (£200m) from Korean-owned Dana Petroleum.

The company did not explain the reasons for the decision.

However, it sends a worrying signal about the prospects for the North Sea amid fears a long downturn is in prospect in the area.

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A range of firms have announced plans to slash spending in the North Sea in response to the fall in oil and gas prices this year.

Premier may have been reluctant to take on the big additional spending commitments that the purchase of the Tolmount stake would have entailed in view of the dramatic change in market conditions since the deal was agreed in January.

The Brent crude price has fallen from around $70 per barrel to about $42/bbl . Gas prices are currently around 25% lower than they were in January.

The Tolmount field is under development and is not due into production until the fourth quarter of this year.

Recent developments at Premier highlight the challenges firms face in trying to agree deals amid a period of great uncertainty about the prospects for commodity prices.

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Brent fell from around $70 per barrel in January to an 18-year low of $15.98/bbl in April. It has recovered some ground since major exporters agreed to record production cuts which took effect in May. Moves to ease lockdowns have helped boost demand.

Analysts have highlighted the risk that the price could fall sharply again if there is another spike in coronavirus infections.

Premier faced calls to scrap the Tolmount deal from a rebel investor, Asia Research and Capital Management (ARCM), which feared it was overpaying.

London-based Premier secured significant changes to the terms of a $625m deal to buy stakes in the giant Andrew and Shearwater oil fields off Scotland from BP. This was agreed at the same time as the Tolmount stake purchase.

BP agreed to accept $210m on completion with up to a further $115m to come in future depending on what happens to oil prices. Premier’s share of the potential decommissioning liabilities was also cut to $240m from $600m.

Premier, which is led by chief executive Tony Durrant, noted yesterday that creditors had approved the revised deal with BP.

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ARCM had opposed the original BP deal but backed the revised transaction.

Developments in mergers and acquisitions markets will be followed closely in the wider North Sea industry.

During the slump caused by the sharp fall in oil prices from 2014 to 2016 some firms decided the resulting fall in the prices of North Sea assets created opportunities for expansion.

Premier used acquisitions to help it expand during that period.

It acquired an interest in Tolmount in the Southern North Sea with a portfolio bought from German utility E.ON for $120m in 2016.

Sector watchers hope transfers of ownership could stimulate activity in the North Sea by putting assets in the hands of firms that are more likely to invest in them.

Premier and Dana approved plans to develop Tolmount in 2018. They both have 50% stakes in the field.

Dana made no comment yesterday on Premier’s announcement.

Analysts noted yesterday that the outlook for oil prices has improved in recent weeks.

Credit Suisse raised its forecast for the Brent crude price to $41/bbl from $35.50/bbl for this year and to $50/bbl from $45/bbl for 2021.

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David Farrell at the investment bank highlighted the importance of supply cuts made by Opec members combined with the fact some US shale fields have been shut in. He noted that inventories in some countries have not been rising as fast as feared.

Jon Rigby at UBS investment bank said: “Prices are recovering from extremely low levels as demand improves and the supply-side adjustment story holds.”

However, he added:“In absolute terms demand is well below trend with real downside risks still remaining.”

Premier requires the approval of shareholders for the transaction with BP and related funding arrangements.

Shares in the company closed down 0.1p at 50p.