NORTH Sea heavyweights Premier Oil and Chysaor Energy have agreed to merge amid the upheaval in the area triggered by the coronavirus crisis.
The firms have approved an all-share deal which they said would create the largest independent oil and gas company listed on the London Stock Exchange.
They said the enlarged company would have a strong balance sheet and significant growth opportunities.
However, the deal highlights the scale of the challenges posed by the slump in oil and gas prices that has been caused by the coronavirus.
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Heavily-indebted Premier agreed to buy North Sea assets from BP for $625 million (£480m) In January before commodity prices plunged.
It has spent months renegotiating the terms of the deal and trying to win support from stakeholders for the transaction and related financing arrangements.
Premier said yesterday it would not be proceeding with the deal with BP in light of the merger plan.
Analysts at Investec noted this will involve a ‘haircut’ for creditors owed a total of $2.7 billion by Premier.
Shareholders in Premier may end up owning own just 5.5 per cent of the enlarged group, with creditors of the firm set to have around 10.5%.
Chrysaor investors will have the remainder. The deal will qualify as a reverse takeover of Premier.
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The enlarged business will be led by Chrysaor’s chairman Linda Cook. Chrysaor’s chief executive Phil Kirk will become president and lead the North Sea business.
The companies said Premier’s chief executive, Tony Durrant, will stand down at the end of the year.
He has led Premier on a big expansion drive in the North Sea in recent years. This left the company labouring under big debts as the bottom fell out of the market in March.
The companies said the proposed merger would “transform Premier’s financial position, delivering a combined group with a strong and sustainable financing structure with resilience to compete in a lower commodity price environment”.
It will produce around 250,000 barrels oil equivalent daily.
Mr Durrant said there was “significant industrial, commercial and financial logic” to combining Premier and Chrysaor’s operations to create a company with a leading position in the UK North Sea.
The deal would provide the combined group with a solid foundation from which to pursue an international growth strategy. Premier has exploration and production interests in Asia, Mexico and off the Falkland Islands.
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The proposed deal suggests the private equity investors that have helped grow Chrysaor into a significant North Sea player believe now is a good time to scale up in the area.
The company capitalised on opportunities created amid the last downturn in the North Sea. Assets were put up for sale at what were seen as attractive prices.
Chrysaor acquired a $3bn North Sea portfolio from Shell in 2017 and bought the UK business of US giant ConocoPhillips for $2.7bn last year.
It is backed by the Harbour Energy private equity business, which is set to own up to 39% of the enlarged group.
The deal could pave the way to Harbour realising some of its investment by selling shares in the enlarged group on the stock market. It would avoid the need for Chrysaor to complete a flotation.
The new name of the group is to be decided.
READ MORE: Financiers highlight rejuvenation of North Sea
Ms Cook said: “This transaction … significantly advances our leading position in the North Sea, where we will continue to re-invest, and expands our geographic footprint to Asia and Latin America. We are excited by the Premier assets in these regions.”
Ms Cook is chief executive of Harbour Energy.
The deal will require approval by Premier shareholders and creditors. It is expected to complete in the first half of next year.
Premier had a market capitalisation of $182m before the proposed deal was announced. Analysts at Jefferies said it appeared to value Premier’s equity at around $200m, meaning shareholders in the firm would be the beneficiaries of a low premium merger. Premier shares closed up 0.28p at 15.47p.
The company secured a cut in the cash price of the deal agreed with BP to $210m and was reported to be seeking a further reduction. BP said yesterday it was considering its options regarding the future of the fields concerned.
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