By Scott Wright

PREMIER Oil has declared its merger with Chrysaor is “progressing to plan”, sending shares up by five per cent, as it revised down its full-year production guidance amid challenges on a key North Sea field.

The all-share merger with Chrysaor was unveiled last month, with the deal set to result in the creation of the largest independent oil and gas company listed on the London Stock Exchange. It came as North Sea players continue to grapple with the fallout from the coronavirus pandemic, which sent commodity prices tumbling and firms scrambling to reduce costs.

Crude was trading at about $44 per barrel last night. It plunged from around $70 per barrel in January to an 18-year low of less than $16 per barrel in the aftermath of coronavirus lockdowns.

Premier had agreed in February to buy a basket of North Sea assets from BP, including the Andrew and Shearwater fields, for $625 million (£480m) before the oil price plunged, before renegotiating a lower price several months later. However, it said it would not be proceeding with the BP deal when it unveiled the Chrysaor merger in early October.

The combined company will produce around 250,000 barrels of oil equivalent daily (boepd). Premier reiterated yesterday that the merger would strengthen its balance sheet and open up significant international growth opportunities. Its net debt stood at $2.05 billion at the end of October, with the company noting that financial covenants have been waived through to completion of the Chrysaor deal.

Premier announced last week that it had received the “requisite level of support” from creditors for the deal, as well as the reorganisation of existing finance arrangements with those parties.

With the merger qualifying as a reverse takeover, Premier may end up owning just 5.5 per cent of the enlarged group, with creditors of the firm set to have around 10.5%.

Chrysaor’s largest shareholder, Harbour, and other Chrysaor investors are expected to hold 83.9% of the combined group, with the shareholding of Harbour 39%.

Premier chief executive Tony Durrant said in a statement to the stock market yesterday: “The merger with Chrysaor, which will create a combined group with diversity, scale and balance sheet strength, is progressing to plan. We now have creditor approval and we expect to publish the prospectus in December, with completion for the first quarter of 2021.”

Stuart Lamont, investment manager at Brewin Dolphin Aberdeen, said: “Today’s update marks the end of an era for Premier Oil, as the merger with Chrysaor progresses and, with that, the arrival of a new leadership team.

“Although shareholders in Premier will be heavily diluted by the deal, they will have a stake in a much stronger, well-balanced business with greater scale and prospects for future growth. Premier had long struggled with a significant debt pile, which was exacerbated by the oil price’s volatility in recent years, and the economic challenges caused by Covid-19 proved the final straw for the company.”

Meanwhile, Premier said yesterday that it has revised its full-year production guidance to 61,000 to 64,000 barrels of oil equivalent per day, having averaged 62,500 boepd in the 10 months to October 31. The new guidance takes into account recent constraints at Catcher in the North Sea, its largest producing asset.

Production on Catcher, where Premier is the operator and holds a 50% stake, averaged 26,500 boepd to the end of October. When Premier reported its half-year results on August 20, it guided on full-year production guidance of 65,000 to 70,000 boepd.

The company said: “The August shutdown was completed successfully and plateau production was re-established in September, with the Varadero infill well (VP1) now also online.

“However, in late September, production was constrained due to the produced water plant being offline while a build-up of calcium naphthenate was removed. This work took longer than originally envisaged and the produced water plant was reinstated in early November.”

A fire broke out in the electrical equipment in the main storeroom on board the Catcher FPSO (floating production storage and offloading) vessel, which Premier said was “swiftly and safely extinguished”. It added: “No personnel were injured.”

Shares in Premier closed up 0.88p at 17.7p.