Premier expands in UK North Sea through BP and Dana deals

Oil and gas company Premier Oil has made agreements for acquisitions of the Andrew Area and Shearwater assets from BP for $625 million, and an additional 25 percent interest in the Premier-operated Tolmount Area from Dana for $191 million plus contingent payments of up to $55 million.

Aerial photography of the Shell-operated Shearwater platform in the Central North Sea. Copyright: Shell International Ltd / Photographer: Ross Johnston

Premier also on Tuesday announced the proposed extension of its existing credit facilities to November 30, 2023.

Premier said that the proposed acquisitions would be funded via a $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 $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 1Q 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. Of the creditors subject to the schemes, 83.3 percent of Super Senior Commitments and 72.7 percent 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 favor of the resolutions, as the directors intend to do in respect of their holdings, at the general meeting.

The acquisitions have an effective date of January 1, 2019, and completion of all three acquisitions is expected to occur by the end of 3Q 2020.

Tony Durrant, Premier 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.”

 

Andrew & Shearwater

 

The acquisitions relate to: BP’s operated interests in and relating to the Andrew, Arundel, Cyrus, Farragon and Kinnoull oil and gas fields located in Blocks 16/23a (Arundel), 16/23a (South), 16/23c (E), 16/23c (South), 16/24a (All), 16/28a (Cyrus), 16/28a (Rest), 16/28b (Andrew) and 16/28b (Rest) in the UK Central North Sea;  BP’s non-operated interest in and relating to the Shearwater high pressure, high temperature gas condensate field located in Block 22/30b in the UK Central North Sea; and a 25 percent additional interest in and relating to the Premier-operated Tolmount gas field located in Block 42/28d in the UK Southern North Sea, the Tolmount East and Mongour discoveries and the Tolmount Far East exploration prospect.

In relation to the Andrew Area, BP holds operated stakes of between 50 percent and 100 percent, with a combined net forecast 2019 production to BP of c.18 kboepd. Premier intends to assume the operatorship of the Andrew Area upon completion, subject to customary joint venture and regulatory approvals.

The five fields in the Andrew area all produce through the Andrew platform, which is located about 140 miles north-east of Aberdeen. The hub started production in 1996. In 2019, average daily production has been around 25,000 to 30,000 barrels of oil equivalent per day.

In relation to the Shell-operated Shearwater field, BP holds a non-operated interest of 27.5 percent, with a net forecast 2019 production to BP of c.5 kboepd.

The Shearwater field is a high pressure, high temperature reservoir produced through a process, utilities and quarters platform, located around 140 miles east of Aberdeen. Shearwater’s 2019 production has been in the region of 14,000 barrels of oil equivalent per day gross.

The gross assets at June 30, 2019 and 2018 profits attributable to BP’s interests in the Andrew Area were $533 million and $58 million respectively and the Shearwater field were $145 million and $37 million, respectively.

 

Tolmount

 

The Tolmount field is in the development stage with first gas expected by the end of 2020. Premier currently holds a 50 percent operated interest in the Tolmount Area and so the Tolmount acquisition would take the Group’s combined interest to 75 percent with Dana retaining its remaining 25 percent non-operated interest in the Tolmount Area, the related infrastructure joint venture and the related agreements consistent with its existing ownership in the Tolmount Area.

Premier intends to sell the interest in respect of the Humber Gathering System, which is proposed to be acquired from Dana, to Kellas Midstream, subject to satisfaction of customary conditions precedent to completion.

The gross assets at June 30, 2019 and 2018 profits attributable to the 25 percent interest in the Tolmount Area to be acquired from Dana were $121 million and nil respectively.

 

Rationale for acquisitions

 

Premier said that its directors believe that the acquisitions would contribute significantly to the achievement of Premier’s strategic, operational and financial objectives. The acquisitions secure attractive, high quality North Sea assets, at a compelling valuation adding increased scale, with Group pro forma 2019 production of over 100 kboepd.

The acquisitions will also enable the enlarged group to maintain rising production out to 2024 following the expected start-up of Tolmount in 2020. Pro forma 2P reserves of the Enlarged Group would be 250.7 mmboe as at December 31, 2018. The board believes that executing the acquisitions in conjunction with the proposed equity raise will strengthen Premier’s financial position with an increased, high quality asset base, while also adding to the range of growth projects available to Premier, strengthening its ability to allocate capital optimally across its enlarged portfolio.

In addition, the acquisitions will help to accelerate the deleveraging of the existing Premier balance sheet, materially improving the Group’s ability to deliver future refinancings of its existing credit facilities.

 

Conditions 

 

The agreements with BP and Dana to implement the acquisitions will be suspended through an escrow arrangement and will take effect following the sanction by the Court of the Schemes. The schemes are being proposed to obtain various approvals required from lenders in connection with the acquisitions, related funding arrangements and the extension of Premier’s existing credit facilities.

All of the acquisitions will also be conditional upon, amongst other things, the completion of the equity raise, shareholder approval, satisfaction of regulatory requirements (including approvals from the OGA) and receipt of customary approvals and waivers from joint venture partners.

The Shearwater acquisition will be conditional upon BP’s joint venture partners waiving or not exercising contractual rights to make an offer to acquire BP’s interests in the Shearwater field and in the event the interests are acquired pursuant to the exercise of any such right, the Shearwater acquisition will not proceed.

The Andrew and the Shearwater acquisitions constitute a class 1 transaction under the Listing Rules. Premier will seek shareholder approval for all of the acquisitions and for the resolutions required to implement the equity raise at a general meeting of shareholders which is expected to be held in 1Q 2020.

The completion of the acquisitions involving BP will not be conditional upon the completion of the acquisition of the Tolmount interests from Dana (and vice versa), and completion of the acquisition of the Andrew Assets will not be conditional upon completion of the acquisition of BP’s interests in the Shearwater Field (and vice versa).

Completion of each of the acquisitions will, however, be conditional upon the completion of the proposed equity raise.

The acquisitions will be funded through $500 million (£385 million) equity raise (net of expenses), which Premier expects to include both a placing and rights issue component; existing cash resources; and, if required, an acquisition bridge facility of $300 million.


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