Premier Oil has agreed to acquire the whole of E.ONís UK North Sea assets for a net consideration of $120 million plus working capital adjustments. The proposed acquisition, which will be funded from existing cash resources, adds immediate cash generative production, realises tax synergies on Premierís current c.$3.5bn UK tax loss position and is accretive to lending covenants.
The assets being acquired are located in the Central North Sea, West of Shetlands and the Southern Gas Basin and add stable UK gas revenues to the portfolio rebalancing Premierís commodity exposure.
Tony Durrant, Chief Executive, commented:
ďWe are pleased to have agreed this value accretive deal as we continue to execute our strategy of focusing the portfolio on our core regions. Having recently completed the sale of our Norwegian assets for $120 million, this transaction allows us to further consolidate our interests in the UK North Sea where any acquisitions are immediately value enhancing as a result of our existing UK tax position.
Premier has historically been able to capture long term value through acquisitions in low oil price environments. The material increase in low cost production and cash flow generation in 2016 and 2017, is materially covenant accretive and strengthens Premierís financial position in the current environment.Ē
Rationale for the acquisition
The proposed acquisition will:
- add c.15 kboepd of net production to Premier in 2016 and c.64mmboe to Premierís net reserves and contingent resources, at an implied cost of c.$1.9/boe
- accelerate Premierís existing UK tax loss position of c.$3.5 billion
- provide potential to generate significant operating and cost synergies across the combined UK North Sea business
- increase Premierís presence in the Central North Sea including a stake in the producing world class Elgin-Franklin asset and related fields
- consolidate our interest in Huntington (pro-forma 100%) and assume operatorship with potential to reduce costs and optimise production
- enlarge Premierís UK portfolio with the highly attractive Tolmount Area development
Financial benefits of the acquisition
The proposed acquisition:
- adds significant production and associated cash flow in 2016 and 2017 even at current oil and gas prices
- adds assets with a valuable hedging portfolio
* 2016: 32% estimated gas production @ 63p/therm, 33% estimated liquids @$97/bbl
* 2017: 21% estimated gas production @ 57p/therm
- will be materially covenant accretive for Premier, expected to add headroom of c.$500million at 30 June 2016 and 31 Dec 2016 at current oil and gas prices
- will be financed out of existing cash flow with a rapid payback of around 2 years
- allows Premier to share the abandonment cost exposure on Ravenspurn North and Johnston with E.ON
- includes c.£250 million of tax paid historically accessible to offset against future decommissioning expenditure
Premier will acquire interests in licences concentrated in the Central North Sea, West of Shetlands and the Southern Gas Basin. Acquired asset interests include:
- Elgin-Franklin (5.2%, TOTAL Operated) - world class asset currently producing 114kboepd with operating costs of c.$8/boe
- Huntington (25%, Operatorship) - currently produces c.15kboepd with remaining reserves of 10mmboe. Premierís interest will increase to 100%.
- Babbage (47%, Operatorship) Ė currently produces from five wells with infield and near-field growth opportunities
- Tolmount (50%, Operatorship) Ė one of the largest discoveries in the Southern Gas Basin in recent years with estimated gross resources of 200Bcf-1Tcf
The gross assets and loss attributable to the assets being acquired were £670 million and £111 million respectively, as at 31 December 2014, the loss position driven largely by impairments at the year end.
Acquisition Timetable/Temporary Suspension of Trading of Ordinary Shares
Consideration for the acquisition is $120 million with an effective date of 1 January 2015 plus an agreed working capital adjustment. The entity to be acquired includes positive cash balances which will be retained by Premier. The effect of the adjustment to consideration may cause the transaction to be classified as a reverse takeover under the FCA Listing Rules and therefore the Company has requested the temporary suspension of trading in its Ordinary Shares.
The Acquisition requires approval from the Companyís shareholders, US Private Placement holders and banks. A shareholder circular and notice of meeting will be published in due course.