Premier Oil: What does transformational Chrysaor merger mean for the new company and its old shareho
The new company will be London’s largest independent oil and gas company by production and reserves.
Premier’s current board intends to unanimously and unconditionally recommend the transaction to shareholders.
There’s an awful lot to the deal, so what does it mean for the company’s future?
Massive dilution for existing shareholders
The company escapes its debt crunch and will become much larger, but, existing shareholders will be left with only a miniscule portion of the business.
Non-equity holding stakeholders in Premier (lenders and creditors basically) will get about 18% of the business. And Harbour Energy, an offshoot of US private equity group EIG Global and presently Chrysaor’s majority owner, will hold around 39% of the new company.
Existing Premier shareholders will only own around 5%.
“Whilst the merger will result in significant scale and diversification, through the combination of material operated and non-operated cash generative production hubs in the UK North Sea, PMO’s shareholders will only benefit from limited exposure,” SP Angel analyst Sam Wahab said in a note.
SP Angel noted that the new company would have an estimated value of around GBP2.6bn, based on Premier’s current market capitalisation of around GBP156mln. As the adage goes, its better to have a small part of something than all of nothing.
It hits reset button on Premier’s debts
Premier’s debt pressures brought the merger to a head, after August’s proposed US$500mln cash call and refinancing was followed by the pursuit of alternative options.
The company’s debt maturities were due in May 2021 and the debt deal that now won’t proceed would have run to March 2025 with interest of 8.34%.
Instead, the new company will repay US$2.7bn of gross debt and cross-currency swaps, and existing creditors will receive US$1.223bn in cash as part payment along with shares in the new company.
Positioned as ‘London’s largest independent E&P’ the company is leveraging its expanded inventory, with a proposed US$4.5bn of reserves-based lending underwritten by Bank of Montreal, BNP Paribas, DNB and Lloyds Bank.
The company said it believes the transaction is broadly comparable in value to shareholders as the earlier proposal but has greater execution certainty.
Premier will no longer acquire the package of assets from BP.
Private equity public market crossover
A few labels can be put on the transaction – merger, reverse takeover, and/or private equity float.
In some ways, it is a takeover without a buyer.
With only 5% of the company previously in the hands of the stock market, it will be intriguing to see just how big the stock’s free float will be and how much the private equity backers will still own over the coming years.
Creates London’s largest North Sea independent
It consolidates Premier and Chrysaor’s portfolios, with the bulk of assets in the North Sea.
It will have production of 250,000 barrels of oil equivalent per day (Premier’s assets currently yield’s around 65-70,000 boepd).
The new company is expected to generate over US$3bn of annual revenue.
The deal comes with substantial tax synergies, with the combined group set to have a bank of US$4.1bn worth of tax losses to utilise going forward.
Whilst the company is spurning its deal to acquire the BP assets it remains to be seen how much appetite there’ll be for further investments.
Given that oil majors have pledged divestments to partially decarbonise and downsize in maturing regions, more deals are perhaps feasible from what will increasingly be a dominant position amongst independents,
Reignites Falkland oil hopes
Joint venture partner Rockhopper saw its shares shoot 34% higher in Tuesday’s early deals, as enduring investor hopes for Falkland oil fields found a spark.
Premier is the lead stakeholder in the Sea Lion field but the project has been stalling in recent years as the company waited to secure a farm-out partnership and project financing.
Evidently, the merger could mean that the company has the wherewithal to clear the funding bottleneck for the Falklands – at least that’s what speculators jumping into Rockhopper may reckon.
Promise of dividends
Whilst much of the rest of the sector have dividends locked down the company today said that it expected to be in a position to offer a “meaningful dividend” for shareholders over time.