A UK court has granted oil exploration company Premier Oil approval to take over oil and gas fields in the North Sea if it can beat a creditor vote.
It plans to buy five gas fields in the Andrew area and a stake in the Shearwater field from BP for $625m. It would also purchase another 25% stake in the Tolmount field which it operates from Dana for $191m and contingent payments of $55m.
The company says this will “materially strengthen Premier’s financial position” and adds that the assets are forecast to generate over $1bn of free cash flow to the end of 2023.
Premier Oil chief executive Tony Durrant said: “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 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.”
In order to acquire the fields, Premier will need creditors owning more than 75% of the company’s credit to agree the purchase.
Premier owes over $2bn to creditors, according to Asia Research and Capital (ARCM), Premier Oil’s largest creditor. It said it will ‘vigorously contest’ the acquisition.
ARCM currently has a 16.85% net short position on Premier, the second-largest percentage position ever recorded by the UK’s Financial Conduct Authority.
It listed several reasons for doing so, including the increase in decommissioning liabilities and Premier’s “high-risk strategy”.
ARCM said in a press release: “ARCM is deeply concerned about Premier Oil’s intention to pursue acquisitions as stated in its announcement, as they will only serve to increase risk for stakeholders.
“We are concerned about the supply/demand dynamics of the UK gas market and the potential impact on the company’s cash flow generation capacity.”
The hedge fund says Premier “appears to be acknowledging that it cannot repay the outstanding debt in accordance with its terms”.
However, Premier says it has already received the required support in at least two of the needed areas.
A spokesperson for Ad Hoc Creditors, a group which supports Premier Oil’s plans, told Offshore Technology: “The agreement to proceed with the Scheme of Arrangement is an important step in securing a strong platform for Premier Oil’s future success.
“Any frustrating actions by ARCM would be designed to cause maximum disruption and uncertainty in order to fuel the hedge fund’s only recently disclosed material short position in the company.
“Their comments are further proof that ARCM is motivated by its own agenda to actively work against other stakeholders.”