Premier Oil signs discount deals for BP’s North Sea assets buy

Oil and gas company Premier Oil has signed sale and purchase agreements with oil major BP for the acquisition of its interests in the Andrew Area and its Shearwater assets, under revised terms announced in June.

To remind, Premier and BP signed a $625 million acquisition of deals for Andrew and Shearwater assets in the UK North Sea. Oil prices then crashed and BP in June agreed to lower the sale price.

In June, Premier announced that it was able to amend terms for the acquisition of the assets. Namely, cash payable at completion is reduced to $210 million while estimated revised abandonment obligations are reduced to around $240 million pre-tax from around $600 million.

Premier Oil
said on Monday that the signing of the amended deal with the oil major occurred
after the receipt of creditor approval for the acquisitions.

According to
the company, the BP acquisitions are conditional on agreeing with terms of the
refinancing of Premier’s existing credit facilities, equity funding and
customary other approvals, including shareholder approval.

Premier will
pay BP $210 million upon completion. The company will fully fund the $210
million completion consideration via an equity raise, expected to include a
pre-emptive component. The completion of the acquisitions is scheduled to occur
by the end of September 2020.

Also, up to
a further currently estimated $115 million would become payable by Premier to
BP based on higher future oil and gas prices. This further consideration would
be funded by revenues from the acquired assets.

The company
stated that BP would retain 100 per cent of the existing Shearwater abandonment
costs and 50 per cent of the existing Andrew Area abandonment costs resulting
in around $240 million of pre-tax abandonment obligations to be taken on by
Premier.

Premier claimed
that the Andrew Area and Shearwater assets were immediately cash-generative and
would accelerate the use of Premier’s $4.1 billion of UK tax losses. The
additional free cash flow generation will accelerate Premier’s debt reduction
and the deleveraging its balance sheet.

Tony Durrant, CEO of Premier, said: “The signing of the SPAs with BP is another important milestone in completing the value-accretive BP Acquisitions which consolidates the Group’s position in the UK North Sea, one of our core areas, while, at the same time, accelerates the deleveraging of our balance sheet”.

It is worth
noting that Premier is working with a subset of its creditors to agree revised
terms for a long-term extension to the group credit maturities which can be
recommended to the full creditor group for approval by the end of July.