LONDON (Reuters) - Premier Oil is set to buy North Sea assets from BP and increase its stake in the Tolmount gas project, funded by a $500 million rights issue, but faces opposition from hedge fund ARCM, which vowed to fight the plans.
Shares in UK-based Premier surged as much as 19% after it said on Tuesday that it plans to buy stakes in the Andrew and Shearwater oilfields from BP for $625 million and increase its stake in the Tolmount project in a deal with South Korea’s Dana worth $191 million.
The acquisitions are the latest in a string of deals moving North Sea assets from oil majors to smaller groups, and Premier said the deals would generate more than $1 billion in free cash flow by the end of 2023, boost its output to more than 100,000 boed and add 82 million barrels of reserves and resources to its portfolio.
Its shares were up by around 17% at 118.5 pence by 1207 GMT, after hitting 120.70, their highest in over a year.
The deals would be backdated to January 2019, shaving off Premier’s access to cash flow for the period until the deal closes, but also depressing the actual price it expects to pay to around $500 million.
The equity raise “has been fully underwritten on a standby basis”, existing cash and, if needed, a loan of $300 million, Premier said.
The raise could also allow for new shareholders to buy into Premier.
Premier had also announced an extension of its debt maturity timeline by over two years to the end of November 2023. Premier, which had a market capitalisation of around $1.1 billion before the announcements, has a debt pile of around $2 billion.
Premier’s shares gained 47% in 2019, boosted by Mexican oil discoveries and the performance of its Catcher oilfield in the North Sea.
Chief Executive Tony Durrant said that the response from major shareholders for the plans announced on Tuesday was “extremely positive”.
Premier said it was confident it had enough support from 75% of its creditors to get permission for the transactions at a so-called Scheme of Arrangement Court meeting, for which no date has been set yet.
But ARCM, which has had a growing short position in Premier shares since 2017, reaching around 17% of the oil group’s stock - around four times higher than the average for London-listed firms - rejected the plans.
ARCM, describing itself as Premier’s largest creditor at 15% of its debt instruments, said it would “take all steps” to oppose the deals, objecting to Premier’s focus on North Sea gas assets, when Europe is importing more gas from Russia and the United States, and warning of increasing decommissioning liabilities for indebted Premier.
Premier said it expected to confirm details of the issue in the first quarter.
In a string of announcements on Tuesday, Premier’s partner in the Sea Lion project off the Falklands Islands, Rockhopper, said they had signed a preliminary deal for Navitas Petroleum LP to buy a 30% stake.
The new partnership will reduce Premier’s obligations to build Sea Lion to around $285 million from $500 million, Durrant said.
“Today’s announcements have the potential to transform it into one of the more investible names in the space,” said BMO analyst David Round.
“Not only will these deals add scale and growth, but importantly Premier’s deleveraging will accelerate towards much more manageable levels.”
Reporting by Shadia Nasralla; Editing by Jason Neely/Louise Heavens/Susan Fenton