A judge has sanctioned Premier Oil’s plans to acquire £660 million worth of North Sea fields and extend its debt maturities.
But the firm’s largest creditor, Asia Research and Capital Management (ARCM), intends to appeal the ruling of the Court of Session in Edinburgh.
The deals cannot go through until that process concludes.
The Hong Kong based hedge fund also pointed out that Premier Oil has another sizeable hurdle to clear, saying the deals with BP and Dana Petroleum hinge on a minimum equity raise of £282m.
Raising equity could prove extremely difficult due to the recent collapse in crude prices.
Premier Oil said it was pleased with the court’s endorsement, but acknowledged that the transactions were subject to a number of conditions.
The company said it would continue to assess the “viability of satisfying those conditions and therefore of completing the proposed transactions in light of the current market conditions”.
Its share price rose 11.63% to 29.08p in London following the announcement.
James Carmichael, energy analyst at Berenberg, said it wouldn’t be a surprise if Premier Oil wanted to renegotiate the terms of the deal with BP.
The transactions included BP’s stakes in the Andrew and Shearwater fields and a further 25% of the Tolmount project from Dana Petroleum.
Premier said it would pay for the acquisitions with a £380m equity fundraising, existing cash resources and an “acquisition bridge facility” of £228m.
The company, which has net debts of £1.6bn, also announced its desire to extend credit facilities to 2023.
Most Premier Oil creditors voted in favour of the proposals in February, but the firm still required court approval of its schemes of arrangement.
The hearing began on March 17 and concluded a few days later, but the company was kept waiting until now for a ruling.
In making her decision, Lady Wolffe noted the “overwhelming” creditor support and said it should be left to the market itself to decide whether Premier Oil’s proposals should come to fruition.
She said: “If the equity raise does not generate sufficient new capital, the Acquisitions cannot be funded. The first step is the equity raise. There is no better predictor of the success of the Schemes in the market than the market itself.
“Accordingly, the current market volatility does not lead me to conclude that the schemes fall to be refused on that ground.”
Premier Oil chief executive Tony Durrant said: “We are very pleased to have secured the court’s endorsement. This underlines the strength of our legal case and demonstrates that we are able to use a scheme of arrangement as a mechanism to secure lender consent for transactions designed to improve the business.
“We look forward to the early disposition of the appeal so that we can proceed to register the court’s order. We are also grateful for the continued support shown by the majority of our creditors in relation to the schemes.”
But ARCM, which holds more than 15% of Premier’s debt and has a short position of nearly 17% of its stock, will take its case of the Inner House of the Court of Session in the coming days to appeal against the decision.
ARCM complained that approval was granted without live evidence being presented by its witnesses.
It has maintained throughout that Premier Oil should concentrate on reducing its debt pile, rather than making acquisitions.
A spokesman for ARCM said: “Premier Oil should abandon the acquisitions and focus on its cash flow position and protecting the balance sheet as a matter of priority.”
He added: “We hope that by working with its creditors, Premier Oil will be able to significantly reduce leverage and move forward with a sustainable balance sheet.”
Mr Carmichael said: “We wouldn’t be surprised if Premier was keen to renegotiate the terms of the transaction given the recent move in oil and gas prices.
“BP has been flexible in past deals, but that was more related to structure, time will tell how much they can move in terms of price.
“Another hurdle for Premier is the need to raise equity alongside the transaction, at the current market cap the implied dilution might be prohibitive.”
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