Premier Oil has renegotiated its deal to buy a series of North Sea assets from BP and ended a dispute with its largest creditor.
The firm struck a deal with BP in January to buy the Andrew Area and BP’s stake in the Shearwater hub in a deal worth £475million.
However new terms have been agreed in principle due to the collapse in oil prices and Premier’s legal battle with Asia Research Capital Management (ARCM), who argued the firm should focus on cutting its debts, rather than making acquisitions.
Cash payable upon completion has been reduced from $625m (£493m) to $210m (£165m).
The original sum will be offset by BP keeping $300m (£234m) of cash flows for the interim period from the effective date of the deal of January 1, 2019.
Meanwhile another $115m (£91m) would only be payable to BP upon higher future oil and gas prices.
In addition, BP will retain 100% of the Shearwater abandonment costs and 50% of Andrew, meaning Premier’s pre-tax decommissioning costs will be around $240m (£190m) rather than $600m (£475m).
Thanks to the new terms, ARCM has withdrawn its appeal against the Scottish court’s approval of the debt schemes to pay for the deal.
The deal requires that Premier will issue 82.2million of new shares, representing 8.9% of the company, with the proceeds of $27.5m used to part-fund the deal, while ARCM will use the shares to reduce its current short position.
Premier is also making “good progress” on the “Stable Platform Agreement”, a deal with lenders on 40% of its debt facilities, which mature in May 2021.
Chief executive Tony Durrant said: “We are pleased to have agreed revised terms with BP for the proposed acquisition of the Andrew Area and Shearwater assets, which are materially value accretive for the Company.
“The Stable Platform Agreement, once agreed with and approved by lenders, will provide a basis for the Company to continue discussions regarding proposed amendments to the Group’s existing credit facilities.”
A spokesman for BP said: “We continue to work with Premier Oil towards completion of the Andrew and Shearwater transaction.
“These proposed revisions retain the overall consideration and respond to market conditions. We continue to look forward to closing the deal.”
Premier also struck a deal to pay Dana Petroleum up to £185 million for a further 25% of the Tolmount gas project in the southern North Sea, taking its stake to 75%.
The firm’s share price is up nearly 13% to 35.9pence this morning on the back of the news.
Stuart Lamont, investment manager at Brewin Dolphin Aberdeen said the resolution will come as a “welcome relief” to shareholders.
He added: “While the transaction looked viable prior to the Covid-19 crisis, the subsequent collapse in the oil price brought a higher degree of uncertainty. The re-negotiation also relieves some of the pressure on the company from one of its largest shareholders.
“The new terms should help Premier – already sitting on a large debt pile – better manage the costs involved, without adding more stress to its balance sheet.”
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