Premier Oil (PMO) has made peace with its major lender and short-position holder Asia Research and Capital Management (ARCM) with big changes to its North Sea acquisition plan.
The company announced in January it would buy up assets from BP (BP.) and Dana Petroleum for $871m (£700m). Now, BP has agreed to cut the payment on completion from $625m to $210m.
Premier is effectively paying the same price but has handed BP $300m in cash flow from the assets from the 1 January 2019 handover date and another $115m is contingent on oil and gas prices improving. Its share price was up 10 per cent on the news, to 35p.
When the deal was announced, Premier was trading at 101p and said a fully underwritten $500m equity raise would be the cornerstone financing. When the oil price crashed and Premier hit 16p, the deal looked in peril,
ARCM, which holds a 17 per cent short position in Premier, challenged the deal in court, saying the acquisition was a bad idea in the current market. It has now dropped its appeal on the back of the revised deal and has even signed on to pick up 82m in new shares at 26.69p (a 9 per cent discount on Thursday’s price). This is only the first dilution Premier shareholders face: the company will fund the new $210m price through another equity raise. While this is well short of the original $500m raise planned, the shares are trading at around a third of the level at the time the deal was announced, so the dilutionary impact will be the same.
Panmure Gordon analyst Colin Smith said bringing ARCM to the table was a positive but Premier would need to renegotiate the extension of credit with other lenders out to November 2023. Its net debt stood at $2bn at the end of 2019.
Premier has already got some non-ARCM lenders onside to allow it to keep drawing from existing loans and waive existing covenants.
