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Premier Oil Nears North Sea Takeover, Awaits Creditors' Vote

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Premier Oil Plc PMOIY has received permission from a U.K. court to buy oil and gas fields in the North Sea worth roughly $871 million, on the condition that it gets creditors’ support to extend repayment date of its $2.7 billion debt from 2021 to 2023.

A creditors’ meeting is expected to be held on Feb 12, to discuss the debt extension plan, post which a hearing to sanction the decided schemes will take place in March. Most of the creditors, including Deutsche Bank, one of Premier’s largest lenders, have come out in full support of the proposed purchase.

About the Acquisition

Premier Oil recently said that it will spend $625 million to acquire the Andrew and Shearwater assets from BP plc BP. The to-be-acquired assets comprise the British energy giant’s stakes in the Andrew platform and controlling stakes in five fields — Andrew, Arundel, Cyrus, Farragon and Kinnoull. Notably, the Andrew platform is being utilized by the five fields to produce oil equivalent volumes. The other assets to be acquired include the 27.5% stake of BP in the Shearwater oil field being operated by Royal Dutch Shell plc (RDS.A - Free Report) in the British North Sea.

Premier will also purchase $246 million worth of additional stake in the Tolmount field in the southern North Sea from Korean-owned Dana Petroleum. These acquisitions will be partly financed by $500 million of equity placing.

Rationale Behind the Acquisition

The objective behind the purchases is to strengthen Premier Oil’s financial position. The acquired assets are expected to generate $1 billion of additional free cash flow by the end of 2023, thereby expediting debt reduction. Premier Oil expects the Andrew and Shearwater assets to add about 18,000 barrels of oil equivalent per day (boepd) and 25 million boe of reserves and resources respectively.    

Creditors' Support

Premier Oil needs support from at least 75% of its creditors in order to proceed with the deal. Although most of the creditors have backed it’s debt extension plan, Hong Kong - based Asia Research and Capital Management (‘ARCM’), which holds 15% of the company’s debt, is in opposition to the proposal. It fears the acquisition will affect the firm’s ability to repay debt. ARCM is of the opinion that Premier Oil should instead focus on transactions that help in deleveraging its highly indebted balance sheet. 

About Premier Oil

Premier Oil is a U.K. oil company engaged in oil and gas exploration, development and production. The company operates in the North Sea, Asia, Pakistan, Mauritania and the Falkland Islands, while simultaneously developing assets in Mexico and Brazil. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Another similar-ranked stock from the Zacks Oils and Energy sector is California Resources Corporation CRC. The company’s earnings beat the Zacks Consensus Estimate in three of the prior four quarters, the average surprise being 711.1%.

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