Premier Oil rescue wipes out shareholders: Chrysaor merger wipes out £2.3bn debt mountain but Premier investors are left with just 5% of new company
Premier Oil is to merge with a private equity rival, creating the North Sea’s biggest oil and gas producer but almost wiping out current shareholders.
The embattled British firm will effectively be taken over by Chrysaor in the rescue deal, which will eliminate its £2.3billion debt mountain and put new bosses in charge.
Premier will remain listed in London, however, with Chrysaor set to be reversed into it and given a stake of at least 77 per cent in the enlarged business.
Premier Oil will effectively be taken over by Chrysaor in the rescue deal, which will eliminate its £2.3bn debt mountain and put new bosses in charge
And while creditors stand to get £950million in cash and at least 10.6 per cent of the new business, current shareholders will be left with just 5 per cent.
But yesterday Roy Franklin, Premier’s chairman, said the board was ‘unanimously’ recommending the deal despite the significant dilution.
It sent shares surging by as much as 24 per cent, as analysts said the takeover would at least put the troubled firm on a stable footing. They later closed 1.8 per cent, or 0.28p, higher at 15.47p and this morning were back down to 14.8p.
Premier chief executive Tony Durrant, who had tried to resist takeover approaches, said there was ‘a logic in putting the two companies together’ and insisted it would now be ‘a much better vehicle for our shareholders’.
Queen of the North Sea
Linda Cook’s rise puts her in a very exclusive club.
She will be one of only two female chief executives of a London-listed oil company – the other is Katherine Roe at Wentworth Resources.
Cook, 62, was at Shell for 29 years, running its gas and power division. She was tipped to be chief executive but was beaten to the role by Peter Voser. She was awarded £5million severance and £16million pension.
Cook was named the 11th most powerful businesswoman in the world by Fortune magazine in 2002.
The tie-up will create the largest independent oil and gas company listed on the London Stock Exchange, producing upwards of 250,000 barrels of oil and gas per day – more than one eighth of the UK’s output.
Linda Cook, the boss of Chrysaor backer Harbour Energy and a former Shell executive, will be parachuted in to become the first woman chief executive of a major listed UK energy company.
Chrysaor said the merger would significantly improve its position in the North Sea and that Premier’s assets in Asia and Latin America would also provide opportunities for growth.
‘We are excited by the Premier assets in these regions and view them as the foundations upon which to build material portfolios and further diversify the company,’ Cook said.
Premier has been struggling since oil prices fell in 2014, taking a big chunk of income away just as it took on huge borrowings.
In a bid to tackle the problem, bosses proposed raising £410million with new shares and using the cash to buy some of BP’s North Sea assets and pay down debts.
But that move was blocked by creditors, including Honk Kong-based hedge fund ARCM, which instead decided to back Chrysaor’s proposals.
Russ Mould, investment director at AJ Bell, said this meant the deal became ‘more of a rescue mission than a merger of equals’.
He added: ‘Premier Oil has effectively been put out of its misery. The deal may create the largest independent UK oil company but existing shareholders will only own a very modest slice.’
The tie-up also comes as the oil industry is suffering from a major downturn because of the Covid-19 pandemic, which has hammered demand and sent prices plummeting.
Concerns that the growing popularity of electric cars could prompt oil use to peak soon, as well as pressure from environmental campaigners, have also prompted major producers including BP and Royal Dutch Shell to outline plans to shift to greener sources of energy. Both are axing thousands of jobs.
Chrysaor, backed by private equity firms Harbour and EIG, has become a major North Sea producer by buying British fields from Shell and Conoco Phillips, and spending over £4billion since 2017.