RBC comments14 Jan 2019 12:08
Chevron is reported to be selling its UK North Sea portfolio, including a 19.4% stake in the Clair field, plus stakes in Alba, Captain, Elgin/Franklin, Erskine and Jade as well as the Britannia platform and its satellites.
It is unclear if and how the package might be broken up, as potential buyers including private (Chrysaor, INEOS, etc.) and public companies focus on their core areas and strengths.
Premier is an established UK operator with a sizeable operation in Aberdeen, and the acquisition of a package of producing assets would enable it to unlock value tied up in its $4.1bn of UK tax losses and capital allowances.
Given these synergies any acquisitions at fair prices should be value accretive.
However, we would not expect management to put its balance sheet at risk and/or issue shares at a material discount to the current share price.
With oil prices having gyrated since Chevron commenced its rationalisation process last year, the outlook for the seller and the attitudes of the potential (competing) bidders may have hardened.
We understand that the sale process is still in its early stages, and with all attention currently fixed on Chevron it would be worth considering what other, lower profile, opportunities might exist.
We believe any sizeable deal by Premier would require a combination of debt and equity given one important rationale for the deal is likely to be reducing debt leverage.
The company ended 2018 with a net debt to EBITDAX ratio of 3.0x and accounting net debt of $2.3bn.
Increasing Premier’s focus on the UK makes sense from the perspective of accelerating the use of its $4.1bn in UK tax losses. The sale of non-UK assets may be part of a plan to fund North Sea acquisitions, but we think time constraints mean it is unlikely to be part of the initial funding solution for the Chevron package.
We view the 25% stake in the Zama oil discovery on Block 7 offshore Mexico as Premier’s most marketable pre-development asset.
We value the stake at ~$250m on a risked basis, with appraisal drilling ongoing.
In December, DEA agreed to acquire licence partner Sierra Oil & Gas for ~$500m, which we estimate provides a mark-to-mark valuation of Premier’s stake of ~$300m.
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