RE: Not looking good8 Oct 2020 21:09
Premier, 1973-2020, has announced a merger with Chrysaor which in reality is a takeover or indeed a reverse takeover as Chrysaor are keeping the London listing. The deal will create the UK’s largest listed Independent Oil & Gas company with some 254,000 b/d of production and over 650 mmboe of 2P to be increased as soon as the upcoming CPR is published. Premier also looks easy on the eye with sumptuous tax losses that can be used. Finally, the BP deal which started all this has gone by the board which is somewhat ironic.
As for how it will look, then the merged company will have an enviable portfolio of UKCS assets and the rest of the Premier portfolio creates a starter pack for Chrysaor in Asia, Latin America and of course the Falklands. All of these are very attractive and Mexico can now probably leave the sales process. Asia speaks for itself and reflects the high cost of gas in Singapore with decent size developments feeding it. As for Sea Lion, whilst $40 oil may not yet be quite enough at least the company can say to the UKIF that they are now probably ‘of investment grade’…NB Rockhopper will at least enjoy having a stronger partner…
The new company will carry a board of 11 directors of which 6 will be NED’s and Linda Cook currently CEO of Harbour Energy will take the CEO job and Phil Kirk from Chrysaor will become President and CEO of Europe.
Ownership of the company is less than certain as initially creditors will have to take an amount of equity, as part of the debt paydown, but assuming they grab all they can they will own some 10.6% of the company with modest lock-ins. Premier shareholders will own just 5.5% of the group (Ouch!) and other Chrysaor shareholders will have 44.9% and Harbour Energy 39%.
In terms of valuation we are being led to Aker BP and Lundin, both excellent companies but Premier will stack up very favourably against both of those companies particularly with the tax breaks it is gaining. Rather ironically the group will be highly cash generative and will expect to deliver on a significant international growth strategy for which it will be fully funded. However small, and arguments about carrying so much debt for so long will go on, Premier’s existing shareholders are going to end up with a stake, albeit modest, in a huge, well financed and highly attractive company which just may, pay a divvi in the longer term.