Premier Oil Shares Surge On Lower Payment for E.On UK Gas Assets--Update
01 February 2016 - 10:41PM
Dow Jones News
(Adds detail, analyst comment.)
By Alex MacDonald
LONDON--Premier Oil PLC (PMO.LN) shares more than doubled Monday
after they resumed trading following a near three-week suspension
related to the announcement of the company's proposed purchase of
E.ON SE's (EONGY) U.K. North Sea oil and gas assets.
The U.K.-listed oil firm's shares were suspended on Jan. 13 by
the U.K.'s Listing Authority to determine whether the $120 million
deal, which includes working capital adjustments, should be
classified as a reverse takeover.
Premier and E.ON have now agreed that Premier will pay a total
of $135 million to complete the deal: the original $120 million
plus $15 million to compensate E.ON for cash that will remain in
the assets. This compares to previous expectations that the company
would have to pay $120 million plus another $47 million for the
cash that was due to remain in the assets, a Premier spokesman
said.
Premier Oil's shares soared to 38.5 pence from 19 pence a share
when the shares were suspended.
Premier said E.ON is taking cash out of the assets more quickly
than previously expected by accelerating dividend payments from the
assets. This has reduced Premier's purchase price below its market
value, thus allowing its shares to resume trading since the UKLA
has now classified the deal as a class 1 transaction rather than a
reverse takeover.
The transaction is now subject to approval by Premier's
shareholders, who are due to vote on the deal in March or April. It
is also subject to approval by Premier's U.S. Private Placement
note holders and lending banks, Premier said.
Numis Securities said in a note that the deal "appears sensible"
given its quick payback, and should boost Premier's covenant
headroom. However, the broker notes that it does not provide a
solution to Premier's problems.
"Premier remains heavily indebted and without a substantial
increase in oil prices there remains the potential for future debt
restructuring," Numis added.
The broker noted that the company is still grappling with the
consequences of cost overruns at its Solan project in the North Sea
that have cost the company more than $1 billion. Premier's shares
are down 74% over the past year due to tumbling oil prices and its
hefty debt burden. By contrast, the U.K.'s FTSE 350 oil and gas
producers' index is down 17% over the same period.
The E.ON assets are concentrated in the Central North Sea, West
of Shetlands and the Southern Gas Basin and include stakes in
flagship assets such as the Elgin-Franklin, Huntington, Babbage and
Tolmount fields. The acquisition will add about 15,000 barrels of
oil equivalent a day of production to Premier's production profile
this year, accounting for at least a fifth of its 2016 forecast
output of about 65,000 to 70,000 barrels of oil equivalent a
day.
Write to Alex MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
February 01, 2016 06:26 ET (11:26 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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