Page 6 - Euroil Week 01 2020

EurOil COMMENTARY EurOil
Premier announces $871mn
North Sea spending spree
The purchase by the debt-laden producer has raised the concern of its largest creditor
UK
WHAT:
Premier Oil has signed deals to buy $871mn of North Sea assets from BP and Dana Petroleum.
WHY:
The company wants to expand control of its flagship Tolmount gas project while bringing in extra cash flow from existing production.
WHAT NEXT:
Premier has debts exceeding its market capitalisation, and one of its largest creditors has pledged to block the deals, which it says put shareholders at too great a risk.
LONDON-BASED Premier Oil has announced two new acquisitions in the North Sea worth over $871mn, aimed at consolidating control of its flagship Tolmount gas project as well as bring- ing in extra cash flow from existing production.
Premier said on January 7 it had agreed to buy BP’s operated interests in five Andrew area fields, as well as its 27.5% non-operated stake in the Royal Dutch Shell-run Shearwater gas deposit, for $625mn. It struck a second deal to acquire a 25% stake in the Tolmount gas field from South Korea-owned Dana Petroleum, raising its own- ership to 75%. It will pay Dana $191mn up front plus up to $55mn in contingent payments.
“These acquisitions are materially value accretive for Premier and are in line with our stated strategy of acquiring cash-gener- ative assets in the UK North Sea,” Premier boss Tony Durrant said in a statement. “We look forward to realising the significant long- term potential of the Andrew and Shearwa- ter assets through production optimisation, incremental developments and field life extension projects.”
BP’s Andrew area interests include 100% stakes in the Arundel and Cyrus fields, a 77% position at the Kinnoull field and shares of 62.75% and 50% in Andrew and Farragon. The
UK major netted 23,000 barrels of oil equivalent per day (boepd) from the assets last year.
Premier said the Andrew fields would earn it $1bn of free cash flow by the end of 2023, while also adding 82mn boe to its reserve base at a cost of less than $10 per boe. Their combined oper- ating expenditure is estimated at under $20 per boe. The cash generated from the assets will help Premier deleverage itself, according to Durrant.
Further development of the Andrew Lower Cretaceous reservoir also offers upside potential, Premier said.
The Shearwater stake, meanwhile, will pro- vide Premier with 25mn boe of extra reserves and a production boost of around 3,850 boepd. The asset has “incremental investment opportu- nities and tariff income,” the company said.
Premier’s Tolmount discovery is assessed to hold 500bn cubic feet (14.2bn cubic metres) of gas. It is on track to come on stream by the end of 2020 and flow up to 40,000-50,000 boepd. Premier made a second find east of Tolmount in October, with a final investment decision (FID) on its development targeted for the second half of 2020.
Premier expects to seal all the deals in the third quarter of this year, but they will be back- dated to January 2019.
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w w w. N E W S B A S E . c o m Week 01 09•January•2020