Chrysaor seals North Sea top spot with reverse takeover of Premier Oil

Privately-held UK Independent Chrysaor is buying London-listed Premier Oil by way of reverse takeover.

Premier’s US$2.7 billion of debt and hedging liabilities will be repaid and cancelled via a US$1.232 billion cash payment, plus Chrysaor shares.

Chrysaor shareholders will own at least 77% of the combined group. Premier shareholders will own up to 5.45%.

Wood Mackenzie estimates the combined group will produce around 250,000 barrels of oil equivalent per day in 2020, with over 90% of that volume from the UK.

Neivan Boroujerdi, principal analyst, North Sea upstream, said: “Premier’s balance sheet has been heavily debt laden since the last oil price crisis, a result of investment in growth projects as the cycle turned.

"It was in the process of refinancing when the Chrysaor approach was made.

“For Chrysaor there are several drivers. The company has a strong balance sheet and solid cash generation, but it needed to take advantage of this strength, as its portfolio was in steep decline.

“The addition of Premier gives Chrysaor international growth options with development assets in the Falklands/Malvinas (Sea Lion) and Mexico (Zama), even if its medium-term outlook is similarly in decline. Premier had been trying to sell its stake in Zama but the addition of Chrysaor’s cash generating asset base could prompt a change in heart.”

Greig Aitken, principal analyst on Wood Mackenzie’s corporate analysis team, added: “Above all, the merger adds scale. Size matters in oil and gas. Particularly in tapping additional sources of finance during periods of volatility.

“Looking ahead, the UK sector is ripe for consolidation. The last time the industry truly underwent a period of mega-consolidation was in the late 1990s. Yet despite UK production falling significantly since then, the number of producers remains broadly the same.

“Bigger, more efficient producers that are resilient enough to see through the cycles – but small enough not to be weighed down by internal competition for capital and high G&A costs – are better equipped to collaborate with the supply chain, maximise recovery and deliver consistent returns to shareholders.”