Premier Oil creditor vows to fight refinancing plan

Premier Oil is facing a showdown with a hedge fund that is its biggest creditor over a proposed $2.9bn refinancing and an $871m acquisitions spree in the UK North Sea.

The FTSE 250 group announced on Tuesday that it had struck a $625m deal with BP, plus a second agreement worth up to $246m with Korean-owned Dana Petroleum, to buy a number of key assets in the North Sea, which would be partly financed via a $500m equity raise.

At the same time Premier published refinancing proposals that would give it a further two and a half years of breathing space, to November 2023, on all its credit facilities and also relax some of the stringent conditions attached to its loans that were imposed after a previous refinancing in 2017.

The painful 2017 refinancing left Premier having to seek permission from lenders before committing to significant new investment projects but under the new arrangements, the company said it would regain “greater operational flexibility” in return for improved economic terms for lenders.

But Premier is facing a battle from Hong Kong-based Asia Research and Capital Management, which declared on Tuesday that it would “take all steps to oppose” the company’s refinancing proposal and said it was “deeply concerned” at its intention to acquire further assets in the ageing UK North Sea. 

While Premier highlighted that the acquisitions would generate more than $1bn of free cash flow by the end of 2023, ARCM said the deals would add “hundreds of millions” of dollars to the company’s already considerable decommissioning liabilities in the UK North Sea.

ARCM, which holds more than 15 per cent of Premier’s debt and has a significant short position representing nearly 17 per cent of its stock, said in a statement that Premier’s management should instead prioritise “transactions that facilitate a significant deleveraging of the company’s highly levered balance sheet”.

Tony Durrant, Premier’s longstanding chief executive, justified the acquisitions by insisting that they would “accelerate the deleveraging of Premier’s balance sheet”.

Shares in Premier were up nearly 18 per cent at 119.55p by late morning on Tuesday.

Followers of Premier Oil suggested ARCM’s objections had “nothing to do” with the company’s debt but were rather aimed at recovering losses on its short position in the equity. The hedge fund, which participated in the 2017 refinancing, listed a series of detailed reasons why Tuesday’s announcements were bad for the oil group, also highlighting that the refinancing would increase the cost of servicing its still considerable debt load and would not really address the “fundamental problem of excessive leverage”.

Premier’s net debt stood at $1.99bn at the end of 2019, down from $2.33bn a year earlier. Its total debt facilities reach nearly $2.9bn, although not all of that is drawn down.

The group, along with other London-listed independent oil explorers, racked up hefty borrowings after the oil price crash of 2014 as they had to complete capital intensive projects while their revenues were slumping. 

Premier said last year that it would sell its stake of about 15 per cent in a big oil discovery in waters off Mexico but a deal is yet to be struck. It said on Tuesday that it had signed terms with Tel Aviv-listed Navitas Petroleum to sell an interest in an undeveloped project off the Falkland Islands.

For its refinancing to succeed, Premier would need 75 per cent of lenders that participate in a vote to approve its proposals. It claims it has already received support from nearly 73 per cent of senior lenders.

The assets Premier is buying include stakes in the Andrew area group of fields from BP, which produce about 18,000 barrels of oil equivalent a day, as well as the energy major’s 27.5 per cent interest in Shearwater, a gasfield in the central North Sea operated by Royal Dutch Shell. Through the deal with Dana, Premier will increase its holding in the Tolmount gas project in the southern North Sea, which is expected to start producing by the end of this year, to 75 per cent from 50 per cent.