Yahoo Finance Premier Oil ends bitter stand-off with hedge fund ARCM with sweetened BP deal
A bitter City feud ended today as troubled Premier Oil brokered a truce with a short-seller by slicing $415 million off a deal with BP.
After a recent plunge in the oil price, Premier renegotiated a deal for BP’s Andrew Area and Shearwater assets in the North Sea, which will see it pay $210m rather than $625 million. BP will now keep $300 million in future cashflow and an extra $115 million if the oil price improves. Abandonment obligations for Premier have been reduced to $240 million from $600 million.
Crucially, the revamped deal gained the approval of Hong Kong hedge fund Asia Research & Capital Management. The short-seller has been waging a war of words with Premier since the acquisition was agreed in January and took the UK’s biggest short position, at 17%, against the shares. It is also a significant investor and agreed to cut the short position and take more equity in the company, raising an extra $27.5 million to fund the BP deal.
A planned appeal by ARCM against a court ruling in favour of the deal has been dropped. The shares rallied on the truce - and a rising oil price up above $40 a barrel for the first time since March – up 12.5% at 36p.
Sewing up the deal also allows Premier to continue discussions with its creditors on waiving its financial covenants through to September 30.
Peel Hunt analyst Werner Riding said: “The agreements reached today, in our view, are a creative solution that helps substantially solve a significant problem that Premier was facing.”
The North Sea assets are a small part of BP’s operation and Premier is expected to immediately generate cash and be able to cut costs, allowing it to cut its $1.9 billion debt pile.
Stuart Lamont, investment manager at Brewin Dolphin, said: “A resolution to the BP deal will come as welcome relief to Premier Oil shareholders – the shares were up considerably in early trading. While the transaction looked viable prior to the Covid-19 crisis, the subsequent collapse in the oil price brought a higher degree of uncertainty.
“The re-negotiation also relieves some of the pressure on the company from one of its largest shareholders. The new terms should help Premier – already sitting on a large debt pile – better manage the costs involved, without adding more stress to its balance sheet.”
The future for a separate Premier acquisition of assets Dana Petroleum, which was agreed at the same time as the BP deal and could cost as much as $246 million, looks less clear as it requires investment.
