Chrysaor, Premier Oil merger to create largest independent London-listed oil, gas company

London — Private equity-backed Chrysaor is to merge with Premier Oil to create the largest independent oil and gas company on the London stock exchange, with output of 250,000 b/d of oil equivalent and aspirations both in the North Sea and internationally, the companies said Oct. 6.

In a statement, the two said the deal, classed as a reverse takeover as it means taking Chrysaor's business public in London, would resolve Premier Oil's near $2-billion debt burden, bring reserves, production and logistical synergies in the North Sea, and "significant international growth opportunities."

Linda Cook, CEO of Chrysaor's main financial backer, Houston-based Harbour Energy, and the designated CEO of the new entity, said the retreat of companies and capital into the US shale sector had contributed to an international market ripe for mergers and acquisitions, including a "full pipeline of opportunities" in the North Sea, reflected in previous purchases of assets from Shell and ConocoPhillips.

"The London market used to have a pretty vibrant group of independent oil and gas companies... but these have disappeared in previous rounds of industry consolidation. With this transaction we accomplish that," Cook said in a call outlining the deal to investors.

With backing from Harbour Energy, Chrysaor has already become one of the largest oil and gas producers in the UK sector of the North Sea, with 187,000 boe/d of production in the first half of this year, roughly on a par with Total. It operates former ConocoPhillips assets such as the J-Area and Britannia hubs, holds a 22% stake in the CNOOC-operated Buzzard field, and minority stakes in the BP-operated Clair and Schiehallion fields in the West of Shetland area.

However, the latest deal means it would vie with major Norway-focused independents Aker BP and Lundin Energy in terms of production, but without being "burdened" by high Norwegian taxes, and with greater international opportunities, Cook said.

"Post the transaction, the combined company is in a different league all together," she said.

Premier was created in 1934 and has assets around the world, including discoveries such as Zama offshore Mexico and producing assets in Indonesia and Vietnam, as well as a dormant oil project in the Falkland Islands. However, it has increasingly focused on the UK North Sea in recent years; in the first half of the year it produced 67,000 boe/d, two thirds of which was in UK waters.

BP deal collapse

However, the deal means Premier's plans to buy BP's stakes in the Andrew and Shearwater fields, announced in January before the coronavirus crisis hit oil markets, is now abandoned. BP said by email it "will be considering our options for the future of the assets."

Phil Kirk, currently CEO of Chrysaor and designated president of the new entity, said the deal would consolidate the company's position in the core North Sea, increasing its stake in the Elgin-Franklin oil and gas complex, for example, but would also enable it to expand in the West of Shetland area, seen as having the greatest long-term prospects for the UK.

Premier has 100% ownership of the West of Shetland Solan field, a $2-billion project that contributed to pushing up its debts as production levels fell far short of expectations, although an effort is now underway to revive the field.

"The cornerstone of the combined portfolio is the high-quality, diverse set of producing assets in the UK North Sea," Cook said. "It includes interests in some of the most established large producing hubs and a material position in the long-life West of Shetlands area."

The complex deal involves erasing Premier Oil's $2.7 billion of gross debt and other liabilities, with its creditors receiving $1.23 billion in cash, $400 million in letters of credit, plus equity in the combined group.

It means Premier's stakeholders, including both creditors and shareholders, will hold 23% of the combined group and Harbour Energy 77%.

Premier's shareholders, who have seen the value of the stock slump by more than 80% this year, will hold 5.5% of shares in the combined entity.

The combined entity will also benefit from $4.1 billion in tax losses attributed to Premier, which can be used to offset future production taxes.

Cook underlined the importance of the new entity meeting heightened environmental and emissions obligations. Chrysaor is involved in Acorn, a UK government-backed carbon capture and storage project.