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BP to sell North Sea Andrew, Shearwater assets to Premier Oil

Highlights

Premier to take over BP's Andrew operated hub

Increases stake in Tolmount gas project

Deals criticized by Hong Kong-based creditor

London — BP is to sell its stakes in the UK Andrew area oil facilities and the Shearwater gas and condensate hub to independent Premier Oil for $625 million, the companies said Tuesday.

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The announcement means a further withdrawal of BP from the core North Sea as it concentrates mainly on West of Shetland fields such as Clair and Schiehallion.

"We are confident that Premier Oil, already a significant operator in the North Sea, is the right owner of these assets as they seek to maximize their value and extend their life," BP regional president Ariel Flores said in a statement.

Premier said the assets it is purchasing from BP represented current production of 23,000 b/d of oil equivalent, with potential for increases from a possible additional development.

The assets comprise stakes of between 63% and 100% in five producing oil fields clustered around the Andrew platform, which Premier will take over as operator, as well as a 27.5% stake in theShell-operated Shearwater platform, which is being redeveloped to handle third-party production. BP had already said it might exit Shearwater, while building up its remaining North Sea cluster, the Eastern Trough Area Project (ETAP), where a new project, Seagull, is due on stream next year.

"BP has been reshaping its portfolio in the North Sea to focus on core growth areas, including the Clair, Quad 204 [Schiehallion] and ETAP hubs," Flores added.

Offering reassurance on a perennial concern, Premier said none of the assets it was acquiring would require any decommissioning before 2026.

Premier also announced it would be buying an additional stake in its Tolmount gas project, due on stream by the end of 2020, from South Korea's Dana Petroleum, for $191 million plus a deferred payment of $40 million. This would raise Premier's stake in Tolmount to 75% from 50%.

It said the deals would bring it an additional 82 million boe of reserves and "contingent resources," implying a cost of under $10/boe.

The purchases will need approval from shareholders at a meeting to be held in the current quarter as they are partly to be funded through an equity issue.

The funds for the purchase would also come from existing cash and an extension of Premier's debt facilities in return for increased "coupon" payments. However, Premier said it expected the purchases to accelerate its debt reduction, which has been a concern for investors. It said Tuesday it had cut its net debt by $330 million in 2019 to $1.99 billion, reflecting strong production from its Catcher field, which came on stream in the North Sea in December.

DEBT CRITICISM

One creditor, Hong Kong-based Asia Research and Capital Management (ARCM), voiced immediate opposition, reflecting Premier's heavy recent debt levels, and said the company was effectively goingto become a UK-focused gas producer, bringing significant risk. But Premier CEO Tony Durrant brushedaside the criticism. "We've consulted with all our creditors and our creditors are very supportive of the transactions we've proposed," Durrant said. "The vast majority of them have already given irrevocable acceptances."

ARCM said: "Management's immediate priority should be on transactions that facilitate a significant deleveraging of the company's highly levered balance sheet, so that it may meet the debt maturities that its creditors have already extended once in the 2017 restructuring, as opposed to pursuing acquisitions that expose the company's balance sheet to significant incremental risks."

The response on the stock market was positive, with Premier's shares enjoying a big bounce. Premier said the new assets should generate over $1 billion of free cash flow by the end of 2023. "These acquisitions are materially value accretive for Premier and are in line with our stated strategy of acquiring cash generative assets in the UK North Sea," Durrant said.

Premier had 78,400 boe/d of production overall in 2019, of which 54,200 boe/d was offshore the UK, with the remainder split between Indonesia and Vietnam.

It announced separately it had agreed a "farm-out" agreement relating to its Sea Lion project in the Falkland Islands that would give a 30% stake to Tel Aviv-listed Navitas Petroleum, and said itwas making progress on selling its 25% stake in the Zama oil discovery offshore Mexico.

-- Nick Coleman, nick.coleman@spglobal.com

-- Edited by Jonathan Fox, jonathan.fox@spglobal.com