Chrysaor's Rise to the Top
In an acquisition which ended a turbulent run for Premier Oil and arguably safeguarded their future, private-equity backed Chrysaor has agreed to a reverse takeover for the oil producer in a deal worth at least $1.63 billion. [1]
Currently, the two companies produce in the region of 250,000 barrels of oil per day, which equates to 1/8th of the UK’s total. [2]
Overview of Both Companies
London-headquartered Premier Oil date back to the 1930’s when they were founded as the Caribbean Oil Company with the sole purpose of pursuing oil and gas exploration production in the Trinidad. [3]
By nature, Premier Oil focuses on the upstream sector of the industry and has yet to begin transitioning to alternative sources of energy production. Their appearance in the UK began in the 1970s with their most recently designed platform, Tolmount. having arrived in the North Sea. [4]
Recently, Premier Oil have experienced financial difficulties. The issues, which began in 2014 when oil prices were well above $100 per barrel, stemmed from Premier Oil borrowing far more than they could pay back. With a global pandemic and slump in demand for non-renewable energy, Premier Oil have seen their share price crashing almost 90% since the start of 2020. [5]
Further trouble was around the corner. With the intention to raise $530 million in equity and extend debt maturities to 2025 to pay off a proportion of its $2.7 billion debt, coupled with paying BP for the already discounted acquisition of BP Andrew, Premier Oil’s balance sheet was showing signs of weakness. Having failed to receive the required approval of at least 75% of their creditors for their proposed plan, Premier had been granted an emergency extension to the waiver from their biggest creditor, ARCM. [6]
With a strong private-equity backing, Chrysaor have become one of the most established exploration and production companies in the UK. Following high-profile acquisitions of North Sea assets belonging to Shell in addition to acquiring ConocoPhillips’ UK oil and gas business, Chrysaor have established themselves in the competitive North Sea oil market. The decision to acquire Premier Oil should come as no surprise with CEO Paul Kirk hinting that Chrysaor were on the look-out for further substantial acquisitions. [7][8][9]
The Deal and Rationale
Assuming the transaction passes regulatory approvals, it will create the largest independent exploration and production company on the London stock exchange. [10]
This reverse takeover procedure which is often referred to as a reverse merger, allows Chrysaor to enter the UK Stock Market without having to go through the costly, regulatory and time consuming Initial Public Offering (IPO) process. Additionally, the proposed deal allows Chrysaor to access capital markets and obtain fundraising to make further purchases. [11]
Under the proposed agreement, Chrysaor will trade their existing shares in its private holding for public shares in Premier Oil equating to a majority 77% ownership of the combined group. Of this company entitlement, 39% of the new company will be owned by the Washington based energy investment fund, EIG. Meanwhile, Premier Oil’ creditors will be left with an ownership of 18% leaving the shareholders of Premier Oil with a reduced ownership of less than 6%. [12]
Describing the deal, the management of both firms insisted synergies would originate from the use of Premier’s UK tax losses and end a very uncertain few years for Premier Oil. Gross debts of £2 billion belonging to Premier Oil will be repaid on completion of the deal with £950 million paid in cash to the creditors. Crucially, refinancing plans which had included an equity raise will be abandoned. Additionally, in a massive blow for BP the deal to acquire their Andrew and Shearwater assets is off. The proposed acquisition of two mature BP assets had already been renegotiated to account for the challenging market conditions faced in 2020 however the decision to pull out of the deal entirely is most definitely a blow for BP. [13]
By the end of this year, Premier’s CEO Tony Durrant will step down, superseded by Chrysaor’s current boss taking on the role of group president and CEO for Europe. Leadership of the newly created entity will lie with Linda Cook who will become only the second female chief executive of a London-listed oil and gas company, in an industry which is evidently considered to be male dominated. [14]
Until now, Chrysaor’ growth has involved the acquisition and development of mature North Sea assets however, the latest deal allows a 50% access to the new Tolmount platform helping to boost their production. Moving forward, further capital spending cannot be ruled out, however it is likely Chrysaor will look at earlier stage opportunities within production and exploration. [15]
The Clean Energy Picture
The proposed deal is further evidence of the direction in which the North Sea energy market is heading. On one hand, you have companies such as Chrysaor rapidly expanding to become the biggest operator through with a number of high-profile acquisitions, with the once indispensable and recognised operators such as Shell, Chevron and ConocoPhillips moving away from the market.[15]
Despite blue-chip companies such as BP and Shell setting the ambitious target of becoming a net-zero company by 2050, Chrysaor currently have no intention of following suit. Pressure on non-renewable energy companies is at an all-time high with significant pressure from investors and negative publicity towards carbon emitting companies to become more environmentally friendly. Investor appetite is clearly moving towards a ‘greener’ portfolio and it is no longer a question of pretending to incorporate these ESG factors, but more a requirement to demonstrate concrete evidence of the energy transition. [16]
It cannot be forgotten how badly this sector has suffered from the global energy downturn which originates from well before the COVID-19 pandemic. This trend is likely to continue for the foreseeable future so transactions such as this reverse takeover is promising news for the sector which could kickstart a reignition of M&A activity. Describing the deal, Deirdre Michie, the chief executive of the UK’s oil and gas industry board acknowledged that the deal would “help to stimulate further activity for our hard-pressed supply chain.” [17]
Conclusion
Chrysaor’s decision to swoop on the opportunity to enter the UK stock market whilst acquiring yet more North Sea assets is one which will yield many financial benefits. As for Premier Oil, this takeover ends a very turbulent time for their creditors, finally allowing their debt issues to be resolved. [18]
Despite incredibly challenging market conditions and the beginning of change in investor appetite, this groundbreaking deal serves as a reminder that this recently challenged sector still has plenty to offer. Similar transactions for other London-listed companies with similar debt concerns such as EnQuest and Tullow Oil could follow. Acquisition by private-equity backed companies are likely to continue, especially at the current depressed prices of what were once leading exploration and production companies in the North Sea. The newly created group will be the new face of the UK oil and gas industry and one which will be here for the foreseeable future. [19]