British Petroleum agrees to lower the price of its North Sea assets that it is selling to Premier Oil
- British Petroleum agrees to lower the price of its North Sea assets that it is selling to Premier Oil.
- Premier will be liable to make £91.06 million payment only, if oil prices surpass £43.55 a barrel.
- The UK oil company to fund the agreement via a stock issue involving 82.2 million new shares.
In a statement on Friday, Premier Oil (LON: PMO) said that British Petroleum (LON: BP) has agreed to lower the price of its assets in the North Sea that it is selling to Premier. BP released its Q1 financial results in the last week of April that posted a 67% decline in its net profit.
Share of Premier Oil climbed about 9% in premarket trading on Friday. At 34.60 pence per share, the stock hit its highest since early March when global oil prices slumped. The British oil major is roughly 65% down year to date in the stock market after recovering from a low of 12.63 per share in March.
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In terms of market capitalisation, BP is a much bigger company that Premier Oil with the former valued at £70.99 billion and the latter at £297.73 million. Premier Oil slashed its production guidance for this year in May.
Terms of revised agreement
As per the revised agreement, Premier will be liable to make £91.06 million payment only, if oil prices surpass £43.55 a barrel. Originally, the deal was priced at £494.91 million. Oil is currently priced at £31.67 per barrel after an about 40% decline in 2020.
The deal also slashes field abandonment liability for Premier from £475 million to only £190 million. As per Premier Oil’s comment on Friday:
“The structure of the consideration and phasing of payments are being adjusted to reflect the material developments in global commodity markets.”
The agreement between the two oil majors is in effect since January 2019. The revised deal enables BP to keep £237.56 million that it generated in 2019 from its North Sea assets. Consequently, the British oil major is only entitled to receiving around £166.29 million in cash payment.
Premier to fund the deal via a stock issue
Premier also accentuated on Friday that it will financially support the agreement via a stock issue. The company plans on offering activist investor ARCM 82.2 million new shares at 26.69 pence per share.
The stock issue represents roughly 9% of Premier Oil. The London-headquartered company has a net debt of £1.50 billion, out of which, ARCM currently owns roughly 15%. The activist investor also has a sizeable short position (17%) in Premier’s shares. The new arrangement will enable ARCM to minimise its short position while helping Premier to complete its deal with BP.
Premier’s debt is currently scheduled to mature in May 2021. Its deal with BP will require the company to extend debt maturities to late 2023.