Premier Embarks on $870mn UK Expansion
London-based Premier Oil has struck a deal to buy the UK major BP's Andrew Area and Shearwater assets in the UK North Sea for $625mn, the two parties said January 7.
Premier said it had also agreed separately to acquire a 25% stake in the Tolmount Area it operates from Dana Petroleum, a subsidiary of Korea National Oil (Knoc), for $191mn plus contingent payments of up to $55mn.
The transactions are slated to close in the third quarter of 2020 and will be backdated to January 1 2019, Premier said.
The company said it expected to net around 23,000 barrels of oil equivalent/day of production from the deals in 2019, with development upside, as well as $1bn of free cash flow by the end of 2023. They will also add 82mn boe to Premier's reserves and contingent resources at a cost of under $10/boe.
The assets have combined operating expenditure of less than $20/boe, it said.
“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,” Premier CEO Tony Durrant said. “We look forward to realising the significant long-term potential of the Andrew and Shearwater assets through production optimisation, incremental developments and field life extension projects.”
BP operates five fields in the Andrew Area, producing 18,000 boe/day for the company. They are Andrew (62.75%), Arundel (100%), Cyrus (100%), Farragon (50%) and Kinnoull (77.06%).
The main upside target is the Andrew Lower Cretaceous reservoir. The UK major also has a 27.5% stake in the Shell-operated Shearwater production hub, which Premier said provided “incremental investment opportunities and tariff income.”
Premier already holds a 50% position in Tolmount, where the company is targeting 500bn ft3 of gas. A final investment decision is already in place and the field is on track for first gas by the end of 2020, with output set to reach 40-50,000 boe/day. There is upside potential here as well, following Premier’s discovery of East Tolmount in October. Dana will retain the remaining 25% of the project.
Premier intends to bankroll the deals via a $500mn equity raise, its existing cash resources and, if necessary, a $300mn bridge loan. The cash generated from the assets will help the firm deleverage itself, Durrant said.
Premier’s deal with BP follows a trend in the North Sea that has seen majors sell their businesses to smaller operators to focus on lower-cost upstream opportunities elsewhere. Once closed, the latest sale will bring BP closer to its two-year target of divesting $10bn of assets by the end of 2020.
“BP has been reshaping its portfolio in the North Sea to focus on core growth areas, including the Clair, Quad 204 and ETAP hubs. We're adding advantaged production to our hubs through the Alligin, Vorlich and Seagull tieback projects,” BP's North Sea president Ariel Flores said in a company statement. “As a result of this focus, we have also now decided to divest our Andrew and Shearwater interests, believing them to be a better strategic fit for another owner.”