Premier Oil’s largest creditor, ARCM, is opposing the oil company’s plan to extend its debt maturity and acquire UK North Sea assets from BP and Dana Petroleum, claiming the company’s high-risk strategy will only increase risk for stakeholders.
Premier revealed earlier on Tuesday it had made agreements for acquisitions of the Andrew Area and Shearwater assets from BP for $625 million, and an additional 25 percent interest in the Premier-operated Tolmount Area from Dana for $191 million plus contingent payments of up to $55 million.
Premier said that the proposed acquisitions would be funded via a $500m equity raise (net of expenses), which has been fully underwritten on a standby basis, existing cash resources and, if required, an acquisition bridge facility of $300 million.
According to Premier, lender consent for the proposed acquisitions, related funding arrangements and extension of credit facilities will be sought via two court-approved schemes of arrangement. Of the creditors subject to the schemes, 83.3 percent of Super Senior Commitments and 72.7 percent of the Senior Commitments have already committed to approve the schemes.
Creditor to ‘ vigorously contest’ Premier’s plan
Asia Research and Capital Management (ARCM), a privately-owned asset management firm based in Hong Kong, holds a 15% of Premier’s debt instruments. ARCM noted Premier Oil’s Tuesday announcement regarding the proposal for a scheme of arrangement to extend the debt maturity and approve certain acquisitions.
As the company’s largest creditor, holding more than 15% across the company’s debt instruments with blocking positions in two of them, ARCM said it would take all steps to oppose the company’s proposal and would vigorously contest any attempt to implement such proposal via a scheme of arrangement.
ARCM also said it was deeply concerned about Premier Oil’s intention to pursue acquisitions as stated in its announcement, as they would only serve to increase risk for stakeholders.
The creditor stated that Premier Oil’s balance sheet was already highly levered, and the company was facing an impending May 2021 maturity of $2.55 billion of net debt as of the 2019 mid-year financials (comprising of $2.2 billion of “accounting net debt” and $371 million of letters of credit). Through its announcement this morning, whereby the company is seeking an extension through a court supervised scheme of arrangement, it appears to be acknowledging that it cannot repay the outstanding debt in accordance with its terms, ARCM said.
ARCM believes that 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.
As such, ARCM noted it would take all steps to oppose the company’s proposal and will vigorously contest any attempt to implement such proposal via a scheme of arrangement.
ARCM added it was particularly concerned about the cost and quantum of debt and decommissioning liabilities, increasing the company’s exposure to the UK gas market and transitioning Premier to becoming a gas producer, and inability to access the RBL lending market and exit of long-term creditors.