Premier Oil to Buy E.ON's UK North Sea Assets for $120 Million -- Update
January 13 2016 - 10:24AM
Dow Jones News
(Updates throughout.)
By Monica Houston-Waesch and Alex MacDonald
Premier Oil PLC (PMO.LN) said Wednesday it has agreed to buy
German power utility E.ON SE's (EONGY) U.K. North Sea assets for
$120 million in cash as it seeks to consolidate its assets in the
U.K. North Sea where it can extract more savings in a lower oil and
gas price environment.
The E.On assets are concentrated in the Central North Sea, West
of Shetlands and the Southern Gas Basin and include stakes in
flagship assets such as the Elgin-Franklin, Huntington, Babbage and
Tolmount fields. The acquisition will add about 15,000 barrels of
oil equivalent a day of production to Premier's production profile
this year, accounting for at least a fifth of its 2016 forecast
output of about 65,000 to 70,000 barrels of oil equivalent a
day.
The deal follows Premier's decision in November to sell its
Norwegian assets to Norway's Det norske oljeselskap SA for $120
million. That deal was aimed at streamlining Permier's asset
portfolio and was forecast to close at the end of last year.
"Having recently completed the sale of our Norwegian assets…this
transaction allows us to further consolidate our interests in the
U.K. North Sea where any acquisitions are immediately value
enhancing as a result of our existing U.K. tax position, " said
Premier Oil Chief Executive Tony Durrant.
The deal accelerates Premier's existing U.K. tax loss position
of about $3.5 billion and has the potential to generate significant
synergies for the company by delivering cost savings from the
operation of the combined assets in the North Sea. Premier said it
plans to fund the purchase out of existing cash flow with a rapid
payback of around two years and said it expects to put the deal to
a shareholder vote in due course.
North Sea oil fields are trading hands with increasing frequency
as crude prices drop to levels not seen in more than a decade.
French oil giant Total SA sold off a North Sea gas pipeline and gas
terminal last August for $905 million.
In October, E.ON sold a clutch of oil-and-gas fields in offshore
Norway for $1.6 billion to DEA Deutsche Erdoel AG, a private firm
overseen by Russian billionaire Mikhail Fridman and former BP PLC
chief John Browne. Another German utility, RWE AG, also sold its
North Sea assets last year to an investment vehicle overseen by Mr.
Fridman.
In late 2014 E.ON said it was splitting into two companies,
focusing the core of its business on its renewable energy division
and distribution lines while spinning off a new, publicly listed
company, Uniper, containing much of its conventional power,
including oil-and-gas exploration and production.
Mr. Durrant told The Wall Street Journal last February that he
was interested in acquiring assets in the North Sea, where the
company has a considerable presence.
But that was back when oil prices appeared be stabilizing around
$60 a barrel. Prices have since dropped to less than $31 a barrel
at times, with U.S. oil falling below $30 a barrel on Tuesday, the
first time it has dipped below this level since 2003.
Premier--which also has assets in countries such as Indonesia,
Vietnam, the Falkland Islands and Pakistan--was among a number of
London-listed oil explorers to cut their dividend amid significant
losses after oil prices began their long descent in 2014. Brent
crude, the international benchmark, has lost more than 70% of its
value since July 2014.
The company's stock has plummeted in recent days, falling by
more than 60% since the beginning of the year. Investors have been
unnerved by the company's $2 billion debt and production
problems.
In a recent note to investors, Barclays analysts said low oil
prices have "understandably strained investors' appetites" for many
of the companies in London's crowded oil explorer field. The bank
said Premier's fate hinged in part on oil prices rising and on the
company increasing its production.
Jefferies recently downgraded Premier to hold from buy.
Write to Monica Houston-Waesch at nikki.houston@wsj.com and Alex
MacDonald at alex.macdonald@wsj.com
(END) Dow Jones Newswires
January 13, 2016 11:09 ET (16:09 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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