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Premier Oil falls on speculation over US$1.5bn acquisition and equity ‘cash call’

Premier said no firm decisions have been made, nevertheless, the shares dropped more than 9% in Monday's early deals

oil and gas operations
Press reports claimed Premier could tap equity to raise acquisition funds

Premier Oil PLC (LON:PMO) shares fell on Monday as the oil producer issued a statement saying it may, or may not, acquire more North Sea assets.

It follows weekend press reports that said Premier was considering a “giant cash call” to fund a deal to buy a package of UK oil and gas assets being sold by Chevron.

According to a report in The Sunday Times, Premier would look to shareholders as it seeks to pay for what is described as a ‘US$1.5bn deal’.  

READ: Premier Oil beat debt reduction expectations

Citing industry sources close to the deal, the article said the oiler could raise the capital via a rights issue or a share placing, though it also noted that a partnership deal could also bring in funds, and, it noted that Premier declined to comment.

Today, in a stock market statement, the company said: “Premier will continue to look at opportunities to acquire UK North Sea assets in line with the Group's stated strategy. 

“There is no guarantee that the group will bid in any process or that any process will complete.

“Specifically, no firm decision has been taken to bid for all or any of the assets currently being marketed by Chevron and how, in the event that the group were to be successful, the acquisition of such assets would be financed.”

Premier meanwhile highlighted that its operational performance remains strong, noting that production for the first two weeks of January averaged more than 90,000 bopd.

Debt reduction beat expectations in 2018

The suggestions that Premier could look to equity to fund acquisitions comes just a few days after the company highlighted that it beat its debt reduction expectations in 2018.

The oiler, which is due to release full-year results on 7 March 2019, confirmed it had increased output by 7% during 2018 with the full year average rate reported at 80,500 barrels oil equivalent per day.

Output was measured above forecast at 92,000 boepd in November and December.

Premier’s net debt at the end of the year amounted to US$2.3bn marking a US$390mln reduction during the twelve months and coming in ahead of the company’s US$2.4bn target.

Organic growth planned

Inorganic growth aside, Premier is this year working on the Tolmount field development programme in the North Sea.

The Tolmount project is expected to see the spud of the ‘high value’ Tolmount East appraisal well by mid-2019.

It is also advancing appraisal work for the large Zama discovery offshore Mexico. Premier last week said the Zama-2 well results are “expected shortly”.

Chief executive Tony Durrant, in the trading update, said: “Looking to the year ahead, we have a strong production base which is well hedged and our priority remains to further reduce our debt levels while progressing our future growth projects to final investment decisions."

In late afternoon trading, Premier Oil shares were 8.7% lower at 72.55p.

An acquisition could unlock tied-up value

In a note to clients, analysts at RBC Capital commented: "Premier is an established UK operator with a sizeable operation in Aberdeen, and the acquisition of a package of producing assets would enable it to unlock value tied up in its $4.1bn of UK tax losses and capital allowances.

“Given these synergies any acquisitions at fair prices should be value accretive. However, we would not expect management to put its balance sheet at risk and/or issue shares at a material discount to the current share price.”

They added: “With oil prices having gyrated since Chevron commenced its rationalisation process last year, the outlook for the seller and the attitudes of the potential (competing) bidders may have hardened.

“We understand that the sale process is still in its early stages, and with all attention currently fixed on Chevron it would be worth considering what other, lower profile, opportunities might exist.”

 -- Adds analyst comment, updates share price --

Quick facts: Premier Oil PLC

Price: 87.46 GBX

LSE:PMO
Market: LSE
Market Cap: £727.15 m
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