ARCM & Premier Oil
Premier Oil PLC announced a proposal for a scheme of arrangement to approve certain acquisitions and extend its debt maturities on 7th January 2020. Hedge Fund, ARCM raised grave concerns about Premier Oil’s intended acquisitions as they would heighten the level of risks that the company is already facing, by possessing a highly leveraged balance sheet.
The proposed acquisitions shall expose Premier Oil PLC and its stakeholders to significant incremental risks according to the Hong Kong based hedge fund, ARCM group. Therefore, ARCM stated that it should vote against Premier Oil’s proposal at the creditors’ meetings. Though, most of the creditors are voting in favour of the Scheme, but regardless of the outcome of voting, the Schemes will not become effective unless they are sanctioned by the Court.
The Hong Kong based hedge fund which holds more than 15 per cent of the company’s debt instruments, happens to be the Premier Oil’s largest creditor. ARCM stated that it would strongly oppose the proposal of the company to implement this scheme. Since 2016, ARCM has been a lender to Premier Oil and has never objected to any of its proposals.
The Court will look for substance over form, beyond the outcome of the voting at the creditors’ meetings in arriving at a conclusion whether or not to approve the Schemes, as the sanction hearing, which is supposed to be held on 17th March 2020, is not merely a stamping exercise. In the hearing at the Court, the lenders may raise their opposition who object to the Schemes. The types of objections might include some issues related to the class variation of creditors. The supreme authority must be convinced that the Schemes are fair, there is no ‘blot’ on the Schemes, and the statutory requirements have been met.
As stated earlier, the Hong Kong based fund will take a strong stance to oppose the implementation of the Schemes. ARCM would file substantial evidence and submissions with the Law of Court as it believes that the Schemes should not be approved by the apex authority. ARCM has sought with the company on numerous occasions to address the Company’s leverage and 2021 debt maturity over the last few months by engaging constructively with other lenders to devise an appropriate strategy. On the contrary, instead of addressing its highly leveraged balance sheet, the Company has resorted to pursuing a high-risk acquisition strategy.
On 7th January 2020, ARCM raised its worries over the planned acquisitions in its retort to Premier Oil’s plan. ARCM is seeking answers to critical queries posed to Premier Oil and will continue to pose further questions in the coming weeks as well. Since 2016, ARCM has been a major lender of Premier Oil and has a significant contribution in extending debt maturities of Premier Oil group in 2017. Out of $2.4 billion of net debt of Premier Oil, ARCM has a position of $455 million in the form of debt covenant issue in May 2021. Furthermore, the Oil & Gas producer has an outstanding $1.2 billion of decommissioning liabilities.
These proposed Schemes of the company consist of UK North Sea acquisitions, the funding arrangements associated with it and further increase of Premier’s credit resources. On February 12, 2020, the company informed that the resolutions at each of the Scheme meetings were approved by the relevant majorities of the Scheme Creditors in each class. 86.81% of the Super Senior Scheme Creditors approved the Schemes with 99.30% in value voting. 83.86% of the Senior Scheme Creditors approved the Schemes with 96.51% in value voting. However, with the sanction hearing currently scheduled to commence on 17 March 2020, these Schemes remain subject to approval by the Scottish Court of Session.
The Oil & Gas group has sensed some benefits from these potential acquisitions. The target assets are expected to generate over US$1 billion of free cash flow by the end of 2023. In addition, with development upside, these acquisitions shall add 23 kboepd of cash generative production in 2019. Also, at an implied cost of less than US$10/boe, an addition of 82 mmboe of reserves and contingent resources is expected.
The company would be able to reduce it’s cost and carbon emission with a combined operating expenditure of less than US$20/boe. The acquired assets shall help it in bolstering the financial position. The additional cash flow generated by the company shall help in reducing the debt of the company.
Premier Oil Plc (LON: PMO) is a London, United Kingdom-based multinational oil and gas exploration and production company. The company has oil and gas interests in Latin America, the Falkland Islands, South East Asia and the North Sea, where the group seeks to invest in high-quality opportunities.
On 7th January 2020, the company released its Trading and Operations Update ahead of FY19 results. During the first half of 2020, the company plans to select the optimal field development, through Tolmount East project sanction and aimed for the second half of 2020. For 2019, the company expects excluding lease costs (opex), of US$11/boe and total capex of US$300 million. Net debt decreased by more than US$330 million to US$1.99 billion from US$2.33 billion and was in line with the guidance.
At the upper end of full-year guidance, the production was 78.4 kboepd in 2019, underpinned by continued high rates from the Premier-operated Catcher Area and high operating efficiency. The company continues to anticipate First Gas before year-end, with Tolmount adding 20-25 kboepd to Premier Oil production once on the plateau.
Business overview: Asia Research & Capital Management Ltd. (ARCM)
Incepted in 2011, ARCM is a Hong Kong based credit-focused investment group which manages several long-duration closed-end investment instruments focused on credit and equity securities, with significant expertise and allocation in energy and natural resources sector.
Premier Oil PLC -Stock price performance
Daily Chart as at Feb-13-20, before the market close (Source: Thomson Reuters)
On 13th February 2020, at the time of writing (before market close, GMT 12:18 PM), Premier Oil PLC shares were trading at GBX 101.30. Stock’s 52 weeks High and Low is GBX 120.70 /GBX 64.48. Stock’s average traded volume for 5 days was 5,007,455.00; 30 days – 7,710,440.10 and 90 days – 6,003,207.09. The average traded volume for 5 days was down by 35.06% as compared to 30 days average traded volume. The company’s stock beta was 3.29, reflecting higher volatility as compared to the benchmark index. The outstanding market capitalisation was around £872.90 million.