Nov 2, 2020
Early in October 2020, Premier Oil (LON:PMO) – one of the UK's most indebted oil and gas companies – agreed to a merger with Chrysaor, in a reverse takeover that will ultimately see the former's creditors being paid $1.23 billion in cash, and its shareholders with around 5.45% of the combined London-listed entity.
On the face of it, there is little in the deal to raise eyebrows in a distressed market. Premier is one of the world's oldest leading independent exploration and production (E&P) company calling the North Sea its backyard. It traces its history back to the 1930s, but underwent a painful debt restructuring in 2016-17 after the last oil glut.
Amidst the current plunge in crude oil demand triggered by the COVID-19 crisis, its net debt stood $1.9 billion, several times over its market capitalization of $182 million. Given Premier's precarious position, a merger with Chrysaor, another major North Sea producer built on a portfolio of North Sea's British sector fields previously owned by Royal Dutch Shell and ConocoPhillips, seems to be a natural pathway.
But beneath the surface, this seemingly natural merger offers a glimpse into the ever growing role of private capital in the North Sea, as oil and gas majors continue their retreat from the mature hydrocarbon prospect.
Chrysaor's largest shareholder is Harbour Energy, an investment vehicle of private equity (PE) group EIG Global Energy Partners which has splurged close to $6 billion since 2017 acquiring a North Sea foothold from oil majors.
Pending regulatory and Premier shareholders' approval, the merged company is expected to be nearly 40% owned by its new PE backers. Linda Cook, currently CEO of Harbour Energy, will be running it.
The combined company's total production of 270,000 barrels of oil equivalent per day (boepd), which includes 200,000 beopd from Chrysaor and 70,000 boepd from Premier, would make it the biggest hydrocarbon producer in the British Sector of the North Sea, grabbing a spot previously held by BP.
It's a crown that BP hasn't been keen to hold in any case following a series of divestments by the oil major in recent years. In 2017, BP sold its iconic Forties Pipeline System (FPS) which was opened in 1975 to transport crude oil from the company's Forties field in the North Sea – then the UK's first major offshore oilfield – to petrochemicals tycoon Sir Jim Ratcliffe's privately-held conglomerate Ineos.
The move put the 235-mile pipeline system that links 85 North Sea oil and gas assets, belonging to over 20 firms, to the UK mainland and Grangemouth refinery in the hands of Ineos. The acquisition, which accounts for the delivery of 40% of British oil and gas output, built on Ineos' earlier acquisition of holdings in the Breagh and Clipper South gas fields in the Southern North Sea.
A year before, BP merged its Norwegian North Sea assets with Det norske, creating a new entity Aker BP, in which a 40% stake is owned by holding company Aker, which itself is majority-owned by billionaire Kjell Inge Røkke.
And let's not forget, while the Premier-Chrysaor merger has ended it – BP was attempting to flog other North Sea assets, including the Andrew platform and its controlling stake in five surrounding fields, as well as its minority stake in the Shell-operated Shearwater field, to Premier earlier this year.
The five fields - Andrew, Arundel, Cyrus, Farragon and Kinnoull – all produce via the Andrew platform, which is about 140 miles (225km) north east of Aberdeen and has been run by BP since 1994.
BP and struggling independents are by no means alone in having their divestments and assets in the maturing basin being scooped up by PE backed companies. Austria's OMV sold its British North Sea assets to Siccar Point, backed by Blackstone BX -1.1% and Bluewater, for up to $1 billion just as BP was spinning off its Norwegian holdings into Aker BP in 2016.
Within a few quarters of these deals, Engie sold its E&P division including some North Sea assets, to Neptune, backed by private equity funds Carlyle Group CG -2.5% and CVC, in a $3.9 billion deal.
In 2019, Chevron CVX +1% sold its North Sea assets to Israeli investment group Delek for $2.6 billion, while ExxonMobil sold its Norwegian North Sea holdings to Var Energi, a joint venture between PE fund HitecVision and Eni, for $4.5 billion. Separately HitecVision's NEO unit bought British North Sea oilfields from Total.
Suncor, Total and ExxonMobil are all tipped for further North Sea divestments in the run up to H1 2021, with PE money in the running for many of the assets on offer in a distressed market. These deals more or less confirm that the North Sea, once a coveted offshore E&P frontier for big oil and gas majors, is now a massive hunting ground for PE players. Private capital unquestionably rules the North Sea roost.