Premier Oil Shares Surge On Lower Payment for E.On UK Gas Assets--Update

(Adds detail, analyst comment.)

By Alex MacDonald

LONDON--Premier Oil PLC (PMO.LN) shares more than doubled Monday after they resumed trading following a near three-week suspension related to the announcement of the company's proposed purchase of E.ON SE's (EONGY) U.K. North Sea oil and gas assets.

The U.K.-listed oil firm's shares were suspended on Jan. 13 by the U.K.'s Listing Authority to determine whether the $120 million deal, which includes working capital adjustments, should be classified as a reverse takeover.

Premier and E.ON have now agreed that Premier will pay a total of $135 million to complete the deal: the original $120 million plus $15 million to compensate E.ON for cash that will remain in the assets. This compares to previous expectations that the company would have to pay $120 million plus another $47 million for the cash that was due to remain in the assets, a Premier spokesman said.

Premier Oil's shares soared to 38.5 pence from 19 pence a share when the shares were suspended.

Premier said E.ON is taking cash out of the assets more quickly than previously expected by accelerating dividend payments from the assets. This has reduced Premier's purchase price below its market value, thus allowing its shares to resume trading since the UKLA has now classified the deal as a class 1 transaction rather than a reverse takeover.

The transaction is now subject to approval by Premier's shareholders, who are due to vote on the deal in March or April. It is also subject to approval by Premier's U.S. Private Placement note holders and lending banks, Premier said.

Numis Securities said in a note that the deal "appears sensible" given its quick payback, and should boost Premier's covenant headroom. However, the broker notes that it does not provide a solution to Premier's problems.

"Premier remains heavily indebted and without a substantial increase in oil prices there remains the potential for future debt restructuring," Numis added.

The broker noted that the company is still grappling with the consequences of cost overruns at its Solan project in the North Sea that have cost the company more than $1 billion. Premier's shares are down 74% over the past year due to tumbling oil prices and its hefty debt burden. By contrast, the U.K.'s FTSE 350 oil and gas producers' index is down 17% over the same period.

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.

Write to Alex MacDonald at [e-mail]

(END) Dow Jones Newswires

February 01, 2016 06:26 ET (11:26 GMT)

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