Premier Oil to Buy E.ON's UK North Sea Assets for $120 Million -- Update

(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 [e-mail] and Alex MacDonald at [e-mail]

(END) Dow Jones Newswires

January 13, 2016 11:09 ET (16:09 GMT)

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