It says something about the struggling oil business when tax losses are key to a takeover. chrysaor, a private oil producer, has agreed a reverse takeover of london-listed premier oil. this looks more like a debt workout than a typical equity takeover.
This deal, worth at least $1.63bn, makes sense for chrysaor. it will increase its energy output while paying very little for premier. pre-announcement, the explorer had an enterprise value, almost entirely net debt, of 2.2bn. the latters creditors should get their loans repaid at between 60 and 75 cents on the dollar, depending on whether they take up the offer of equity in the combined company. battered shareholders stay in the game but only just.
For the uk north sea, private capital has offered the best hope. chrysaor has bought up oilfields from royal dutch shell and conocophillips. already the largest producer in the uk north sea, with premier, it will produce the equivalent of more than a quarter million barrels a day.
Indeed, chrysaor has done almost too well; it has started to pay uk tax. thus, premiers tax loss credits proved irresistible to harbour energy, the private equity owner of chrysaor. premiers tax shield has a present value of $4.1bn, according to investec
Linda cook of harbour energy, chrysaors owners, will run the new company. given her years in senior management at shell, she recognises the added capital raising options that premiers listing offers. her own investors at harbour energy will appreciate the chance to exit their holding in chrysaor once the lock-up (up to a year) ends. assuming that 75 per cent of creditors agree, only just over half have done so, the deal will close by the early second quarter. stakeholders could disagree with these opportunistic terms.
As for premiers shareholders, who must also agree the deal, if they had not understood their lowly status this takeover will clarify matters. they would end up with at best 5.5 per cent of a larger, better-financed group: net debt will be only 1.5 times ebitda.
The alternative was oblivion. premiers creditors had essentially rejected an earlier restructuring expected to include a $500m rights issue. equity investors would have had to pay up for an out-of-the-money call option on oil prices. both sides should be happier.
Other deals could follow as closely held oil groups seek out reverse listings. long-suffering shareholders at tullow oil and enquest may require similar rescues. uk-listed explorers are becoming the preserve of private equity and specialist investors in distressed debt.