The battle for Premier Oil has got 2020 off to a thrilling start for City watchers.
To recap, Premier specialises in squeezing the last drops of North Sea oil reserves once the BPs and Exxons have moved on. It can be lucrative work, but along the way, Premier has run up debts of $2.4 billion — double its equity value.
Under a restructuring in 2017, repayment was extended to May 2021. Now, Premier wants to buy another slug of North Sea assets and has asked its lenders to allow it to delay repayment again.
The biggest lender is an energy fund called ARCM. It is deeply opposed to Premier’s plan; not only is this a hugely risky deal, it says, but we want our debt repaid, in full, when you promised.
ARCM is out on its own; 95% of the creditors agree with the plan.
They, and those close to Premier, say ARCM is only out to damage Premier’s share price. Why? Because as it bought the debt, it also took short positions betting against Premier’s shares. This was to hedge against possible losses on the debt if Premier got into strife. Stupidly, ARCM didn’t disclose the short to the market.
But while the short is huge from Premier’s perspective — 17% of the company — it’s small fry for ARCM, which has $4 billion under management. And its exposure to Premier’s debt — $455 million — outweighs the short fourfold.
It doesn’t want Premier to fail.
Today, it posed the first in a series of questions asking if Premier has overstated the worth of the assets it wants to buy.
Rather than just banging on about the short, Premier should answer them. Let’s see if its biggest lender has a point or not.