Premier Oil to buy Oilexco North Sea

Premier Oil was successful bidder for Oilexco North Sea, which went into administration following its failure to secure incremental funding amid the credit squeeze.

Uchenna Izundu
OGJ International Editor

LONDON, Mar. 27 -- Premier Oil PLC was successful bidder for Oilexco North Sea Ltd. (ONSL), which went into administration following its failure to secure incremental funding amid the credit squeeze (OGJ Online, Jan. 4, 2009).

Premier agreed to pay $505 million for the company and its assets, with plans to raise cash, credit facilities, and $252 million for the purchase through a rights issue of new ordinary shares. The contracts are expected to be completed in May with approval of Premier's shareholders and ONSL's creditors.

Oilexco Inc., Calgary, parent of OSNL, said the sale price was less than the amount owed by OSNL to its creditors and Oilexco will receive $1 under the agreement.

This is a relatively cheap acquisition for Premier following the slump of oil prices from $147/bbl last July. The firm has been looking to boost its North Sea business for 3 years, but high entry costs prevented it from doing so.

OSNL has interests in major producing fields, including Balmoral, Brenda, Nelson, and Nicol. Analysts welcomed Premier's announcement, describing it as a good deal at $8.50/bbl for the assets and an opportunity to expand development or exploration operations.

Premier, which has key holdings in Asia and the UK, said ONSL would be a complementary base in the North Sea, another core area. It will gain 60 million boe of 2P reserves and contingent resources of which 40 million boe is expected to be bookable to 2P by Premier. Unrisked reserve potential of up to 385 million boe across 15 exploration prospects also will be added to Premier's portfolio.

The company's working interest production will rise 13,700 boe/d in 2009.

Ernst & Young LLP, ONSL's administrators, said Premier must establish a fund to pay a proportion of the amounts owed to ONSL's creditors using a company voluntary arrangement." If this fails, Premier will acquire the business and assets of ONSL for $415 million.

Simon Lockett, chief executive of Premier, said that it would retain ONSL's employees.

Contact Uchenna Izundu at uchennai@pennwell.com.

More in General Interest