Safe harbour
Oil exploration and production companies faced testing times at the start of the Covid-19 pandemic. The slump in demand sent the price of oil futures dipping below zero in April 2020. For those already in a dire position the options were bleak but one of those afflicted, Premier Oil, staged a miraculous rescue via an unusual reverse takeover that saw creditors backing its circa US$3bn of debt repaid at par.
The UK-listed company was still suffering from the last time the oil price dived – in 2014. After several years prevaricating, it had finally embarked on a proposal to confront its US$3bn debt pile in January 2020, prior to the pandemic really taking hold.
Its first plan was to amend and extend the debt via schemes of arrangement before raising US$500m of equity to pay BP for three producing fields in the North Sea. But the complex move was blocked by the company’s largest creditor, ARCM.
With an unhappy stakeholder, advised by Moelis, Premier now needed a drastic alternative, just as the pandemic had escalated. PJT Partners was hired and Lazard came in to advise a wider group of creditors.
By August, despite diverging views among all parties, a novel dual-track process was created. The first was to continue broadly with the original proposal, extending the credit facilities already in place but raising US$325m to acquire two of the fields from BP and repay some debt.
The second would effectively lead to the reverse takeover of the company by rival Chrysaor, which was better capitalised. That would ease the restructuring issue significantly, creating a UK sector leader in the upstream exploration space. Such a plan had not been pulled off before.
The two options were put to creditors, and ultimately a sufficient number plumped for the more innovative route to create a new combined entity called Harbour Energy.
“It was the right answer. The company couldn’t raise equity and do a standalone restructuring, so we did a reverse takeover,” said Martin Gudgeon, partner and head of European restructuring at PJT.
The deal was agreed towards the end of 2020 but took some time to execute as a public company takeover, only legally completing in March 2021. By then the economy had recovered to such an extent that other oil explorers were easily tapping new finance.
The way the Chrysaor deal was structured meant creditors, who were swapping the bulk of their positions for an 18% stake in the new vehicle, also stood to benefit from the rising oil price. So they were happy to stick with the plan. The non-equitised debt was repaid in full too post-merger.
“A reverse takeover alongside a restructuring is rare. It got implemented and all the banks that got the equity sold out on day one – and got par or slightly above par. It was a great result for everyone,” said David Burlison, managing director at Lazard.
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