Premier Oil to offload Babbage Area interest to Verus Petroleum

Premier Oil has entered into a sale-and-purchase agreement to sell its interests in the Babbage Area to Verus Petroleum, it announced on Monday.

The London-listed firm said the interests included a 47% interest in the Babbage gas field, a 50% interest in the Cobra discovery and certain outstanding exploration commitments.

It said the transaction value comprised £62.9m in respect of the Babbage field interest.

In addition, Verus would take on exploration commitments valued at £17m, resulting in net cash proceeds of £45.9m to Premier, before customary working capital adjustments.

Further cash payments of up to £5.5m would be due to Premier if the Cobra discovery was developed.

Additional potential payments would also be due, dependent upon future specific third party business across the Babbage infrastructure.

The transaction remained subject to pre-emption rights by joint venture partners.

Premier said the effective date of the transaction was 1 January 2018.

Disposal proceeds would be used to pay down Premier's existing debt.

Completion of the transaction was expected in the second half of 2018, with Premier anticipating recording a book gain on disposal estimated at more than $70m.

“The sale of our interests in the Babbage Area will immediately reduce our net debt and our committed exploration spend in 2019,” said Premier chief executive Tony Durrant.

“This transaction further demonstrates our determination to restore our balance sheet strength. It also adds to the value realised from the E.ON portfolio, which we acquired for $120m in 2016 and has generated free cash flow and proceeds from announced disposals of around $300 million to date.”