Offshore operators Premier Oil and Chrysaor agree to merge

Premier Oil is a major North Sea operator

Two major operators in the UK's offshore oil and gas sector have agreed to merge.

Premier Oil and Chrysaor will together form the biggest independent exploration and production company on the London Stock Exchange (LSE).

They produce 250,000 barrels of oil and its gas equivalent per day - more than an eighth of the UK total.

EIG, a Washington-based energy investment fund, will own 39% of the new company shares.

The deal is subject to regulatory approvals and approval by shareholders and creditors.

The merger of Premier Oil and Chrysaor is being done on terms that look a lot more favourable to the latter.

It is owned by Harbour, the investment vehicle for Washington-based EIG energy investment fund.

That is where the funds are coming from to dig Premier out of problems with its creditors, owed $2.7bn (£2bn), who have had issues about the way it has been acquiring assets.

The chief executive of Harbour is becoming chief executive of the new company, while Chrysaor's boss becomes head of its European operations.

EIG/Harbour come out of this with a 39% stake, while Premier's shareholders have less than 6%.

The logic of such a deal, apart from bailing Premier out of its problems, is in reduced costs and synergies.

And the biggest saving is in the UK tax bill, because Premier brings with it a $4.1bn (£3bn) mountain of losses, allowing future earnings to be offset at an "accelerated" rate.

Premier chairman Roy Franklin said: "The board intends to recommend unanimously this transaction to shareholders as being in the best interests of shareholders and the company.

"This will mark a new and exciting chapter in Premier's history."

Chrysaor chief executive officer Phil Kirk added: "With our combined organisation and operatorship of a large part of our now international portfolio, we will have the ability to deliver value safely, and play our part in the energy transition."

Industry body Oil and Gas UK's chief executive Deirdre Michie said it was "encouraging news" and would help to stimulate further activity in the supply chain.