BP and Shell shares hit 25-year low, Premier Oil sold in $3bn deal

• BP and Royal Dutch Shell see shares struggle amid weak demand for oil due to Covid-19
• Oil prices trade above $40 benchmark but for how long?
• Premier Oil sold to Chrysaor for $3 billion to pay off creditors as market conditions worsen

Shares in BP and Royal Dutch Shell fell to 25-year lows earlier this month, after oil prices took a major tumble amid weakening demand due to Covid-19.

BP hit 32p per share on 1 October, while its rival Shell slid to a low of 907p – levels the pair have not seen since the mid-1990s.

Since the earlier decline in share price, both stocks have rebounded slightly to reflect the stabilising of oil prices to above the psychological $40 a barrel benchmark.

However, further declines in the price of crude are likely as investors grow increasingly concerned that the coronavirus pandemic will last until 2023 and that the oil and gas industry may never fully recover from the impact of the viral outbreak.

Brent crude is trading 3% higher on Tuesday at $42.68 a barrel at the time of publication, with the US West Texas Intermediate (WTI) up more than 3.5% at $40.69 a barrel.

Chrysaor signs reverse takeover deal for Premier Oil

North sea operator Chrysaor announced its reverse takeover of struggling oil and gas producer Premier Oil on Tuesday. The deal is valued at around $3 billion with proceeds from the sale used to pay off the company’s creditors.

The newly combined group will become the largest London-listed independent oil and gas company and is the latest deal in an industry primed for consolidation amid declining oil prices due to weak energy demand as a result of the coronavirus pandemic.

‘There is significant industrial, commercial and financial logic to creating an independent oil and gas company of this size with a leading position in the UK North Sea,’ Premier Oil CEO Tony Durrant said.

‘The transaction will also provide the Combined Group with a solid foundation from which to pursue a fully funded international growth strategy.’

Under the terms of the debt-for-equity deal, Chrysaor will own at least 77% of the combined group, with creditors in struggling Premier taking the second-largest stake in the newly formed company. Existing shareholders in Premier Oil will own less than 6%.

‘Through this deal we will become the UK's largest London-listed independent E&P, by all key metrics,’ Chrysaor CEO Phil Kirk said. ‘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.’

Premier Oil is shot up as much as 15% in early morning trading to 17p per share after news of the deal broke, with the stock down 84% year-to-date.

Brent crude: technical analysis

Brent crude has been on the rise over the beginning of the week, with price rising into a confluence of Fibonacci and trendline resistance, according to Josh Mahony, senior market analyst at IG.

‘The wider bearish picture remains in play unless we break through the $42.59 swing-high,’ he said. ‘With that in mind, this looks like an opportune moment for shorts, with a break lower likely from this confluence zone.’

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