Total Buys Maersk Oil for $4.95 Billion -- 3rd Update
August 21 2017 - 7:57AM
Dow Jones News
By Sarah Kent
French oil giant Total SA has agreed to acquire Danish
conglomerate A.P. Moeller-Maersk A/S's oil unit for $4.95 billion,
signaling a renewed appetite for deals in the global oil-and-gas
industry.
The deal will help Total bolster its position among the world's
largest oil companies, potentially boosting its earnings and cash
flow and shoring up its ability to pay dividends.
By 2019, Total now says its production will reach 3 million
barrels a day of oil and gas--a level achieved by only a handful of
private companies including Exxon Mobil Corp. and Royal Dutch Shell
PLC. The company currently produces around 2.5 million barrels a
day.
For Maersk, among the world's largest shipping companies, the
deal streamlines the company as it grapples with historic downturns
in both the shipping and oil industries.
The acquisition, announced by both companies Monday, is the
latest sign of consolidation in the oil-and-gas industry, which
only now appears to be stabilizing after a prolonged and painful
downturn in petroleum prices. Total and other big oil companies say
they have reduced their costs enough to generate cash at prices at
current levels around $50 a barrel, giving them flexibility to grow
with acquisitions.
In the U.S., where small shale-oil producers have proved
remarkably resilient to low oil prices, the sector has experienced
a flurry of deals. So far this year, deals in North America have
totaled $73.2 billion, more than in all of 2016, according to data
from Edinburgh-based consultancy Wood Mackenzie.
Activity has also picked up internationally, particularly in
Europe. Though the number of European deals so far this year stands
at roughly half the level of those completed in 2016, their value
has reached $16.8 billion, compared with $5.3 billion in all of
2016, according to Wood Mackenzie.
Until Total's deal on Monday, many of the acquirers were
private-equity firms and smaller players, eager to get a foothold
major oil hubs like the North Sea.
Earlier this year, Shell sold its British North Sea assets to
Chrysaor Holdings Ltd. in a deal worth up to $3.8 billion. Chrysaor
is backed by Harbour Energy Ltd., an investment vehicle managed by
Washington-based EIG Global Energy Partners. BP PLC has also sold
pipeline infrastructure in the North Sea to petrochemicals company
Ineos and, The Wall Street Journal has reported, is looking to sell
other assets in the region.
Total's acquisition of Maersk Oil is one of the biggest
oil-sector deals since Shell's roughly $50 billion acquisition of
BG Group last year. Many of the biggest oil companies have so far
focused instead on piecemeal asset acquisitions and
divestments.
Total flagged last month that it was on the prowl for new
acquisitions, after striking a confident tone in its second-quarter
results.
Total will pay for the deal with $4.95 billion in shares, while
also taking on $2.5 billion in Maersk oil debt. Total will also
assume nearly $3 billion in expected costs for decommissioning oil
rigs in the North Sea.
Maersk Oil's assets will bolster Total's production by 160,000
barrels a day of oil equivalent in 2018 and add significantly to
the French company's portfolio of oil-and-gas reserves, an
important signal of growth for investors.
Total's shares fell modestly on Monday morning, with stocks
trading down about 0.2%. Maersk shares were up around 3.4%.
"We imagine the investors won't be overly enthused with the idea
of buying more oil barrels when they are overly concerned with
falling oil demand," Bernstein said Monday in a note that praised
the deal for adding potentially profitable barrels.
The deal is a vote of confidence in the North Sea, where around
80% of Maersk's reserves are located. The region has been a major
oil-and-gas hub for decades but has also been plagued by high
costs, aging infrastructure and declining production.
A number of sizable new North Sea projects is generating renewed
excitement. Total said the production it is buying from Maersk can
generate free cash flow at less than $30 a barrel.
Total will be northwest Europe's second-largest offshore
operator once the deal closes, expected to be in the first quarter
of 2018. The deal has been approved by both companies' boards but
remains subject to shareholder votes and regulatory approvals.
Total said it would make Denmark its new operating hub for
Total's combined operations in Denmark, Norway and the
Netherlands.
Total said the deal should give it enough cash flow benefits to
consider removing the discount it gives investors to take dividends
in shares rather than cash. Known as a scrip dividend, paying
investors in shares has allowed Total to preserve cash but has also
diluted its share pool and weighed on its value.
Write to Sarah Kent at sarah.kent@wsj.com
(END) Dow Jones Newswires
August 21, 2017 07:42 ET (11:42 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
TotalEnergies (EU:TTE)
Historical Stock Chart
From Aug 2024 to Sep 2024
TotalEnergies (EU:TTE)
Historical Stock Chart
From Sep 2023 to Sep 2024