Total's latest move can position it for more play as regional governments look to maximise production
Total's $7.5b deal for Maersk Oil brings tech to Mideast
Total plans to buy Maersk Oil for US$7.45 billion (Dh27.4bn) in a deal that will strengthen the French oil major’s upstream division and boost its technology that could be deployed in the Middle East.
Denmark’s AP Moller Maersk agreed to sell its oil division to Total to focus on its core activities, including its shipping business. The company said it will use the capital generated from the sale to take a step back from oil to create an “integrated transport and logistics company”.
“The agreement will strengthen the financial flexibility of AP Moller - Maersk and free up resources to focus our future growth on container shipping, ports and logistics,” said Søren Skou, AP Moller Maersk chief executive.
Under the terms of the deal, AP Moller Maersk will get $4.95bn in Total shares with Total acquiring $2.5b of Maersk Oil’s debt. If the move is approved by shareholders and regulatory bodies, the sale would close in the first quarter of next year.
This will give Total another foot into the North Sea, using Denmark as a regional hub for its operations in the region. It also gives Total the ability to rampup production should oil prices rebound.
“We have an exceptional opportunity to boost the combined competitive position in several core upstream regions and deliver growth, value creation and career opportunities,” said Patrick Pouyanné, chairman and chief executive of Total.
Total said it expected to generate operational, commercial and financial synergies of more than $400 million annually by combining the assets of the two firms. Mr Pouyanné said that the additional value to the company’s portfolio would help it reach a lower breakeven oil price. “This transaction will deepen and accelerate this strategy significantly, as Total will become a 3 million barrels of oil equivalent per day major by 2019 to the benefit of all Total shareholders,” he said.
The Total head had been making indications that the French company was on the prowl particularly for under-estimated assets
Maersk lost out to Total in June, when the French company won a 30 per cent stake in a 25-year agreement to operate Qatar's largest offshore field, Al Shaheen, which was handed over to Total last month. Maerk had operated Al Shaheen since 1992.
For Total, acquiring Maersk will boost its technology portfolio which can be applied to its Middle East and North Africa assets.
Pierre-Louis Brenac, Middle East managing partner of consultancy Sia Partners, said that the deal seemed to be a perfect match to generate savings. “Some of Maersk North Sea technology can be useful in the Middle East, such as the tools for drilling and extracting from chalk areas,” he said.
Given Maersk's ability to tap the chalk fields could be applied to the fields here, helping regional oil producers to meet their local enhanced oil recovery (EOR) targets. Hydrocarbons from North Sea chalk are difficult to extract, requiring technical methods to obtain the resource which helps increase production rates.
EOR is a technique that is widely used to maximise production, with the Abu Dhabi National Oil Company looking for its partners to use EOR techniques to help reach its target of 3.5 million barrels per day by the end of next year. Total was the first company to be awarded a 10 per cent stake in the 40-year concession for Abu Dhabi’s prime onshore oilfields.
Mr Brenac said that Total got a a good price for Maersk, with this deal representing a very conservative amount for the value. “This deal demonstrates Total’s purchasing power and free cash flow,” said Mr Brenac.
This will mark the largest deal in the oil and gas industry this year, though other transactions of lesser value have been announced by majors.
“This may not be the final word from Total,” he said. “They have a lot of cash still available and very well-valued shares. They can have other deals in the pipeline.”
Total’s shares were down 0.06 per cent in evening trading while Maersk shares traded up by 2.89 per cent.