Total will pay Maersk with $4.95billion (R65.03bn) of its own shares and assume $2.5bn of the Copenhagen-based company’s debt, according to a statement yesterday. The full transaction value of $7.45bn is above what some analysts were expecting and Maersk shares jumped as much as 5.7percent following the announcement.
Total’s chief executive Patrick Pouyanne is following through on a hint last month that he was ready and willing to make acquisitions to grow production, taking advantage of a plunge in company valuations, the cost of drilling and other equipment during the three-year industry downturn.
The Maersk assets will boost the French giant’s business in the North Sea, adding to deals earlier that expanded its presence in Uganda and Brazil.
“We had the feeling that on the North Sea, we had to go a step further to be more competitive,” Pouyanne said. Maersk had been considering spinning off the oil and gas assets in an initial public offering, but “we offered them another option.”
The deal ranks among the largest that a super-major has done since oil prices crashed in 2014. Royal Dutch Shell agreed to buy BG Group for $52bn in 2015 and has been reaping the benefits since the transaction closed the following year.
In January, Exxon Mobil agreed to pay $5.6bn in shares, plus a series of contingent cash payments totalling as much as $1bn, for drilling rights in the Permian shale region of Texas.
Energy deals have picked up pace more broadly in recent months as the industry puts the worst of the slump behind it, although major oil companies have tended to be sellers. BP has offloaded assets, including a $1.7bn stake in a Chinese petrochemical venture and Shell exited its Irish venture for $1.2bn.
“We like this deal,” Jason Kenney, an analyst at Banco Santander, said. The transaction is “timely and opportune” with Brent crude, the international benchmark, trading at about $52 a barrel, he said.
The combination with Maersk Oil gives Total about 1billion barrels of oil equivalent of proven and probable reserves, about 80percent of which are in the North Sea, according to the statement. It will add output of about 160000 barrels a day of oil equivalent to the French group next year, rising to 200000 a day by 2020.
Total expects to generate synergies of more than $400million a year starting in 2020, in particular by combing the two companies’ North Sea assets. Total will update its company-wide cost-savings plan in mid-September, said Pouyanne. The deal hasn’t changed Total’s forecast for capital expenditure of $15bn to $17bn next year.
While the industry is becoming more optimistic, there is still cause for caution. Crude oil prices remain stuck at about $50 a barrel - half the level three years ago - and some notable traders see the outlook for 2018 weakening.