Total’s acquisition of Maersk Oil demonstrates French group’s confidence in North Sea
25 August 2017
The $7.45 billion deal, announced on August 21, makes Total the second largest operator in the North Sea after Statoil. Total CEO Patrick Pouyanne said last month that he was ready to make acquisitions to grow production, taking advantage of a fall in company valuations, the cost of drilling and other equipment during the three-year industry downturn.
“The combination of Maersk Oil’s North Western Europe businesses with our existing portfolio will position Total as the second operator in the North Sea with strong production profiles in UK, Norway and Denmark … Internationally, in the US Gulf of Mexico, Algeria, East Africa, Kazakhstan and Angola there is an excellent fit between Total and Maersk Oil’s businesses,” Pouyanne said.
The acquisition gives Total about 1 billion barrels of oil equivalent of proven and probable reserves, about 80% of which are in the North Sea, according to the group. It will add output of about 160,000 barrels a day of oil equivalent (boepd) to Total next year, rising to 200,000 a day by 2020. The group said it anticipated achieving financial synergies of more than US$400 million per year, with the combination of assets in the North Sea in particular enhancing efficiency.
The deal ranks among the largest that a super-major has concluded since oil prices crashed in 2014. Royal Dutch Shell agreed to buy BG Group Plc for $52 billion in 2015 and has been reaping the benefits since the transaction closed the following year. In January, Exxon Mobil agreed to pay $5.6 billion in shares, plus a series of contingent cash payments totaling as much as $1 billion, 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 $1.7 billion stake in a Chinese petrochemical venture and Shell exited its Irish venture for $1.2 billion.
Pouyanne said the acquisition would make the group more competitive and was a good fit, having earlier decided against moving into US shale sector because of the high expense of assets there. He said that with Maersk’s assets, the Total group was well on its way towards its target output of 3 million boepd by 2019. The deal had not changed the group’s forecast for capital expenditure of $15 billion to $17 billion next year, he added.
Maersk Oil’s UK North Sea assets include the US$4 billion Culzean gas field in the UK sector with a forecast peak output of around 60,000-90,000 boepd following its launch in 2019. Maersk also owns a 8.44% stake in the Johan Sverdrup project in the Norwegian sector, which is led by Norway's Statoil and is due to start pumping 440,000 bpd by 2019, with peak output of 660,000 bpd anticipated by 2022.
Subject to approval by the Danish Energy Ministry and competition authorities, the deal is due to be completed in the first quarter of 2018.
The deal boosts the share of eight global oil majors in the North Sea - Statoil, Total, Shell, Exxon Mobil, Conoco, ENI, BP and Chevron - to back above three quarters of total output.
Several oil majors have been actively looking to divest fields in the North Sea - one of the most mature global oil provinces where future developments will be complicated by high decommissioning costs of old infrastructure.
The transaction will see Total take over all of Maersk’s decommissioning obligations in the North Sea, which are estimated at close to US$3 billion.
Maersk said the sale was an important step in its strategy to create an integrated transport and logistics company, and it would contribute significantly to strengthening the group’s capital.
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