In a move to make it second biggest oil company operating in the North Sea and make good on a July promise that it’s ready for acquisitions, France’s Total SA said Monday morning that it will pay about $7.45 billion to acquire the oil and gas unit of Denmark-based A.P. Moller Maersk SA. Maersk Oil controls oil reserves equivalent to approximately one billion barrels of oil. More than 80 percent of the reserves are located in the North Sea, a body of water located between the U.K., Scandinavia, the Netherlands, Belgium, France and Germany.
Total already has exposure to the North Sea via is Laggan-Tormore oil and gas facility and Elgin-Franklin, two high pressure/high temperature gas and condensate fields.
Maersk, one of the biggest shipping companies in the world, is looking to streamline operations as it deals with fallout in both the oil/gas and shipping industries.
Management expects the merger to add 160,000 barrels of oil equivalent during the first year after closing, a figure that over the next decade or so should reach 200,000 barrels of oil equivalent annually.
Pending all customary approvals, the acquisition is expected to be completed in Q1 2018. By consolidating its off-shore assets with those of Maersk Oil’s Total think it will realize financial synergies above $400 million annually, which could be boosted by as much as 50% should Total address some overlap in England and cut some jobs.
Total expects the acquisition to be immediately accretive to both cash flow and earnings per share.
The price tag is broken down into a $4.95 billion outright for Maersk Oil, which will be paid for in Total stock, and Total assuming about $2.5 billion in the oil company’s debt. That equates to Total transferring about 97.5 million shares, or 3.8% of its company, to Maersk. A.P. Moller Maersk, which is more familiar known as just Maersk and trades on the Nasdaq Copenhagen exchange, says its plan is to return a “material portion” of the buyout to its shareholders during 2018 and 2019 through things like dividends, common shares or share repurchases.
The buyout is the latest sign that majors are expecting a strengthening oil market going forward by snatching assets while oil prices looked to have bottomed around $26 per barrel in February 2016. Amongst other things, British Petroleum (NYSE:BP) made over a billion dollars in investments late in 2016. ExxonMobil (NYSE:XOM) acquired assets in Papua New Guinea and agreed to spend up to $6.6 billion for drilling rights in the Permian shale basin in Texas. Norway’s Statoil (and Total for that matter) made investments in Brazil’s sub-salt deepwater oil fields.
According to consultancy Wood Mackenzie, $73.2 billion-worth of oil and gas deals have transpired so far in 2017, already exceeding all of 2016.
