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Total, Maersk in $7.5b Deal

22 August 2017

French oil major Total has agreed to buy Danish oil and gas firm Maersk Oil in a deal worth $7.45bn (£5.79bn).

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.

“The combination with Maersk Oil offers Total an exceptional overlap of upstream businesses globally which will enhance Total's competitiveness and value in many core areas, in particular through some high-quality growing assets, ” Total said in its statement.

Under the deal to acquire Maersk, Total could be the second-largest offshore operation in northwest Europe, which is the seventh largest oil and gas producing region in the world. 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. The latter's parent, AP Moller-Maersk will receive $4.95bn in the form of Total shares, representing a 3.75% stake in the French major, and Total will also assume $2.5bn of Maersk Oil's debt. 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 said the acquisition would bolster its positions in the Gulf of Mexico, Algeria, Kenya and Kazakhstan.

Total has been betting on new rather than mature fields in the North Sea and the acquisition gives it further economies of scale by making it the second largest player in the region.

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Total will take over Maersk Oil's entire organization, portfolio, obligations and rights with minimal pre-conditions. "We intend to build on the strong operational and technical competencies of the Maersk Oil teams in the same way we managed to do it in Belgium with the teams of Petrofina in the refining & chemical businesses".

"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.

Analysts from Raymond James said the value of the deal appeared fair with Total paying $13.4 per barrel of reserves - in line with what Royal Dutch/Shell paid to acquire its rival BG in the biggest oil transaction of the past decade in 2015.

Dr Valentina Kretzschmar, director, corporate service, at Wood Mackenzie's corporate services unit, says that there are a number of strategic drivers at play in this deal. It is expected to close in the first quarter of next year. The acquisition improves Total's near-term growth outlook - it provides Total with an immediate 6% production increase and strengthen near-term growth.

Image: Al Shaheen. Image from Maersk Oil.

In 2018, Total expects to add 160 Mboe/d, mainly liquids production, with estimated free cash flow break-evens were said to be less than $30/bbl. APMM's financial guidance for 2017 remains un-changed except for the effect of the reclassification of Maersk Oil.

Total, Maersk in $7.5b Deal