Total buys Maersk Oil for $7.45 Billion

Cabinets From Both UK And Scottish Governments Meet In North East Scotland
Maersk is seeking to focus more on its core units
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22 August, 2017

Global firm Total is to buy the oil and gas division of the Danish group, AP Moller-Maersk in a deal worth $7.45 billion.

Denmark will become a regional hub for all Total's operations in Denmark, Norway and the Netherlands, based on Maersk Oil's capabilities and strong position in the North Sea region. It expects to make cost savings of more than $400m each year. The deal has been approved by both companies' boards but remains subject to shareholder votes and regulatory approvals.

In July, Total took over from Maersk Oil as operator of the giant Al Shaheen field, offshore Qatar. Under the deal, Total will issue 97.5 million shares, valued at $4.95 billion, to A.P. Moller, and assume $2.5 billion of Maersk Oil's debt.

According to Wood Mackenzie, the transaction is the biggest North Sea-weighted deal since the Statoil / Norsk Hydro merger in 2006. This acquisition will boost the oil giant's position among its competitors.

"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.

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Although Danish company Maersk Oil is now in foreign hands, the company will continue to have a strong connection to Denmark, reveals Maersk Group in a press release. Total will then have $2.5 billion in debt to fund the rest of the deal.

"In the U.K.in particular, we have two operations of similar size". The deal is expected to close in first-quarter 2018 with an effective date of July 1, Total said in an August 21 news release announcing the acquisition.

Image: Al Shaheen. Image from Maersk Oil.

Valentina Kretzschmar, director, corporate service at Woodmac, said the acquisition created plenty of opportunities for reducing costs and adding value. Production is expected to start in 2019. It also means the addition of 160,000 boe/d of mainly liquids production in 2018, acquired "at an average price of 46 k$/boepd", offering high margins with an estimated free cash flow break-even of less than $30/b and growing to more than 200,000 boe/d by the early 2020s.

Total is also maintaining its capex guidance, which remained unchanged at between $16 billion and $17 billion for 2017 and between $15 billion and $17 billion for 2018-2020.


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