French oil major Total has agreed to buy Maersk Oil from its parent company A.P. Møller – Mærsk in a US$7.45 billion share and debt deal which could help it make $400 million in "synergies" a year.
Total will gain about 1 billion boe of 2P/2C reserves, 85%, 80% of which is in the North Sea, an area which will help towards the $400 million in annual "operational, commercial and financial synergies," Total says.
Assets include the high-pressure, high-temperature Culzean field, currently under development (49.99% Working Interest), close to Total's Elgin-Franklin hub, and a stake in the giant Johan Sverdrup oil development (8.44% Working Interest) in Norway.
In July, Total took over from Maersk Oil as operator of the giant Al Shaheen field, offshore Qatar. Maersk Oil had operated the field since 1992, but will now become part of the firm which took operatorship from it.
As a result of the deal, which will make the firm the second largest operator in the North Sea, Total production will rise to 3 MMboe/d by 2019.
According to Wood Mackenzie, the transaction is the biggest North Sea-weighted deal since the Statoil / Norsk Hydro merger in 2006.
The deal will see A.P. Møller – Maersk get $4.95 billion in Total shares, while Total will take on $2.5 billion of Maersk Oil’s debt.
Total will gain 160,000 boe/d in production, mainly liquids, production in 2018, rising to more than 200,000 boe/d by the early 2020s. The 2018 production will have an estimated free cash flow break-even of less than $30/bbl.
Total chairman and CEO Patrick Pouyanne said: “The combination of Maersk Oil’s North Western Europe businesses with our existing portfolio will position Total as the second [largest] operator in the North Sea with strong production profiles in UK, Norway and Denmark, thus increasing exposure to conventional assets in OECD countries. 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 allowing for value accretion through commercial, operating and financial synergies.
"We are also very pleased that we will have a new anchor point in Denmark, which will host our North Sea Business Unit and supervise our operations in Denmark, Norway and the Netherlands. 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."
The deal will also see Total take over operatorship and 31.2% ownership of the DUC producing assets in Denmark. Total says the deal will result in consolidating Total’s US Gulf of Mexico presence with the Maersk Oil interest in the Jack development in the Wilcox formation, make it the second largest IOC in Algeria by production, compliment its position in East Africa via Maersk Oil’s Kenya assets, strengthen its Kazakh business via addition of operated production, offer potential upsides in Angola and Brazil and enable the pooling of Total and Maersk Oil geological and operational expertise in Middle East - North Africa Region.
Analysts weigh in
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.
"For Total, the deal is first and foremost about consolidation in the North Sea. Cost synergies should add value, with the North Sea a key area of overlap. The deal will also reduce Total's weighting towards areas of high above ground risk.
“There are a number of strategic drivers at play here. The acquisition improves Total’s near-term growth outlook – it provides Total with an immediate 6% production increase and strengthen near-term growth.
“It will further shift Total’s weighting towards OECD regions, a core strategic driver for the company as it looks to balance the portfolio away from areas of high above ground risk,” says Kretzschmar.
According to WoodMac, The acquisition also strengthens Total’s North Sea exposure, through Maersk’s core positions in the UK, Norway and Denmark. Total gains access to the Johan Sverdrup discovery (8.44%) and the UK's largest gas development, Culzean (49.99%). Both are currently under development and are expected to come on stream towards 2020.
The deal will also see Total strengthens it platform for growth in the Middle East and Africa.
“Total is acquiring a deep specialist in unlocking complex reservoirs and boosting recovery factors through enhanced oil recovery techniques,” Dr Kretzschmar said.
“Total took operatorship of the large Al Shaheen oil field in Qatar last month and will be looking to leverage Maersk’s intimate knowledge of the asset," says Kretzschmar.
Image: Al Shaheen. Image from Maersk Oil.