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Total's cautious Maersk deal brings far-reaching opportunities
London (Platts)--22 Aug 2017 717 am EDT/1117 GMT
Total surprised markets Monday with a $7.5 billion purchase of Denmark's Maersk Oil and Gas that should give it 200,000 b/d in the early 2020s, most of it oil, presenting the deal as a cautious investment in stable countries albeit one that includes some more adventurous opportunities.
The deal might appear contrarian given that rivals such as BP and Shell have been scaling back in the North Sea due to the reducing size of most oil field assets there.
Total said it also would take over Maersk's $2.9 billion in decommissioning obligations, but this did not represent a material cost for some decades.
Total has long declared a commitment to the North Sea, exemplified in the $5 billion Laggan-Tormore gas project it brought on stream last year.
The Maersk acquisition, expected to bring 160,000 b/d of production as soon as next year, renews Total's North Sea portfolio with some big new projects.
It gains an 8.44% stake in Norway's giant Johan Sverdrup complex, due on stream at the end of the decade, a 49.99% stake in the UK's Culzean gas and condensate field, due on stream in 2019, and a 31.2% stake in Denmark's Tyra gas field, an aging asset set for redevelopment.
Article continues below...
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Overall, Maersk's Oil asset portfolio includes around 1 billion barrels of oil equivalent of proven and probable reserves, more than 80% of which are in the North Sea.
"The North Sea in the company has been a cash cow for many years, so I'm happy to be able to combine" these assets, Total chief executive Patrick Pouyanne told a conference call. "What we are creating is a North Sea leader."
Following some recent fiscal incentives granted by Denmark's authorities, the Tyra redevelopment will be approved early next year, Pouyanne said.
He went on to present the deal in cautious terms, saying it would nudge up Total's debt gearing level by only a couple of percentage points and would not change its planned capital expenditure range of $15 billion-$17 billion annually.
The deal is far from being in the league of Shell's $54 billion purchase of BG last year, sitting with Total's more cautious approach: Pouyanne noted it is Total's biggest transaction since the mergers of Elf, Petrofina and Total early in the millennium.
But it could help Total leapfrog rival Chevron in lifting its oil and gas production to 3 million b/d of oil equivalent at the end of the decade, assuming Johan Sverdrup goes to plan.
MAERSK UPSTREAM WOES
The relatively modest price tag, two-thirds of the payment being in the form of Total shares, partly reflects some recent misfortunes for Maersk.
Early last year it was hit by a $2.6 billion accounting impairment, before going on to lose the operatorship of Qatar's main oil producing field, Al-Shaheen, to Total. The loss, effective from July, will see Maersk's oil and gas output drop to average from 215,000-225,000 boe/d this year from 313,000 boe/d in 2016.
Although Maersk Oil will contribute 160,000 boe/d to Total's production next year before the portfolio returns to growth, Total said the volumes represent "high margin" production with cash flow breakevens below $30/b.
Due to existing operational and commercial overlaps mainly in the North Sea, Total said it expects to capture synergies of $400 million a year from the deal.
Pouyanne went on to say the addition of North Sea assets would "balance the country risk" in Total's portfolio, offsetting some more difficult locations such as Nigeria.
In reality it may also help lessen risks associated with Brexit, as Total will move its North Sea business base from London to Copenhagen. At the same time it could also strengthen Total's hand at the frontiers of the industry.
Having been the first international company to sign a development deal with Iran since the lifting of sanctions, with a contract to develop the South Pars gas field, Total may now hope for additional rewards, as Maersk has been in the running to develop the South Pars "oil layer," above the gas field.
EAST AFRICA DOMINANCE
The deal also helps consolidate Total's position in East Africa, adding Maersk's stake in Kenya's South Lokichar oil fields to the company's existing Lake Albert assets in Uganda.
Pouyanne said there would be no impact on a plan to build a long-delayed export pipeline from Uganda across Tanzania to the coast, a project the company wants to sanction in the first half of next year, following an inter-governmental agreement between Tanzania and Uganda earlier this month.
It might be possible, however, to combine transportation of the Kenyan assets, a subject to be discussed with partner Tullow Oil, he said.
"We are focused on Uganda and in Uganda we have progressed quite a lot on the project, with an agreement which has been signed between Uganda and Tanzania early August," Pouyanne said.
The Maersk acquisition "does not impact the development plan that we have on the Uganda resources for the Tanzania pipeline. It's a priority for us. We want to sanction that project first half 2018, and so we'll not change our plans on Uganda, but maybe we'll see if we can be efficient and participate in the development of Kenya," he said.
Asked to justify Total's investment, Pouyanne stressed the deal was bringing with it additional expertise, following a hiring freeze at Total since 2014, and highlighted Maersk's expertise in managing chalk reservoirs offshore Denmark, of use in Lower Cretaceous reservoirs found in the Middle East, North Africa and North America.
"There is an expertise which is of interest to us and, combining with our own positions in the Middle East and North Africa, I'm sure will generate more added value," he said.
Synergies are also likely in Angola, where Total is a major player and Maersk is operator of the Chinssonga discovery, Pouyanne said.
--Nick Coleman, nick.coleman@spglobal.com
--Edited by Lisa Miller, lisa.miller@spglobal.com and Jeremy Lovell, jeremy.lovell@spglobal.com
Total's cautious Maersk deal brings far-reaching opportunities - Oil | Platts News Article & Story
MY TAKE
People in here will dispute me but i am confident of my predictions as i know this field far more than many of the people in here. I am starring at Tanga as undisputed oil capital while Mtwara is on the onset with shell US$ 54 bln acquisition of BG group. Kenya is a toddler in this business will keep yapping and yapping while pros keep executing!
London (Platts)--22 Aug 2017 717 am EDT/1117 GMT
Total surprised markets Monday with a $7.5 billion purchase of Denmark's Maersk Oil and Gas that should give it 200,000 b/d in the early 2020s, most of it oil, presenting the deal as a cautious investment in stable countries albeit one that includes some more adventurous opportunities.
- Big North Sea projects renew portfolio
- No change to Uganda-Tanzania pipeline plan
- Iran, North Africa synergies in focus
The deal might appear contrarian given that rivals such as BP and Shell have been scaling back in the North Sea due to the reducing size of most oil field assets there.
Total said it also would take over Maersk's $2.9 billion in decommissioning obligations, but this did not represent a material cost for some decades.
Total has long declared a commitment to the North Sea, exemplified in the $5 billion Laggan-Tormore gas project it brought on stream last year.
The Maersk acquisition, expected to bring 160,000 b/d of production as soon as next year, renews Total's North Sea portfolio with some big new projects.
It gains an 8.44% stake in Norway's giant Johan Sverdrup complex, due on stream at the end of the decade, a 49.99% stake in the UK's Culzean gas and condensate field, due on stream in 2019, and a 31.2% stake in Denmark's Tyra gas field, an aging asset set for redevelopment.
Article continues below...
Digital Commodities Summit
November 14, 2017 | ETC County Hall | London, UK
Look beyond the hype and examine the challenges facing peer-to-peer trade using blockchain. This new event is uniquely positioned for today’s energy companies along with other commodities such as agriculture, metals and petrochemicals. understand the latest DLT developments; what it can and cannot fix for energy trading, cybersecurity, regulation, legislation, adoption strategies, technological issues and key blockchain pilot initiatives.
View Agenda and Register
Overall, Maersk's Oil asset portfolio includes around 1 billion barrels of oil equivalent of proven and probable reserves, more than 80% of which are in the North Sea.
"The North Sea in the company has been a cash cow for many years, so I'm happy to be able to combine" these assets, Total chief executive Patrick Pouyanne told a conference call. "What we are creating is a North Sea leader."
Following some recent fiscal incentives granted by Denmark's authorities, the Tyra redevelopment will be approved early next year, Pouyanne said.
He went on to present the deal in cautious terms, saying it would nudge up Total's debt gearing level by only a couple of percentage points and would not change its planned capital expenditure range of $15 billion-$17 billion annually.
The deal is far from being in the league of Shell's $54 billion purchase of BG last year, sitting with Total's more cautious approach: Pouyanne noted it is Total's biggest transaction since the mergers of Elf, Petrofina and Total early in the millennium.
But it could help Total leapfrog rival Chevron in lifting its oil and gas production to 3 million b/d of oil equivalent at the end of the decade, assuming Johan Sverdrup goes to plan.
MAERSK UPSTREAM WOES
The relatively modest price tag, two-thirds of the payment being in the form of Total shares, partly reflects some recent misfortunes for Maersk.
Early last year it was hit by a $2.6 billion accounting impairment, before going on to lose the operatorship of Qatar's main oil producing field, Al-Shaheen, to Total. The loss, effective from July, will see Maersk's oil and gas output drop to average from 215,000-225,000 boe/d this year from 313,000 boe/d in 2016.
Although Maersk Oil will contribute 160,000 boe/d to Total's production next year before the portfolio returns to growth, Total said the volumes represent "high margin" production with cash flow breakevens below $30/b.
Due to existing operational and commercial overlaps mainly in the North Sea, Total said it expects to capture synergies of $400 million a year from the deal.
Pouyanne went on to say the addition of North Sea assets would "balance the country risk" in Total's portfolio, offsetting some more difficult locations such as Nigeria.
In reality it may also help lessen risks associated with Brexit, as Total will move its North Sea business base from London to Copenhagen. At the same time it could also strengthen Total's hand at the frontiers of the industry.
Having been the first international company to sign a development deal with Iran since the lifting of sanctions, with a contract to develop the South Pars gas field, Total may now hope for additional rewards, as Maersk has been in the running to develop the South Pars "oil layer," above the gas field.
EAST AFRICA DOMINANCE
The deal also helps consolidate Total's position in East Africa, adding Maersk's stake in Kenya's South Lokichar oil fields to the company's existing Lake Albert assets in Uganda.
Pouyanne said there would be no impact on a plan to build a long-delayed export pipeline from Uganda across Tanzania to the coast, a project the company wants to sanction in the first half of next year, following an inter-governmental agreement between Tanzania and Uganda earlier this month.
It might be possible, however, to combine transportation of the Kenyan assets, a subject to be discussed with partner Tullow Oil, he said.
"We are focused on Uganda and in Uganda we have progressed quite a lot on the project, with an agreement which has been signed between Uganda and Tanzania early August," Pouyanne said.
The Maersk acquisition "does not impact the development plan that we have on the Uganda resources for the Tanzania pipeline. It's a priority for us. We want to sanction that project first half 2018, and so we'll not change our plans on Uganda, but maybe we'll see if we can be efficient and participate in the development of Kenya," he said.
Asked to justify Total's investment, Pouyanne stressed the deal was bringing with it additional expertise, following a hiring freeze at Total since 2014, and highlighted Maersk's expertise in managing chalk reservoirs offshore Denmark, of use in Lower Cretaceous reservoirs found in the Middle East, North Africa and North America.
"There is an expertise which is of interest to us and, combining with our own positions in the Middle East and North Africa, I'm sure will generate more added value," he said.
Synergies are also likely in Angola, where Total is a major player and Maersk is operator of the Chinssonga discovery, Pouyanne said.
--Nick Coleman, nick.coleman@spglobal.com
--Edited by Lisa Miller, lisa.miller@spglobal.com and Jeremy Lovell, jeremy.lovell@spglobal.com
Total's cautious Maersk deal brings far-reaching opportunities - Oil | Platts News Article & Story
MY TAKE
People in here will dispute me but i am confident of my predictions as i know this field far more than many of the people in here. I am starring at Tanga as undisputed oil capital while Mtwara is on the onset with shell US$ 54 bln acquisition of BG group. Kenya is a toddler in this business will keep yapping and yapping while pros keep executing!
