Total buys Maersk's North Sea oil assets for £5.8bn

Total buys Maersk's North Sea oil assets for £5.8bn

Total buys Maersk's North Sea oil assets for £5.8bn

Shares of France's global oil producer and refiner Total (TOT) slipped Monday after it said it would pay shipping giant A.P. Moller-Maersk $4.95 billion and assume $2.5 billion in debt for the Dutch company's oil-and-gas unit.

Total's shares were down 0.06 per cent in evening trading while Maersk shares traded up by 2.89 per cent.

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 credentials of this deal, and the deals in Brazil and Uganda a year ago, suggest that Total is able to realign the portfolio in a manner that is not value-destructive", wrote Citigroup analysts in a research note. Soren Skou, who took charge of Maersk past year, has embarked on a major restructuring to concentrate on its transport and logistics businesses and separate its energy operations in the face of a drop in income.

The acquisition brings Total additional reserves of around 1bn barrels of oil equivalent and Maersk Oil's production of some 313,000 barrels per day, much of which is included in areas of the world where Total already has a strong presence or wanted to bolster its profile. But the company still holds a 25 percent share in the Jack-St. Also, given that Total's shares are undervalued in our opinion, and it's sitting on a rather large cash balance with modest leverage, cash might have been a better choice. "There are 700 staff on both sides in Total UK and Maersk UK with more or less same size of assets", he said.

The company said Denmark will become the 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. Total says it was the only major company in the hunt to buy Maersk Oil. "At the end of the day, we will have the opportunity to do some rationalisation".

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. Lower oil prices over the past few years, which have heaped pressure on energy companies' earnings, also played a role in the plan to divest its oil arm.

The deal is expected to be completed during the first quarter of 2018, subject to regulatory approvals from authorities including the Danish minister of energy, utilities and climate. The acquisition improves Total's near-term growth outlook - it provides Total with an immediate 6 per cent production increase and strengthen near-term growth.

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