Total and Maersk agree £5.8bn deal

Total and Maersk agree £5.8bn deal

Total SA (TTA.L, TTFNF.PK, TOT) announced Monday that it has agreed to acquire E&P company Maersk Oil & Gas A/S, a unit of A.P. Moller-Maersk A/S (AMKAF.PK, AMKBF.PK), in a $7.45 billion share and debt transaction.

Moller-Maersk said the separation of the energy businesses was decided as part of last year's strategic decision to focus the company's activities on transport and logistics, due to recent years' oil and gas industry and market developments.

For Danish company A.P. Moller Maersk (MAERSKb.CO), the sale of Maersk Oil, with reserves equivalent to around 1 billion barrels of oil, fits with a strategy of focusing on its shipping business and other activities announced a year ago.

The acquisition will result in synergies worth around US$400 million annually, of which US$200 million will be cost synergies, Total said, adding that Maersk Oil's free cash flow breakeven price per barrel of oil equivalent was less than US$30.

The boards of both companies have approved the deal. Total announced on July 27 a first-half net income of $4.8 billion, up from $3.7 billion in the same period past year.

Shares in Maersk jumped by 3.3 percent.

It will see Total seize control of Maersk Oil's assets in the UK's sector of the North Sea, including the Culzean gas field.

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Total will leapfrog BP to become the second largest offshore oil producer in the North Sea, after China National Offshore Oil Corporation (CNOOC), following the deal.

“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.

"Investors should however think of these as high-margin low-priced barrels" that will recoup costs even if the price of oil falls to $30 per barrel from its current level around $50.

Total will gain about one billion boe in proven and estimated reserves, more than 80 per cent of it under the North Sea, it said.

To cope with oil prices, Total had planned to cut costs by $4 billion by year-end 2018, adjusting to lower oil prices, Reuters reported. Norway's Statoil (and Total for that matter) made investments in Brazil's sub-salt deepwater oil fields.

By 2019, Total now says its production will reach 3 million barrels a day of oil and gas-a level achieved by only a handful of private companies including Exxon Mobil Corp. and Royal Dutch Shell PLC.

It lost its stake in a huge oilfield in Qatar to Total previous year. Shareholders could expect an extraordinary dividend, share buyback, or distribution of the Total shares Maersk will receive in the deal.

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