Paris-based oil supermajor Total SA (NYSE: TOT) said Monday that it has agreed to pay $4.95 billion in stock and assume $2.5 billion in debt to buy Maersk Oil, a wholly owned subsidiary of Denmark’s A.P. Møller-Maersk A/S. About 85% of the assets are located in countries within the Organization for Economic Cooperation and Development, with the majority (80%) in the Danish North Sea.
According to the announcement, Total is acquiring approximately 1 billion barrels of oil equivalent 2P/2C resources (i.e., roughly a 50% chance of being proved and extracted at existing economics).
The transaction is subject to “legally required consultation and notification processes for employee representatives” and various regulatory approvals. The deal is expected to close in the first quarter of 2018 and has an effective date of July 1, 2017.
Total said it is adding 2018 production of 160,000 barrels of oil equivalent per day (boepd), mainly in liquids, at a cost of around $46,000 a barrel, “offering high margins with an estimated free cash flow break-even of less than $30 per barrel.” The company expects to increase its current production level by more than 200,000 boepd by the early 2020s. Total Chief Executive Officer Patrick Pouyanné said the company will produce 3 million boepd by 2019.
By combining Maersk Oil’s assets with its own, Total expects to realize savings of more than $400 million annually in operational, commercial, and financial costs. The acquisition is immediately accretive to both earnings and cash flow per share of Total stock.
A.P. Møller-Maersk is the world’s largest operator of container ships and has owned and operated North Sea leases in Danish waters for the past 50 years. The company said last year that it may divest its energy assets to focus more on on its transportation and logistics businesses.