Total to buy Maersk Oil & Gas for US$4.95b in shares

[PARIS] Total SA has agreed to buy the oil and gas unit of AP Moller-Maersk A/S for US$4.95 billion, another sign that the pace of deals in the energy sector is accelerating after a long downturn.

Maersk will receive a consideration of US$4.95 billion in Total shares and the French company will also assume US$2.5 billion of Maersk's debt, the companies said in statements Monday. The transaction is expected to close in first quarter 2018.

"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.

Total's chief executive officer Patrick Pouyanne said last month he was ready and able to make acquisitions and grow production, taking advantage of a plunge in the cost of drilling rigs and other equipment during the three-year industry downturn.

Earlier this year, he agreed to purchase stakes in a project in Uganda from Tullow Oil Plc for US$900 million and said yes to a US$2.2 billion deal to buy into Brazilian oil fields and infrastructure.

Energy deals have picked up pace more broadly in recent months, as the industry puts the worst of the slump behind it. In offshore drilling, Transocean Ltd's US$3.4 billion acquisition of Songa Offshore this month was interpreted as a signal that market is bottoming out.

Major oil companies have tended to be sellers, with BP Plc offloading assets including a US$1.7 billion stake in a Chinese petrochemical venture and Royal Dutch Shell Plc exiting its Irish venture for US$1.2 billion.

Total will issue to AP Moller-Maersk 97.5 million shares, based on the average Total share price on the 20 business days prior to Aug 21. That will represent 3.75 per cent of the enlarged share capital of Total.

There is still cause for caution. Crude oil prices remain stuck at about US$50 a barrel - half the level three years ago - and some notable traders see the the outlook for 2018 weakening. Total and its European peers can cover spending from cash flow at current prices, but a fresh slump could put dividends at risk, and investors know it.

BLOOMBERG