Two Oil Giants Merge In $7.45 Billion Deal

The logo of French oil giant Total in front of the oil refinery of Donges near Nantes France

Total SA acquires the Danish giant A.P. Moeller-Maersk A/S's oil unit, the deal's cost is $7.5 billion.

Total chairman and chief executive Patrick Pouyanne said: "The combination of Maersk Oil's North Western Europe businesses with our existing portfolio will position Total as the second operator in the North Sea with strong production profiles in UK, Norway and Denmark, thus increasing exposure to conventional assets in OECD countries".

The buyout is the latest sign that majors are expecting a strengthening oil market going forward by snatching assets while oil prices looked to have bottomed around $26 per barrel in February 2016.

Maersk is the oil and gas division of Danish giant AP Moller-Maersk, which is shedding its energy branches as it refocuses on transport and logistics.

Maersk, the Copenhagen-based parent, will receive $4.95 billion worth of Total shares and the French company will take on $2.5 billion in Maersk Oil debt, Total said in a statement.

On his part, chief executive of Total, Patrick Pouyanne, said in July that the company had a "strong balance sheet" and would "take advantage of the low-priced environment by being able to launch profitable projects and acquire resources under attractive conditions". The deal has been approved by both companies' boards but remains subject to shareholder votes and regulatory approvals. Moreover, Total will assume debt totalling nearly 16 billion kroner.

The deal, considered the biggest the North Sea has seen since Statoil's almost $30 billion acquisition of Norsk Hydro in 2006, comes as oil and gas companies continue to work toward lowering break-evens, keeping costs low and generating cash flow as they rebound from the prolonged downturn.

Until Total's deal on Monday, numerous acquirers were private-equity firms and smaller players, eager to get a foothold major oil hubs like the North Sea.

A week ago, Maersk Oil reported an improvement in second-quarter net income on the back of higher oil prices and lower production costs.

According to Wood Mackenzie, the transaction is the biggest North Sea-weighted deal since the Statoil / Norsk Hydro merger in 2006. "There are 700 staff on both sides in Total UK and Maersk UK with more or less same size of assets", he said in the Reuters article. Total will then have $2.5 billion in debt to fund the rest of the deal. It will add output of about 160,000 barrels a day of oil equivalent to the French group next year, rising to 200,000 a day by 2020.

The Danish company added that it would seek to return a "material portion of the value" of the shares it received from Total in the form of extraordinary dividend, share buyback or distribution of Total shares by 2019.

Maersk Oil's parent company said previous year it was looking to spin off the oil business in a bid to streamline its operations with an exclusive focus on its core business, container shipping.

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