French oil company Total agreed Monday to buy Danish conglomerate AP Moller-Maersk's oil business for $7.45 billion, in a deal that will strengthen its position in the North Sea.
Total said the deal will position it as the No. 2 operator in the North Sea, which is the seventh-largest oil-and-gas producing region in the world. It said it will uphold Maersk Oil's development schedules and investments in a series of projects and that Denmark will become the regional hub for all its operations in Denmark, Norway and the Netherlands.
"This transaction is immediately accretive to both cash flow and earnings per share and delivers further growth over coming years," said Total chairman and CEO Patrick Pouyanne. "It is in line with our announced strategy to take advantage of the current market conditions and of our stronger balance sheet to add new resources at attractive conditions."
As part of the deal, Maersk will get $4.95 billion worth of Total shares, which is equivalent to around 3.8 percent of Total's share capital. The French company, which will also assume some $2.5 billion worth of Maersk Oil debt, said the deal underpins its dividend profile.
Investors in AP Moller Maersk cheered the deal, with the company's share price up 4 percent at 13,260 Danish kroner on the Copenhagen Stock Exchange. Total's share price in Paris was unchanged at 42.58 euros.
The sale of Maersk Oil is part of Maersk's restructuring strategy, which will see it focus on its core transport and logistics arms. Lower oil prices over the past few years also played their role in the company's plan to divest its oil arm.
Although oil prices have recovered of late to trade around $50 a barrel, they are still around half the level they were just three years ago. The fall has cut into oil companies' margins and made many production areas uneconomic. Relatively expensive areas such as the North Sea, where deep-water drilling is required, have become less attractive than they were previously.
That's been particularly difficult for smaller and less diversified companies, such as Maersk Oil, a development that contributed to Maersk's decision to refocus its business activities. Maersk has been the main operator in the Danish sector of the North Sea for half a century, helping the country to be self-sufficient in oil and gas.
"In determining the best future ownership structure for Maersk Oil, it has been imperative for us that the capabilities and assets created in Maersk Oil continue to be developed, and that long-term investments are upheld, especially in the Danish part of the North Sea," said Soren Skou, AP Moller-Maersk's CEO.
The deal, which is subject to relevant regulatory approvals, is expected to be completed during the first quarter of 2018.
Total's Pouyanne said the addition of Maersk Oil will "create a leading international operator in the North West European offshore region, making Denmark a regional anchor point for Total's North Sea business."