Morningstar

What to Make of Total’s Maersk Oil Buy

The price paid is reasonable, but not a steal.

Securities In This Article
A P Moller Maersk AS ADR
(AMKBY)
TotalEnergies SE ADR
(TTE)

The North Sea has become the ugly stepchild of oil production, with most majors looking to exit the region. This has likely created an opportunity, however, and

At $46,000 per flowing barrel (160 thousand barrels of oil equivalent per day in 2018), the deal compares favorably with recent transactions, though the $15/barrel of proven reserve and $5/bbl of contingent reserves (2P/2C) are higher than Total has been able to deliver organically the past few years. That said, Total could ultimately improve those reserve figures as it increases production to 200 mboed by 2020. Strategically, Maersk’s assets fit with Total’s existing portfolio, outside the large position in Denmark. As a result, it expects to deliver $400 million a year in operational, commercial, and financial synergies by 2020.

The producing assets deliver higher cash margins than Total’s current portfolio, by our estimates, and should be accretive to free cash flow in 2018 when the deal closes. Based on our modeling, the deal is also accretive to valuation using our long-term oil price assumption of $60/bbl, but only marginally so, leaving our fair value estimate and moat rating unchanged.

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About the Author

Allen Good, CFA

Director
More from Author

Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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