Total Oil shares were up Tuesday morning in trading following upbeat comments by analysts regarding the French oil giant’s takeover for $7.45 billion of Maersk Oil.
Total shares were higher by 0.8% in early trading, amongst the best performers on the CAC-40 benchmark index in France.
One analyst on Wall Street said that the current deal and the deals in Uganda and Brazil in 2016, suggest Total can realign its portfolio in a way that will not be value destructive.
Over the past year, Total expanded its stake in the Lake Albert oil project in Uganda by acquiring most of the stake of Tullow Oil, and agreed to acquire some assets of Petroleo Brasileiro in Brazil.
One fund manager in Geneva said he thought the price Total paid to acquire Maersk was reasonable.
Shares of Total are down almost 10% since the beginning of 2017, due to pressure on prices of crude oil
Yet, Total is expecting that Maersk Oil, the largest deal it has done since 2000 when it acquired Elf, will generate synergies of over $400 million annually, through the combining of assets located in the North Sea. In addition, it said that the acquisition would increase cash flow and earnings.
Another group of analysts in Germany gave the deal a positive outlook moving up the Total price target by 1 euro and keeping the rating of “buy” on the stock.
For Maersk the sale of its Maersk Oil arm with reserves that are equal to 1 billion barrels of oil, is a strong fit with the strategy of focusing on the conglomerates shipping business as well as other activities it has announced in the past year.
The top oil companies in the world have started to takeover others during the past year, helped along by the signs of the oil market recovering.
The deal by Total is expected to close during the 2018 first quarter, but could cause a few job losses in Britain where overlaps exist. Total announced that the deal added close to $200 million cost savings that would be generated each year.
Total has bet on new fields rather than on mature ones in the North Sea while this acquisition gives it more economies of scale through making it the region’s second largest company with production of close to 500,000 barrels per day of oil equivalent.