French oil major Total closed Thursday its $7.5 billion purchase of Denmark's Maersk Oil and Gas in a deal which sees it leapfrog Shell as the second biggest producer in the North Sea.
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The acquisition of Maersk from its parent AP Moller-Maersk, first announced in August last year, brings 160,000 b/d of oil equivalent production to Total this year and renews its North Sea portfolio with some big new projects.
Closure of the deal, which sees Total enter Denmark and makes it the second-largest operator in the North Sea behind Norway's Statoil with a projected output of 500,000 boe/d by 2020, follows approval last week from the Danish Energy Agency for the sale.
"First, it illustrates our strategy to build on our strengths and grow our presence in Total's core areas, like the North Sea, to strengthen our leadership there," Total CEO Patrick Pouyanne said in a statement. "Second, it brings high-quality and low-breakeven assets, enhancing our worldwide portfolio."
Total gains an 8.44% stake in Norway's giant Johan Sverdrup complex, due on stream at the end of the decade, a 49.99% stake in the UK's Culzean gas and condensate field, due on stream in 2019, and a 31.2% stake in Denmark's Tyra gas field. Output from the assets is set to ramp up to more than 200,000 boe/d by the early 2020s.
Total is picking up around 1 billion barrels of oil equivalent of 2P reserves and resources, mainly in the OECD countries. The deal could also see Total jump ahead of rival Chevron in lifting its oil and gas production to 3 million b/d of oil equivalent at the end of the decade, assuming Johan Sverdrup goes to plan.
Total has said Maersk's volumes represent "high margin" production with cash flow breakevens below $30/b. Due to existing operational and commercial overlaps, mainly in the North Sea, it also expects to capture synergies of $400 million a year from the deal.
DANISH GAS CHALLENGE
One of the biggest challenges facing Total as it takes over Maersk is the $3.4 billion redevelopment of the Tyra gas field in the Danish sector of the North Sea.
The aging Tyra field -- which is integral to Denmark's gas industry with more than 90% of the country's gas production processed through the field's facilities -- had been threatened with permanent closure from 2018 due to poor economics.
But in March 2017, Maersk and its partners in the operating DUC consortium struck a deal with the Danish government on maintaining the operational life of the Tyra field through improved fiscal terms.
The partners took the final investment decision in December, which will allow the field to operate for an additional 25 years and boosts the prospect of new developments in the Danish sector of the North Sea.
Tyra will be shut in for the redevelopment in November 2019, and production is expected to recommence in July 2022 at a rate of around 60,000 boe/d, with two-thirds of the production expected to be gas and the rest oil.
That equates to an annual gas production rate of 2 Bcm, according to S&P Global Platts estimates, almost half of Denmark's gas demand of around 5 Bcm. Total now holds a 31.2% stake in Tyra and is operator on behalf of DUC, whose other partners are Shell (36.8%), Nordsofonden (20%) and Chevron (12%).
Total said the acquisition, which is immediately accretive to its cashflow and earnings per share, is effective from March 8, 2018.