Maersk Sells Oil and Gas Division to Total

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Total's US$7.4bn tilt for Maersk expected to deliver significant North Sea synergies

The French hydrocarbons major has agreed to buy the Maersk oil operation in a deal said to be worth some US$7.45bn - with US$4.95bn paid in shares and Total taking up the Maersk unit's US$2.5bn debt.

The separation of the energy businesses was decided as part of last year's strategic decision to focus A.P. Moller - Maersk's future activities on transport and logistics, as well as a result of recent years' oil and gas industry and market developments. The deal is already approved by both boards and expected to close in 1Q 2018 and have an effective date of July 1 2017. Denmark will become the operating hub for Total's combined operations in Denmark, Norway and the Netherlands. It also gives Total the ability to rampup production should oil prices rebound.

Total expects to generate synergies of more than $400 million a year starting in 2020, in particular by combing the two companies' North Sea assets. For example, in January 2016, oil prices fell below $30 per barrel in the global markets for the first time in 12 years, amid fears of a stall in China's growth. 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. In other words, the deal will make the French oil company northwest Europe's second-largest offshore operator. Maerk has operated Al Shaheen since 1992.

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Pierre-Louis Brenac, Middle East managing partner of consultancy Sia Partners, said that the deal seemed to be a flawless match to generate savings.

Although Danish company Maersk Oil is now in foreign hands, the company will continue to have a strong connection to Denmark, reveals Maersk Group in a press release.

Given Maersk's ability to tap the chalk fields could be applied to the fields here, helping regional oil producers to meet their local enhanced oil recovery (EOR) targets. Total was the first company to be awarded a 10 per cent stake in the 40-year concession for Abu Dhabi's prime onshore oilfields.

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Maersk Oil is the first of the four energy companies in AP Moller-Maersk for which a structural solution has now been identified. The 2018 production will have an estimated free cash flow break-even of less than $30/bbl. Known as a scrip dividend, paying investors in shares has allowed Total to preserve cash but has also diluted its share pool and weighed on its value.

Other Freshfields partners involved in the deal include, in London, corporate partner Sam Newhouse, and in Paris, tax partner Vincent Daniel-Mayer, competition partner Jerome Philippe and employment partner Gwen Senlanne.

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