Washington, Dec 19 : French oil giant Total SA FP.FR -0.24% could have as much as US$10 billion available for M&A, but if it’s looking in Australia then it should think again.
That’s the view of Bank of America-Merrill Lynch analyst Matthew Yates, who says a rush of 10 deals Down Under since 2006 means Total is overweight in this country, and generating disappointing returns from its flagship liquefied natural gas projects.
Total owns 30% of the US$34 billion Ichthys LNG project in the Northern Territory, which started construction this year and aims to ship 8.4 million tons of LNG annually as well as produce 100,000 barrels a day of condensate, a form of light oil. It also has a 27.5% stake in the GLNG project that aims to convert coal seam gas to LNG in Queensland state, but has already run 16% over budget to US$18.5 billion.
“With the benefit of hindsight, we do not believe Total’s track record in acquisitions is particularly encouraging,” says Mr. Yates, who is based in London.
“We believe the company is over investing in Canadian oil sands and Russian/Australian LNG where returns are very low (and destroy value).”
Mr. Yates says the internal rate of return on Total’s Australian LNG projects is around 9%, compared with 33% for its Brazil investments and 35% in the Gulf of Mexico. The low quality of its investments places it at the bottom of the pack among European oil producers in terms of IRR on new projects, with Spain’s Repsol REP.MC -1.01% leading the way with an average IRR above 35%.
As a result, he thinks the most logical areas for potential M&A involving Total would be Mozambique, where rivals such as Anadarko Petroleum APC +2.65% have made a string of big natural-gas discoveries, and U.K.-based consultancy Wood Mackenzie estimates there could be as much as 80 trillion cubic feet of natural gas still to be found.
Kenya, Kurdistan, Brazil, Gulf of Mexico and liquids-rich U.S. unconventional plays should also be on Total’s radar, while the company could alternatively build on its current asset base in Norway and West Africa, he says.
“We estimate Total could have US$10 billion of balance sheet headroom for an upfront deal, but more likely is a farm into early stage projects requiring multi-year capex,” according to Mr. Yates.
Underpinning the rationale for M&A is the likelihood that future projects contributing around 350,000 barrels per day of production are at risk of extended delay or cancellation, he says.
Ends
SA/EN
That’s the view of Bank of America-Merrill Lynch analyst Matthew Yates, who says a rush of 10 deals Down Under since 2006 means Total is overweight in this country, and generating disappointing returns from its flagship liquefied natural gas projects.
Total owns 30% of the US$34 billion Ichthys LNG project in the Northern Territory, which started construction this year and aims to ship 8.4 million tons of LNG annually as well as produce 100,000 barrels a day of condensate, a form of light oil. It also has a 27.5% stake in the GLNG project that aims to convert coal seam gas to LNG in Queensland state, but has already run 16% over budget to US$18.5 billion.
“With the benefit of hindsight, we do not believe Total’s track record in acquisitions is particularly encouraging,” says Mr. Yates, who is based in London.
“We believe the company is over investing in Canadian oil sands and Russian/Australian LNG where returns are very low (and destroy value).”
Mr. Yates says the internal rate of return on Total’s Australian LNG projects is around 9%, compared with 33% for its Brazil investments and 35% in the Gulf of Mexico. The low quality of its investments places it at the bottom of the pack among European oil producers in terms of IRR on new projects, with Spain’s Repsol REP.MC -1.01% leading the way with an average IRR above 35%.
As a result, he thinks the most logical areas for potential M&A involving Total would be Mozambique, where rivals such as Anadarko Petroleum APC +2.65% have made a string of big natural-gas discoveries, and U.K.-based consultancy Wood Mackenzie estimates there could be as much as 80 trillion cubic feet of natural gas still to be found.
Kenya, Kurdistan, Brazil, Gulf of Mexico and liquids-rich U.S. unconventional plays should also be on Total’s radar, while the company could alternatively build on its current asset base in Norway and West Africa, he says.
“We estimate Total could have US$10 billion of balance sheet headroom for an upfront deal, but more likely is a farm into early stage projects requiring multi-year capex,” according to Mr. Yates.
Underpinning the rationale for M&A is the likelihood that future projects contributing around 350,000 barrels per day of production are at risk of extended delay or cancellation, he says.
Ends
SA/EN
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