Total to Buy Anadarko's African Assets if Oxy Bid Succeeds (Update)

(Adds further analysis)

French major Total will buy all of Anadarko's assets in Africa for $8.8bn if Occidental Petroleum's bid for the major US Permian player succeeds against Chevron's, it said May 5.

Oxy's interest in Anadarko had been focused on North American assets, while rival bidder Chevron also had an eye on Anadarko's stake in Mozambique LNG. The deal is expected to close in 2020. The assets to be acquired are:

Algeria: 24.5% participating interest and operatorship of blocks 404a and 208 (Hassi Berkine, Ourhoud and El Merk fields) in the Berkine basin in which Total already owns 12.25%. These fields represented a gross production of 320,000 boe/d in 2018.

Ghana: 27% participating interest in the Jubilee field and 19% participating interest in the TEN fields. These fields represented a gross production of 143,000 b/d in 2018.

Mozambique: 26.5% participating interest and operatorship in Area 1 where a 12.8mn metric tons/yr LNG project is largely derisked and close to sanction. Area 1 contains more than 60 trillion ft³ of gas resources, of which 18 trillion ft³ will be developed with the first two train project which is expected to come into production by 2024.

South Africa: exploration licences, close to Total’s recent Brulpadda discovery. Overall, these assets represent around 1.2bn boe of 2P reserves, of which 70% is gas, plus 2bn boe of long term natural gas resources in Mozambique. 2018 equity production was 96,000 boe/d and is expected to grow to around 160 kboe/d by 2025.

Total CEO Patrick Pouyanne said the deal, if it went ahead, would improve its integrated gas business – it is already the second largest private LNG player – as well as increase stakes in its assets in Ghana and Algeria.

“Total is committed to execute smoothly this transaction, should Occidental be successful in its offer to acquire Anadarko. The proposed transaction is a win/win for Total and Occidental. Total would get access to around over 3bn boe of resources and Occidental would be able to strengthen its post completion balance sheet by monetising immediately the international assets of Anadarko.”

Despite the capital investment in Mozambique LNG, the acquisition is expected to be free cashflow positive from 2020 even at a Brent price below $50/b and to generate more than $1bn/year of free cashflow from 2025 onwards after start-up of Mozambique LNG. As a consequence, Total confirms that the previously announced shareholder return policy from 2018 to 2020 will be maintained in terms of dividend increase (10% over 3 years) and share buyback ($5bn).

Wood Mackenzie said that Total will become the fourth largest LNG capacity owner after two state entities, Qatargas and Petronas of Malaysia and Anglo-Dutch Shell.

"The potential acquisition of Anadarko's stake in Mozambique LNG is representative of Total's ambitious and aggressive expansion of its LNG position," it said. Total also has stakes in Russia's Arctic LNG-2, Papua LNG, Nigeria's NLNG 7, the Cameron LNG expansion and Tellurian, which is developing the Driftwood project in the US. It is seeking to participate in the Qatari megatrain expansion. Finally, Total recently signed a preliminary contract for LNG from Costa Azul in Mexico, in addition to an additional offtake contract from Tellurian.

"However, the company is entering a phase of strong cash flow growth. As such, we still expect Total to keep strict investment criteria in terms of deciding which LNG project goes ahead. Its focus on LNG investment is part of a wider company shift to 'cleaner fuels'. The group views its LNG portfolio as long term in nature, as a facilitator for monetising its own molecules, but has also become more active as an LNG trader in recent years."

From Anadarko's shareholders' point of view, the bid derisks some the deal: "Combined with the recent $10bn Berkshire Hathaway commitment, this disposal has allowed Oxy to increase the cash component of its bid from 50% to 76%, an increase of about $10.5bn and does not require a vote from Oxy's shareholders, Woodmac said.

"Oxy's offer is currently 23% higher than Chevron's bid, with a materially larger cash component. With added certainty around Oxy's ability to complete the deal, it will be very difficult for Anadarko not to accept. Chevron has the firepower to increase its offer, but will have to decide whether it also has the appetite."  

Oxy is predominantly an onshore operator with expertise in tight oil and enhanced oil recovery in the US and the Middle East. It does not have experience of liquefied natural gas (LNG) operatorship. The deal would allow Occidental to achieve between 60-90% of its $10bn-$15bn disposal target in one swoop, Woodmac said.

In early May, US investor Warren Buffett pledged support for the improved Oxy bid, which Anadarko said it was taking seriously.