Total Agrees Engie LNG Takeover

Total announced late November 8 it has signed an agreement with Engie to acquire its portfolio of upstream LNG assets for an overall enterprise value of $1.49bn. Completion though is not expected until the middle of next year.

Engie confirmed last month that the deal was being negotiated after leaks in the press.

The portfolio includes participating interests in liquefaction plants, notably the interest in the Cameron LNG project in the US, long term LNG sales and purchase agreements, an LNG tanker fleet as well as access to regasification capacities in Europe. Additional payments of up to $550mn could be payable by Total in the event of an improvement in the oil markets in the coming years, said Total.

“The acquisition of Engie’s upstream LNG business enables Total to accelerate the implementation of its strategy to integrate along the full gas value chain, in an LNG market growing strongly at 5% to 6% per year. The combination of these two complementary portfolios will allow the Group to manage an overall volume of around 40mn metric tons of LNG per year by 2020, making Total the second largest global player among the majors with a worldwide market share of 10%,” said Total CEO Patrick Pouyanne: “With the equity stake in the Cameron LNG project, Total will also become an integrated player in the US LNG market, where the Group is already a gas producer.”

Since its 2016 takeover of BG, and even earlier acquisition of Repsol's LNG business, Shell is widely acknowledged to be global LNG market leader.

The transaction is expected to close by mid-2018, subject to approvals, and will have an effective date of January 1 2018. Following the transaction, Total will take over the teams in charge of the LNG activities at Engie, which represents around 180 employees. 

The deal once completed will add to Total 2.5mn mt/yr of liquefaction capacity, increasing Total's existing portfolio to 23mn mt/yr by 2020. The assets added include a 16.6% equity stake in the Cameron LNG liquefaction plant with three trains being built in Louisiana and the potential to add a further two; a 5% stake in the first train of the Idku LNG project in Egypt; a portfolio of long-term LNG purchase and sale contracts, enabling Total to increase its overall portfolio to 28mn mt/yr by 2020, with a diversified supply from Algeria, Nigeria, Norway, Russia, Qatar and the USA, and outlets balanced between Europe and Asia.

It also provides access to regasification capacities of 14mn mt/yr in Europe, which will combined with the existing 4mn mt/yr of Total capacities. Engie will also contribute a fleet of ten LNG tankers, which will be consolidated with the three LNG carriers of Total. Overall, combining its interests in liquefaction plants and its portfolio of third party supply contracts, Total said it will end up with managing a global volume of nearly 40mn mt/yr.

Total's statement however does not mention that the deal will also increase its exposure to the Yemen LNG, where it is already a producer/offtaker and where Engie is an offtaker. The venture has been shut in for over 30 months because of war in Yemen.

Engie said it would remain committed to its downstream activities that are "core to its strategy, notably its retail sales, its GTT subsidiary and the group’s regasification terminals in France, the United States and Chile."

Engie said the aggregate $2.04bn value of the transaction includes the earn-out of up to $550mn based on future oil market developments. It added that the divestment will complete its action plan to move away from upstream oil and gas, following its recently agreed – but not yet completed – sale of its 70% stake in Engie E&P to private equity-backed UK-based Neptune Energy, announced May 2017.

Worth recalling too is Total's major $7.45bn acquisition of Maersk Oil, expected to complete early next year which means, together with the Engie deal, CEO Pouyanne has signed off on two agreements in barely three months adding up to almost $10bn.

Engie said the proposed divestment would reduce its net debt by $1.4bn, excluding earn-out, and cited a new agreed 10-year partnership whereby Engie will become Total’s preferred supplier for all new projects of renewable hydrogen and biogas supply.

Mark Smedley