French energy company Total SA is selling its 20% stake and operating mandate of its Nigerian offshore project to a local unit of China Petrochemical Corp. for $2.5 billion, a senior executive said, in a move that will help bolster its ability to finance its investment plans.
With this disposal and some others the group is about to make, such as that of its gas storage unit TIGF, the oil major will have sold "a good half" of the $15 billion-$20 billion divestitures planned by 2015, Total head of exploration and production Yves-Louis Darricarrere said in an interview.
This should in turn help boost the group's cash-flow, helping dispel some of the industry's doubts about Total's ability to finance an ambitious investment program of $20 billion net by 2015, set to develop and then replace its existing reserves as well as substantially increasing them in the near future.
Along with its rivals, the French major is in a tight race to renew its hydrocarbon resources as demand for oil and gas remains high in energy-hungry Asia and most emerging markets, while tensions in the Middle East have disturbed some traditional supply lines.
The sale price for Total's Usan stake is higher than what the market had priced for the asset and even what Total had booked it for in its own accounts, Mr. Darricarrere said. "It is indeed a good price," he said.
State-backed Sinopec, as Asia's largest refiner by capacity is known, is rapidly converting itself into a global oil company.
In July, Sinopec agreed to acquire a 49% stake in U.K. North Sea oil and gas assets owned by Canada's Talisman Energy Inc. as part of a wider effort to boost production and earnings from abroad. Six months before that, Sinopec agreed to pay roughly $2.5 billion to Devon Energy Corp. of the U.S. for stakes in drilling properties in Ohio and elsewhere.
A spokeswoman for Sinopec Corp., the publicly listed part of the Chinese company, had no immediate comment on the Nigeria acquisition.
The transaction should help offset some investor pressure on Total, which suffered production setbacks this year following several incidents: a gas leak in its North Sea platform of Elgin Franklin, several acts of sabotage against a pipeline in Yemen, flooding in Nigeria and the lengthy unrest in Syria, which forced the group to stop all activities there.
Total still targets an annual average increase in production of 3% between 2011 and 2015, Mr. Darricarrere said. But this year, its hydrocarbon output should actually be lower than that of last year, he said.
Over the past three years, Total has increased its involvement in areas it hadn't previously venture into or in riskier yet potentially higher-yielding projects, such as very deep offshore Angola, Uganda, Azerbaijan. It is also investing in unconventional hydrocarbon sources, including shale gas and oil sands, which carry much higher production costs because they require greater efforts to extract energy sources from the ground.
Total has so far sold only assets it considered too mature, which show decreasing hydrocarbon yields compared to operational costs. This was the case for its activities in Cameroon, which it completely sold in 2010 to French group Perenco SA.
For the Usan field, that wasn't the case: Usan produced its first drops of oil in February before being officially inaugurated in April. But holding the operating mandate for Usan meant Total was focusing a lot of time and human resources, along with other operational costs, on the project that weren't reaping enough of a return. "It was not optimal for us," Mr. Darricarrere said.
The project, located about 100 kilometers off the coastline of Nigeria on block OML 138, is owned 30% by Exxon Mobil Corp., 30% by Chevron Corp. and 20% by Nexen Petroleum Nigeria Ltd.
To finance its new investments, Total has accelerated over the past four years its disposals, from $2.1 billion in 2008 to $10.7 billion last year, including stakes in French pharmaceutical company Sanofi.
Total remains committed to activities in Nigeria and could well reinvest part of the Usan disposals' proceeds there, Mr. Darricarrere also said.
The transaction with Sinopec still needs to be approved by the Nigerian authorities which should take place "quite rapidly," Mr. Darricarrere said.
Wayne Ma contributed to this story.
Copyright (c) 2012 Dow Jones & Company, Inc.
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