French oil giant Total has agreed to purchase AP Moller-Maersk’s oil unit in a deal that will strengthen its position in the North Sea. It is also a sign that the global oil-and-gas business is partially back on track.
Image: picture-alliance/ZUMA Wire
Advertisement
French oil company Total said Monday that it would buy Maersk Oil, a part of Danish shipping giant AP Moller-Maersk, for $7.45 billion (6.35 billion euros).
Total promised to uphold the oil company's development schedules and investments in a series of projects and that Denmark will become the regional hub for all its operations in Denmark, Norway and the Netherlands.
As part of the deal, Maersk will get $4.95 billion worth of Total shares, which is equivalent to around 3.8 percent of Total's share capital. The French company will also assume around $2.5 billion worth of Maersk Oil debt.
Combing the two companies should nonetheless generate some $400 million in cost savings and other synergies each year according to Total chairman and CEO Patrick Pouyanne.
The deal, which is subject to relevant regulatory approvals, as well as both company's advisory boards, is expected to be completed during the first quarter of 2018.
Lower oil prices over the past few years also played their role in the company's plan to divest its oil arm. Although oil prices have recovered of late to trade around $50 a barrel, they are still around half the level they were just three years ago.
The fall has cut into oil companies' margins and made many production areas less economically attractive. Relatively expensive areas such as the North Sea, where deep-water drilling is required, have especially become less attractive than they were previously.
Hit hard by sinking oil prices
Prices for crude oil are reaching new lows almost daily due to oversupply and unease over the global economy. Some countries have been hit harder than others.
Image: picture-alliance/dpa/W. Hong
A great, big hangover
Even Norway isn't immune to the falling price of oil. For years, the wealthy Scandinavian nation had fueled its rapid growth with the oil it pumped out of the North Sea. But what once transformed a poor agrarian state into one of the richest countries in the world now has policymakers wondering if it wouldn't be wiser to allocate more resources to Norway's fishing industry.
Image: picture-alliance/dpa/O. Hagen
Double trouble
For Russia, the falling price of oil has added insult to injury as its economy is already reeling under Western sanctions. In 2015, economic output in the country shrunk by around 4 percent. As a result, salaries have dropped and the ruble has lost half of its value against the dollar. The news service Bloomberg estimates that 2016 will be another recessionary year for Russia.
Image: Getty Images/AFP/A. Druzhinin
An uncertain future
Nigeria is Africa's largest producer of oil. Before being elected president, Muhammadu Buhari announced that he would increase government spending - but the drop in the price of oil may make that promise impossible to fulfill. The World Bank estimates that three-quarters of the Nigerian state's revenues come from the oil business. Many infrastructure projects are currently on hold.
Image: picture-alliance/dpa
New realities
Nigeria's not the only country that calculates its budget based on the price of oil staying high. The result has been a big gap between expected and actual revenues. The price for a barrel of oil has dropped by nearly 75 percent since mid-2014. Many experts currently have little reason to believe the per-barrel price will return to its old level of $120 (110.76 euros) anytime soon.
After sanctions
Now that sanctions against Iranian exporters have been lifted, the Islamic Republic plans to ramp up its oil production by half a million barrels a day - putting further pressure on an already oversupplied energy market. Iran, for its part, blames its archrival Saudi Arabia for falling oil prices.
Image: picture-alliance/dpa/A. Taherkenareh
Less giving, more taking
Saudi Arabia has refused to curb oil output in order to protect its market share from competition from the US fracking industry and Iran. But now, even the world's largest oil exporter is starting to get a taste of its own medicine. The International Monetary Fund is warning about a massive impending budget deficit. The Saudis want to introduce taxes and slash energy and food subsidies.
Image: picture-alliance/dpa/P. Grimm
How long will reserves last?
Like their Saudi counterparts, other oil-rich Gulf statessuch as Qatar, Oman and the United Arab Emirates are also watching their energy reserves dwindle. These regional powers all boast large sovereign wealth funds - but altogether, the six Gulf states have already accumulated a budget deficit worth $260 billion (239.8 billion euros), according to estimates by JP Morgan Chase.
Image: M. Naamani//AFP/Getty Images
Winds of change in Venezuela?
Venezuela has the largest oil reserves in the world. For years, the country's socialist government used revenues from the sale of oil to fund its lavish social programs. Now, President Nicolas Maduro has declared a state of emergency for the Venezuelan economy. Popular support for the successor to Hugo Chavez has been slipping for about a year - about as quickly as the price of oil has dropped.
Image: Reuters
What now?
Thanks to a boost in shale gas extraction, aka fracking, the US is now the world's largest energy producer. Low oil prices, however, have made fracking widely unprofitable. The US is also one of the largest consumers of energy in the world. While motorists may celebrate having to spend less money at the pump, bigger, gas-guzzling vehicles are gaining in popularity - bad news for the environment.
