There’s rarely a dull day in the upstream energy world though things did get rather quiet for a time as a result of the 2014 collapse in oil prices followed by the partial recovery that drives the industry today.
There’s been talk of major consolidation ever since this latest down-cycle began and I think there has probably been disappointment that there haven’t been mega-deals of the kind that characterised the late 1990s slump that precipitated a number of spectacular mergers.
Use such deals as the measuring stick and Total’s intended acquisition of Maersk Oil & Gas (MOG) in a shares and debt teal totalling $7.45billion is modest.
But I’m puzzled as this revelation comes within just a few days of its chief executive Gretchen Watkins stating: “The North Sea will remain, very much, a focus of ours; not just in the near term but also in the medium to longer term growth.”
Given the timing of the Total announcement within four days of Watkins uttering those words, I find it hard to believe that she didn’t know the all-share takeover wasn’t approaching the boil. Assuming that was the case, then surely The Market was somewhat misled, wouldn’t cha know.
Moreover, Watkins has been in post for way less than a year, so was she appointed with the specific intention of finding a different future for MOG than she claimed just days ago?
Do please forgive my suspicious mind.
However, I happen to think it’s a great deal … for Total as well as AP Moller-Maersk, but for very different reasons.
Starting with Total, I concur with WoodMac’s reasoning, but I would add a few extra bits. This is excellent for Total, which I consider to be the foremost HPHT player in the North Sea, ergo Culzean is a perfect fit in that regard and will doubtless be welcomed by counterparts at MOG in Aberdeen. And a stake in yummy Johan Sverdrup too; say no more.
But there’s something else. I’ve long been nervous about the view that the mature North Sea belongs to smaller companies. I don’t think that is necessarily the case and, like BP, I see Total harvesting this formidable energy province for decades to come.
At the same time, I can see many smaller players exiting for a variety of reasons and for some smaller players getting together to create something much larger, stronger and more able to make headway and, with that headway, money. But that will take a co-ordinated effort and I know just the person to set that particular hare running.
So what does it mean for the Danes?
I think it’s really important to recognise that MOG has never really been core business for AP Moller-Maersk, the current market cap of which is around $20.6billion. But it has been taken seriously and, together with Maersk Drilling, has been a success story, or at least I think so.
AP Moller-Maersk’s real core business is logistics. Moreover, it is one of the biggest players in that sector, moreover one that is furiously competitive and where the Danish group is top dog. It is resource intensive and hinges around a fleet of super-sized express container ships.
A massive consolidation is underway in the $500billion global container shipment industry and the survivors now enjoy big economies of scale and increased demand.
It is also very finely balanced and it is not long since South Korea’s Hanjin Shipping Company went bust.
Meanwhile, according to Bloomberg, Asia’s largest container line, China’s Cosco Shipping Holdings Co is planning to splash out more than $6billion for rival Orient Overseas International Ltd., owner of the world’s biggest vessel — a carrier longer than the Empire State building.
And AP Moller-Maersk A/S is in the process of buying a German competitor, plus boasts its own fleet of mega-ships, including one that can carry about 180million iPads, it is said!
There are nearly 60 super-carriers that can shift more than 18,000 containers in a single load and that population is predicted to double in to around 120 in just two years.
The five biggest container lines control about 60% of the global market according to Alphaliner and Maersk commands 16.7% of that overall market. Moreover, the market is tightening and rates are climbing. It seems there is big money to be made and AP Moller-Maersk does not want to lose out to Asia-Pac competitors.
It is investing massively in more mega-ships and needs to know it can fund such huge expansion without worrying too much. Also, it is getting into trade finance, as it seeks to fill a lending gap left by indebted banks pulling out of the broadly crisis-hit shipping industry. But I’ll skate around the detail.
And so, seen that way, little wonder Maersk Oil & Gas is being sold to Total, subject to the usual caveat.
Which begs the question, is AP Moller-Maersk also going to sell off Maersk Drilling?
After all, the drilling market is struggling, though jack-ups work is picking up. And the group has invested hugely in new rigs for which the returns will surely be very disappointing compared with expectations at the time the units were ordered.
As for the supply boats side; I think they’ll keep that for a while at least. After all, that is primarily about shifting stuff around; and that’s AP Moller-Maersk’s core biz.
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