French energy major Total, S.A. (NYSE: TOT – $56.05) said it has signed an agreement with Engie to acquire its portfolio of upstream liquefied natural gas (LNG) assets for $1.49 billion. This portfolio includes participating interests in liquefaction plants, notably a 16.6% interest in the Cameron LNG project in the US; a 5% stake in the Idku LNG project in Egypt; long-term LNG sales and purchase agreements; an LNG tanker fleet of ten ships; as well as access to re-gasification capacities in Europe. Additional payments of up to $550 million could be payable by Total in case of an improvement in the oil markets in the coming years. According to management, the acquisition of this portion of Engie’s 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 Total to manage an overall volume of around 40 million tonnes of LNG per year by 2020, making it the second largest global player among the majors with a worldwide market share of 10%.
The proposed transaction is subject to the applicable regulatory approvals and, if successful, the transaction is expected to close by mid-2018, with an effective date of January 1, 2018. In addition, in parallel with this transaction, Total and Engie agreed to cooperate to promote the use of biogas and renewable hydrogen, with Engie becoming Total’s priority supplier in this field.
Shares of integrated oil and gas producer Total have been inching back to “break-even” since entering the portfolio back in January of 2014, following a prolonged slump in oil prices. The shares, however, are higher by about 18.5% over the past twelve months and the dividend, yielding 4.8%, offers some solace as we await a full rebound in crude prices. Positions can continue to be held for income and further price recovery.