Oil producer Talisman Energy is being taken over in a multi-billion-pound deal that will raise question marks over the future direction of its North Sea business as the price of a barrel of crude continues to slide.
Spanish group Repsol said yesterday it had agreed to buy Canada’s fifth-largest independent oil producer for $13 billion (£8.3bn), showing how the drop in oil prices is pushing energy companies to take the plunge on major M&A deals.
A near halving in the price since June, to about $60 a barrel, has lowered price tags on producers such as Talisman, spurring renewed interest from Repsol, which has long been searching for oil and gas assets in North America and beyond.
The proposed acquisition will boost the group’s exploration and production arm and fill a gap left by the seizure of its Argentine business YPF in 2012. It will also help to cut the firm’s reliance on high-risk oil producing areas such as Libya and Venezuela.
Barclays analysts noted: “For this price Repsol gets a business that is free cash-flow negative with a problematic North Sea business of questionable value, but also what it considers attractive assets in Canada, Latin America and South-east Asia.”
They said they were disappointed the Spanish firm had decided not to wait longer through what could be a prolonged downturn to make acquisitions.
Under the proposed deal, Repsol will pay $8.3bn for 100 per cent of Talisman shares, which represents a 56 per cent premium to the Calgary-based company’s market value on Monday. The suitor will also take on $4.7bn of debt. Annual benefits are expected to be in the region of $220 million.
Talisman said its board had unanimously approved the deal. The two companies held merger talks earlier this year but they broke down in the summer because of Talisman’s underperforming North Sea operations, much of which are in a joint venture with China’s Sinopec.
The bulk of Talisman’s western hemisphere operations were profitable while oil prices were high, but its North Sea businesses have weighed on it because maintenance work on ageing platforms has made production targets unreliable and decommissioning obligations have increased.
A study last week warned as many as 35,000 jobs in the UK oil and gas sector and its supply chain could go as companies cut investment. Meanwhile, analysts at Goldman Sachs have warned that almost $1 trillion of investment in future global oil projects is at risk after the sharp fall in crude prices.
Talisman, whose shares have fallen sharply this year, has said it could take a charge against its operations in the North Sea, which would be recorded in the fourth quarter if needed.
Repsol plans to issue about €5bn (£4bn) in hybrid debt to secure its investment grade credit rating after the deal, due to close by mid-2015. Chief executive Josu Jon Imaz said: “It’s the right moment because now our valuation of Talisman assets is higher than the price we are paying… so the sooner, the better.”
He said Talisman had what the firm was looking for: growth in upstream business, geographical diversification and shale assets.
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