DUBLIN â The energy rush in Africa is gathering steam as Total has agreed to buy up Anadarkoâs African assets, including some South African projects. Total has clearly decided that its best bet for growth in a market chock full of giants like Exxon Mobil and Saudi Aramco, is to focus on markets where others dread to tread. Aramco is, obviously, focused on its rich Saudi oilfields, and companies like Exxon Mobil and Shell have found plenty to occupy them in Europe, North America, and the Middle East. Other than Nigeria, however, few companies have sunk much capital into African energy assets. Many of them are worried about the political and security risks that come with operating in less-stable nations, while others havenât seen the need given their assets elsewhere. Total, however, is making an ambitious play for the big leagues and pursuing liquified natural gas opportunities across Africa. Itâs exciting news for those who want to see South Africaâs latent gas and oil reserves developed. â Felicity Duncan
Oil Giant Total SA Goes Further in Liquefied Natural Gas With $8.8 Billion Deal in Africa
By Neanda Salvaterra
(The Wall Street Journal) Total SAâs deal to buy Anadarko Petroleum Corp.âs assets in Africa cements the French oil majorâs position as the worldâs second-largest provider of liquefied natural gas while pushing its business deeper into dangerous parts of the world.
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Total said earlier this week that it agreed to buy Anadarkoâs African assets for $8.8 billion in a transaction that would help Occidental Petroleum Corp. finance its takeover of the Texas-based oil producer. The deal was a key part of Occidentalâs victory over Chevron Corp. as the companies vied to buy Anadarko and its coveted U.S. shale holdings.
If the sale goes through, Total will inherit projects across Algeria, Ghana, Mozambique and South Africa containing 1.2 billion barrels of oil-equivalent of proved and probable reserves, of which 70% is natural gas. The assets help Total gain ground on Royal Dutch Shell, the market leader in natural gas, and brings it closer to its stated goal of becoming a cleaner company with a portfolio that contains more natural gas than crude.
The Paris-based oil firm has completed a series of deals in recent years, including the purchase of French utility Engie SAâs liquefied natural-gas business in 2017. Before the Anadarko deal, Total had about 10% of the liquefied natural-gas market, second to Royal Dutch Shell, which holds about 20%, analysts said.
Total said the deal should be cash-flow positive from 2020, even if benchmark oil prices fall below $50 a barrel, and the assets should generate more than $1 billion a year in free cash flow from 2025.
âNatural gas is at the heart of Totalâs strategy,â Total Chief Executive Patrick Pouyanne said at a gas conference in Shanghai last month. âWe want to be integrated along the gas value chain to take full advantage of this growing energy source and discover new [liquefied natural gas] outlets.â
Total has said it wants its portfolio to comprise 60% gas holdings by 2035, up from roughly 50% in 2018.
The company and other oil giants are moving into natural gas as oil consumption is expected to rise by 0.5% a year between now and 2040, according to consulting firm Wood Mackenzie, and some forecasters say demand could stop growing altogether within the next decade. As buyers pivot toward cleaner fuels, global demand for natural gas is expected to rise by 1.6% annually from 2016 to 2022, according to the International Energy Agency.
Natural-gas projects, though, tend to deliver lower returns than oil projects. The weighted average internal rate of return for liquefied natural-gas projects in the pipeline is about 13%, compared with 20% for deep-water projects and 51% for unconventional oil developments like shale, according to Wood Mackenzie.
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Historically, Total has shown a higher tolerance than its peers for doing business in dangerous places. Still, taking over Anadarkoâs assets in Africa presents challenges for the company.
In a series of raids in February, insurgents in Mozambique attacked an Anadarko convoy in an area near the companyâs natural-gas development. The company placed its project-construction site on lockdown, and one Anadarko contractor was killed in the raids.
Total has joined with Algeriaâs government on oil-and-gas projects since the 1950s, but recent political turmoil in the countryâAfricaâs largest producer of natural gasâdelayed the progress of some new gas agreements, including deals with Anadarko and Exxon Mobil Corp.
Anadarkoâs Mozambique assets would give Total a big boost in the gas business. The region is home to one of the worldâs largest natural-gas deposits, just ahead of Egyptâs giant Zohr offshore field.
Read also:Â Why Brulpadda gas find may only see production in 2027
Anadarko has been developing a liquefied natural-gas project off Mozambiqueâs coast, which was expected to start producing in 2024. Total said it would inherit 26.5% participating interest and operator status in the Mozambique project, which represents 2 billion barrels of oil equivalent of long-term natural-gas resources.
âThis Mozambique asset will be producing for decades, that positions Total in LNG into the middle of the century,â said Stuart Joyner, an energy specialist at the research firm Redburn Partners.
Totalâs deal occurs as the major oil companies are under increasing pressure from policy makers and activist investors to comply with the 2015 Paris climate accord and lower global carbon emissions from fossil fuels, which have been linked to rising global temperatures.
A group of more than 4,500 shareholders working under the auspices of the Netherlands-based group Follow This have been pushing Royal Dutch Shell, BP PLC, Exxon Mobil, Chevron and Equinor AS A to set and publish emissions targets that are aligned with the goals of the climate agreement.
Total so far hasnât been presented with a shareholder resolution to lower its carbon footprint, but the company is trying to get ahead of the curve, analysts say.
âThis is all part of [Totalâs] broader strategic aim to shift towards a low carbon energy future,â said Valentina Kretzschmar, a director at Wood Mackenzie.
Write to Neanda Salvaterra at [email protected]