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TOTAL (TOT) to Acquire LNG Assets From Engie for $1.49B


TOTAL S.A. TOT announced that it has entered into a definite agreement to acquire the upstream liquefied natural gas (LNG) assets of Engie for $1.49 billion. The decision to buy the assets and expand footprint in the LNG business is expected to benefit the company significantly.

Details of the Deal

Per the agreement, TOTAL will have control over Engie’s interest in the Cameron LNG project in the United States, long-term LNG sales and purchase agreements, and an LNG tanker fleet. It will also have access to regasification capacities in Europe.

TOTAL might pay another $550 million to Engie, subject to improvement in oil markets in the coming year. This transaction is expected to close by mid-2018.

Rising Popularity of LNG

The importance of natural gas is rising as a fuel source across the globe but there is a miss-match of production and demand areas for natural gas. As it is not practical and logistically possible to transfer large volume of natural gas across oceans, LNG tankers are gaining popularity.

Natural gas is cooled to a certain temperature to produce LNG and is transported in large tankers. Once designated ports is reached, LNG is regasified to produce natural gas after heating.

TOTAL’s Benefit

LNG is gaining popularity and the global LNG market is expanding 5% to 6% per year.

In first nine months of 2017, TOTAL sold 8.56 million tons of LNG, reflecting growth of 4% from the year-ago period.

This deal, scheduled to be closed in 2018, will expand TOTAL’s total volume of LNG sales to 40 million tons per year in 2020. So, the decision to acquire Engie’s assets will expand TOTAL’s operation in LNG and increase revenue contribution from this space.

Sale & Purchase of Assets

TOTAL continues to make strategic acquisitions in high potential areas and divest assets that are not in sync with its long-term objectives. During third quarter, the company acquired assets worth $513 million, primarily comprising the resources for Elk-Antelope in Papua New Guinea. It sold assets worth $202 million during the same period, primarily its LPG activities in Germany.

In the third quarter, the company entered into a definite agreement to acquire Maersk Oil & Gas A/S (Maersk Oil) for $7.45 billion. This deal will further strengthen its position in the Zacks Oil and Energy sector and create tougher competition for the super majors like Exxon Mobil Corporation XOM , Chevron Corporation CVX and BP p.l.c BP.

Zacks Rank

TOTAL currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price Movement

TOTAL has gained 8.6% in the last six months compared with 8.3% rally of its industry.

The company’s strong production portfolio, initiatives to lower operating costs and start new projects bode for it in the future.

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