Total Hoards Oil's Largest Cash Pile to Buy Fields for Growth

Total SA has amassed the oil industry’s largest cash pile that will help it buy oil fields to sustain production growth.

France’s biggest oil company increased its holdings of cash and near-cash items to a record 14.8 billion euros ($19 billion) at the end of the second quarter after the sale of shares in drugmaker Sanofi SA and assets in Norway and the Gulf of Mexico. That’s more than Exxon Mobil Corp.’s $13 billion and Royal Dutch Shell Plc’s $12 billion, data compiled by Bloomberg show.

Chief Executive Officer Christophe de Margerie, who will outline strategy to investors in London tomorrow, says production will grow 2 percent a year after reaching a nine-year low in 2009. The company, the industry’s most active acquirer this year, has pledged to buys assets in Australia, Canada and the U.S. and will continue to purchase stakes in fields and smaller producers, analysts said.

“A good answer to the excess cash would be for Total to acquire more frontier exploration assets,” Alexandre Andlauer, analyst at Alpahvalue SAS, said by e-mail.

Total has announced plans to spend as much as $4.5 billion on gas and oil sands assets. The company will acquire 20 percent of a liquefied natural gas project fed by methane trapped in coal seams in Australia’s Queensland state. It’s also completing the purchase of Canadian oil sands company UTS Energy Corp. and a stake in Chesapeake Energy Corp.’s U.S. shale gas assets.

Photographer: Antoine Antoniol/Bloomberg

Total SA Chief Executive Officer Christophe de Margerie says production will grow 2 percent a year after reaching a nine-year low in 2009. Close

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Photographer: Antoine Antoniol/Bloomberg

Total SA Chief Executive Officer Christophe de Margerie says production will grow 2 percent a year after reaching a nine-year low in 2009.

“They are on the prowl for niche acquisitions,” Mark Gilman, an analyst for Benchmark Co. in New York, said by telephone.

Lag Behind

The company’s share price has lagged behind its peers this year, dropping 13 percent in Paris. Shell, the biggest European oil company, has dropped 0.9 percent. The underperformance is partly because Total, Europe’s largest oil refiner, is more reliant than rivals on processing fuel, where returns have been poor, Andlauer said.

“I wouldn’t be surprised if there are more of these bolt- on” acquisitions to maintain production, Sanford C. Bernstein & Co. analyst Oswald Clint said by telephone. Buying companies whole is less attractive because of the premiums involved, he said.

Clint said Korea National Oil Corp.’s $2.6 billion hostile bid for Dana Petroleum Plc, where its offer represented a 59 percent premium to the U.K. explorer’s pre-bid share price, demonstrates the cost of larger corporate acquisitions.

Total has announced 10 purchases this year, more than any other oil company, according to Bloomberg data. The industry is the world’s busiest for deals, with a total of 561 transactions adding up to $120 billion.

‘Increase Footprint’

“Total typically would like to buy upstream acreage to increase its footprint” in some regions like Brazil, Gudmund Halle Isfeldt, an analyst at DnB NOR ASA, Norway’s largest bank, said by telephone. “Seldom does one company have all of what another needs” so Total and Shell prefer to “carve out assets” rather than buy whole companies, he said.

Total spokeswoman Phenelope Semavoine declined to comment on acquisition strategy before tomorrow’s meeting.

Total June entered Brazil’s deepwater pre-salt region, where the Tupi field is the Americas’ largest oil find since 1976, with the purchase of a 20 percent interest bought from Shell in a Santos Basin license.

Assets up for sale include some held by BP Plc, which is selling about $30 billion worth to cover clean-up costs in the Gulf of Mexico following the oil spill caused by the Deepwater Horizon blowout. Disposals may include stakes in Alaska’s Prudhoe Bay and Pan American Energy LLC, Argentina’s second- largest oil producer.

‘Other Ideas’

“BP is selling assets at a high price,” Total Chief Executive Officer Christophe de Margerie said at a conference outside Paris last month. “We are interested if the price is good otherwise no. We do have other ideas in mind, some will be announced soon, like Uganda.”

Tullow Oil Plc plans to bring in Total and China National Offshore Oil Corp. as partners in Uganda, although the deal has been held up until a dispute over tax between the government and Heritage Oil Plc is resolved. Uganda is a new country for Total, which gets most of its African output from Angola and Nigeria.

Other areas where Total may be planning to expand include the Arctic Yamal Peninsula in Russia, where OAO Novatek is leading a liquefied natural gas project, and China, analysts said.

Total in July reported a 72 percent increase in second- quarter profit and said production will grow more than 2 percent this year and by about that rate, on average, annually through 2014 after starting fields in Nigeria, the Gulf of Mexico, Angola and Norway, as well as liquefied natural gas projects in Yemen and Qatar.

Next Wave

Total’s next wave of projects to boost production isn’t scheduled to come on stream until 2012, starting in Angola, Nigeria and then Thailand. Getting a boost from acquisitions is possible, although they may be limited in scope, according to Bernstein’s Clint.

“Holding a bit of cash is part of the conservative nature of the oil sector,” he said. “There is vast volatility due to commodities and they have to be prepared to weather through if commodities prices decline.”

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

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