Total Drops to Three-Month Low on Elgin Gas Leak: Paris Mover

Total Drops to Three-Month Low on Elgin Gas Leak
Total SA's Elgin platform is seen in the North Sea, U.K. Source: Total E&P UK via Bloomberg

Total SA, the largest French oil producer, dropped to a three-month low in Paris as gas leaked from its Elgin platform in the U.K. North Sea for a fourth day.

The company fell as much as 3.4 percent to the lowest since Dec. 21. Its reputation and earnings may be damaged by the risk of an explosion, environmental damage and delays of as long as six months to repair the leak, Kepler Capital Markets said.

“It seems there is no quick fix, except if the leak comes from a small pocket of gas that will deplete very fast,” Kepler analyst Bertrand Hodee wrote today in a report. “Remedial operations are likely to be complex given the gas surrounding the platform, which will make any human intervention on the platform or even from a nearby vessel very difficult.”

Total declined 1.3 percent to 38.05 euros by 12:56 p.m. in Paris trading, bringing the slide in the company’s shares to 6.6 percent since the leak at the platform began on March 25.

The producer, the most heavily weighted stock on the CAC 40 benchmark index, has called in Wild Well Control Inc. to help at the site about 240 kilometers (150 miles) east of Aberdeen, Scotland. Output at the Elgin, Franklin and West Franklin sites were halted and 238 people evacuated, Total said yesterday, with no “significant impact” on the environment found so far.

“Negative newsflow could persist for a while,” said Hodee, who cut his recommendation to “hold” from “buy.”

Elgin-Franklin output is about 12 percent to 13 percent of Total’s European production, worth about 300 million euros ($400 million) a year in net income, Hodee wrote. The field is valued at about $7.6 billion, or $3.5 billion for Total’s 46.2 percent.

‘No Macondo’

“We do not believe this is another Macondo style event,” Jefferies International Ltd. analysts led by Iain Reid wrote today in a report. The well is in shallower water than BP Plc’s Deepwater Horizon rig that was destroyed in a blowout of the Macondo well two years ago, killing 11 people, they wrote.

“The Elgin leak is a surface gas leak rather than an underwater oil leak, making its potential for environmental damage far lower than in the Deepwater Horizon,” Fitch Ratings Ltd. said. “This incident underlines that oil and gas majors must maintain strong liquidity in what is a risky business.”

Should the field become “permanently unusable,” costs for Total would be 2.6 billion euros for its share in Elgin and about 3.1 billion euros to compensate partners, Fitch said.

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