The second major deal in the current slide in oil prices surfaced at the weekend , it’s a biggie – Repsol, the Spanish oil giant is planning to offer up $US8 billion for the Canadian independent, Talisman. With debt, any bid for Talisman, one of Canada’s biggest oil and gas independents, could be worth in excess of $US11 billion.
As oil and gas companies around the world slash spending (the cuts total $US25 billion in the US, Australia, Europe and Asia, in the past three months), the move by Repsol won’t be the last. Already companies large and small in Australia led by Santos, are on investment bank hit lists.
Last month US oil services giant, Halliburton bid for its smaller American rival, Baker Hughes in a share and cash offer that was worth $US34.6 billion at the time, but which has fallen sharply as oil prices have dropped.
That bid took place well before oil prices lurched downwards from late November after it was made clear Opec would not cut production and save western and other energy groups and suppliers.
The emergence of mergers and acquisition activity in the oil sector is going to accelerate in 2015 (picking possible targets will become very profitable if you find one). Already tens of billions of dollars in spending cuts, asset impairments and lower profits are forecast for the sector.
It’s not the first time Repsol has sniffed around Talisman – there were reports in the northern summer of this year that the Spanish company was interested, but couldn’t push the deal to fruition because of differences over price.
Now global oil prices have plunged 45% and the chances of a deal have risen dramatically, according to weekend media reports.
There is an Australian link – Talisman holds interests in northwestern Australia and Papua New Guinea, according to the company’s website.
Talisman has non-operator interests in the the Laminaria (33%) and Corallina (40%) fields offshore north western Australia, and in the Kitan field (25%) in JPDA 06-105 (Timor).
Talisman’s net production in Australia/Timor-Leste averaged 6 million barrels a day in 2013. “Decline and well performance issues at Kitan, and the shut-in of Corallina-3 resulted in decreased production from Australia/Timor-Leste” last year, according to the company’s website. Talisman last year drilled the Kitan-6, the first of a two-well exploration and appraisal drilling program,” the company said.
In Papua New Guinea (‘’PNG’’), Talisman said it "continues to progress its gas aggregation strategy (targeting to aggregate 2 to 4 trillion cubic feet of gas in the Western Province) and is presently reviewing monetization options. The farm-in of Santos Ltd. into several Talisman licenses in 2013 is a significant expansion of Talisman existing strategic partnership with Mitsubishi Corporation.
“In 2014, Talisman plans to complete drilling of the Manta-1a well, drill an additional two exploration wells (and a possible third well subject to seismic results), two development wells relating to the Stanley development, and continue seismic acquisition across various blocks with a view to identifying suitable prospects for drilling in subsequent years."
The company’s third quarter financial, exploration and production report didn’t mention Australia or PNG.
There were rumours last week that Talisman had been approached by a number of companies, which it confirmed, but would not give any more detail.
But senior Repsol executives are reportedly in Calgary in Canada for talks, and there are hopes for a deal agreed before Christmas.
The price being negotiated is in a range between $US6 and $US8 per share, which would represent a premium of up to 100% to Talisman’s share price of $US4.29 at the close in New York on Saturday morning, our time.
Talisman shares have fallen 62% over the past six months compared to the 45% slide in oil prices.
Including debt of $US4.7 billion, the deal would give Talisman an enterprise value of about $US10 to $US12 billion.
And there was another interesting deal in this sector over the weekend as Warren Buffett’s Berkshire Hathaway popped up with the purchase of a company called Charter Brokerage for undisclosed terms, from Arsenal Capital Partners.
In a statement from Berkshire, Warren Buffett called Charter a “high quality business with consistently strong financial performance that fits well within Berkshire Hathaway.”
Charter is what Americans call a petroleum and chemical drawback services provider. (A drawback is the refund of import duties and taxes on a product when a form of that same product is exported. Charter Brokerage connects importers and exporters in the petroleum and petrochemical industries to arrange such refunds). Fortune magazine said at the weekend that Charter could have had a value up to $US500 million.
The Financial Times reported at the weekend that Repsol has about $US10 billion in cash and short-term instruments available to make acquisitions following the payment of about $US5 billion in compensation from the government of Argentina over the nationalisation of YPF, the Spanish company’s business in the South American country.
About half of Talisman’s assets are in the Americas, including the Eagle Ford and Marcellus shale formations in the US, with another 40% in Asia, incouding Australia and PNG.
The FT says Repsol is keen to acquire more assets in the US and Canada, and is also interested in making its first moves into Asia.
