The Spanish energy company Repsol will buy Canada’s Talisman Energy Inc. for $8.3 billion in cash in a deal that would immediately double Repsol’s oil production and staff.
Repsol and Talisman said Dec. 16 that the sale had been unanimously approved and recommended by the boards of both companies. The transaction is expected to be completed in mid-2015. If so, Repsol would pay $8 for each share in Talisman, 60 percent more than the stock’s average price over the past month, Talisman said, and the Spanish company would assume $4.7 billion in Talisman’s debt.
Repsol said this transaction is the largest made by any Spanish company in the past five years. In fact, it said, the merger will make Repsol one of the world’s 15 largest privately owned oil and gas companies.
Talisman has 2,800 employees, meaning Repsol’s staff for production and exploration would nearly double under the merged company. And while Repsol’s market value is five times greater than Talisman’s, it has been a small competitor in oil production and has been looking for a partner to increase its production capacity.
It appears to have found just that partner. Repsol said adding Talisman’s resources would raise the combined company’s oil production by 76 percent to 680,000 barrels of oil equivalent per day. It also would increase reserves by 55 percent to more than 2.3 billion barrels of oil equivalent. It also would add to the mix Talisman’s current operations in Colombia, North America, Norway and Southeast Asia.
Further, by buying the Canadian company, Repsol now will have nearly half of its capital invested in exploration in North America, compared with 22 percent in Latin America.
Repsol said the cash for the purchase will be “essentially obtained from the recovery of value from YPF.” YPF is an Argentine company that Buenos Aires seized from Repsol in 2012. Last February, Repsol agreed to receive $5 billion in compensation for the seizure, half of what it initially demanded.
“This is a transformative and exciting deal,” Repsol Chairman Antonio Brufau said. By buying Talisman, he said, Repsol will gain “experience and [a] proven track record in producing oil” to help it harvest crude from recently discovered deep-water fields.
The purchase also makes sense for Talisman. The global price of oil has been cut nearly in half since June, an unsustainable situation for smaller oil companies that already must scrimp to finance exploration for new sources of energy. This applies to Talisman, whose stock value has plunged even more than the price of oil since January.
But while Repsol has been small in oil production, its settlement with the Argentine government left it with enough cash not only to withstand the lower price of oil, but also to buy a company that can now help it become a stronger producer.
In fact, the deal probably wouldn’t have happened without this year’s plunge in the price of oil, according to Brendan Warn, an analyst at BMO Capital Markets in London. “[Repsol is] paying a full and fair price that Talisman shareholders should be satisfied with,” he told Bloomberg News. “If oil had stayed above $100, the deal may not have happened as Talisman would have plowed on.”
By Andy Tully of Oilprice.com
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