Repsol, the Spanish oil giant, has agreed to buy Talisman Energy of Canada for the cost of $8.3 billion, showing the latest effect of the drop in oil prices as energy companies take advantage of merger and acquisitions.
Following the takeover Repsol will be responsible for approximately $4.7 billion worth of Talisman’s debt. Chief Executive Josu Jon Imaz commented on this decision stating that “It’s the right movement because now our valuation of Talisman assets is higher than the price we are paying”. He commented that Talisman was specifically chosen as it had all the requirements that Repsol was looking for: growth in upstream business, geographical diversification and shale assets.
The proposed acquisition will extend Repsol’ s exploration and production arm in North America, something they have been trying to do for the past several years. Repsol hope that this merger will allow them to address some of the shortfalls the company has been experiencing since the seizure of its Argentine business, YPF, two years ago.
However experts have warned that the Spanish company may have taken on more than they can handle as they believe that in the long term Repsol may be forced to consider selling its 30 percent stake in Gas Natural. Repsol Chairman Antonie Brufau has refuted such claims saying “We don’t need to sell our stake in GasNat (Gas Natural) to do this deal. For us GasNat brings stability, dividends, optionality”.
Talisman have been forced to accept the offer after they have struggled as oil has almost halved in price over the last year, the company’s Chief Executive said “our progress has been limited by our capital obligations in the North Sea and elsewhere, which… affected our ability to fund growth opportunities.” The company was in a much better position when oil was between $90 and $100, but with its recent fall down to $62 meant that Talisman were unable to negotiate or refuse a potential buyer like Repsol.
Mergers and acquisitions such as these have long been expected since Halliburton bought out Baker Hughes back in November- larger companies choosing to exploit the falling oil price to expand and progress. Whilst the recent downfall of oil is offering some optimism and opportunities to stakeholders, it stands as a potentially devastating reality for many smaller oil firms who are unable to continue with such small margins.
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