Total Embraces Political Risk With $450 Million Bet on Libya

(Bloomberg) -- Total SA isn’t averse to adding political risk to its portfolio.

The French company just acquired Marathon Oil Corp.’s Libyan assets for $450 million in a move that will more than double its production in the North African nation where output is frequently disrupted by a civil war. Chief Executive Officer Patrick Pouyanne is betting the low-cost fields will increase production by more than a third by the end of the decade.

“Total has a long history of operating in Libya, and is obviously comfortable with the risk-reward balance,” said Luke Parker, an analyst at consultant Wood Mackenzie Ltd. Libya’s “stability has improved, but the lack of a central government means the risks of tribal disputes and labor strikes blockading critical infrastructure remain acute.”

Pouyanne’s no stranger to bold moves. Last July, Total was the first Western major to sign a contract with Iran since U.S. and international sanctions were eased in January 2016. Yet, Total’s boss is waiting to see what the U.S. will decide regarding Tehran before making his final decision to develop the giant South Pars 11 gas field in the Persian Gulf, which would require the company to invest about $1 billion.

To be sure, the CEO has recently rebalanced the group’s exposure toward resources in the North Sea, the Gulf of Mexico and Brazil’s deep offshore, with the $7.45 billion acquisition of A.P. Moller-Maersk A/S’s oil unit and a $1.95 billion deal with Petroleo Brasileiro SA. That’s in addition to the $1.5 billion purchase of Engie SA’s upstream LNG business, and expansions in petrochemicals projects from South Korea to Texas.

Those acquisitions will modify Total’s geographic exposure, although recent project startups in West Africa and at Russia’s Yamal gas project will also have an impact.

©2018 Bloomberg L.P.

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