Total S.A. (TOT) increased its presence in Africa through the acquisition of Chevron Corp’s (CVX) 45.9% interest in the offshore oil block, which is in the Joint Development Zone (JDZ) in Nigeria . The acquired asset gels well with Total’s long-term strategy to expand its exploration and production operations in the Gulf of Guinea. This transaction is subject to approval by relevant authorities.
 
This offshore asset will be jointly operated by Total with Addax Petroleum JDZ 1 Limited, Dangote Energy Equity Resources and Sasol Exploration and Production Nigeria Limited. The JDZ is governed by a treaty signed by Nigeria and Sao Tomé and Principe in 2001 for a period of 45 years.
 
The acquired asset covers an area of 700 square kilometers in water depths ranging from 1,600 meters to 1,800 meters. This offshore block includes a discovery made in 2006. The assets acquired by Total are in close proximity to its existing facilities in Nigeria, which will enable the company to reduce operational costs by exploiting the infrastructure already in place in that region.
 
Total has exploration and production operations worldwide, with a major share of its oil production coming from its African oilfields. In 2009, 33% of Total’s production came from the African assets. In the first quarter of 2010, the company generated 746 thousand barrels of oil equivalents per day (kboe/d) from its African assets, which comprises 31% of the total production of 2,427 kboe/d.
 
In an effort to spur production, Total has been developing certain projects, which include Pazflor in Angola , Usan in Nigeria , Kashagan in Kazaksthan, and has started to develop Surmont Phase 2 in Canada and Laggan-Tormore in the UK North Sea from the beginning of 2010.
 
Total recorded first-quarter 2010 earnings of $1.42 per share, which shows a sharp increase from first-quarter 2009 earnings of $1.23, due to higher production and better oil realization. The Zacks Consensus Estimates for second-quarter 2010, fiscal year 2010 and fiscal year 2011 are $1.63 per share, $6.21 per share and $6.95 per share, respectively.
 
Based in Courbevoie, France, Total S.A. is an integrated oil and gas company with operations worldwide. As of December 31, 2009, it had proved reserves of 10,483 million oil-equivalent barrels (Mboe) of oil and gas. The major competitors of Total are BP plc (BP) and Exxon Mobil Corp. (XOM).
 
We believe the acquisition of the new oil field will allow Total to expand its operations in Africa, helping it to consolidate its existing infrastructure in Nigeria and Angola, and at the same time increase its production. The weak production outlook and the present constrained commodity environment are a cause of concern for Total, as it can squeeze the refining margins. We presently have an Underperform rating and Zacks # 4 Rank (Sell) on the stock.
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