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TOTAL to Expand Egyptian Retail Op. - Analyst Blog

Posted
8/29/2013 4:30:00 PM
By: Zacks.com
Referenced Stocks:CVX;PTR;RDS.A;TOT

Integrated oil and gas company TOTAL S.A. ( TOT ) has decided to acquire Chevron Corporation 's ( CVX ) Egyptian retail network for an undisclosed amount. This will further expand TOTAL's retail operation in Egypt, as in May 2013, the company decided to buy the Egyptian retail assets of Royal Dutch Shell plc. ( RDS.A ).

TOTAL jointly with its Egyptian partners, Beltone Capital and Beltone Private Equity ("BPE") Energy, will acquire the downstream assets of Chevron. Chevron's retail assets include 66 service stations, two oil depots and the aviation fuel operations at Cairo and Marsa Alam airports. The annual sales from these assets touched nearly 1.4 million tonnes in 2012.

TOTAL has been expanding its operations in Africa, so much so that its maximum production output comes from this continent. In the second quarter, nearly 30% of its 2,290 thousand barrels of oil equivalent (kboe) per day came from Africa. However, TOTAL's downstream operation in Africa is comparatively weak compared to other regions.

TOTAL has been working to strengthen its downstream operations following the restructuring of its business. The decision to acquire the downstream assets will expand its footprint in Africa. With the asset purchase from Royal Dutch Shell and Chevron, the service capacity in Egypt will exceed 3 million tonnes, with a network of 218 service stations. These assets will allow TOTAL to control 14% of the Egyptian retail distribution market.

Despite the likely positives, we cannot help but ponder on the rationale of these downstream acquisitions. TOTAL has decided to purchase assets from two big international oil and gas players in a country which is presently rocked by political instability. Even though the company did not disclose the purchase consideration, it appears that TOTAL might have purchased the downstream assets at discounted prices.

The political imbroglio in Egypt is far from over and has started to impact the national economy. Tourism which contributes nearly 10% to the Egyptian economy is beginning to take a hit. If the deadlock continues TOTAL will find it difficult to realize synergies in the near term.

TOTAL S.A. retains a Zacks Rank #3 (Hold). PetroChina Co. Ltd. ( PTR ) currently has a Zacks Rank #2 (Buy) and is worth considering.



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