Libyan NOC’s halt on Total’s Waha acquisition adds uncertainty to an already-risky deal

Total SA’s US$450 million deal to purchase Marathon’s 16.33% interest in the Waha Concessions in Libya could be in doubt. The deal, announced in March, follows years of efforts by Marathon to find a buyer as it looks to focus on its US operations, and continues Total’s recent strategic focus on acquiring low cost production. The deal value likely reflects many of the risks to be faced in Libya given continued instability, but the National Oil Corporation’s (NOC’s) recent statement that it is yet to approve the deal adds further uncertainty.

The Waha Concessions have historically been one of the most productive assets in the country, and in its announcement Total cited output of 300,000 boed (50,000 boed net to the acquired interest), with production expected to increase to over 400,000 boed by the end of the decade. Based on the current level of production, the transaction value appears relatively low at US$9,192/boed, compared to an average of US$15,976/boed for recent deals for onshore assets in the Middle East and Africa. However, instability in Libya has significantly hampered production in recent years and Marathon reported net production from the Waha Concessions of 0, 3 and 20 mboed in 2015, 2016 and 2017, respectively. Given the continued lack of a unified government in Libya and regular infrastructure shutdowns, the risk of further production outages must be factored into the valuation.

Table 1: Recent deals for onshore assets in the Middle East and Africa
Announced date	Deal brief	Country	Deal value (us$ mil)	Us$/boed
23 mar 2018	Itochu completes acquisition of shell Iraq from Shell EP Middle East Holdings for $550 million	Iraq	550.00	6,928.70
01 mar 2018	Total acquires Marathon Oil Libya from Marathon Oil for $450 million	Libya	450.00	9,185.55
10 oct 2017	Indian oil completes acquisition of 17% interest in Mukhaizna oilfield in Oman from shell for $329 million	Oman	329.00	2,741.67
13 apr 2017	Pico Cheiron acquires 50% stake in Sahara north Bahariya from EFG capital partners fund iii for $83 million	Egypt	83.00	20,750.00
24 mar 2017	Assala energy completes acquisition of shell’s upstream Gabon assets for up to $1.06 billion	Gabon	1,063.00	25,926.83
20 feb 2017	CEFC china energy acquires 4% stake in ADCO from ADNOC for approximately $888 million	United arab emirates	888.00	13,875.00
19 feb 2017	CNPC acquires 8% stake in ADCO from ADNOC for approximately $1.77 billion	United arab emirates	1,770.00	13,828.13
11 jan 2017	SDX energy completes acquisition of oil and gas assets in Egypt and morocco from circle oil for $30 million	Egypt; morocco	30.00	8,955.22
13 oct 2016	Valeura energy completes acquisition of Thrace basin natural gas from transatlantic petroleum for $20.9 million	Turkey	20.90	48,985.14
18 apr 2016	Rockhopper completes acquisition of beach petroleum from beach energy for up to $20.5 million	Egypt	20.50	15,769.23

Reuters reported sources saying that the NOC was considering a variety of options including negotiating for better terms or submitting a counter offer for the stake. One consideration may be the fact that the Waha Concessions are rare in that they are governed by a legacy concession regime with fixed margin terms, in contrast to Libya’s more recent Exploration and Production Sharing Agreement (EPSA) regime. Most other IOCs’ assets were transferred to EPSA terms in the late 2000s and the NOC has had a long-running dispute with Wintershall, the only other IOC with fields still under concession terms over its failure to transfer to the EPSA regime.

If the NOC were to look to use the passage of the deal as leverage to alter terms, then this could have a significant effect on value. GlobalData analysis suggests that a change to similar EPSA terms as those into which other concessions were transferred could reduce the value of the asset by over 65%. Trying to balance Total’s need to account for the risk level with the NOC’s desire to achieve what it sees as a fair result for the country may make for protracted negotiations, particularly in a volatile political context.

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