Wood Mackenzie Consultants Ltd., Edinburgh, sees the proposed merger of France's Total and Belgium's Petrofina SA as generally complementary (OGJ, Dec. 7, 1998, p. 37). The companies will have a little overlap that needs to be dealt with, says the analyst, but "overall, the assets look complementary."
The merger puts the new company into the second tier of international petroleum companies, alongside the likes of Chevron Corp. and Texaco Inc., says Wood Mackenzie.
"The merger raises no apparent regulatory problems," said the analyst, "as it conveniently keeps the company's market size at or below levels usually considered excessive by the authorities. And, in particular, the new company achieves critical mass in the heart of Europe-France, the Benelux countries, and the U.K. However, there are some caveats."
Downstream fusion
Wood Mackenzie said Total Fina expects to save $340 million in combined income over 3 years. Most of the synergies and cost savings of the combine will come in the downstream sector, with most of the overlap being in Europe."In Europe," said Wood Mackenzie, "the merged Total Fina will have an estimated overall products market share of about 8%, which will place it fourth behind Shell (12.5%), BP-Mobil (11%) and Exxon (10%)."
In France and Belgium, the combine will have a market share approaching 25%, making it the clear market leader and putting it ahead of rival Elf in France.
Total Fina will be the third largest refiner in Europe, behind Exxon and Shell and marginally ahead of BP-Mobil. The companies currently jointly own the Lindsey refinery in the U.K., where single-company management should bring savings.
Although common management of the firms' nine refineries will yield savings, there is no indication yet of any plans to reduce capacity.
"It would appear that the Total and Fina brand names will be maintained separately, so missing one of the key benefits of the BP-Mobil joint venture. And how much sense does Petrofina's U.S. refining and marketing presence make, given the relatively modest size of the operation and the fact that Total has only relatively recently reduced its involvement there?"
Of Total Fina's other refineries, the three at Antwerp, Gonfreville, France, and Vlissingen, the Netherlands, are high-quality, sophisticated plants, as required in current highly competitive market conditions.
"The presence of two facilities in the Benelux area is not ideal, though," said Wood Mackenzie. "In order to capture all the refinery efficiencies, it is likely that Total Fina will have to address the other refining assets in the portfolio, with a view to perhaps closing the less competitive sites. In this context Total's Mardyck refinery and minority share in Reichstett must be questioned.
"In terms of products supply/demand, Total Fina will be broadly balanced on middle distillates and fuel oil but have a large surplus of gasoline. However, given the high quality of the gasoline, finding export markets-even within Europe-post the European Union 2000-05 fuel specifications should not be a problem."
Upstream synergies
As for the upstream sector, Wood Mackenzie said the Total Fina combine will have reserves of 5.7 billion boe, with 1998 production expected to amount to 1.1 million boed.Total's core production areas are the Middle East, the Far East, Latin America, the U.K., and Norway, while Fina's key area is Norway, with the U.K. and U.S. providing significant output.
"Total and Fina both currently have upstream operations in Norway, the U.K., the U.S., Angola, Tunisia, Ireland, and Azerbaijan, which should allow cost savings," said the analyst. "The main impact on Total's upstream portfolio will be the substantial boost to its position in the North Sea, which helps to reduce weighting in the Middle East and Far East."
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