Weekly Update: Total completes solar power deal that aligns green energy, green dollar principles

It was a quiet week for upstream oil & gas deals with just $360 million of new deals announced. This total falls well short of the average weekly total of the past few quarters of $4 billion per week and leaves the Q2 2011 total so far lagging below the previous 6 quarters. To find a quarter with a smaller upstream deal total we have to go back to Q3 2009, a quarter in which much of the world was officially in recession following the credit crisis.

Although new deals were not particularly forthcoming one significant deal came to a close this week, with Sunpower announcing the results of Total’s offer to acquire 60% of Sunpower’s stock. For many years, oil and gas companies have been trying to communicate their green credentials with the level of fanfare of their forays into the renewable or clean energy sectors often contrasting with their actual levels of investment. What is noteworthy about Total’s acquisition of the solar power company however is that they committed a total of $1.3 billion to the deal, and regardless of whether the deal aids Total’s PR or not, the deal makes commercial sense due to the strong operating profits of Sunpower, which has resulted in a competitive annualised EBITDA multiple for the deal of 6.5.

As for the newly announced deals, the Eagle Ford Shale play for the second time in recent weeks accounted for the largest deal of the week, with SM Energy entering a deal to cash in 15,400 acres in the play for $225 million to an undisclosed acquirer. The cost for the currently non-producing assets worked out at $14,600 per acre, a figure 40% lower than Marathon Oil’s acquisition in the play a fortnight ago for a more developed set of assets.

In Alaska, Australian company Linc Energy expanded their existing portfolio of assets in the state, with a $50 million acquisition from Renaissance Umiat LLC. The assets, which contain 3P reserves of 200 million boe were acquired for just 25 cents per barrel, a price that takes into account an asset that is not yet connected by road or by pipeline to the Trans-Alaska Pipeline System. If the asset was gas weighted it is doubtful that it would even prove to be commercial as BP and Conocophillips’ withdrawal from its North Slope pipeline project testified. The asset however is weighted towards oil and peak production once development work is complete and the asset is connected to the Trans-Alaska Pipeline System is estimated as 50,000 boe/d.

In Wyoming, Breitburn Energy Partners acquired oil weighted assets for $58.1 million. There was little detail on the location of the properties other than the state or who the assets were acquired from. The deal however marks the first significant acquisition by Quicksilver since their 2007 deal with Quicksilver that resulted in Quicksilver owning 41% of the company stock.

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