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Stock of the Day
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Total SA (TOT)
Total SA Enters Joint Venture with Chesapeake Energy
The oil crisis across the world and declining oil prices has caused many energy companies to rethink their overall strategy. Many have chosen to divert their attention to new energy sources in preparation of a shift in demand from consumers while others have chosen to capitalize on the current low energy prices. France's Total SA has decided to diversify its portfolio and snap up a 25% stake in Chesapeake Energy (CHK: Charts, News, Offers). What factors led to Total SA making this decision? Will this deal take the company to the next level or will it leave the company stuck in neutral?
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| Daily Chart |
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| Stock Analysis |
Total has agreed to pay $800 million in cash and provide $1.45 billion toward the fields' development up to six years for the stake in Chesapeake Energy. At first glance, it appears that the company overpaid for the stake, but analysts believe the price is in line with recent transactions. This deal is just the latest in a string of similar investments by U.S. and European rivals in North American shale gas, which proves to be harder and more expensive to extract than gas from traditional reservoirs. Why have Total and these other companies all of sudden become so interested in this type of venture?
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Most of these companies, including Total SA, are hoping that growing demand for energy will boost gas prices from their current depressed levels, ensuring fat returns on their investments. In addition to this, the deal will provide Total additional production of 30,000 barrels of oil equivalent per day of gas, and reserves of 130 million barrels of oil equivalent. The company's investment in additional drilling has the potential to double the amount of reserves. Total's CEO said the deal will allow the company to develop its expertise in unconventional hydrocarbons in order to expand its business worldwide. All things considered, this appears to be a good deal for Total and may be the trigger to propel the company to the next level. The company has placed itself in a good position because of the nature of the deal. If gas prices rebound to their previously elevated levels, the company will watch profits skyrocket higher. However, shale gas production is facing growing scrutiny from regulators and tougher opposition from environmentalists. If this scrutiny continues to grow, the company may find itself on a bumpy road to success.
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Investors are anxious to see if the deal will play out in the manner that the two companies are hoping for. Nonetheless, the news provided some momentum on stock exchanges. Natural gas companies were trading higher following the news. Shares of Chesapeake Energy jumped 5.3% to $27.25, fueling generous gains in the energy stocks on Monday. Total rose 2.7% to $65.77.
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Other Stocks in the News
Nestle Sells Alcon Stake to Novartis - Nestle SA will buy back 10 billion francs ($9.6 billion) of stock after selling its stake in Alcon Inc (ACL: Charts, News, Offers).
Rite Aid Same-Store Sales Drop - Drugstore chain Rite Aid Corp. (RAD: Charts, News, Offers) said that sales at stores open at least one year fell 1.8 percent in December, marking the seventh straight month of declining sales.
Morgan Stanley Upgraded - Analysts at two major Wall Street firms upgraded their investment ratings on Morgan Stanley (MS: Charts, News, Offers).
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Profile |
Click here to view a detailed profile of Total SA.
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