TOTAL (TOT) To Expand Via Gulf Africa Petroleum Asset Buy

Integrated oil and gas company TOTAL S.A. (TO:TOT) announced that it will acquire Gulf Africa Petroleum Corporation's (GAPCO) assets in Kenya, Uganda and Tanzania. This acquisition is subject to approval from the authorities of the aforesaid countries. If the deal materializes, it will further expand TOTAL’s operation in the resource-rich African continent.

The acquisition will include two logistical terminals in Mombasa, Kenya and Dar es Salaam, Tanzania, as well as a retail network of around one hundred service stations. These assets will lend support to TOTAL’s existing operations in these countries.

TOTAL’s African assets were the second largest contributor to its total hydrocarbon production in the first quarter of 2016. It averaged 630 thousand barrels of oil equivalent (kboe) per day, which was 25.4% of the total production per day of 2,479 kboe. Strengthening African operations will undoubtedly be a boost for TOTAL.

TOTAL continues to sell and acquire assets with ease because of its financial flexibility. During the first quarter of 2016, the company acquired assets worth $193 million, primarily comprising the acquisition of a service station network in the Dominican Republic. On the other hand, it divested assets worth $885 million, including the sale of the FUKA gas pipeline network in the North Sea.

Apart from acquisitions and divestures, TOTAL focuses on organic growth. Thanks to 20 major start-ups across the globe, 5 of which are scheduled this year, TOTAL expects production in 2016 to improve from 2015 levels.

In spite of the recent rally in oil prices, they are still below previous highs. Soft commodity prices have led TOTAL to trim its capital spending by 15% year over year to $19 billion in 2016. This will, however, not have an impact on its production volumes.

TOTAL currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the space include Braskem S.A. (NYSE:BAK) , PetroChina Co. Ltd. (NYSE:PTR) and Sasol Ltd. (NYSE:SSL) . All three stocks sport a Zacks Rank #1 (Strong Buy).

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