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Spain's Repsol has agreed to buy Talisman Energy, Canada's fifth-largest independent oil producer, for $13 billion, showing how the drop in oil prices is pushing energy companies to take the plunge on big M&A deals.
A near halving in the oil price since June has lowered price tags on producers like Talisman, spurring renewed interest from Repsol which has long been searching for oil and gas assets in North America and elsewhere.
But analysts said the Spanish company had paid a hefty price for Talisman and in the long term it could have to consider a sale of its 30 per cent stake in Gas Natural.
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Repsol chairman Antonio Brufau told analysts the group was not considering such a sale and would also not be rushed into divesting some of the Talisman assets that overlap with Repsol.
"We don't need to sell our stake in GasNat (Gas Natural) to do this deal. For us GasNat brings stability, dividends, optionality," Brufau said.
The proposed acquisition will boost Repsol's exploration and production arm and fill a gap left by the seizure of its Argentine business YPF in 2012. It will also help to cut the company's reliance on high-risk oil producing areas such as Libya and Venezuela.
CEO Josu Jon Imaz said: "It's the right moment because now our valuation of Talisman assets is higher than the price we are paying... so the sooner, the better." He said Talisman had what Repsol was looking for: growth in upstream business, geographical diversification and shale assets.
Repsol shares were 1.9 per cent lower at euro 15.395 by 1035 GMT. Shares in Talisman rose 46 per cent to $7.45 in trading before the morning bell in New York after closing on Friday at $5.12 a share.
Barclays analysts said in a note: "For this price Repsol gets a business that is free cash flow negative with a problematic North Sea business of questionable value, but also what it considers attractive assets in Canada, Latin America and South East Asia."
