Good morning, and welcome to this call concerning our sale of Maersk Oil. This is Søren Skou speaking. I'm joined by our Vice CEO and head of the energy division, Claus Hemmingsen, as well as our CFO, Jakob Stausholm. As always, I would like you to start by inviting you to look at the comments about forward-looking statements. As you all know, this morning we announced that we have signed an agreement to sell Maersk Oil to Total for $7.45 billion. We are selling the company with financial effect from the 30th of June 2017, although we expect to close only in the first quarter next year. It is a combination.
We're getting a consideration, which is a combination of shares and debt or cash pushed down, debt pushed down in Maersk Oil, which is then repaid. The net effect of that is that we are getting $4.95 billion in shares, equal to about 3.76% of Total, and we are getting $2.5 billion of cash out of the transaction. In addition, I can say that Total will be paying us a 3% interest on the $7.45 billion until the closing of the transaction. Total are acquiring all of Maersk Oil, including the entire organization, the global portfolio, and also assuming all the decommissioning obligations.
It's currently on our balance sheet with $2.9 billion. The transaction will be subject to regulatory approval and as I said, we expect to close in the first quarter. This means that we will for accounting purposes classify Maersk Oil as held for sale and discontinued operations and will be excluded in our guidance going forward. There will be a transaction gain after tax of around $2.8 billion from this sale. We believe that this is attractive value and with this price we are getting full value for Maersk Oil as the quality company that we believe it is.
We have in getting to this result considered all of our options including IPO but have concluded that a sale to Total is our best option considering the value considering the deal certainty the speed and the risk profile of this transaction. As we said and have said repeatedly both in our announcement of the 22nd of September last year and then also at our capital markets day we aim to have credit metrics in line with investment grade rating. Therefore we will use the tax proceeds the two and a half billion dollars from this transaction to reduce debt in A.P. Moller - Maersk.
In addition, we are saying today that we, subject to meeting our investment grade objective, we plan to return a material portion of the value of the shares received in Total to our shareholders during 2018-2019 timeframe, in the form yet to be decided, but of course we are considering both extraordinary dividends, share buyback, and/or distribution of the shares themselves, in some kind of combination. More to be said on that later.
With this sale, 11 months after we announced our intention to focus our business on container shipping, on ports and logistics, and announced the intention to separate out individually our four energy related businesses, Maersk Oil, Maersk Drilling, Maersk Supply Service, and Maersk Tankers, we believe we are making a material step forward, making progress towards achieving this strategic plan. We are seeing this actually not as the first transaction in this direction, but as the second, as we also announced on the first of December, as you all know, the acquisition of Hamburg Süd, so we are investing in the future core business.
Now, Claus Hemmingsen and his team have worked really hard on getting to the first solution and continue to work on the next, and I would like to hand over to Claus, who can share some of the considerations we've had for coming to this decision.
Yes, thank you, Søren, and as you already expressed, we started 11 months ago since the announcement twenty-second of September to commence the work with finding separation opportunities for the four businesses in the energy division of A.P. Moller - Maersk. For Maersk Oil in particular, much like the others, we have been looking into possibilities of a standalone listing. We have looked into merger possibilities, and we have also obviously looked into a trade sale opportunity. It's important here to say that we have had many considerations in selecting the right solution, and we find that Total is a very fine and best owner of Maersk Oil going forward.
The transaction we have here, as already alluded to, ensures the financial flexibility and the capital structure of A.P. Moller - Maersk, and we feel with the value of this $7.45 billion, we are optimizing shareholder value for all our shareholders in A.P. Moller - Maersk. It has also been extremely important to us to find the right owner for Maersk Oil's activities and assets, and staff and colleagues, and here they become part of the fourth largest and a leading global oil and gas company, who has a dedicated and a committed long-term investment interest in the sector. We have from Total a declared interest in continuing development, not only in the Danish sector but also in the international projects that Maersk Oil has. There are also commitments to the Danish activities.
In fact, the head office for Norway and Netherlands and Denmark will be placed in Denmark. Actually, what Total is acquiring is a very strong performing company. Maersk Oil is one of the leading operators in the Danish sector with a proud heritage, and I dare say, one of the founder of the oil and gas industry in Denmark. As I said, one of the leading players. There are material projects that are available to Total through the acquisition of Maersk Oil, not least the Culzean project in the UK and the Johan Sverdrup project in Norway, but also numerous other projects in the global portfolio.
Maersk Oil in second quarter produced 284,000 barrels per day, and they have declared that at the end of 2017, the production will be around 150,000-160,000. Total takes over all that. They take over the 2,800 employees who will have, in our view, brilliant opportunities for future career developments. As you have also noted, they do take over the abandonment obligations that Maersk Oil has. All in all, it's been important to balance the value for the shareholders and the value for A.P. Moller - Maersk and find the right and correct future home for Maersk Oil, and we believe we have achieved that.
Thank you, Claus. We are now ready to take questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. This session will end no later than 11. If you have a question and you haven't already, please press zero and then one on your telephone keypad, and you'll enter the queue. After I announce you, just ask your question. There'll be a small delay before the first question is announced. Okay, our first question is from the line of Johan Eliason at Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Thank you. Congratulations to a good price, I think. Could you just remind us about your debt targets for the sort of focused transport and logistics business eventually, and what that means in terms of dollar value as well, if you have any indication to give to us? Secondly, any update on the drilling divestment? We are seeing a lot of consolidation right now in that industry. Will we see something soon for drilling as well? Thank you.
Thank you. I'll turn that question over to Stausholm, except to say that, for clarification, we are ending this session at 10:30. As far as the drilling transaction, I'll say, and Claus can say that in many more ways than I can, but we will communicate about the other transactions as they happen, when we have something to tell. We are working hard to finding strong solutions also to the three other companies, but we will only provide commentary on that once we have something to comment on. Johan, if you will, take the debt question.
Yeah. Thank you. We're not operating with sort of, say, exact debt targets as we go along. It's a major transformation we're going through. We are preparing, of course, structural solutions for all the energy-related businesses. I think the way to look at it today, you're being told, first of all, what we transacted at. It is a so-called lockbox transaction, so subject to closing. This deal is effectuated by the end of June. It basically means that we have reduced our oil exposure and that we reduce our debt by $2.5 billion. How we are going to distribute the latter part?
Well, first of all, we have some time to think about it because we cannot do anything before we have a closing, which we plan to be in Q1. Of course, we will take into consideration other considerations of the other energy businesses. There's no firm deals, and therefore, we have no updates on this right now. I think the key thing for us, the guiding star is that we remain investment grade throughout the change and afterwards. We have no wish to be overcapitalized as A.P. Moller - Maersk, but we have a wish to remain investment grade.
Okay. Very clear. Thank you.
Okay, our next question is over to the line of Neil Glynn at Credit Suisse. Please go ahead. Your line is open.
Oh, good morning. Just a couple of quick questions. I guess clearly there's been a lot of management time invested in getting to this point, and I'm just interested in terms of the management of the underlying business. Do you now pause and focus solely on underlying developments, and take a little bit of a break before turning attention to the rest of the energy businesses? Or is that should that be viewed as an ongoing development and top priority getting towards disposal number two?
The second question with respect to debt capacity of the other divisions, you've obviously, there's obviously a pushdown of debt into Maersk Oil. Is that the best way to think about intentions for Maersk Drilling, Maersk Tankers and Maersk Supply Service in terms of the amount of debt you would ideally like each of those businesses to take with them, on disposal?
Yes. Thank you. In terms of of management main focus then, we have set ourselves up, I believe, to deal with this separation, in a practical way. Claus Hemmingsen, our wise CEO, and his team works 100% of their time on figuring out how to separate the four businesses out and the management teams in each of the four businesses run them as effectively as they possibly can, reporting to Claus in this process. We are also, and certainly I and the rest of the transport and logistics management team is working hard every day in terms of delivering good results in Maersk Line, in APMT, in Damco and so on.
I do believe we have organized ourselves in as practical a way given the job at hand. Again, Jakob, if you will take the debt question.
Yes. I don't think you can project what we are doing in this case to what we might consider in the other cases. I think it is really a case by case. Let me give you the example. If you look at the case here, Maersk Oil, basically we are handing over the company at a time where we are getting out of Qatar and entering a very significant investment program, particularly around Johan Sverdrup and Culzean. That means that we are having probably for a period of time, negative free cash flow. So taking away decommissioning obligations and the not taking away a positive free cash flow and then getting in the cash we see as an attractive metrics.
We might look at it different for the other businesses. Obviously Maersk Oil is the one that makes most money in the energy sector. We will just use the whole tool set for how we go about it. The key thing though is that the credit metrics is for the whole company and therefore we keep on monitoring the whole program against our balance sheet. I hope that's gives you some guidance.
That's helpful. Thank you, Jakob.
Okay, our next question is over the line of Dominic Edridge at UBS. Please go ahead.
Hello, thanks for taking the question. Just a couple from me. Just, I was wondering if you've had any conversations with the credit rating agencies because, obviously in the past, I know shipping and the investment grades have often been oxymorons with each other. It's not been very usual for a shipping company to have investment grade, and I believe that your diversification has also been seen as a positive in that light. Maybe if you could just say if you've had any preliminary discussions with them as to what the impact would be of the deal. Then the second question was just on the financial impact. Could you just remind us beyond the NOPAT, could you just say where do the abandonment provision unwind, et cetera?
Does that go through in the financial section, or is there additional P&L impacts over and above just deconsolidating Maersk Oil? Thank you very much.
Yeah, thank you. We manage our rating agencies in a proactive manner. They are corporate insiders. That means that we can talk to them about our plans, and we can talk to them in advance, and we do so. We have done so last year with what we were guiding you around retaining investment grade at our capital markets day, and we have done so in this case here as well. Obviously they're independent bodies, and we'll see how they react to this. At least the dialogue has been there, and I think we have a good understanding of how they look at our company.
With regards to the impact on NOPAT, it's gonna be complicated accounting that we are faced with, but I can tell you that the obligation, the abandonment provisions is not gonna have any impact. We have provided for it, and we will just be lifted for the obligation and lifted for the liabilities. Obviously our business now will, when we come with our Q3 results, be classified as discontinued operations and be a separate line, with whatever the accounting rules that requires us to change in that regard. But I think you actually have the key part. There's nothing missing in our press release to see the economic impact there, but the NOPAT is a bit difficult to calculate.
It will come over the year as we earn money, and then the residual will come at the closing, the accounting gain. Thank you.
Great. Okay, thank you very much.
We're now over to the line of Lars Heindorff at SEB. Please go ahead. Your line is open.
Thank you. 2 questions from my part. Firstly, regarding the net financials, the interest rate that you get on the enterprise value is fairly substantial. I don't know if you could give us an indication and also draw some lines towards the guidance on net financials that you gave last week in connection with Q2 reports. That's the first one. The second one is regarding cash flow. I understand that Total is taking over all obligations from the end of June, but until closing in Q1, who will then obtain the right for the cash flow in Maersk Oil?
Yeah, Lars, just very
I think the way to look at this is that Total is paying us a 3% interest rate until closing. If we close sometime in the first quarter, it could be $100 million-$125 million of interest payments. It's a lockbox transaction, which means that Total takes over the financial responsibility for the company from the thirtieth of June, and that means that they will also have the cash flow and do the CapEx.
Okay. All right. Thank you very much.
We will of course be financing the company until closing.
Yeah. Yeah. Maybe a follow-up on the tax. I know you said that the gain is tax-free, but do you pay any tax at all on the proceeds?
There's no tax in that transaction. There could be some taxes related to whatever we decide when it comes to distribution, but on the transactions, there's no tax.
Okay, very clear. Thank you.
Okay, we now go over to Patrick Creuset at Goldman Sachs. Patrick, please go ahead. Your line is open.
Hi, good morning, and congrats on the swift execution. There's only one question left for me, which is, do you have any lockup on the Total shares?
That's an easy question. No. The answer is no.
All right. Thank you.
We now go to the line of Thijs Berkelder at ABN AMRO. Please go ahead. Your line is open.
Yeah. Congratulations on the deal. One question. In the past, you more or less hedged your oil exposure in the transport and logistics by being long in Maersk Oil. In the near future, how do you plan to hedge your oil position in container shipping? Is that via hedging policy or can you maybe explain that?
We currently do not do financial hedges of our bunker exposure. We certainly don't have any plans to change that before closing. We may decide to change our policy next year, but that is something that we consider as we speak.
Okay. Clear. Thanks.
Our last question for today is over to the line of Joel Spungin at Berenberg. Please go ahead, Joel. Your line is now open.
Good morning. Two very quick ones from me. First of all, sorry, just to clarify your earlier comment about the $100 million-$125 million of interest payments that you expect to receive. Does that impact the $500 million of net financial costs that you gave in the guidance at the end of the second quarter? And then just one other thing, which was, I think I saw that Total said that you had been offered a seat on the board of Total. I was just wondering what your considerations are with regards to that and whether you intend to take up that offer.
Yeah. On the last question about the Total board seat, it is correct that Total, given the fact that we become the third largest shareholder, I believe, in Total, have offered a board seat. We are still to consider and decide what to do with that at this point. On the interest and-
Yeah, I think the way you should look at this interest is we're basically selling Maersk Oil for $7.45 billion at 30th of June. When we come to closing in January, you basically should see that we will get $7.55 or whatever the amount will be exactly on the day we close. You could also just say that the sales price is slightly higher. It will not go in a separate line. It will just be part of the overall accounting for the transaction.
Right. No impact on the DKK 500 million guidance given at the last update?
Correct.
Okay. Very clear. Thank you.
Okay. I believe that was the last question. Thank you for calling in and thank you for your questions. Have a good day.