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Italy’s Eni has agreed to acquire private equity-backed Neptune Energy for $4.9 billion in the largest cash deal in the European oil and gas sector in nearly a decade.
London-based Neptune produces oil and gas from fields in eight countries, including the United Kingdom, Norway, Germany, Algeria, the Netherlands and Indonesia, where it already shares a license with the Italian energy major.
Under the terms of the deal announced Friday, Eni will acquire Neptune for $2.6 billion, while Var Energi — Energi’s listed Norwegian subsidiary — will acquire the company’s operations in Norway for $2.3 billion. Eni owns 63 percent of Far Energy.
The deal is particularly significant given that major European oil companies such as Eni, BP and Shell have been more likely to sell rather than buy oil and gas assets since targets were set for cutting carbon emissions and switching to greener forms.
Eni’s chief executive Claudio Descalli told the Financial Times that Neptune’s portfolio of gas fields, many of which are close to or have access to European markets, was “exceptionally adequate”.
“Obviously the trend is to get renewables or other green[energy projects]. . . but this is a deal that is in line with our trajectory of transition.
Eni expects demand for natural gas, which has lower carbon emissions than oil, to continue to grow as countries use more of the fuel as part of the transition to renewable energy. Eni wants 60 percent of its group-wide production to be gas by 2030.
Descalzi added, “I’m always very reluctant to do any kind of M&A deal, maybe assets, but companies are (very) very rare.” “I think that was exceptionally appropriate for Eni at this very moment.”
State-owned China Investment Corporation owns 49 percent of Neptune, while private equity groups Carlyle and CVC Partners own 30.6 percent and 20.4 percent, respectively.
Neptune produces about 135,000 barrels of oil per day, about three-quarters of which are natural gas. About 10 percent of its production comes from UK waters.
Since acquiring the assets from France’s Engie in 2017 for $3.9 billion, Neptune shareholders have invested more than $4 billion in expanding the resource base, reducing the carbon intensity of operations and developing future carbon capture and storage capabilities, said Bob Maguire, managing director. in Carlyle.
Because of this, it is an attractive business. It represents an opportunity for a strategic buyer like Eni to replenish its reserve base. . . But also to be cumulative with their carbon metrics,” he said, noting the low carbon intensity of much of Neptune’s production, particularly compared to conventional oil.
Neptune’s owners initially targeted an initial public offering last year, but failed to attract enough interest from the public markets, which are increasingly reluctant to invest in oil and gas producers.
Founded in 2015 by Sam Laidlaw, former CEO of Centrica, Neptune had net profit last year of $924.4 million on revenue of $4.6 billion, and had net debt of $1.7 billion. Shareholders have received $2.7 billion in dividends since 2018, according to Neptune.
Carlyle declined to comment on the return it would make on its investment in Neptune if the deal were approved.
Shares of Eni, which is 30 percent owned by the Italian government, fell 1.55 percent on Friday morning, while Far Energy rose 3 percent.
Parminder Singh, managing director at Carlyle, said the investment demonstrated the fund’s premise that returns can be achieved by investing in oil and gas assets that are often “overlooked by the market.”
There will be significant oil and gas production for decades to come. We know that but someone has to have it the right way.”
In the UK and the Netherlands, Neptune is developing CCS projects that aim to pump more than 9 million tonnes of carbon dioxide annually from British and Dutch emitters into the company’s depleted reservoirs.
If successful, that would exceed emissions from Neptune’s own operations and the use of the fuel it sells. “This is a business decision, we can either decommission that infrastructure or repurpose it,” Singh said. “The ambition is to store more carbon than we emit.”
The transaction is expected to close by the end of March 2024. Neptune’s assets in Germany are not part of the transaction and will continue to be operated by existing shareholders.