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Italy’s Eni has agreed to acquire private equity-backed Neptune Energy for $4.9bn in the largest cash deal in the European oil and gas sector for almost a decade.
London-headquartered Neptune produces oil and gas from fields in eight countries, including the UK, Norway, Germany, Algeria, the Netherlands and Indonesia, where it already shares a licence with the Italian energy major.
Under the terms of the deal announced on Friday, Eni will acquire Neptune for $2.6bn, while Var Energi — Eni’s Norwegian listed subsidiary — will acquire the company’s operations in Norway for $2.3bn. Eni owns 63 per cent of Var Energi.
The transaction is particularly significant given European oil majors such as Eni, BP and Shell have been more likely to sell oil and gas assets than to buy them since setting targets to cut carbon emissions and shift to greener forms of energy.
Bob Maguire, a managing director at Carlyle, which owns 30.6 per cent of Neptune, said the company’s portfolio of producing gasfields, many of them close to or with access to European markets, had made Neptune attractive to Eni, particularly as it sought to replace gas it had previously secured from Russia.
Neptune produces about 135,000 boe/d, roughly three-quarters of which is natural gas. About 10 per cent of its production comes form UK waters.
”This transaction delivers to Eni a high-quality and low carbon intensity portfolio,” said Eni chief executive Claudio Descalzi. “Eni sees gas as a critical bridge energy source in the global energy transition.” Eni is 30 per cent owned by the Italian government.
Since acquiring the assets from French utility Engie in 2017 for $3.9bn, Carlyle and Neptune’s other shareholders have invested more than $4bn in expanding the resource base, reducing the carbon intensity of operations and developing the potential for future carbon capture and storage, Maguire told the Financial Times.
“For that reason, it’s an attractive business. It represents an opportunity for a strategic buyer like Eni both to replenish its reserve base . . . but also to be accretive to its own carbon metrics,” he added, pointing to the lower carbon intensity of much of Neptune’s production, particularly compared with conventional oil.
The state-owned China Investment Corporation owns 49 per cent of Neptune and private equity group CVC Partners owns 20.4 per cent. The shareholders had initially targeted an initial public offering last year but faced insufficient interest from public markets that are increasingly reluctant to invest in oil and gas producers.
Founded in 2015 by Sam Laidlaw, the former chief executive of Centrica, Neptune made a net profit last year of $924.4mn from revenues of $4.6bn, and had net debt of $1.7bn.
Carlyle declined to comment on the return it will make on its investment in Neptune if the deal is approved.
Parminder Singh, a managing director at Carlyle, said the investment had demonstrated the fund’s thesis that returns can be made by investing in oil and gas assets that are often “overlooked by the market”.
“There’s going to be significant oil and gas production for decades to come. We know that but someone has to own that in the right way,” he said.
In the UK and the Netherlands, Neptune is developing CCS projects that aim to pump more than 9mn tonnes of carbon dioxide a year from British and Dutch emitters into the company’s depleted reservoirs.
If successful, that would exceed the 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 that we emit.”
The transaction is expected to close by the end March 2024. Neptune’s assets in Germany are not part of the deal and will continue to operated by the current shareholders.
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