Italian Eni settles the $4.9 billion acquisition of Neptune Energy

Italian energy giant Eni and Norwegian oil and gas company Far Energy have announced an agreement to acquire Britain’s Neptune Energy Group, whose portfolio is cost-competitive and with low operating emissions, in a deal valued at $4.9 billion.

The Neptune Energy Group is a leading independent exploration and production company, with a global portfolio of gas-oriented assets and operations in Western Europe, North Africa, Indonesia and Australia, according to the website of the Italian company (eni) on June 23.

Neptune was founded by Sam Laidlaw in 2015 and is currently owned by China Investment Corporation, funds managed by Carlyle Group VC Capital Partners and some management owners, according to a report seen by the specialist energy platform.

The assets comprising the Neptune portfolio will be fully acquired by Italy’s Eni except for operations in Germany and Norway, operations in Germany will be excluded prior to the Eni deal, and Far Energy will acquire Neptune in Norway directly from Neptune under a separate share purchase agreement.

The Far Energy transaction would close immediately prior to the Eni deal with the proceeds from the sale of Norway remaining with Neptune Global Business, which Eni had bought.

Far Energy is a company listed on the Oslo Stock Exchange and 63% owned by the Italian company Eni.

The significance of the deal

Under the terms agreed upon, Neptune Global Business will have an enterprise value of $2.6 billion, while Neptune in Norway will have an enterprise value of $2.3 billion.

As of December 31, 2022, the net debt of Neptune Global Business, formal to the sale of Neptune in Norway, is $0.5 billion.

The final net price of both deals will be subject to the usual closing adjustments, will be paid in cash on completion, and the Italian Eni deal will be funded with available liquidity.

The deal represents an exceptional occasion for Eni, as it complements the main areas of the company’s geographical focus, supports its goal of increasing the share of gas production to 60%, and reaching carbon neutrality (Scope 1 and 2) of its exploration and production business by 2030.

The deal is in line with Eni’s strategy to offer society affordable, safe and low-carbon energy, for which natural gas remains an important resource.

The deal is in line with the Italian company’s operational and financial framework, as well as the objectives set out in the company’s 2023-2026 plan, which achieve profits, cash flow accumulation, additional value and higher returns for shareholders.

Deal advantages

As of December 31, 2022, proven and probable reserves of 484 million barrels of oil equivalent have been reported, of which 386 million barrels of oil equivalent are net for Eni’s portfolio, of which 80% is natural gas.

The value of the deal is equivalent to the cost of acquiring proven and probable reserves of $10.1 per barrel of oil equivalent, plus a significant increase in additional unit resources, as monitored by the specialized energy platform.

For the year ended December 31, 2022, Neptune Energy reported revenue of $1.22 billion and EBITDA of $0.95 billion for Neptune Global Business.

The deal will add about 130,000 barrels of oil equivalent per day to the portfolios of the Italian companies Eni and Far Energy. In light of this, Eni estimates that the deal will add more than 100,000 barrels of oil equivalent per day from low-emissions production during 2024-2026, of which more than 70% It will be natural gas.

This compares to Eni’s 53% in 2022, which is roughly enough to supply OECD markets via pipelines or LNG shipments.

Italy’s Eni expects more than $0.5 billion in general, administrative and industrial expenditure reductions, with additional cost reductions, exploration and development, including more carbon capture and storage, and potential for equity capital appreciation.

Analysts expect the deal to grow immediately thanks to earnings and operating cash flow per share, as well as positive free cash flow.

The transaction is in line with Eni’s 2023-2026 plan presented in February 2023, in particular the directions for net positive contributions of €1 billion ($1.09 billion) from portfolio activities over the period, and €37 billion ($40.29 billion) of core capital expenditures over the period. .

This plan includes achieving a compound annual growth rate for production in the period 2023-2026 of 3-4%, mostly through organic investment, in addition to the net effect of high-quality inorganic activities.

Eni will consolidate new assets that provide additional value, while disposing of others during the restructuring of its portfolio.

Low Carbon Wallet

Commenting on the transaction, Eni’s CEO, Claudio Descalzi, said, “This transaction provides the company with a high-quality, low-carbon portfolio with exceptional strategic and operational integration.”

The Italian Eni believes that gas is an important transitional source in the global energy transition, and the company focuses on increasing its share of natural gas production to 60% by 2030, according to the website of the Italian company (eni) on June 23.

In turn, Neptune Energy Group will contribute predominantly gas resources to Eni’s portfolio.

“The geographical and operational overlap is distinct, which adds scope to Var Energy, which is majority owned by Eni, and brings more opportunities for gas production, carbon capture, storage and utilization in the North Sea,” said Claudio Descalzi.

Descalzi pointed to the Italian Eni’s leading position in Algeria, which is a major supplier to European gas markets, and the consolidation of Eni’s presence in Indonesia’s offshore fields, and the supply of liquefied gas to local markets from the Bontang terminal.

Descalzi expected that the additional supply would provide further optimization opportunities for Eni’s global gas and liquefied gas portfolio operations.

He explained that the deal adds about 4 billion cubic meters of gas supplies to European consumers, noting that a crucial element of the deal is the low-cost supply and cumulative cash flows it provides to Eni.

He said, “Therefore, the deal supports our commitment to distributing attractive and flexible dividends and adds to the possibility of repurchasing shares that constitute the balance of 25-30% of the profits and cash flows from the operations that we have committed to distribute.”

He hinted that the nature and challenges of the energy transition require a focused response, especially since this transaction highlights two important aspects of Eni’s financial strategy, namely the flexibility and discretion offered by the strong liquidity and low leverage of the balance sheet.