Eni, the Italian energy giant, has confirmed its decision to purchase Neptune Energy, a private equity-backed company, for $4.9 billion, marking the largest cash transaction in Europe’s oil and gas industry in almost ten years.
Neptune, headquartered in London, has oil and gas production fields in eight countries, including the UK, Norway, Germany, Algeria, the Netherlands, and Indonesia. In Indonesia, Neptune already collaborates with Eni on a shared license.
According to the agreement announced on Friday, Eni will acquire Neptune for $2.6 billion, while Var Energi, Eni’s Norwegian listed subsidiary — in which Eni has a 63% stake — will purchase Neptune’s operations in Norway for $2.3 billion.
This deal holds special importance as European oil majors like Eni, BP, and Shell are more inclined to sell oil and gas assets rather than buy them, given their commitments to reduce carbon emissions and transition to more sustainable energy sources.
Bob Maguire, Managing Director at Carlyle — which owns a 30.6% stake in Neptune — pointed out that Neptune’s gasfield portfolio, with many fields in proximity to, or accessible to European markets, made it a desirable acquisition for Eni, especially as Eni seeks to substitute gas formerly obtained from Russia.
Neptune’s production is around 135,000 boe/d, with natural gas accounting for approximately three-quarters of this. About 10% of its production is sourced from UK waters.
“This transaction brings Eni a premium, low carbon intensity portfolio,” remarked Claudio Descalzi, Eni’s CEO. “Eni views gas as a pivotal transition energy source in the worldwide energy shift.” The Italian government holds a 30% stake in Eni.
Ever since acquiring assets from French utility Engie in 2017 for $3.9 billion, Carlyle and other Neptune stakeholders have put over $4 billion towards resource base expansion, carbon intensity reduction in operations, and the development of future carbon capture and storage potential, Maguire disclosed to the Financial Times.
Consequently, Maguire noted that it’s an appealing business, presenting a chance for a strategic buyer like Eni to replenish its reserve base and improve its carbon metrics, thanks to the low carbon intensity of much of Neptune’s production, particularly when compared to traditional oil.
Neptune is 49% owned by the state-owned China Investment Corporation and 20.4% by the private equity group CVC Partners. Although the shareholders had initially aimed for an IPO last year, there was a lack of interest from public markets that have grown increasingly hesitant to invest in oil and gas producers.
Neptune, founded by former Centrica CEO Sam Laidlaw in 2015, reported a net profit of $924.4 million from $4.6 billion in revenue last year and had a net debt of $1.7 billion.
Carlyle has refrained from commenting on the return it anticipates from its investment in Neptune, should the deal be greenlighted.
The transaction, if approved, is expected to enhance Eni’s position in the global energy landscape, particularly in natural gas, an energy source viewed as crucial in the transition to a less carbon-intensive economy. This move by Eni underscores the growing trend among energy companies to not only diversify their portfolio but also reduce their carbon footprint, aligning with global climate goals.
The sale of Neptune Energy, a company that made significant profits last year and has consistently invested in reducing carbon emissions, indicates the changing dynamic in the oil and gas industry. While traditional fossil fuels remain a significant part of the energy mix, the focus is increasingly shifting towards cleaner and more sustainable energy sources, which are becoming more commercially viable.
The deal also reflects the challenges for private equity firms and other investors in the oil and gas sector, with the proposed IPO for Neptune facing a lack of interest amid a wider reluctance to invest in such industries. This broader shift in investor sentiment suggests a changing financial landscape, with sustainability and environmental considerations becoming ever more important.
Ultimately, the agreement between Eni and Neptune highlights the complexities and changing priorities within the global energy industry. How this transaction will impact the future strategies of other major energy players remains to be seen.
