Title: Eni’s Acquisition of Neptune Energy Signals Change in Strategy for European Oil Majors
Introduction:
The recent announcement of Italy’s Eni acquiring Neptune Energy for $4.9 billion signifies a significant shift in strategy for European oil and gas giants. This article explores the details of the deal, its implications for the industry, and the rationale behind Eni’s decision. Additionally, it delves into the growing importance of renewable energy, the demand for natural gas, and the potential impact on Eni’s carbon metrics.
Exploring the Eni-Neptune Deal:
– Eni’s agreement to acquire private equity-backed Neptune Energy highlights the largest cash deal in the European oil and gas sector in nearly a decade.
– Neptune Energy, based in London, operates oil and gas fields in eight countries, including the UK, Norway, and Algeria.
– Eni will acquire Neptune for $2.6 billion, while its Norwegian subsidiary, Var Energi, will acquire the company’s Norwegian assets for $2.3 billion.
– This acquisition is noteworthy as European oil majors have been more inclined to sell assets rather than acquire them due to their carbon emission reduction commitments.
– Eni’s CEO, Claudio Descalzi, views Neptune’s portfolio of fields, situated within or near European markets, as an “exceptional measure” aligning with Eni’s transition path.
– Eni aims to increase its focus on natural gas, which has lower carbon emissions than oil, and set a target of 60% of the group’s production to be gas by 2030.
Implications and Industry Shifts:
– The deal signifies Eni’s strategic move to rebuild its reserve base and enhance its own carbon metrics by acquiring assets with lower carbon intensity, including those related to natural gas production.
– Furthermore, the transaction challenges the perception that oil and gas producers face declining interest from public markets, as Neptune’s initial plan for an IPO did not generate sufficient interest.
– The investment by Carlyle and other shareholders in Neptune further demonstrates the potential returns achievable by investing in oil and gas assets that may be overlooked by the market.
The Transition to Renewable Energy:
– Eni’s decision to acquire Neptune Energy does not shift its long-term focus on renewable energy, which is a growing trend among major oil companies.
– While renewables and green energy projects remain a significant direction for the industry, Eni recognizes the demand for natural gas during the transition to cleaner energy sources.
– The company predicts that natural gas will continue to grow in demand as countries seek cleaner options, and Eni plans to capitalize on this opportunity.
Expanding Carbon Capture and Storage (CCS) Initiatives:
– Neptune Energy’s involvement in developing CCS projects in the UK and the Netherlands contributes to reducing carbon dioxide emissions from the region’s emitters.
– The company aspires to store more carbon than it emits, repurposing its existing infrastructure to facilitate this endeavor.
– The success of these CCS projects will have a significant impact on reducing emissions and advancing the energy transition.
Conclusion:
Eni’s acquisition of Neptune Energy represents a strategic move by the company to enhance its reserve base and focus on natural gas, balancing its commitment to carbon reduction and the growing demand for cleaner energy sources. This deal challenges the prevailing belief that oil and gas assets no longer attract market interest while shedding light on the potential returns achievable in overlooked assets. As the industry continues its transition to renewable energy, the integration of natural gas and carbon capture projects will play a crucial role in driving down emissions and facilitating global energy transformation.
Summary:
Italy’s Eni has agreed to acquire London-based Neptune Energy for $4.9 billion in the largest cash deal in the European oil and gas sector in almost a decade. This move bucks the trend of European oil majors selling assets and signifies Eni’s strategic shift to rebuild its reserves and focus on natural gas, which has lower carbon emissions than oil. The acquisition aligns with Eni’s transition path while challenging the notion that oil and gas assets lack market interest. Neptune Energy’s involvement in carbon capture and storage projects further highlights the industry’s growing commitment to reducing emissions. Ultimately, this deal represents Eni’s intention to balance carbon reduction goals with the demand for cleaner energy sources.
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Italy’s Eni has agreed to acquire private equity-backed Neptune Energy for $4.9 billion in the biggest 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 UK, 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 on Friday, Eni will acquire Neptune for $2.6 billion, while Var Energi, Eni’s listed Norwegian subsidiary, will acquire the company’s Norwegian assets for $2.3 billion. Eni owns 63 percent of Var Energi.
The transaction is particularly significant given that European oil majors such as Eni, BP and Shell have been more likely to sell oil and gas assets than buy them since they set targets to cut carbon emissions and switch to greener forms of energy .
Eni’s chief executive Claudio Descalzi told the Financial Times that Neptune’s portfolio of fields, many of which are close to or with access to European markets, were an “exceptional measure”.
“Clearly the trend is to acquire renewable or other green[energy projects]. . . but this is an agreement that is in line with our transition path,” she said.
Eni expects demand for natural gas, which has lower carbon emissions than oil, will continue to grow as countries use more of the fuel as part of the transition to renewable energy. Eni wants 60% of its group-wide production to be gas by 2030.
“I’m always very reluctant to do any kind of M&A deal, maybe assets, but companies [are] very rare,” added Descalzi. “I think this has been a tremendous fit for Eni at this particular time.”
The state-owned China Investment Corporation owns 49% of Neptune, while private equity groups Carlyle and CVC Partners own 30.6% and 20.4%, respectively.
Nettuno produces approximately 135,000 boe/day, of which approximately three-quarters is natural gas. About 10% of its production comes from UK waters.
Since acquiring the assets of French utility Engie in 2017 for $3.9 billion, Neptune shareholders have invested more than $4 billion in expanding the asset base, reducing the carbon intensity of operations and developing the potential for future carbon capture and storage, said Bob Maguire, a managing director at Carlyle.
“For that reason, it’s an interesting business. It represents an opportunity for a strategic buyer like Eni to rebuild its reserve base. . . but also to increase its own carbon metrics,” he added, pointing to the lower 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 generate enough interest from public markets, which are increasingly reluctant to invest in oil and gas producers.
Founded in 2015 by Sam Laidlaw, the former CEO of Centrica, Neptune reported last year net income of $924.4 million from revenues of $4.6 billion and net debt of $1.7 billion. dollars. Shareholders have received $2.7 billion in dividends since 2018, according to Neptune.
Carlyle declined to comment on the return he will make on his investment in Neptune if the deal is approved.
Shares of Eni, which is 30% owned by the Italian government, fell 1.55% on Friday morning, while Var Energi shares rose 3%.
Parminder Singh, chief executive of Carlyle, said the investment proved the fund’s argument 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 in the coming decades. We know that, but someone has to admit it in the right way,” she said.
In the UK and the Netherlands, Neptune is developing CCS projects that aim to pump more than 9 million tonnes of carbon dioxide a year from UK and Dutch emitters into the company’s depleted tanks.
If successful, this would exceed the emissions from Neptune’s 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 operations in Germany are not part of the deal and will continue to be managed by the current shareholders.
https://www.ft.com/content/d30040ec-e9dc-4845-8fd2-27c5f903204f
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