More gas for all of Europe thanks to an operation that is close to 5 billion dollars. Eni and the Norwegian subsidiary (63%). Var Energi have reached an agreement to acquire Neptune Energy, British company specializing in the exploration and production of hydrocarbons. Eni had targeted Neptune as early as the end of 2022, interested in expanding its business in the natural gas sector. Second Reuters, the deal has accelerated in recent days, with exclusive talks between the two companies.
“Through this operation – commented the CEO Claudio Descalzi – Eni acquires a high-quality, low-carbon portfolio, with exceptional complementarity at a strategic and operational level. We believe gas is a crucial bridging energy source for the global energy transition, and we are committed to increasing our share of natural gas production to 60% by 2030. Neptune will contribute predominantly gas assets to our portfolio. Also, the geographical and operational overlap is striking: increases the size of Vår Energi, a company in which Eni holds the majority; brings greater gas production and additional Ccus opportunities (capture, storage and use of CO2, ed) in the North Sea; consolidates Eni's position as the first international company in Algeria, a key supplier of gas for European markets; increases Eni's presence offshore Indonesia, with supplies to the Bontang LNG plant and to national markets”.
Eni-Neptune: a 4,9 billion dollar agreement
As expected, Eni will acquire the entire Neptune portfolio with exclusion of activities in Germany and Norway which fall within the scope of Neptune Global Business. The former will be spun off from the perimeter prior to the transaction, while the latter (Neptune Norway Business) will be acquired by Vår directly from Neptune. The Vår acquisition will close immediately prior to the Eni acquisition, and the proceeds from the sale of the Neptune Norway Business will remain in the Neptune Global Business, acquired by Eni.
Under the agreement, Neptune Global Business will have an enterprise value of $2,6 billion, while Neptune Norway Business will have an enterprise value of approximately $2,3 billion. Overall, therefore, it is about a $4,9 billion deal, equal to approximately 4,5 billion euros. The final net consideration for the Eni and Vår transactions will be paid in cash upon completion. Eni's acquisition will be financed through available liquidity.
What Neptune Energy does
Neptune Energy is an independent company founded in 2015 by Sam Laidlaw and currently controlled by China Investment Corporation, funds managed by Carlyle Group (30,6%) and CVC Capital Partners (20,4%) and some managers of the company. It is specialized in exploration and production, with a global portfolio of predominantly gas assets and operations in Western Europe, North Africa, Indonesia and Australia. In 2017 Neptune acquired the assets of the French company Engie for 3,6 billion euros. Neptune also owns 12% of the Hammerfest liquefaction plant in Norway. Its ability to produce liquefied gas it has become even more strategic after the Russian invasion of Ukraine.
In the first quarter of 2023, the British company produced around 142.000 barrels of oil per day, three quarters of which are gas, registering revenues of $1,42 billion, pre-tax profits of $1,05 billion, with net debt of $1,54 billion.
Synergies worth 500 million and growing profits
From the acquisition of Neptune, according to Eni's forecasts, synergies will arrive in terms of structural and industrial costs equal to over 500 million dollars, and further progress in terms of cost reductions, including financial costs, exploration and development activities and midstream activities.
The operation, explains the company led by Claudio Descalzi, will allow immediately increase profits and Cffo (operating cash flow) per share and will be positive in terms of free cash flow. The deal is also consistent with the 2023-2026 Plan presented in February 2023, with particular reference to the following guidance: net positive contribution of €1 billion from portfolio assets in the reference period, total capex of €37 billion , leverage between 10% and 20%, average annual production growth rate of 3-4% in the period 2023-2026, mainly through organic investments as well as the net impact of high profile portfolio activities.
According to forecasts, the agreement will add approximately to the portfolios of Eni and Vår 130.000² boe/d of additional production. Eni estimates that the transaction will add over 100.000 boe/d of low-emission production to its portfolio in the period 2024-2026, of which over 70% will be natural gas (compared to the 53% share achieved by Eni in 2022) .
Descalzi: "4 billion cubic meters of gas more than in Europe".
“We also expect these additional gas volumes to provide further optimization opportunities for Eni's GGP activities. The operation will add approx 4 billion cubic meters of gas to be destined for European consumers”, explained the CEO of Eni, Claudio Descalzi.
“A further crucial aspect of the operation – he added – is the low cost of new supplies and the increase in cash flow leading to Eni. The nature and challenges of the energy transition require a focused response, and this transaction highlights in particular two important aspects of Eni's financial strategy: the flexibility and optionality that our high liquidity and low leverage offer, and our innovative satellite model that contributes to accessing dedicated capital”.
The Stock Exchange and analysts' comments
In the middle of the day Eni shares lose 1,3% on the Stock Exchange, weighed down by the drop in oil prices (Brent -1,5% to 73,04 dollars a barrel) like all the other European big oils. However, analysts welcomed the announcement of the agreement very positively: “We believe that the operation has positive implications for the title since the operational complementarity of the acquisition with Eni/Var Energi is significant, the acquisition takes place at values slightly lower than the 5-6 billion dollars assumed by the previous rumors and we preliminary estimate a contribution of free cash flow from Neptune Energy to 500-600 million euros at commodity market prices, or an incremental 7%-9% of Eni's FCF”. This is the comment of the Equita experts, while Banca Akros underlines that the operation "is consistent with Eni's strategy and will generate consistent synergies".
