Italian oil major Eni buys Neptune Energy for $4.9bn

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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 Vår Energi — Eni’s Norwegian listed subsidiary — will acquire the company’s operations in Norway for $2.3bn. Eni owns 63 per cent of Vår 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.

Eni’s chief executive Claudio Descalzi told the Financial Times that Neptune’s portfolio of gasfields, many of them close to European markets or with access to them, were an “exceptional fit”.

“Clearly the trend is acquiring renewables or other green [energy projects] . . . but this is a deal that is in line with our transition path,” he said.

Eni expects demand for natural gas, which has lower carbon emissions than oil, to continue to grow as countries use more of the fuel as part of the transition to renewable energy. Eni wants 60 per cent of its group-wide production to be gas by 2030.

“I am always very reluctant to do any kind of M&A deal, assets maybe, but companies [are] very rare,” Descalzi said. “This was I think an exceptional fit for Eni in this particular moment.”

State-owned China Investment Corporation owns 49 per cent of Neptune, with private equity groups Carlyle and CVC Partners owning 30.6 per cent and 20.4 per cent respectively.

Neptune produces about 135,000 boe/d, roughly three-quarters of which is natural gas. About 10 per cent of its production comes from UK waters.

Since acquiring the assets from French utility Engie in 2017 for $3.9bn, Neptune’s shareholders had 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, said Bob Maguire, a managing director at Carlyle.

“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.

Neptune’s owners had initially targeted an initial public offering last year but failed to drum up enough interest from public markets, which 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. The shareholders have received $2.7bn in dividends since 2018, according to Neptune.

Carlyle declined to comment on the return it will make on its investment in Neptune if the deal is approved.

Shares in Eni, which is 30 per cent owned by the Italian government, were down 1.55 per cent on Friday morning, while Vår Energi stock was up 3 per cent.

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 than we emit.”

The transaction is expected to close by the end of March 2024. Neptune’s assets in Germany are not part of the deal and will continue to be operated by the current shareholders.