Repsol will sell a 25 per cent stake in its exploration and production business to US investment group EIG for $4.8 billion (€4.8bn) as Spain’s biggest oil company seeks to raise funds for renewables investments to pivot to a lower-carbon future.
The deal, the result of an approach by the specialist energy and infrastructure investor, is one of the most creative efforts yet by an industry keen to transition to greener forms of energy while still providing the hydrocarbons the world needs today.
Repsol said the deal, which values its upstream business at about $19 billion, just under the company’s total market capitalisation of $19.4 billion, would “crystallise value” in the division while freeing up capital to scale up renewables investments.
“Our ambition is to lead the energy transition,” said Josu Jon Imaz, chief executive. “This pioneering agreement allows us to maintain the strategic direction of the upstream unit,” he added, while boosting the “transformation of the company and its multi-energy profile to achieve zero net emissions by 2050″.
The Repsol deal is the first attempt by a big oil and gas company to cash in on the value of its entire legacy business
Repsol in 2019 was among the first oil and gas companies to set a net zero emissions target and has since begun building wind, solar and hydro plants in Spain, the US and Chile. EIG is one of the private equity industry’s biggest oil and gas investors. In 2014 it founded Harbour Energy, which is now the largest oil and gas producer in the UK’s North Sea.
The oil industry, which is under pressure to slash emissions by reducing production, is wrestling with how to fund investments in cleaner energy while retaining sufficient profits from legacy assets to continue to pay shareholders. Some investors and oil industry veterans have called on the biggest companies to spin off their oil and gas divisions, which face a higher cost of capital than pure renewables businesses. So far, most competitors, including Shell and BP, have argued that they will be better able to succeed as integrated companies.
Italian oil group Eni was preparing to list a minority stake in its retail and renewable power business in June before delaying the offering due to market conditions.
The Repsol deal, however, is the first attempt by a big oil and gas company to cash in on the value of its entire legacy business. The unit produces an average of 570,000 barrels a day of oil equivalent from fields in the Americas, Europe, Asia and Africa. About 70 per cent of that production is natural gas, prices for which have soared this year as Russia has choked supply to Europe.
Biraj Borkhataria, head of oil and gas equity research at RBC Capital Markets, described the deal as positive for both Repsol and the wider industry. “We see this deal as good for the sector in unlocking value for the majors,” he said.
— Copyright The Financial Times Limited 2022