April 4, 2018 / 12:07 PM / in 22 days

Exclusive: Italy's Edison launches spin-off of oil & gas unit - sources

LONDON (Reuters) - Italian energy group Edison (EDNn.MI), part of French utility EDF (EDF.PA), is preparing the sale of its oil and gas unit, the latest power producer to abandon fossil fuels to focus on its retail business, four industry sources said.

Edison has selected investment banks Rothschild (ROTH.PA) and Perella Weinberg to organize an auction for the exploration and production division, which could be valued at $2 billion to $3 billion, one of the sources said.

The company has been looking to increase the size of its domestic electricity and gas retail business, betting on the market opening up to more competition, with retail energy customers increasingly able to chose their supplier.

Edison and EDF declined to comment. Rothschild declined to comment. Perella Weinberg did not respond to a request for comment.

Edison, 99.48 percent owned by EDF, is the third biggest power producer in Italy after market leader Enel (ENEI.MI) and Eni (ENI.MI). It is also the third biggest gas wholesaler with a 6 percent share, compared with market leader Eni’s 83 percent. EDF took control of Edison in 2012.

Edison’s oil and gas production has grown sharply over the past decade, with activities focused in Italy, the British and Norwegian North Sea, Egypt, Israel, Algeria, Croatia and the Falkland Islands.

Its Egyptian assets, which include the Abu Qir concession and more than 250 million barrels of oil equivalent in reserves, are considered one of the most attractive parts of the portfolio, according to the sources.

    Edison tried selling its North Sea oil and gas business last year but was unable to find a buyer, according to bankers involved in the process.

    The company’s gas production rose to over 2 billion cubic meters in 2017 from around 1.9 billion cubic meters a year earlier while oil production declined slightly to around 4 billion barrels from 4.14 billion barrels in 2016, according to its annual 2017 figures.

    The company said in 2017 it would stop investing in the upstream business and focus on the distribution of oil and gas. It has also said in the past that it would create a new company to manage its upstream business.

    Over the past few years, Europe’s power sector has been hit by weak energy demand amid sluggish economic growth, low wholesale power prices and a surge in demand for cleaner renewable energy which is replacing gas and coal-fired power plants and disrupting business models for utilities.

    Traditional European utilities, which entered oil and gas production in the past seeking a hedge against fluctuating costs of hydrocarbons, have been forced to rethink their strategies.

    France’s Engie (ENGIE.PA) sold its exploration and production business to private equity-backed Neptune Energy for 4.7 billion euros ($5.77 billion) last year, while German utility RWE (RWEG.DE) divested its oil and gas production unit DEA in 2015.

    Additional reporting by Dasha Afanasieva in London, Stephen Jewkes in Milan and Geert De Clercq in Paris; editing by David Evans

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