Eni’s $6 bln Neptune swoop will be a haggle-fest

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A platform from Neptune Energy is seen where Poshydon is testing converting green energy to hydrogen in Scheveningen, Netherlands August 25, 2022. REUTERS/Piroschka van de Wouw/File Photo

LONDON, Dec 1 (Reuters Breakingviews) - Eni (ENI.MI) is hunting for a bargain in the North Sea. Italy’s $52 billion oil major is mulling a bid for oil and gas producer Neptune Energy, Reuters reported on Wednesday, for an equity value of around $5 billion to $6 billion. Given Neptune’s owners CVC Capital Partners, Carlyle (CG.O) and China Investment Corporation last year wanted to list the business for $10 billion, Eni may have to haggle a bit.

On the face of it, Eni can make a case for a cut-price deal. The UK government recently extended its windfall tax on North Sea drillers to 2028. Recessionary risks will cut global demand for oil, and thus fossil fuel prices. And the Italian group’s own North Sea expertise may help it argue that the mooted offer price is generous.

Vår Energi (VAR.OL), the $9 billion Norwegian oil and gas producer in which Eni holds a 63% stake, listed earlier this year. High oil and gas prices mean it could make $8.8 billion of EBITDA in 2022, according to Refinitiv-compiled estimates. Adding in its $2.5 billion of net debt, the business is worth only 1.3 times that EBITDA.

Neptune made $2.9 billion of EBITDA in the first nine months of 2022, over double last year’s levels. At that rate, it could generate $3.5 billion this year. Using Vår’s multiple, Neptune would be worth $4.6 billion including debt, and its equity barely $4 billion. Even without the IPO history, you could see why Executive Chairman Sam Laidlaw might say no.

Laidlaw can argue that Neptune is less concentrated than Vår, with a third of its production in Norway and a tenth in the UK. Diversified oil groups like Shell (SHEL.L) trade on 3 times 2022 EBITDA. Moreover, Eni’s scope to mesh Vår together with Neptune implies a control premium to reflect likely cost synergies. Lastly, with 75% of its production in lower carbon gas, Neptune is also arguably worth more to the Italian major, which wants to hike its share of gas to 60% by 2030.

Recent M&A may also help Laidlaw. Chevron (CVX.N) and Exxon Mobil (XOM.N) sold their assets in the North Sea at enterprise valuations of around $10 to $15 per barrel of proven and probable reserves. The $5.6 billion enterprise value implied by Eni’s mooted offer is as little as $9 per barrel, using Neptune’s 604 million barrels of reserves as of end-2021. To get it up to the midpoint of that range, Eni may have to offer at least $7 billion.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

CONTEXT NEWS

Eni is in preliminary talks to buy private equity-backed gas and oil producer Neptune Energy for around $5 billion to $6 billion, a source with knowledge of the matter told Reuters in an article published on Nov. 30.

Eni and Neptune, owned by China Investment Corporation, Carlyle and CVC Capital Partners, declined to comment.

Editing by Neil Unmack, Streisand Neto and Oliver Taslic

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