Private equity firm EIG buying Repsol upstream unit stake at enterprise value of $19bn [Private Equity Insights]

Spanish oil and gas giant Repsol SA is selling a quarter of its exploration and production division for $3.4bn to a US private equity firm, in a dramatic downsizing of its exposure to fossil fuels.

The deal is Repsol’s second divestment in recent months as the Madrid-based oil producer raises funds to help pay for low-emission projects while also reducing its cost of capital. Repsol was the first large oil company to announce a strategic push into renewable power.

Europe’s oil and gas giants, flush with cash from soaring prices, are considering whether to turbo-charge their transition to clean energy. The sale of assets by Repsol contrasts with the approach of other oil majors, which are so far resisting pressure to sell off parts of their traditional businesses. The proceeds from the stake sale will further Repsol’s strategic aim of having low-carbon businesses account for 45% of capital employed by 2030.

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The deal, which came after an unsolicited approach by EIG Global Energy Partners LLC, consists of $3.4 billion equity and $1.4 billion net debt, Repsol said in a regulatory filing Wednesday. The sale implies an enterprise value of $19 billion for 100% of Repsol Upstream, “substantially above analysts’s consensus valuations,” according to the filing.

Investors can either chose to engage or exclude when it comes to carbon emissions and fossil fuel businesses, according to EIG Chairman Blair Thomas. Engagement requires recognizing the twin goals of decarbonizing and reliability of energy and requires demonstrable targets not just “happy talk,” he said.

“Our investors have adopted the engagement philosophy, the way to really drive the change is through engagement,” Thomas said in an interview with Bloomberg. “The easy thing, in my view, is to be exclusionary and just say ‘we are going to act like that world doesn’t need hydrocarbons.’ Well that’s fine, you can feel good about that but you’re not making a difference.”

Repsol shares were little changed in Madrid trading.

The transaction comes after the Spanish firm agreed in June to sell a 25% stake in its clean-energy unit to a joint venture formed by Energy Infrastructure Partners AG and French lender Credit Agricole SA for 905 million euros. It has also sold stakes in individual renewable energy projects.

In late 2019, Repsol wrote down the value of its oil assets by 4.8 billion euros and targeted net-zero carbon emissions by 2050.

Washington-based private equity firm EIG focuses investments largely on energy and infrastructure globally.

The agreement with Repsol includes the possibility of holding an initial public offering of the new division from 2026 in the US. The upstream division has assets in 14 countries and targets production of 570,000 barrels of oil equivalent per day in 2022. It has 2.3 billion barrels of oil equivalent in proven and probable reserves, 70% of which are gas.

Source: Yahoo Finance

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Author: Sebastian