EIG Global Energy Partners is in early discussions with Repsol to buy a slice of the Spanish company's oil and gas exploration and production business, three sources with knowledge of the matter told Reuters.
The U.S. fund is seeking to purchase up to 25% of Repsol's so-called upstream business, the sources said, in a deal that would give the Spanish group cash for its plans to build clean energy capacity such as solar plants and wind farms.
The sources did not give a value for any deal, but analysts have said the upstream business is worth between 14 billion and 18 billion euros ($15 billion and $19 billion), including debt.
The companies began talks after EIG made an unsolicited offer, said the sources, who declined to be identified because the discussions were private. They said talks could take months and there was no guarantee a deal would be reached.
Repsol and EIG declined to comment when contacted by Reuters.
A deal would give Repsol funds to help achieve its goal of more than doubling its low-carbon power generation capacity by 2025 to 7.5 gigawatts (GW). One gigawatt is roughly equivalent to the output of one nuclear plant.
Like other oil companies, Repsol's upstream division has a complex structure, consisting of more than 100 individual units, according to its 2021 annual financial statements.
In a bid to streamline operations, the company has sold its stakes in exploration businesses in several countries, and sold its remaining Russian assets to Gazprom Neft in January.
Washington-based EIG specialises in private investments in energy and related infrastructure. It led a consortium that spent $12.4 billion on a 49% stake in pipelines owned by oil giant Saudi Aramco last year.
Russia's invasion of Ukraine has pushed oil and gas prices to multi-year highs, swelling returns for producers.
Repsol shares have gained 48% so far this year, trading above levels last seen in summer 2011, long before the COVID-19 pandemic played havoc with energy supply and demand worldwide.
The Stoxx Europe 600 Oil & Gas index has gained 27% this year and is now trading at its highest since October 2018.
Repsol was among the first global oil and gas producers to commit to ensuring that by 2050 its products emitted no more carbon than could be absorbed by natural sinks such as forests or artificial systems like carbon capture.
The company has said it will spend more than a third of the 19.3 billion euro it plans to invest by 2025 on low-carbon projects, such as renewable power or on the production of hydrogen without creating planet-warming emissions.
In oil and gas, it has pledged to prioritize less carbon-intensive projects which will be pumping for a shorter time.
Repsol's main oil and gas production sites are in North America, Bolivia, Colombia, Venezuela, Trinidad and Tobago, Brazil, and Libya. It produces more natural gas than oil, with gas accounting for 70% of its proven reserves.
Repsol's upstream business carries higher production costs than its competitors, churning out lower revenues per barrel, but it has one of the industry's highest organic reserve replacement ratios, analysts say.
The company expects to produce an average of 585,000 barrels of oil equivalent per day in 2022.
Repsol sold its last remaining stakes in Russian exploration businesses in January, leaving it free from the potential write-downs on assets there that larger peers including BP are now navigating after Moscow's invasion of Ukraine.
($1= 0.9356 euros)
(Reuters - By Andres Gonzalez, Gram Slattery and Isla Binnie - Editing by Edmund Blair)