Italy's Eni ENI.MI and its Norwegian unit Vaar have agreed to buy private-equity backed Neptune Energy in a deal valuing the assets of the gas and oil producer at $4.9 billion including debt, the two groups said on Friday.
The acquisition, which is expected to be completed at the start of next year, is one of the biggest oil and gas deals in Europe in years.
The deal fits the Italian group's plan to increase the share of gas in its total hydrocarbon production and is expected to boost its earnings immediately, Eni said in a statement.
Synergies of around $500 million are also expected as a result of the transaction.
"The geographic and operational overlap is striking, adding scale to Eni's Vaar Energy, bringing more gas production and carbon capture and storage (CCSU) opportunities to the remaining North Sea footprint, building on Eni's leading position in Algeria and deepening Eni's presence in offshore Indonesia," Eni's Chief Executive Claudio Descalzi said.
Descalzi also said that the acquisition would boost the outlook for the gas and LNG division, which last year was one of the drivers of the group's record earnings, and the potential for share buybacks to reward investors.
Eni's shares were down 1.2%, underperforming a 0.6% fall in Milan blue-chip index at 0945 GMT, on the back of a negative sentiment weighing on the oil sector on Friday.
The transaction will strengthen Eni's gas division and boost the group's role as a supplier for Europe at a time when the bloc is still replacing the flows from Russia, analysts said.
"We would expect the acquisition to result in an upgrade to Eni's Gas & LNG division guidance over the medium term, given the acquisition will add four billion cubic metres (bcm) of supply to Eni along with the potential for synergies via access to additional pipeline capacity," said Royal Bank of Canada's Biraj Borkhataria in a report.
Eni, which is controlled by the Italian government, owns 63% of Vaar and is the main beneficiary of cash dividends from the Oslo-listed unit. Norway private equity fund HitecVision is a minority investor in Vaar.
Vaar expanding in Norway
Under the agreement, Eni will acquire Neptune's entire portfolio other than its operations in Germany and Norway.
The German operations will be carved out prior to the Eni transaction and the Norwegian operations will be acquired by Vaar directly from Neptune in a separate deal, the two groups said in a statement.
The part of Neptune that will go to Eni will have a value of around $2.6 billion including $500 million in net debt, while the Neptune Norway business will have an enterprise value of around $2.3 billion, the groups said.
The Vaar transaction will close immediately prior to the Eni deal with the proceeds from the Norway sale remaining with the business purchased by the Italian group.
Neptune's other operations are in Britain, the Netherlands, Algeria, Indonesia and elsewhere.
Vaar, which has bet heavily on exploration in the Arctic Barents Sea, said the deal would boost its position in the remote region, gaining a 12% stake in Hammerfest LNG, Europe's only large-scale production facility for liquefied natural gas.
The acquisition of Neptune's cash-generating Norwegian portfolio also further boosts Vaar's ability to pay dividends, Chief Executive Torger Roed told reporters.
"We are buying into a positive cash flow ... giving us enhanced distribution capacity," he said.
Neptune, which was advised by Rothschild on the deal, was formed in 2018 by China Investment Corporation (CIC), the Carlyle Group CG.O and CVC Capital Partners.
The final price for both transactions will be subject to closing adjustments and will be paid in cash.
Eni was advised by HSBC on the financial aspects of the deal with White & Case LLP acting as legal adviser to Eni, and Ernst & Young as tax and financial due diligence adviser.
(Reuters - Additional reporting by Shadia Nasralla and Terje Solsvik; editing by Alvise Armellini, Jason Neely, Simon Cameron-Moore and Philippa Fletcher)