Repsol is reportedly considering the sale of up to 25% of its oil and gas exploration and production (E&P) business to energy investor EIG.
The Washington D.C.-headquartered equity investor is looking to acquire up to 25% of the energy major’s upstream business, Reuters reported on Tuesday, citing three sources with knowledge of the matter.
The acquisition would offer Repsol cash to finance its buildout of new clean energy capacity.
The Madrid-headquartered company currently holds around 3.3 gigawatts (GW) of gas, wind, solar and hydropower capacity across Spain, the US and Chile, but intends to reach 7.5GW by 2025.
The sources reached by Reuters did not give a value for any deal, but analysts have reportedly valued the whole upstream business at between €14-18 billion (£11.9-15.2bn), including debt.
Discussions began following an unsolicited offer by EIG, the sources added, and could take months to resolve, with no guarantee of a deal.
In a statement to Spain’s stock market regulator following the reports, Repsol said: “Following media reports, Repsol states that it considers its Exploration and Production business as strategic, which includes its maintenance and consolidation in the long term. In the context of the dynamic and ongoing management of the business portfolio, Repsol is analyzing various opportunities and proposals related to this business, while no decision has been taken in this regard.”
“Selling a stake in the upstream business would allow Repsol to crystallise value at a high point in the cycle,” analysts from Redburn said in a client note.
“For EIG to actually realise that value we suspect there would have to be some form of commitment to run it for cash and distribute free cash flow to the shareholders. This enforced capital discipline would also be positive for Repsol shareholders in our view.”
Repsol reported group-wide profits of £2.1bn across its activities last year, reversing losses seen in 2020.
2021 also marked the first year of the company’s five-year strategic plan, which it says will focus its efforts on efficiency and transformation, ahead of becoming carbon-neutral by 2050.
In its annual filings, Repsol said performance in E&P was “particularly noteworthy,” with its upstream division generating €1.7bn (£1.4bn) euros during the year, €624m (£521m) of which was in Q4.
Group-wide production last year averaged 572,000 barrels of oil equivalent per day, and it expects output to rise to 585,000 boepd this year.
The company has said 35% of its investments from 2021-25 will be allocated to low-carbon initiatives, including a sizable position in hydrogen projects.
Its hydrogen strategy foresees reaching a generation capacity equivalent to 552 MW in 2025 and 1.9 GW in 2030, requiring more than £2bn of investment.
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