Eni, the Italian energy group, is considering spinning off stakes in promising oil and gas projects in Indonesia and Ivory Coast as part of its strategy to finance their development while prioritizing low-carbon activities. This move is in line with CEO Claudio Descalzi’s plan to divide certain operations into separate entities, known as satellites, in order to attract funding from private equity firms and infrastructure funds. By doing so, Eni can cater to investors who are specifically interested in either oil and gas or low-carbon activities. Eni has already established a retail and renewable unit called Plenitude, in which it sold a stake to an infrastructure fund, and a biofuel division called Enilive, in which it is considering selling a minority stake. These divisions have their own management teams and balance sheets, and Eni intends to list them in order to raise additional financing for their growth. This unique approach sets Eni apart from other oil and gas majors that are also venturing into renewables, as it aims to demonstrate the potential of early-stage businesses that may struggle to compete with the returns of traditional oil and gas operations.
Eni, the Italian energy company, has been making strategic moves to divest its fossil fuel operations. In its latest move, Eni has agreed to merge its British North Sea oil and gas operations with Ithaca Energy, in exchange for a 38.5% stake in the company. This deal, which is valued at nearly $1 billion, allows Eni to reduce its capital spending while still receiving potential dividends from Ithaca.
Eni is also considering similar actions for other exploration and production projects that require significant investments. The company is looking at Ivory Coast and Indonesia as potential candidates for such moves. In Indonesia, Eni aims to create a gas hub following a recent discovery at Geng North-1 and the consolidation of other upstream assets acquired from Chevron and Neptune Energy. In Ivory Coast, Eni made a major offshore discovery in March and is currently producing oil and gas at the Baleine field.
During a market update in mid-March, Eni announced its plans to generate around 4 billion euros ($4.31 billion) from listing or selling stakes in its low-carbon subsidiaries, as well as another 4 billion from oil and gas exploration and production units, between 2024 and 2027. In recent years, Eni has already established and listed Norwegian oil and gas company Vaar with private equity firm HitecVision, and formed a joint venture called Azule Energy with BP in Angola. These two subsidiaries have relatively loose ties with Eni, as they fund their own capital expenditures and have their own debt, which is not consolidated within the Eni group. Both Vaar and Azule Energy also pay dividends to the parent company. However, Eni still holds the debt and funds the majority of capital expenditure for Plenitude.
Plenitude, a company recently valued at 10 billion euros including debt, has struck a deal with Swiss asset manager Energy Infrastructure Partners. This valuation is 10 times its expected core earnings in 2024, which is significantly higher than the 3 to 4 times core earnings valuation of the Eni group.
Eni’s CEO has also hinted that another unit, bio-plastic maker Novamont, could soon become a ‘satellite’ within the company, with Carbon Capture and Storage to follow. This move is seen as a way for Eni to access specialized capital and be more flexible in its corporate structures.
According to Lydia Rainforth, a European integrated energy analyst at Barclays, a strategic placement for Enilive, another Eni unit, could help set a valuation benchmark and potentially boost Eni’s share price if it were to be listed. However, some analysts believe that equity markets may be slow to recognize the benefits of these satellite units unless the proceeds are utilized for shareholder returns at the group level.
Eni recently revised its distribution policy and increased its share buyback plan for 2024. However, the idea of special dividends linked to disposals has been rejected by Eni’s management.
(Note: The conversion rate at the time of writing is $1 = 0.9280 euros)