By Andres Gonzalez, Gram Slattery and Isla Binnie
LONDON, June 7 (Reuters) – EIG Global Energy Partners is in preliminary discussions with Repsol REP.MC to buy a stake in the Spanish company’s oil and gas exploration and production business, three sources familiar with the matter told Reuters.
The US fund is seeking to buy 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 clean energy capacity building projects such as as solar power plants and wind farms.
Sources gave no value to any deal, but analysts said the upstream business was worth between 14 and 18 billion euros ($15 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 talks were private. They said the talks could take months and there was no guarantee a deal would be reached.
Repsol and EIG declined to comment when contacted by Reuters.
Repsol shares soared after the Reuters report. As of 0953 GMT, they were up nearly 3% to their highest level since June 2008. The broader European oil and gas index .SXEP was up 0.4%.
A deal would give funds to Repsol to help it meet 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 a nuclear power plant.
Like other oil companies, Repsol’s upstream division has a complex structure, made up of more than 100 individual units, according to its 2021 annual financial statements.
In a bid to streamline its operations, the company sold its stakes in exploration businesses in several countries and sold its remaining Russian assets to Gazprom Neft in January.
EIG, based in Washington, specializes in private investments in energy and related infrastructure. He led a consortium that spent $12.4 billion for a 49% stake in pipelines owned by oil giant Saudi Aramco 2222.SE Last year.
Russia’s invasion of Ukraine pushed oil and gas prices to multi-year highs, boosting producer returns.
Repsol was among the world’s first oil and gas producers to commit to ensuring that by 2050 its products will emit no more carbon than could be absorbed by natural sinks such as forests or man-made systems like carbon capture.
The company said it would spend more than a third of the 19.3 billion euros it plans to invest by 2025 on low-carbon projects, such as renewable energy or hydrogen production without creating global warming emissions.
In oil and gas, it has pledged to prioritize less carbon-intensive projects that will pump for less 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 drives higher production costs than competitors, yielding lower revenue per barrel, but it has one of the highest organic reserve replacement rates in the industry, analysts said.
The company plans 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 potential write-downs on assets there that bigger peers including BP are now navigating after Moscow invaded Ukraine. .
($1 = 0.9356 euros)
(Edited by Edmund Blair)
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