EIG, an investor in energy and infrastructure, announced it has entered into a definitive agreement with Repsol S.A. (Repsol) to acquire a 25% stake in Repsol Upstream, an exploration & production (E&P) firm comprising Repsol’s entire upstream oil and gas business.
What are the terms of the transaction?
The deal delivers upfront capital to Repsol to increase its investment in the energy transition, and support the growth of Repsol’s renewable power generation, fuels, and circular products.
Under the terms of the agreement, a newly formed, wholly owned subsidiary of EIG, Breakwater Energy, will acquire the 25% interest in Repsol Upstream for total consideration of approximately $4.8bn, including debt, with Repsol holding the remaining 75%, indicating a total enterprise value of approximately $19.0 billion for Repsol Upstream. The company will be majority controlled by Repsol and will be consolidated in the accounts of Repsol.
Repsol Upstream will maintain the business’s current workforce and existing management team. The company is expected to benefit from Repsol’s expertise as a benchmark upstream operator, as well as from EIG’s knowledge of global debt and equity capital markets and upstream experience, particularly in the United States, the North Sea, Brazil and Asia Pacific.
What is the market offering of Repsol Upstream?
Repsol Upstream is a leading, gas-weighted global E&P company that will own and operate Repsol’s globally diversified portfolio of upstream assets, delivering cash generative and resilient operations around key regional hubs, with a focus on the United States.
Repsol Upstream is forecast to produce approximately 590,000 barrels of oil equivalent per day for 2H 2022 and has proved and probable reserves of 2.3 billion barrels equivalent as at December 31, 2021, approximately 70% of which is gas. Repsol Upstream also holds contingent resources of 3.8 billion barrels equivalent as at the same date.
The business has committed to leadership in reducing greenhouse gas (GHG) emissions, initially adopting Repsol’s existing targets, including a 75% reduction of carbon intensity by 2025, and implementation of a decarbonization plan, including development of new short and medium-term GHG emissions reduction targets. The firm has a green exploration business targeting Carbon Capture and Storage (CCS), geothermal and hydrogen storage projects.
Repsol Upstream will benefit from EIG’s expertise derived from its formation, transformation, and public listing of Harbour Energy. EIG believes the transaction puts Repsol Upstream on a pathway towards future market liquidity—both Repsol and EIG foresee the potential to list the business in the U.S. from 2026 onward, subject to favorable market conditions.
What were the executives’ thoughts on the partnership?
“Energy transition informs every decision we make, and we are thrilled to partner with a global leader of Repsol’s stature on this compelling opportunity to lead change in our industry,” commented R. Blair Thomas, EIG’s Chairman and Chief Executive Officer.
“Evaluation of ESG impact is integrated into EIG’s core investment and portfolio management functions, and we look forward to working with Repsol, a world-class operator and energy transition leader, to continue building on the business’s ESG best practices. As the world looks to meet the twin goals of decarbonization and reliability, we believe this partnership is well positioned to help meet the growing global demand for accessible, efficient and safe energy.”
“Our ambition is to lead the energy transition, and this pioneering agreement allows us to maintain the strategic direction of the upstream unit and, at the same time, to boost the transformation of the company and its multi-energy profile to achieve zero net emissions by 2050,” said Repsol CEO Josu Jon Imaz. As part of the transaction, EIG will have the right to nominate two members to Repsol Upstream’s eight-member Board of Directors.
Four will be nominated by Repsol, with the remaining two as Independents. EIG will also have the right to appoint two senior executives to the Repsol Upstream leadership team, one to serve as ESG Director and the other to lead special projects, including IPO preparedness.
The transaction is expected to close in six months, subject to customary closing conditions. Goldman Sachs & Co LLC and J.P. Morgan acted as financial advisors to EIG on with the deal. Goldman Sachs & Co LLC, J.P. Morgan and Lazard are capital markets advisors in connection with the financing of the transaction. Latham & Watkins serves as EIG’s legal advisor.