Market Data 
By Francesca Landini and Ron Bousso
MILAN (Reuters) – Italian energy group Eni could spin off stakes in high-potential oil and gas projects, including in Indonesia and Ivory Coast, to help finance their development while focusing more capital on low-carbon activities, company sources said.
Such deals would expand veteran CEO Claudio Descalzi’s strategy to split some of Eni’s operations into separate entities, or satellites, to raise money and tap investors such as private equity firms and infrastructure funds.
The carve-outs allow investors focused on oil and gas but uninterested in low-carbon activities – or vice versa – to be more precise about where they put their money.
“The satellite model is an approach we have built to have additional funding sources to keep together the need to meet demand for traditional products, while also developing new, greener products,” Chief Financial Officer Francesco Gattei told Reuters.
Eni in recent years has created a retail and renewable unit, Plenitude, in which it sold a stake to an infrastructure fund, and a biofuel division, Enilive, in which Descalzi recently said it is considering selling a minority stake.
The divisions wrapped together assets scattered inside the Milan-based group, with dedicated management teams and separate balance sheets. Eni aims to list both to raise further financing for their growth.
The strategy – a unique approach among oil and gas majors seeking to branch out into renewables – is aimed at showing investors the potential of early-stage businesses that struggle to compete with the returns of traditional oil and gas operations, Gattei told Reuters.
It has also spun out fossil fuel operations. Last month, Eni agreed to combine its British North Sea oil and gas operations with Ithaca Energy (LON:) in exchange for a 38.5% stake in the company.
The deal, valued at nearly $1 billion, allows Eni to cut capital spending while receiving potential dividends from Ithaca.
Gattei said the group was considering doing something similar for other exploration and production projects needing large investments. Company sources pointed to Ivory Coast and Indonesia as potential candidates.
In Indonesia, the group aims to create a gas hub following a find at Geng North-1 and the consolidation of other upstream assets acquired from Chevron (NYSE:) and through its acquisition of Neptune Energy.
In Ivory Coast, it made a major offshore discovery in March, and is also producing oil and gas at the giant Baleine field.
LISTING AND SELLING
At its market update in mid-March, Eni said it aimed to pocket around 4 billion euros ($4.31 billion) from listing or selling stakes in its low-carbon satellites, and other 4 billion from oil and gas exploration and production units, in the 2024-2027 period.
In recent years, it has set up and listed Norwegian oil and gas company Vaar with private equity firm HitecVision and created Azule Energy, a joint venture with BP (NYSE:) in Angola.
“Vaar and Azule have the loosest link with their parent company since they fund their capital expenditures and have their own debt, which is not consolidated in the group,” Gattei said, adding the two paid dividends to the parent company.
Eni continues to hold the debt and to fund the bulk of capital expenditure of Plenitude, however.
A recent deal with Swiss asset manager Energy Infrastructure Partners valued Plenitude at 10 billion euros including debt or 10 times 2024 expected core earnings, versus a valuation of Eni group between 3 and 4 times core earnings.
Another unit that could soon become a ‘satellite’ is bio-plastic maker Novamont, with Carbon Capture and Storage due to follow, according to Eni’s CEO.
“Eni has been flexible around its corporate structures,” said Lydia Rainforth, European integrated energy analyst at Barclays. “We have seen a satellite model that tailors for easy access of specialised capital.”
Rainforth said a strategic placing for Enilive could set a valuation reference point for the unit, and a listing could be a catalyst for Eni’s share price.
Other analysts say equity markets will be slow to price in the benefits of satellites.
“We remain unconvinced that the value crystallization events in Eni’s satellites will be recognised by investors unless proceeds are received and utilised towards shareholder returns at the group level,” said RBC Head of Energy Transition Research Biraj Borkhataria.
Eni improved its distribution policy in mid-March and nudged up its 2024 share buy back, but Gattei rejected the idea of specials dividends linked to disposals.
($1 = 0.9280 euros)
