Italy’s Eni SpA expanded the reach of its natural gas business with the joint acquisition of explorer Neptune Energy Group Ltd. for $4.9 billion.

The deal, done in conjunction with Eni-controlled Norwegian producer Var Energi ASA, adds assets from North Africa to the North Sea and boosts the companies’ gas output at a time when Europe is in desperate need of the fuel.

“We see the transaction adding around 4 billion cubic meters of gas supply for European consumers,” Eni chief executive officer Claudio Descalzi said in a June 23 statement.

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Gas has long been key to Eni’s growth plans, becoming even more important since Russia’s war in Ukraine deprived Europe of its biggest supplier. Most of Neptune’s production comes from gas fields in the North Sea, North Africa and Asia — all regions where Eni already operates. The fuel is expected to make up 60% of Eni’s hydrocarbon output by 2030, and more than 90% by mid-century.

“We will have more flexibility — not just through pipeline but also through liquefied natural gas,” Descalzi said on a conference call. The break-even price of the acquired assets is “well below $50 a barrel, and the synergies are the big upside” of the transaction, he said.

The deal’s enterprise value is split into $2.28 billion for Neptune’s Norwegian assets, which go to Var Energi, and $2.6 billion for the rest, according to the statement. The purchase will add about 130,000 barrels of oil equivalent a day — most of it gas — to the Eni and Var Energi portfolios. Var Energi is about 63% owned by the Italian company.

Decent Return

During the week of June 19, Bloomberg News reported that Eni, which has had Neptune on its radar since at least late 2022, was nearing a deal. Neptune, which is backed by Carlyle Group Inc. and CVC Capital Partners, was formed in 2015 by former Centrica Plc boss Sam Laidlaw.

“This consideration is at the lower end of the range reported in the press,” Ashley Kelty, an analyst at Panmure Gordon & Co., said in a note. “While Neptune management will possibly be disappointed at the price, the PE backers should be pleased as this is a decent return.”

Eni shares slipped 0.5% in Milan as of 2:32 p.m. local time on June 23, while Var Energi jumped 3.7% in Oslo.

Dealmaking in the oil and gas sector is accelerating as governments prioritize the security of supply, and the biggest players and investors seek to deploy capital. Many of the acquisitions have targeted less environmentally damaging sources of energy, and Eni’s deal represents a rare upstream purchase by a European major amid the broader industry shift to renewables.

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“The rationale for Eni’s $4.9 billion all-cash acquisition of Neptune Energy is compelling, given the portfolio’s 77% gas weighting, proximity to European markets amid operational overlap and synergies,” said Will Hares, global energy analyst for Bloomberg Intelligence.

The deal also increases gas in Var’s energy mix, which has hitherto been predominantly oil, and strengthens its position in the Barents Sea. Neptune’s output in Norway is 57% gas or LNG, according to Eni’s statement.

“This is also really bringing a very good commodity mix to Var Energi,” CEO Torger Rod told reporters June 23.

The transaction is expected to close in the first quarter of 2024.