Eni and Ithaca firm up business combination deal to establish top-tier oil & gas player in UK waters

Italy’s energy giant Eni has ironed out an agreement on the combination of its upstream assets in the UK, excluding East Irish Sea ones and carbon capture, utilization, and storage (CCUS) activities with Delek’s Ithaca Energy, a North Sea oil and gas operator and producer. The merger of the Italian player’s British portfolio with Ithaca’s assets enables both companies to boost their presence on the UK Continental Shelf (UKCS), establishing the UK’s second-largest oil and gas independent operator with the potential to eclipse Harbour Energy as the top producer on the UKCS.

Eni’s confirmation about reaching a deal for this business combination with Ithaca, which is said to be a transformational one that will create a leading UKCS production and growth company, comes nearly a month after the duo entered into an exclusivity agreement regarding the potential merger. Under the terms of the business combination agreement, the two companies will combine the Italian oil major’s UK upstream business with the existing Ithaca business, which entails stakes in six of the ten largest fields and the top two largest development fields on the UKCS.

This combination, which is expected to bring an enlarged and stronger combined group to life with 2024 production greater than 100,000 boepd and the underlying potential to boost output to 150,000 boepd by the early 2030s, is being funded through the issue of new ordinary shares to Eni UK that represent 38.5% of the enlarged issued share capital of Ithaca. While the economic effective date for the combination will be June 30, 2024, the completion is expected in 3Q 2024, subject to the satisfaction of certain regulatory and other customary conditions precedent.

Furthermore, the deal between Eni and Ithaca is aimed at replicating the previous execution of upstream combinations that the Italian giant has formed using its satellite model, including Vår Energi in Norway and Azule Energy in Angola, as a strategic response to the challenges and opportunities of energy markets, creating focused and lean companies able to attract new capital to create value through operating and financial synergies and the acceleration of growth.

Claudio Descalzi, Eni’s CEO, commented: “This agreement represents a further example of Eni adapting to the demands of the changing energy market and in this case deploying our successful satellite model. It affords the opportunity to build scale, realising efficient upstream growth and maximising value under a dedicated and focused management structure supported by Eni resources and expertise. The combination with Ithaca represents an exciting opportunity for us to bring together complementary portfolios establishing a material position on the UKCS with significant growth and optimisation opportunities.”

Eni claims that this combination will enable it to continue pursuing its growth on the UKCS, strengthening its commitment to the UK after the Neptune Energy acquisition. The Italian firm is set to become a significant minority shareholder in enlarged Ithaca, with increased scale, asset diversification, and strategic interests in key assets on the UKCS with material combined long-life 2P reserves and 2C resources base of 658 mmboe, resource life over 15 years based on 2023 pro-forma production, interest in 37 producing assets, and stakes in six of the ten largest fields on the UKCS, including Rosebank, Cambo, Schiehallion, Mariner Area, Elgin/Franklin, and J-Area.

“We have moved quickly after the acquisition by Eni of Neptune Energy to transform our competitive position in the UK and we see the opportunity for Eni and Ithaca to realise material long-term value in helping to address the key challenges of security, affordability and sustainability of energy supply,” added Descalzi.

Moreover, the business combination is anticipated to create a diversified and balanced portfolio, with 49% gas weighting based on 2023 pro-forma production. Upon completion, Eni will enter into a relationship agreement with Ithaca on substantially similar terms to the relationship between Delek and the North Sea operator. Such an agreement will entitle Eni to appoint two non-executive directors to the Ithaca board for so long as it directly or indirectly holds greater than 20% of the combined firm’s issued share capital.

In addition, the Italian player will be able to appoint one observer to the remuneration committee and the audit and risk committee and one director to the nomination and governance committee for so long as it holds greater than 25% of the combined company’s issued share capital. It is also anticipated that Eni will be entitled to recommend the nomination of the next proposed CEO of the combined firm from completion.

As the number of ordinary shares in public hands will be 7% and below the minimum 10% as required by the Financial Conduct Authority listing rules due to the issuance of shares to Eni UK, Delek has undertaken to sell down approximately 3% of the enlarged issued share capital of Ithaca before completion to ensure that the number of ordinary shares in public hands remains at or above 10%.

Aside from this, Delek will enter into a call option arrangement with Eni UK to have the option to require a transfer of shares in Ithaca which represents approximately 1% of the enlarged issued share capital. After the sell-down is complete and if this call option is exercised, Delek will hold 52.7%, Eni 37.3%, and the remaining 10% of Ithaca’s ordinary shares will be in public hands.

Descalzi highlighted: “Indeed, establishing a leading position in the UK upstream market will mirror our equally strong position in CCS with our Hynet and Bacton Thames projects which together with 3 other CO₂ storage licences gives us around 1Giga Tonn of gross storage capacity and will see us become a key player in the decarbonisation of the UK’s hard-to-abate industries.

“With our significant investment as a partner in the giant Dogger Bank offshore wind farm, Eni is pleased to be a major player across key activities in the UK’s energy sector.”