Italian energy group Edison, part of French utility EDF, is preparing the sale of its oil and gas unit, the latest power producer to abandon fossil fuels to focus on its retail business, four industry sources said, and quoted by Reuters. Its oil and gas unit includes interests in the Falkland Islands.
Edison has selected investment banks Rothschild and Perella Weinberg to organize an auction for the exploration and production division, which could be valued at US$2 billion to US$3 billion, one of the sources said.
The company has been looking to increase the size of its domestic electricity and gas retail business, betting on the market opening up to more competition, with retail energy customers increasingly able to chose their supplier.
Reuters reported that Edison and EDF declined to comment, as well as Rothschild and Perella Weinberg.
Edison, 99.48% owned by EDF, is the third biggest power producer in Italy after market leader Enel and Eni. It is also the third biggest gas wholesaler with a 6% share, compared with market leader Eni’s 83%. EDF took control of Edison in 2012.
Edison’s oil and gas production has grown sharply over the past decade, with activities focused in Italy, the British and Norwegian North Sea, Egypt, Israel, Algeria, Croatia and the Falkland Islands.
Its Egyptian assets, which include the Abu Qir concession and more than 250 million barrels of oil equivalent in reserves, are considered one of the most attractive parts of the portfolio, according to the sources. Edison tried selling its North Sea oil and gas business last year but was unable to find a buyer, according to bankers involved in the process.
The company’s gas production rose to over 2 billion cubic meters in 2017 from around 1.9 billion cubic meters a year earlier while oil production declined slightly to around 4 billion barrels from 4.14 billion barrels in 2016, according to its annual 2017 figures.
The company said in 2017 it would stop investing in the upstream business and focus on the distribution of oil and gas. It has also said in the past that it would create a new company to manage its upstream business.
Over the past few years, Europe’s power sector has been hit by weak energy demand amid sluggish economic growth, low wholesale power prices and a surge in demand for cleaner renewable energy which is replacing gas and coal-fired power plants and disrupting business models for utilities.
The Reuters piece points out that the traditional European utilities, which entered oil and gas production in the past seeking a hedge against fluctuating costs of hydrocarbons, have been forced to rethink their strategies.
France’s Engie sold its exploration and production business to private equity-backed Neptune Energy for 4.7 billion Euros (US$5.77 billion) last year, while German utility RWE divested its oil and gas production unit DEA in 2015.
According to the Italian conglomerate site, Edison in the Falkland Islands has the Production License 001 (PL001), which is located offshore, covering part of the North Falkland Basin. The License was initially awarded in 1997 and, since September 15, 2015, the exploration rights have been held by Noble Energy Falklands Ltd (75%, Operator) and Edison International SpA (25%).
The current Exploration Phase 2, expiring on November 25, 2019, includes a commitment well. The main activities carried out by the current JV are trade and interpretation of 4500 km2 of contiguous 3D seismic data, ca. 1500 of which are within the license’s boundaries and G&G and well engineering studies. Several stratigraphic prospects and leads have been identified. The Cretaceous lacustrine turbiditic sands are predicted to be the most promising reservoirs, while the main source rocks are represented by roughly coeval anoxic lacustrine shales.