Repsol to sell $4.8 billion stake in oil and gas business

Repsol will sell a 25 percent stake in its exploration and production business to U.S. investment group EIG for $4.8 billion as Spain’s largest oil company seeks to raise funds for renewable energy investments in a move to a low-carbon future.

The deal, the result of an unsolicited initiative by professional energy and infrastructure investors, is one of the most creative efforts by the industry to be keen to transition to greener forms of energy, while still providing the hydrocarbons the world needs today.

Repsol said the deal, which valued its upstream business at about $19 billion, would “clear value” in the sector while freeing up capital to expand renewable energy investments.

“Our goal is to lead the energy transition,” said CEO Josu Jon Imaz. “This groundbreaking agreement allows us to maintain the strategic direction of the upstream sector,” he added, while promoting “the transformation of the company and its multi-energy profile to achieve net zero emissions by 2050.”

Repsol said it would retain operational control of the unit, adding that the deal sets the stage for a potential U.S. initial public offering of the business in 2026 or later.

The oil industry, under pressure to cut emissions through production cuts, is grappling with how to fund clean energy investments while retaining enough profits from legacy assets to continue paying shareholders.

Some investors and oil industry veterans are calling for the biggest companies to spin off their oil and gas divisions, which face higher capital costs than pure-play renewable energy businesses. So far, most rivals, including Shell and BP, believe they will be better positioned to succeed as integrated companies.

Italian oil group Eni is preparing to list a minority stake in its retail and renewable energy business in June before delaying the sale due to market conditions.

However, the Repsol deal is the first attempt by a major oil and gas company to capitalize on the value of its legacy business. The unit produces an average of 570,000 barrels of oil equivalent per day at fields in the Americas, Europe, Asia and Africa. About 70% of that output is natural gas, which has seen prices soar this year as Russia stifles supplies to Europe.

Biraj Borkhataria, head of oil and gas equity research at RBC Capital Markets, said the deal was good for Repsol and the wider industry. “We think this deal is good for the industry to unlock value for the big players,” he said.

The deal will help fund Repsol’s long-term plan to build its low-carbon business and should be a “significant positive catalyst” for Repsol stock, he added.

Shares in Repsol rose after the announcement, but were down 1.6% in early trade as European oil and gas stocks fell 1.7%.

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