Eni to float or sell stake in retail and renewables division

Italy’s Eni has approved a plan to list or sell a minority stake in its new retail and renewable power business as part of the company’s energy transition strategy.

A stock exchange listing through an initial public offering or the sale or exchange of a minority stake in the recently formed division could take place in 2022 subject to market conditions, the company said on Friday. 

Francesco Gattei, chief financial officer, told the Financial Times in an interview that the goal was to “present to the market a vehicle, a new company, that is not measured with the logic of an oil and gas player”.

Such an entity, he said, could attract funds with an ethical bent that have shied away from investing in oil and gas companies because of their role in enabling climate change. 

Executives at European oil and gas majors have faced a dilemma in how to win over shareholders who are demanding they clean up their energy mix but also want hefty dividends from these less lucrative greener businesses. 

Some have said they are not being rewarded for the steps they are taking to overhaul their businesses as renewables and other lower-carbon investments are dwarfed by legacy fossil divisions.

Gattei said spinning off and potentially listing Eni’s retail and renewables division would “give it the attention that it deserves” and enable it to be judged according to “its own rules of the game”. 

Eni gas e luce, the subsidiary, provides gas, power and energy services to households and businesses across six European countries including Italy, France and Spain.

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The division has 10m customers and plans to increase renewable power generation to more than 5 gigawatts by 2025. Eni said earnings before interest, tax, depreciation and amortisation from this business were expected to be €600m in 2021 and €1bn in 2025. 

Renewables company valuations and stock prices have surged in the past year, while oil majors have taken a huge hit as energy demand and prices tanked because of the coronavirus crisis while their strategies to tackle climate change failed to win over investors.

Cleaner businesses are also viewed as growth stocks, with increasingly lower costs of capital and obligations to pay smaller dividends than oil and gas companies that are seen as yield stocks by investors.

While Total has said it would prefer to keep operations under one umbrella, Spain’s Repsol also aims to divest parts of its renewables business to pay off debt and fund a shift into cleaner energies.

The pitfalls of keeping dirty and clean businesses under one entity, Gattei said, would only result in a choice having to be made about which to prioritise.

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“This should not be about a trade-off between investing in upstream [oil and gas production and exploration] and investing in renewables,” he added. 

Even as the world needs to electrify and turn to cleaner energy sources, he said fossil fuels would still be necessary for large parts of the economy — from air travel and shipping to heavy goods transport. 

“I have to invest in renewables as fast as I can,” Gatte said. “On the other hand I have to invest in decarbonising the upstream. This is the model that we have to build and the market has to recognise.”

“This is not a sunset for the oil and gas sector,” said Gattei, adding that oil companies that divest from hydrocarbons too quickly would only hinder cash generation and their ability to invest in both traditional and new businesses. 

“If you destroy your legs, you fall,” Gattei said. 

Environmentalists, however, have said where proceeds of such flotations or stake sales are diverted would matter, as funnelling cash from renewables back into fossil fuels is counterproductive.

Eni on Friday reported adjusted net profit of €270m in the three months to March 31, up from €59m in the same period a year ago. 

However, that was below analysts’ expectations for €440m, sending Eni shares down 2 per cent in mid-morning trading.

While the oil exploration and production business was helped by higher prices, the gas division as well as the refining and marketing business both reported a loss.