Repsol Discusses Merging UK North Sea Business With NEO Energy

Repsol has been in discussions to merge its UK North Sea operations with NEO Energy in what could be another consolidation offshore the UK, where operators struggle with a high windfall tax.

The Spanish energy major has been holding extensive talks with private equity-backed NEO Energy and could announce a deal in the coming weeks, anonymous industry sources told Reuters on Friday.

If Repsol and NEO reach a deal, they would create one of the largest producers in the UK North Sea with production exceeding 110,000 barrels of oil equivalent per day (boepd).

NEO Energy has interests in 25 fields offshore the UK and is pursuing high-quality, long-life production and development assets in the UKCS, including via strategic acquisition opportunities.

NEO Energy, created in 2019, has grown its portfolio of UK North Sea assets through a series of corporate and asset transactions with TotalEnergies, Zennor Petroleum, ExxonMobil, and JX Nippon. NEO Energy says it is one of the top five independent producers in the region.

Repsol, for its part, holds interests in 48 fields in the UKCS, of which it operates 38, with 11 offshore installations – ten fixed and one floating – and two onshore terminals - at Flotta in Orkney and at Nigg in the Cromarty Firth.

A Repsol-NEO deal, if it goes through, would follow the combination of substantially all of Eni’s UK upstream operations with Ithaca Energy in April. 

Operators in the UK North Sea are consolidating operations in view of the tax regime in the UKCS, where a windfall tax was introduced in 2022 and earlier this year was extended by a year to March 2029.

North Sea operators are looking with apprehension at the UK general election next week, in which the Labour Party is projected to win by a landslide. Labour has pledged to further raise the windfall tax and scrap a tax relief for investments made.

UK oil and gas operators are not happy with this prospect.

David Latin, chairman and interim chief executive at Serica Energy, told the company’s annual meeting on Thursday,

“Other than when I was responsible for a company which had significant assets in a war zone, I have never encountered a situation which was so challenging when it comes to making investment decisions, and planning for the future more generally, as it is in the UK at present.”

By Tsvetana Paraskova for Oilprice.com

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