Major European energy companies are scaling back their oil and gas portfolios to retain only those assets most likely to be profitable and redeploy capital for a clean energy transition as uncertainty mounts over future demand for fossil fuels .
Earlier this month, they announced that they were in talks to form a joint venture to manage their combined operations in Angola.
The sources, asking not to be named, said BP and Eni were in early-stage talks for the Italian group to take over BP’s assets in Algeria.
The parties are exploring an outright sale as well as an option for BP to receive stakes in Eni’s assets globally, possibly in its flagship liquefied natural gas development in Mozambique, one of the sources said. .
They also discussed the idea of creating a joint venture in the North African country similar to the Angolan model, the sources said.
BP and Eni declined to comment.
The deal would help BP sell off its Algerian assets after its failure since 2019 to sell its 45.89% stake in the In Amenas natural gas plant. BP also owns a 33% stake in the In Salah gas plant.
LOWER PROFIT, MORE DIFFICULT TO SELL
In Algeria, as in Angola, international groups that operate or hold stakes in oil and gas fields receive fixed royalties based on the production of the fields, in what are called production sharing agreements (PSA).
This makes them less profitable than elsewhere and more difficult to sell.
One of the sources said BP tried to sell, but it turned out to be difficult.
For Eni, Africa’s largest foreign oil and gas producer with strategic interests in Libya and Egypt, the acquisition of BP’s assets would make Algeria a hub.
BP’s net share of production in Algeria in 2020 was 141 million cubic feet (mcf) of gas per day and 6,000 barrels of oil per day, according to its annual report.
Eni, which has long-term gas import contracts in the country, produced 81,000 barrels of oil equivalent per day in 2020, including 152.5 mcf of gas.
BP and Eni have made plans to transform their businesses over the coming decades, shifting from oil and gas to renewables, electricity markets and low-carbon companies.
Eni, which has committed to quadrupling its green energy capacity to 4 gigawatts in 2024, has 5 MW of solar capacity in Algeria.
As renewables generate lower returns than oil and gas, majors face a dilemma as they seek to reform and balance their investments in new businesses while protecting ratings, controlling heavy debt. and maintaining dividends.
Eni said its oil production will start to decline after 2025, while BP has pledged to cut oil production by 40% by 2030.
As part of the strategy, the companies aim to focus their operations on the most profitable fields, such as the Gulf of Mexico in the case of BP and the giant offshore Zohr gas field in Egypt for Eni.
Eni has signed a series of agreements with BP in Africa, including the sale of stakes in the Nour and Shorouk fields in Egypt and a large commercial contract for LNG from Eni’s Coral South project in Mozambique.