Delek unit Ithaca buys Eni's UK assets

Ithaca North Sea drilling rig credit inset Yitzhak Tshuva credit: Shlomi Yosef and company website

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Eni will receive a 37.3% stake in Ithaca, in a stock deal for its North Sea oil and gas assets, while Delek will reduce its stake from 90% to 52.7%.

Delek Group Ltd. (TASE:DLEKG) North Sea energy exploration and production unit Ithaca Energy (LSE: ITH) has agreed to buy Italian energy major Eni unit Eni UK's North Sea gas and oil assets - one month after reporting it was in talks for the deal.

In this latest in a series of acquisition deals, Ithaca will pay $940 million in stock, giving Eni a 37.3% stake in the Delek unit. Delek itself, controlled by Yitzhak Tshuva, will remain with a 52.7% stake in Ithaca, down from nearly 90% before the deal. 10% of Ithaca's shares will continue to be traded on the London Stock Exchange.

Ithaca is traded with a market cap of £1.2 billion ($1.5 billion) while Eni UK was valued at $940 million for the purposes of the merger. The deal will give the merged company a valuation of at least $2.5 billion. The deal is expected to be completed at the end of the second quarter of 2024.

After the deal, Ithaca's production potential (oil and gas) will nearly double to 110,000 barrels of oil equivalent per day from the current 60,000 barrels of oil equivalent per day. Prior to the deal 70% of Ithaca's assets were in oil and 30% in natural gas, while Eni UK's assets are split 60% oil and 40% gas.

Ithaca expects that the company's total reserves after the deal is completed will increase by about 100 million barrels of oil equivalent to about 660 million barrels of oil equivalent over a period of 15 years. Since Eni UK's reserves are over 6-8 years, Ithaca's aim in the deal is to increase production in the immediate term and generate a greater cash flow. Ithaca estimates that after completion of the deal, it will distribute a dividend of $500 million in each of the next two years.

Ithaca held its IPO on the London Stock Exchange in late 2022 at a company valuation of £2.5 billion ($2.9 billion) and since seen its market cap fall 50% to £1.2 billion. Since reporting talks last month to buy Eni's UK assets, Ithaca's share price has fallen a further 18%, mainly in the two days following the report.

Two main reasons for the fall in Ithaca's share price were the decrease in revenue and profit following the fall in oil prices, and the new oil and gas tax in the UK (called EPL), at a rate of 35% of profits, which was imposed following the spike in energy prices in 2022.

In 2023, Ithaca recorded revenue of $2.3 billion, down 11% from 2022, while profit plunged 79% to $216 million. In 2023, Eni UK reported revenue of $980 million and profit of $278 million, down 42% and 72% respectively from 2022.

The companies believe that the merger will also lead to an increase in the marketability of Ithaca stock, and boost value for the merged company.