Repsol (REPYY) and NEO Energy Discuss North Sea Business Merger

Repsol REPYY, a Spanish multi-energy company, has engaged in discussions with NEO Energy to merge their oil and gas operations in the U.K. North Sea, according to three industry sources. While both companies are yet to provide an update, some industry sources have reported that the parties have undergone extensive discussions and may make an announcement regarding the merger very soon. The merger is anticipated to create a company with an output of more than 110,000 barrels of oil equivalent per day (boe/d).

Companies operating in the U.K. North Sea are trying to consolidate and move away from the region amid rising taxes, in recent years. The U.K. government introduced a windfall tax following the surge in energy prices in 2022. The energy sector is facing additional uncertainty, ahead of the upcoming British elections.

The Labour party, which has been leading the polls, has sworn to increase taxes on the sector that currently stands at 75%, one of the highest in the world. Furthermore, the party has announced that it will eliminate the exemption that enables companies in the sector to avoid some taxes by reinvesting their profits in their oil and gas business. However, the details regarding how these plans will be implemented remain unclear.

In its latest filing, Repsol reported a tax loss worth $3.7 billion. Tax losses can help reduce a company’s future tax liability by offsetting the tax payment on future investments. Per the filing, Repsol Resources UK has interests in 48 offshore fields. It had a production of approximately 39,000 boe/d at year-end 2022. Repsol also gained complete control over its North Sea assets by acquiring the remaining 49% of its North Sea joint venture from Sinopec last year.

NEO Energy, backed by the private equity fund HitecVision, has interests in 25 fields in the North Sea, and its production amounts to approximately 80,000 boe/d. The company has executed multiple transactions in the North Sea region, including acquisitions from TotalEnergies and ExxonMobil.

Zacks Rank and Key Picks

Currently, REPYY carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energysector are Archrock Inc. AROC, SM Energy SM and Hess Midstream Partners LP HESM. Archrock and SM Energy presently sport a Zacks Rank #1 (Strong Buy) each, while Hess Midstream carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

SM Energy is an upstream energy firm operating in the prolific Midland Basin region and the South Texas region. For 2024, the company expects its production to increase from the prior-year reported figure, signaling a bright production outlook.

Hess Midstream owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess Corporation and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.