Spain’s oil and gas company Repsol REP.MC is reportedly in talks to merge its UK North Sea business with private equity-backed NEO Energy, according to three industry sources. This move is the latest consolidation effort by companies operating in the aging North Sea basin, which is facing greater tax pressures.
A merger between the two companies would create a combined entity with a production output of more than 110,000 barrels of oil equivalent per day, making it one of the largest producers in the region.
The sources, who were not authorized to speak to the media and declined to be identified, said the two sides have had extensive discussions in recent weeks about combining their operations and could announce a deal within weeks. However, the potential value of the deal could not be immediately determined.
Both Repsol and NEO Energy declined to comment on the matter.
North Sea producers have been merging and diversifying away from the region in recent years after the UK government imposed a windfall tax on the sector in the wake of the surge in energy prices in 2022. The industry now faces further uncertainty ahead of the upcoming British elections, as the Labour Party, which leads in the polls, has vowed to increase taxes on the sector, which are currently at a rate of 75%, one of the highest globally.
Labour has also pledged to scrap an exemption for profits that are re-invested in oil and gas production, although the exact details remain unclear.
Repsol Resources UK has interests in 48 offshore fields, of which it operates 38, and had a tax loss position of $3.7 billion at the end of 2022. Tax losses can be used to offset tax on new investments.
NEO Energy, founded in 2019 with the backing of private equity fund HitecVision, has made a series of deals in the North Sea, including acquisitions from TotalEnergies and Exxon Mobil. It produces around 80,000 barrels of oil equivalent per day.