Exclusive-Repsol in talks to merge UK North Sea operations with NEO, sources say

By Ron Bousso

LONDON (Reuters) - Spain's Repsol is in talks to merge its UK North Sea oil and gas business with private equity-backed NEO Energy, three industry sources said, the latest consolidation effort by companies that operate in the basin amid greater tax pressures.

A merger would create a company with output of more than 110,000 barrels of oil equivalent per day, making it one of the largest producers in the ageing basin.

The two sides have had extensive discussions in recent weeks about combining their operations and could announce a deal within weeks, two of the sources said.

The potential value of the deal could not be immediately learned.

The sources were not authorised to speak to media and declined to be identified. Repsol and NEO Energy declined to comment.

North Sea producers have merged and sought to diversify away from the region in recent years after the UK government imposed a windfall tax in the wake of the surge in energy prices in 2022.

The sector faces further uncertainty ahead of Britain's elections next week as the Labour Party, which commands a large lead in polls, has vowed to increase taxes on the sector, which are currently at a rate of 75%, one of the highest in the world.

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, according to its website.

The company also had a tax loss position of $3.7 billion at the end of 2022, according to its latest filing. Tax losses can be used to offset tax on new investments.

Repsol UK produced nearly 39,000 barrels of oil equivalent per day at the end of 2022, according to the filing.

Repsol last year ended years-long arbitration with China's Sinopec which saw the Spanish company acquire the remaining 49% of their North Sea joint venture, giving it full control of the assets.

NEO Energy was founded in 2019 with the backing of private equity fund HitecVision and has since then made a series of deals in the North Sea, including acquisitions from TotalEnergies and Exxon Mobil.

It has interests in 25 fields in the North Sea, according to its website. It produces around 80,000 boed, one of the sources said.

(Reporting by Ron Busso; Additional reporting by Pietro Lombardi; Editing by Edwina Gibbs)