Dong Energy makes commitment to renewables by selling its oil and gas arm to Ineos in £1bn deal

Denmark-based utility energy firm Dong Energy has made a commitment to renewables and agreed to divest its entire oil and gas business to Ineos in a deal worth up to $1.3bn (€1.16bn).

The transaction includes production, development and exploration sites off Denmark, Norway and west of Shetland.

Ineos said the move would make it the biggest private group operating in the North Sea.

The company has been looking recently to expand its upstream arm.

Last month it struck a $250m deal with BP to buy the Forties pipeline system, which transports nearly 40% of the UK North Sea's oil and gas production.

In the latest move, Ineos - which is controlled by British billionaire Jim Ratcliffe - will pay Dong just over $1bn, plus up to $250m in contingent payments.

About 440 staff will transfer from Dong on completion of the deal, which is expected in the third quarter.

‘Divest our upstream oil and gas business’

Henrik Poulsen, CEO of Dong Energy, said: “Since the decision in 2016 to divest our upstream oil and gas business, we’ve actively worked to get the best transaction by selling the business as a whole, getting a good and fair price for it and ensuring the optimal conditions for the long-term development of the oil and gas business. With the agreement with Ineos we’ve obtained just that.”

“The transaction completes the transformation of Dong Energy into a leading, pure play renewables company.”

The transaction is expected to result in a gain on sale of enterprises of approximately DKK 2.5 billion including the contingent payment related to the Fredericia stabilisation plant. The gain will be presented as part of net profit from discontinued operations in Dong Energy's financial statements after closing.

Of the USD 1,050 million unconditional consideration, USD 250 million (DKK 1.7 billion) will be payable from 2018 to 2020.

Closing of the transaction is subject to regulatory and certain other third party approvals and is expected to take place in the third quarter of 2017.

At closing of the transaction, approximately 440 employees working for Dong Energy Oil & Gas will transfer to employment with the Ineos group.

J.P. Morgan acted as exclusive financial adviser to Dong Energy in connection with the transaction.

The information provided in this announcement does not change Dong Energy's previously announced outlook for the 2017 financial year as "Oil & Gas" is presented as an asset held for sale and discontinued operations.

Earlier this year, the company said it would stop using coal by 2023. Dong Energy has decided that by 2023, coal will no longer be used as fuel at the company’s power stations. The decision is a result of the company’s vision to lead the way in the transformation to a sustainable energy system and to create a leading green energy company.

Since 2006, Dong Energy has reduced its coal consumption by 73%, and the company has now decided to entirely phase out the use of coal. By 2023, the use of coal as fuel at Dong Energy’s power stations will have stopped completely. The power stations will be replacing coal with sustainable biomass.

This story was written by Liz Gyekye, editor of Biofuels International and Bioenergy Insight.