Citi kicks off Eni gas sale with $US165m free-cash-flow pitch

Commodity exposure without the commodity price risk.

That's the headline pitch from Italian energy giant Eni as it seeks a buyer for its $1 billion-odd portfolio of Australian gas assets.

Potential buyers were told the portfolio produced more than $US165 million in free cash flow in 2019, with the bulk of that coming from inflation-linked fixed-price take-or-pay domestic gas sales and LNG processing tariffs.

Most of the cash flows up until 2034 would carry no commodity price risk, and would be derived from the Blacktip Gas Project and associated Yelcherr Gas Plant and Darwin LNG.

The details were contained in a lengthy sale flyer Eni's bankers at Citi sent to potential buyers in recent days. Street Talk revealed the sale a fortnight ago.

The flyer said a new owner could add value by expanding the up-for-sale assets, either by extending their lives or increasing production and targeting new markets.

Interested parties were told the portfolio included Eni's fully owned Blacktip and Yelcherr, which had a long term contract to supply gas to the Aa3 rated Power and Water Corporation in the Northern Territory, and the pipeline that connects the project and processing plant. There's also Eni's 10.99 per cent share in the soon to be Santos operated Darwin LNG and supply field Bayu-Undan and its 72.2 per cent share in Evans Shoal project resource further north.

Citi made a six-point pitch including the low risk take-or-pay domestic gas sales from Blacktip; limited oil price exposure; world-class LNG infrastructure; Yelcherr Gas Plant expansion; Bayu-Undan life extension; and Darwin LNG expansion. The flyer included sensitivity analysis showing how oil prices would affect 2020 free cash flow forecasts.

Tyre-kickers are expected to spend plenty of time testing the expansion/extension theories.

It is understood interested parties were told to think about $US140 million free cash flow in 2020, based on spot oil prices.

Analysts reckon similar portfolios trade at five to seven times cash flow, on an enterprise value to debt-adjusted cash flow basis, although may have less contracted revenue than Eni's.

Citi is understood to have pitched the assets to core-plus infrastructure investors, as well as gas asset operators with interests in and around Australia. In reality, it makes sense for the bankers to try and find the potential buyer with the lowest cost of capital, and then an operator that will pass muster with NT's Power and Water Corp, who will be asked to approve the incoming party.

Indicative bids are likely to be due in late July/early August, the flyer said.