LONDON (Reuters) - Israel-focused Energean has agreed to buy the oil and gas division of Italian energy company Edison for up to $850 million (£676 million).

The acquisition is set to expand Energean's operations in the eastern Mediterranean gas hub, where Edison has a significant presence in Egypt's rapidly-growing offshore basin.

The deal marks a bold bet by Energean Chief Executive Mathios Rigas as Energean develops the Karish and Tanin gas fields offshore Israel, where production is due to start early in 2021.

Energean agreed to pay an initial consideration of $750 million and said it would be likely to pay an additional $100 million after gas production from the Cassiopeia field in offshore Italy begins, which is expected in 2022.

Energean's shares closed 13.67% higher, their highest since listing on the London Stock Exchange 15 months ago. Edison shares were down 1.96% while shares of its parent company, France's EDF closed 1.4% lower.

Reuters reported on Wednesday that Energean was the frontrunner to acquire these assets.

Energean expects the expanded group to produce over 140,000 barrels of oil equivalent per day (boed) in 2021 and up to 200,000 boed once the Israeli fields reach full capacity.

Edison's portfolio, which includes assets in Italy, Algeria, Croatia, the British and Norwegian North Sea as well as Greece, will add to Energean's net working interest production of 69,000 boed. More than 75% of Edison's production and reserves is gas.

Edison's production generated $434 million in core earnings last year, and is set to significantly boost Energean's earnings which reached $52.4 million in 2018, Energean said.

Energean also said it would finance the initial consideration for the deal through a short-term loan facility of $600 million and up to $265 million through equity financing which it completed on Thursday.

Morgan Stanley, Stifel Nicolaus, Peel Hunt and Royal Bank of Canada acted for Energean on the deal and the share placing.

(Additional reporting by Tanishaa Nadkar and Shariq Khan in Bengaluru; Editing by Arun Koyyur and Jane Merriman)

By Ron Bousso