Adnoc decides BP is not the ‘right fit’
THE United Arab Emirates’ (UAE) stateowned oil company has considered buying Britain’s BP but the deliberations did not progress beyond preliminary discussions.
Abu Dhabi National Oil Company (Adnoc) ultimately decides BP will not be the right fit for its strategy, sources tell Reuters.
Political considerations also weighed on the potential move.
The £88bil (Us$110.3bil) company has underperformed its competitors for years, which investors and analysts say has made the British firm a potential takeover target.
US oil giants are in the midst of the industry’s biggest consolidation for decades, but European oil majors have to date not been involved.
Investors have penalised BP’S plan to reduce fossil fuel production and its faster shift toward renewables than rivals such as Shell, Exxon and Chevron.
In February 2023, BP rowed back on its more aggressive energy transition plans.
Adnoc, in contrast, has increased oil and gas production capacity and chief executive officer Sultan al-jaber is seeking to reshape the state giant in the image of a global oil major.
The company, which is not publicly traded, is big enough to consider acquiring the smaller of the oil majors, BP.
Adnoc and BP spoke directly in recent months and Adnoc also sought advice from investment banks on a potential deal.
The Emirati giant considered all options when looking at BP, including buying a big stake, a source says.
Large companies typically evaluate the market value and strategic worth of rivals for potential acquisitions.
BP was one of many companies Adnoc has looked at.
“It didn’t go far,” a source says of the considerations over buying BP.
Adnoc has also looked at other international companies to give it access to a bigger gas and liquefied natural gas portfolio. Adnoc declines to comment for this story. A BP spokesman says a spokesman for Britain’s business ministry also declined to comment.
The considerations underscore Adnoc’s ambitions to expand internationally as part of the UAE’S energy transition strategy. It also highlights BP’S vulnerability as investors question its plans.
Adnoc previously told Reuter sitispursuing investment opportunities in areas including renewable energy, gas, petrochemicals and liquefied natural gas as part of its international expansion. It sees those sectors as key future growth markets.
Adnoc has been pursuing a series of European assets.
Last year, it made a non-binding bid of about 11.3bil (Us$12.1bil) to acquire German plastics and chemicals maker Covestro.
It has also been in talks with Austria’s OMV to create a chemicals giant with combined annual sales of more than Us$20bil.
In December, it agreed to buy European chemical producer OCI’S stake in ammonia and urea producer Fertiglobe for Us$3.6bil.
BP, which reported profits of Us$13.8bil last year, is valued at the lowest multiple amongst the global oil majors when measured by market capitalisation versus cashflow.
The gap between BP’S price-to-cashflow ratio on a 12-month forward basis and that of rival Shell has widened in recent months to levels not seen in years.
Jefferies analyst Giacomo Romeo says although BP’S shares are trading at “a clear valuation discount relative to peers,” the company has “an attractive set of assets including good growth opportunities in its upstream portfolio and a best-in-class trading business.”
BP chief executive Murray Auchincloss took the top job in January, succeeding Bernard Looney who was dismissed in December for lying to the board over personal relationships with colleagues.
UBS analyst Joshua Stone said Adnoc’s move highlights the view that the European oil and gas sector remains undervalued.
“The key question now is if BP can convince the market of the growth still to come from its transition businesses,” Stone tells Reuters.
BP and Adnoc have been working together for more than 50 years.
In February, they announced a joint venture to develop gas assets in Egypt.
The two also made a Us$2bil offer to buy a 50% stake in Israeli gas producer Newmed last year, although the deal is on hold due to the conflict in the region.
Britain’s National Security and Investment Act came into force in 2022, giving the government power to intervene in acquisitions on national security grounds in industries including energy.
UK governments have in the past told London-listed BP that they would block any takeover attempts by foreign entities given the company’s strategic value.
It is unclear whether the current government would take the same position.
The UAE has expressed interest in investing in UK nuclear power infrastructure.
The UK government last month in effect killed a Uae-led takeover of newspaper the Telegraph, and plans to ban foreign governments from owning newspapers. —