UAE ADNOC recently considered BP as takeover target, sources say

By Sarah McFarlane, Anousha Sakoui and Ron Bousso

(Reuters) – The United Arab Emirates’ state oil company recently considered buying Britain’s BP, but deliberations have not progressed beyond preliminary discussions, people familiar with the matter told Reuters.

The Abu Dhabi National Oil Company (ADNOC) ultimately decided that BP would not be the right fit for its strategy, three people said. Political considerations also factored into the possible move, one of the people said.

The £88 billion ($110.3 billion) company has been underperforming its competitors for years, which investors and analysts say has made the British company a potential takeover target. US oil giants are in the midst of the biggest industry consolidation in decades, but to date European oil majors have not been involved.

Investors penalized BP’s plan to reduce fossil fuel production and its faster shift to renewable energy than rivals such as Shell, Exxon and Chevron. In February 2023, BP backed away from its more aggressive energy transition plans.

ADNOC, by contrast, has increased oil and gas production capacity and CEO Sultan al-Jaber is trying to reshape the state-owned giant in the image of a global oil major. The company, which is not publicly traded, is large enough to consider acquiring the smallest of the big oil companies, BP.

ADNOC and BP have spoken directly in recent months and ADNOC has also sought advice from investment banks about a potential deal, two of the people said.

The Emirati giant considered all options when looking at BP, including buying a large stake, a fourth person said.

Large companies typically evaluate the market value and strategic value of rivals for potential acquisitions. BP was one of many companies that ADNOC analyzed, the person added.

“It didn’t go very far,” the person said of the BP purchase considerations.

ADNOC has also reached out to other international companies to give it access to a larger portfolio of liquefied natural gas (LNG), the source added.

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ADNOC declined to comment for this story. A BP spokesman and a British Business Office spokesman also declined to comment.

The considerations underline 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 Reuters it is looking for investment opportunities in areas including renewable energy, gas, petrochemicals and liquefied natural gas as part of its international expansion. ADNOC sees these sectors as key markets for future growth.

ADNOC has been chasing a number of European assets. Last year, it made a non-binding offer of around 11.3 billion euros ($12.1 billion) to acquire German plastics and chemicals maker Covestro. It has also been in talks with Austria’s OMV to create a chemical giant with combined annual sales of more than $20 billion.

In December, it agreed to buy European chemical producer OCI’s stake in ammonia and urea producer Fertiglobe for $3.6 billion.

BP, which reported profits of $13.8 billion last year, is valued at the lowest multiple among the world’s major oil companies when measured by market capitalization versus cash flow. The difference between BP’s price-to-cash flow ratio on a 12-month forward basis and that of rival Shell has widened in recent months to levels not seen for years.

BP chief executive Murray Auchincloss took the role in January, succeeding Bernard Looney, who was fired in December for lying to the board about personal relationships with colleagues.

BP and ADNOC have worked together for more than 50 years.

In February, they announced a joint venture to develop gas assets in Egypt. The two also made a $2 billion bid to buy a 50% stake in Israeli gas producer NewMed last year, although the deal has been on hold due to conflict in the region.

Britain’s National Security and Investment (NSI) Act came into force in 2022, giving the government power to intervene in takeovers on national security grounds in industries including energy.

In the past, UK governments have told London-listed BP that they would block any takeover attempts by foreign entities, given the company’s strategic value, people familiar with the matter told Reuters. It is unclear whether the current government would take the same position.

The UAE has expressed interest in investing in the UK’s nuclear energy infrastructure, sources told Reuters last month.

The UK government last month ended a UAE-led takeover of The Telegraph and plans to ban foreign governments from owning newspapers.

($1 = 0.9314 euros)

($1 = 0.7977 pounds)

(Reporting by Sarah McFarlane, Anousha Sakoui and Ron Bousso in London; Additional reporting by Yousef Saba and Alistair Smout. Editing by Simon Webb, Elisa Martinuzzi and Nick Zieminski)