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Adnoc’s acquisition strategy could lead to something major

Abu Dhabi's oil giant is keeping watch as European supermajors shed assets

Adnoc Group CEO Sultan Ahmed Al Jaber pictured in the command centre at Adnoc headquarters in Abu Dhabi Reuters/Satish Kumar
Adnoc Group CEO Sultan Ahmed Al Jaber pictured in the command centre at Adnoc headquarters in Abu Dhabi

Abu Dhabi National Oil Company (Adnoc) has been on a dealmaking frenzy recently

The wide range of its acquisitions make it hard to determine a pattern. So what is the state oil major aiming at?

Last week, Adnoc announced its latest move, a 49-51 percent joint venture with BP covering a number of gas exploration and production interests in Egypt. 

The most notable of these holds the giant Zohr field, Egypt’s largest, in which BP had owned 10 percent, and where Emirati compatriot Mubadala already owns another 10 percent. Adnoc would contribute cash towards future growth.

Adnoc and BP had also been working since March 2023 on a joint acquisition of the Israeli producer NewMed for about $2 billion, but this has been held up by regulatory issues. 

Not surprisingly, as Israel’s conflict with Hamas continues, this transaction has gone quiet, even though BP’s newly appointed CEO Murray Auchincloss says talks are ongoing.

Adnoc is not only working with BP on its international expansion. It is in talks for gas development in Libya in partnership with Eni, although this has run into some political controversy. 

And in August 2023 it snapped up a 30 percent stake in the major Absheron gas field in Azerbaijan from Azeri state company Socar and French supermajor TotalEnergies.

In November Bloomberg reported that Adnoc was thinking about buying German oil and gas company Wintershall, though subsequently it merged with a German peer.

And in January Adnoc acquired 10.1 percent in Storegga, a UK-based developer of carbon capture and storage projects.

Central to all this expansion has been Musabbeh Al Kaabi, Adnoc’s executive director of low-carbon solutions and international growth. Al Kaabi was formerly chief executive of Mubadala Petroleum, during the period when it acquired the stake in Zohr. 

Adnoc
Musabbeh Al Kaabi, Adnoc’s executive director of low-carbon solutions and international growth

In August he told S&P Global: “We have a strategy to invest in natural gas and the value chain”, also commenting that Adnoc would look at “an LNG project anywhere, east or west, that meets our investment criteria, strategic rationale and the ability to create more value by building on our strength, including trading”.

But Adnoc’s expansion is not only about upstream ventures. The Financial Times reported in March 2023 that it wanted to buy all or a majority stake in the leading commodity trader Gunvor, although those talks are on hold. 

Since at least September it has been in talks to buy Covestro, a German speciality chemical maker, in a deal valued at $12.3 billion. In November it bid for a 38.3 percent share in the Brazilian petrochemical company Braskem.

Then in December Adnoc agreed to pay $3.62 billion for the 50 percent + 1 share OCI held in the fertiliser joint venture Fertiglobe. It is also in the process of a complex transaction to merge Borouge, an Abu Dhabi polymer maker, with Borealis, a petrochemical company it partly owns.

This is all quite a change for a company which, until 2022, was almost wholly a domestic business. Neighbours Saudi Aramco and QatarEnergy started their international expansion drives much earlier.

The main thrust of Adnoc’s upstream expansion is clear: gas with the potential to serve Europe, in partnership with trusted European supermajors.

The acquisition of Wintershall, strong in gas and operating around the North Sea, Egypt, Libya and Algeria, would also have fit that pattern had it proceeded.

Adnoc sees gas as a lower-carbon fuel than oil, with a clearer growth outlook. Concentrating on gas in overseas expansion avoids competition with plans to ramp up domestic production capacity to five million barrels per day by 2027, which already contributes to tensions within Opec. 

A worker at the Zohr gas processing plant. Adnoc now has a stake in the giant fieldEni
A worker at Egypt’s Zohr gas processing plant. Adnoc now has a stake in the giant field via a joint venture with BP

Europe needs more gas from its neighbourhood in the medium term to replace the supplies lost from Russia, while the Abu Dhabi company’s own liquefied natural gas exports mostly target Asia.

The European supermajors are likely to keep shedding assets as they face pressure from shareholders, campaigners and home governments to transition to lower-carbon businesses. There will be more opportunities to buy from them or shuffle fields into joint ventures.

The downstream strategy is for now less apparent. Aramco has concentrated strongly on building up its presence in refining and petrochemical ventures in the core markets for its crude, across North America, Europe and, especially, Asia. 

It aims to anchor demand for its vast oil exports, and to focus on one of the highest-value, fastest-growing segments of consumption, in petrochemicals. Though Asia is also the main market for Adnoc, it does not yet have a significant downstream presence there.

Is a yet bolder and more transformational move on the horizon? Gunvor would have been such, though setting up a severe clash of cultures. BP stands out as an intriguing possibility.

Having been through some turbulent times with the recent departure of chief executive Bernard Looney, it is the only one of its peer group to have lost value since 2019. Its price-to-earnings ratio stands at 4.1, below its competitors, and far under Saudi Aramco’s 14.9.

Even more than its European compatriots, the vintage British supermajor is struggling to define its low-carbon future. The political challenges for Adnoc to acquire it would be huge, and Shell or an American supermajor would be a more likely suitor.

But one way or another, more and more global oil and gas assets are going to end up in Gulf hands.

Robin M Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis

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