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UAE state oil company has BP in its sights as potential takeover target

A logo of BP is seen at a gas station in London, on Nov. 1, 2022.
A logo of BP is seen at a gas station in London, on Nov. 1, 2022. Copyright Kin Cheung/Copyright 2022 The AP. All rights reserved
Copyright Kin Cheung/Copyright 2022 The AP. All rights reserved
By Indrabati Lahiri
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Adnoc’s takeover bid for BP is the latest in a string of acquisition bids for energy companies, such as ExxonMobil's agreement to purchase Hess Corporation.

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BP has recently received interest for a multi-billion pound takeover from the Abu Dhabi National Oil Company (Adnoc). However, talks were stalled at the initial stage, due to Adnoc having concerns about how BP would fit within its overall strategy.

The complicated political and legal aspect of the deal was also a concern, due to Adnoc being the UAE’s state oil company and BP having significant economic importance to the UK.

The two companies have long been associates in the Middle East and have even launched a major Egyptian gas field joint venture back in February. Before the current Israel-Hamas conflict, both companies were also considering purchasing half of NewMed, an Israeli gas company.

Although the Adnoc-BP takeover has not proved fruitful, this has led to increased concerns about more energy companies potentially seeing consolidation and takeover bids, due to the costs of switching to more renewable facilities as the energy transition progresses.

BP being acquired by a foreign player would also very likely have long-reaching implications for both the UK economy and government, with the oil giant being one of the largest companies in the country.

This means that it also pays a significant amount of taxes and has a considerable role in propping up the already struggling London Stock Exchange.

The company also reiterated its determination to retain and maintain its current strong position in the UK, highlighting its future projects lined up in the North Sea.

Murray Auchincloss, BP’s CEO, said, as reported by The Telegraph, “We remain very committed to the UK. We have a good concentrated portfolio in the UK west of Shetland and in the North Sea and we continue to develop resources there.

“We’ll be sustaining earnings and production from the North Sea, all the way through 2030. We don’t guide beyond 2030 but certainly, we have the resources to grow. The North Sea continues to be an important part of the portfolio.”

Why are more energy companies receiving takeover bids?

UK companies in general are seeing several acquisition offers at the moment, due to many companies having significantly reduced stock market valuations. However, this is also spreading to global energy companies, both due to valuations, as well as in order to form a stronger position to tackle the energy transition together.

Recently, Chevron revealed that it would be buying US energy company Hess Corporation for $53 billion (€49.7 billion). Pioneer Natural Resources, a Texas hydrocarbon exploration company, is also expected to be bought by ExxonMobil for approximately $60 billion.

Energy companies making ambitious plans to transition to renewable energy, such as BP, are seeing increased attention from companies looking to acquire them as profitable assets for the coming future.

However, these kinds of companies are also caught between a rock and a hard place. This is because they are under increasing pressure from clients, governments and stakeholders to transition aggressively to renewables.

At the same time, their core investors and stakeholders are sometimes very dissatisfied with this strategy, concerned about potential profits in the short and medium term. These stakeholders often believe that energy giants will see the best profits in fossil fuels, as demonstrated by the last few years’ bumper profits, mostly due to soaring energy prices caused by the Russia-Ukraine war.

A lot of energy companies listed in the UK, such as Shell also feel that they are severely undervalued in the UK, leading them to contemplate a shift to the US, where a deeper investor and liquidity pool awaits them. This could also continue inflicting damaging blows to the London Stock Exchange, which has already seen a flurry of companies abandon it for the US in the last few months.

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