Abu Dhabi’s Multibillion-Dollar Energy Push Faces Early Stumbles

(Bloomberg) -- A year ago, Abu Dhabi launched a high-profile energy investment firm hoping to deploy billions of dollars on deals around the world. While there were early successes in the US and Africa, XRG’s biggest effort yet fell apart this week and another deal hangs in the balance, underscoring its hurdles to becoming a global energy behemoth.

The firm dropped its planned $19 billion takeover of Australian natural gas producer Santos Ltd. on Wednesday, abandoning a monthslong effort. XRG has also said its planned takeover of German chemical maker Covestro AG, which took more than a year to negotiate, risks being torpedoed by a European Union competition probe.

The hurdles faced by Abu Dhabi National Oil Co. and its unit in their two biggest deals highlight the challenges in closing mega cross-border deals. The firms said this week that they plan to continue seeking acquisitions, but a key question is if Abu Dhabi can match its financial heft with getting large international transactions over the line.

“For XRG and Adnoc, this does reinforce how difficult acquisitions are especially of relatively large” companies, said Rachel Ziemba, an analyst at the Center for a New American Security in Washington. “The expectation that Abu Dhabi has deep pockets can lead to expectations they are willing to pay even more.”

The failure of the Santos bid wasn’t due to regulatory issues and the deal had seemingly remained on track, despite some local opposition. Rather, a combination of factors eroded trust between the parties, Bloomberg has reported.

Santos had wanted XRG and its partners to pay any capital-gains tax liability resulting from the sale, and there were some concerns about a methane gas leak that the Abu Dhabi firm only found out through the media, according to people familiar with the matter. In the end, Santos was caught by surprise when XRG informed the company it was pulling the bid, people familiar with the matter said.

Also read: Abu Dhabi’s $19 Billion Offer Drives Push for Top LNG Ranks

Big-Ticket Deals

The complexities of getting multibillion-dollar cross-border deals over the line will stay in focus as XRG chases other acquisitions, including gas assets in the US. Those aspirations have enticed Wall Street firms, with bankers flying in from around the world for a slice of the fees from XRG’s deal spree.

“We have a rich pipeline of opportunities and will continue to pursue them with the discipline and responsibility of a long-term investor,” XRG said in a statement. 

While the collapse of Santos deal would come as a blow to banks, it’s an early marker of Adnoc’s willingness to be disciplined over valuations, despite its vast financial firepower.

“It might not be a bad thing tactically to show they can walk away,” said Robin Mills, founder of Dubai-based consultancy Qamar Energy. That might have an impact on XRG’s pursuit of Covestro and show the European Union that Adnoc is willing to play hard ball, he said.       

Also read: UAE’s Adnoc Said to Seek Deals for Gas Fields in Major US Push     

XRG was envisioned as a nimble, acquisition-oriented company that the state giant itself would struggle to be. The firm is overseen by Adnoc Chief Executive Officer Sultan Al Jaber, a prominent executive who outlined the firm’s investment strategy last year in Houston, where he handed out rubber bracelets with the XRG logo and ended his speech with the slogan “Make Energy Great Again.”

Its board is stocked with executives boasting vast international energy and dealmaking experience, including Blackstone Inc. President Jon Gray and former BP Plc Chief Executive Officer Bernard Looney. Klaus Froehlich, the former Morgan Stanley banker, spearheads most of Adnoc’s international expansion plan.

While it has struggled to hammer out big deals, XRG has snapped up assets in the US, Turkmenistan and Mozambique. Adnoc, for its part, recently agreed with OMV AG to create a chemicals giant worth more than $60 billion, two years after Bloomberg News first reported the talks. The firm transferred its 25% stake in OMV to XRG earlier this year, as part of a strategy to consolidate its international portfolio.

‘Tailored Approach’

Al Jaber touted his ambition for XRG in Houston in March, pitching plans to buy US assets, including upstream gas production, and to expand into powering AI and data centers.

“This is going to be a company that covers the whole value chain of energy,” he said at the time. “It’s a custom tailored approach to ensure that XRG becomes the supplier of energy that will meet the exponential growth in AI.” He reiterated those aspirations when President Donald Trump visited the United Arab Emirates in May. 

Set up in November as an international-focused unit of Adnoc, XRG had an initial target for $80 billion of assets with plans to double that over the next decade. This month, Adnoc said it would transfer roughly $120 billion of stakes in its listed energy companies in Abu Dhabi, giving XRG access to cash flow and dividends to fund deals.

Read: An $80 Billion UAE Firm Is Wooing Trump and Luring Wall Street

The collapse of the Santos deal is more of a setback for the Australian firm than for Adnoc, according to Carole Nakhle, chief executive officer and founder of energy consultancy Crystol Energy Ltd. It still came as a missed opportunity for the Emirati energy giant, she said, adding that XRG’s move offered a window into XRG’s thinking. 

“The outcome of the Santos deal suggests a cautious, measured approach rather than a bold, risk-heavy strategy,” Nakhle said.

--With assistance from Manuel Baigorri and Keira Wright.

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