Abu Dhabi's Billionaire Energy Expansion Encountering Early Obstacles
Abu Dhabi's energy investment firm, known as XRG, has called off a $19 billion takeover of Australian natural gas producer Santos Ltd. on Wednesday. The collapse of the deal may come as a blow to banks, but it shows Adnoc's willingness to be disciplined over valuations.
The failure of the Santos bid was not due to regulatory issues, but a combination of factors that eroded trust between the parties. Carole Nakhle, CEO of energy consultancy Crystol Energy Ltd, suggests that the collapse shows a cautious, measured approach rather than a bold, risk-heavy strategy by XRG.
Santos had wanted XRG and its partners to pay any capital-gains tax liability resulting from the sale. However, concerns about a methane gas leak that the Abu Dhabi firm only found out through the media may have also played a role in the decision.
XRG's planned takeover of German chemical maker Covestro AG is at risk due to a European Union competition probe. The initial target for XRG was $80 billion of assets, with plans to double that over the next decade. The firm has already acquired assets in the US, Turkmenistan, and Mozambique.
XRG was established as an international-focused unit of Adnoc in November. Sultan Al Jaber, XRG's CEO, outlined the firm's investment strategy in Houston, where he expressed ambitions for US assets, AI, and data centers.
Adnoc plans to transfer roughly $120 billion of stakes in its listed energy companies in Abu Dhabi to XRG, giving the firm access to cash flow and dividends to fund deals. The firm's board includes executives like Blackstone Inc. President Jon Gray, former BP Plc CEO Bernard Looney, and Klaus Froehlich, the former Morgan Stanley banker.
XRG aims to become a supplier of energy that meets the exponential growth in AI. The firm transferred its 25% stake in OMV to the firm earlier this year, as part of a strategy to consolidate its international portfolio.
Despite the collapse of the Santos deal, XRG said it will continue to pursue opportunities with the discipline and responsibility of a long-term investor. The collapse might have an impact on XRG's pursuit of Covestro and show the European Union that Adnoc is willing to play hard ball.
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