BP takeover speculation heats up as UAE oil giant ADNOC enters the fray for gas assets

UAE oil giant ADNOC has joined the fray of firms said to be circling some of BP‘s highly prized assets, as takeover speculation for the embattled energy major kicks into overdrive.

Abu Dhabi National Oil Company is thought to be weighing up a move for some of the London-listed firm’s assets, should the oil major break up or seek to divest more units, Bloomberg reported Wednesday, citing unnamed sources familiar with the matter.

ADNOC is reportedly most interested in BP’s liquefied natural gas (LNG) assets, although it is also said to have considered a full takeover of the company. It is understood by Bloomberg that any prospective deal would likely take place via ADNOC’s international unit, XRG.

Spokespeople at BP, ADNOC and XRG declined to comment on the speculation when contacted by CNBC.

A protracted period of underperformance relative to its industry peers has thrust BP into the spotlight as a prime takeover candidate. British rival Shell, as well as U.S. oil giants Exxon Mobil and Chevron, are among some of the names that have been touted as possible suitors.

Any potential deal between ADNOC and BP is seen as far from a foregone conclusion, but analysts point out that the two companies share a long-standing relationship across hydrocarbons and renewables over a range of geographies, most notably in Abu Dhabi and most recently in Egypt.

Former BP CEO Bernard Looney, who left the company after less than four years in the job in September 2023, sits on the XRG board alongside ADNOC CEO Sultan al-Jaber.

Maurizio Carulli, global energy and materials analyst at Quilter Cheviot, said ADNOC’s purported interest in some of BP’s assets is a “significant” development — albeit one that is somewhat expected, given ADNOC is a growing, cash-rich business looking to expand further into gas.

“That said, it seems unlikely that Adnoc would consider a full bid for BP as a whole given the company would not be strategically interested in BP’s oil assets. A few other listed oil majors might, though,” Carulli told CNBC by email.

“BP’s discrete assets, both upstream and downstream, will no doubt capture large interest from a number of both energy and private equity players,” he added.

Last month, BP reportedly attracted interest from a number of possible buyers for its Castrol lubricants business, a unit thought to be one of the “crown jewels” of its portfolio.

Energy companies including India’s Reliance Industries and Saudi Arabia’s oil behemoth Aramco, as well as private equity firms Apollo Global Management and Lone Star Funds, were all previously touted as suitors for BP’s Castrol unit, Bloomberg reported on May 28, citing people familiar with the matter.

CNBC has contacted the companies said to be considering BP’s Castrol unit.

BP is seeking to fend off a prospective takeover by restoring investor confidence. The company launched a fundamental strategic reset earlier in the year and, despite posting weaker-than-expected first-quarter profit, CEO Murray Auchincloss told CNBC in late April that the firm was “off to a great start” in delivering on its new direction.

Shares of BP have stabilized in recent weeks, following a sharp fall in early April, as trade war volatility rocked financial markets. The stock price is down more than 4% in the year to date.

Allen Good, director of equity research at Morningstar, said it is unlikely BP will be prepared to split with significant pieces of its upstream portfolio, given the firm’s recent green strategy U-turn to double down on hydrocarbons.

As part of BP’s strategic reset, the company announced plans to increase annual oil and gas spending to investment to $10 billion through 2027, while slashing spending on renewables. It is also targeting $20 billion in divestments over the coming years.

“Activist pressure has been more on further cost and capital reductions, not necessarily core divestitures. Breaking up the company is unlikely to be the solution shareholders are looking for,” Allen told CNBC by email.

For XRG, which ADNOC launched last year, reports of interest in some of BP’s assets come as the investment company seeks deals on gas and chemicals assets to help it reach an enterprise value of $80 billion.

“We are committed to delivering long-term value for our stakeholders and reinforcing Abu Dhabi and the UAE’s role as a global energy and chemicals leader,” ADNOC’s al-Jaber said at the time.

Russ Mould, investment director at AJ Bell, said any potential transactions between ADNOC and BP were likely to be hard-driven, with each party striving to defend its own interests.

“BP is under pressure to deliver on its goal to reduce debt, through improved organic cash flow and asset disposals,” Mould told CNBC.

“ADNOC will be well aware of this, and how the clock may be ticking so far as BP management is concerned, and it will therefore look to drive a hard bargain in the process, should it indeed be interested in some of BP’s assets, as reports suggest,” he added.