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Two of the Middle East’s biggest oil companies are cutting billions of dollars’ acquisition hopes as hopes of a sustained decline in oil revenue curtail global transactions.
The world’s number one crude oil producer, Saudi Aramco and the Abu Dhabi National Oil Company, known as ADNOC, have been the most active buyers in the industry in the last three years, expanding to gas, chemicals and lubricants with the announcement of more than $600 billion in acquisitions.
But advisors and those familiar with their ideas said the Gulf energy giants delayed their M&A activities to reassess the effects of lower oil prices began to bite.
Benchmark oil prices have fallen to $67 this week from over $80 this January, despite jumping during the recent conflict between Israel and Iran. Analysts hope that oversupply in the market will put more pressure on prices.
Saudi Arabia has already said it will “stock” expenditures as a result of low gross prices.
The senior energy bank bank said Saudi Arabama and Adnock were told by government owners that they “focus more on dividends and less on growth.”
Some transactions are likely to continue, companies, especially those close to Gas, said they were not at the same pace. They also confirmed that neither company has bid to buy Castrol, a lubricant business sold by BP.
“In an uncertain environment, we need to be more selective,” one executive said. Saudi Aramco’s net profit increases by $900 million with every dollar change in oil price.
Given the scale of activities by Gulf companies, which pullbacks will ripple across the global M&A landscape.
Saudi Aramco has announced at least $8 billion in deals over the past three years. It announced stakes in Chinese petrochemical company Rongsheng, purchases of LNG business Midocean, deals with US lubricant brand Valbolin, and investments in horse powertrains that design and build internal boundary engines.
Last month, he said he was exploring whether to buy a portion of Woodside Energy’s Louisiana LNG project and is considering how it could supply more LNG to India.
Aminnaser, CEO of Saudi Aramco, answered a recent question about how it affected the company’s finances by saying it was visible all the time “to improve the efficiency of spending.” However, he also said that Saudi Arabico’s financial strength allowed them to “invest rebuttal.”
According to Dealogic, ADNOC is even more active, working on more than $52 billion in transactions. These include a $18.7 billion offer for Australian oil and gas producer Santos, a $15.5 billion deal with German chemical group Covestro and an agreement to set up a $6 billion chemical company called Borouge Group International, with a 47% stake.
To promote this, the Abu Dhabi Company built an “internal investment bank” and last year launched XRG, a platform for overseas acquisitions. In June, XRG declared its ambition to be a top three chemical group and a top five player in gas, saying it would start work to achieve this “quickly”. He also made investment in the US a priority during Donald Trump’s second presidency.
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Those familiar with Adnoc’s ideas noted that within their ambitious targets, it takes time to digest the transactions they announced and integrate those businesses. People also noted that trading is difficult, given current uncertainty about oil prices.
A well-known energy lawyer compared the recent surge in deals by state-owned Chinese companies with a wave of acquisitions between 2009 and 2013. Like the Chinese, Saudi Aramco and Adnock wanted to stock up on purchases.
“They don’t want to be seen as stupid money,” the person said.
Adnoc and Saudi Aramco declined to comment.
