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Breakingviews – ADNOC German oil deal has bad timing, good logic

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Logos of ADNOC are seen at Gastech, the world’s biggest expo for the gas industry, in Chiba, Japan, April 4, 2017. REUTERS/Toru Hanai/File Photo Acquire Licensing Rights

LONDON, Nov 28 (Reuters Breakingviews) – Sultan al-Jaber’s latest look at a western fossil fuel asset is one of his least happily timed. Abu Dhabi National Oil Company (ADNOC), the state-owned Abu Dhabi oil giant he runs, is considering a bid for BASF-owned (BASFn.DE) Wintershall Dea, at a potential $11 billion valuation. Given al-Jaber is also in charge of COP28, the global climate conference set to kick off this week, sniffing around a carbon-belching oil and gas explorer makes for some tricky optics.

ADNOC’s interest in European assets is well established. The UAE firm is already in talks to buy chemical company Covestro (1COV.DE), Wintershall’s German compatriot, for $12 billion. It’s also keen to merge $21 billion Borouge and Borealis, two polyolefins’ businesses that make plastics used in cables and inhalers, and which ADNOC joint-owns with Austria’s OMV (OMVV.VI). Both reflect two key drivers: Russia’s retreat from Europe’s gas market, and Abu Dhabi’s deep pockets.

Against that backdrop, a Wintershall swoop has some logic. Buying it could supply the feedstock gas for Covestro to turn into petrochemicals. Most importantly, Wintershall owns extensive gas pipelines and terminals across Germany and Norway, which could be deployed to ferry imports of UAE liquefied natural gas and hydrogen around Europe. Wintershall’s licences in the United Kingdom and Norway to operate carbon capture projects might also come in handy for the Abu Dhabi oil giant, which has vowed to devote $15 billion to a range of low-carbon technologies by 2030.

After pulling out of Russia and taking a 5.3 billion euro writedown in January, Wintershall also looks relatively cheap. At the reported enterprise value, Wintershall would be valued on 2.4 times the 4.1 billion euros of EBITDA it made in the 12 months to the end of September. That’s below Shell (SHEL.L) and TotalEnergies’ (TTEF.PA) average of 3.9 times and way off the 10 times average European gas infrastructure companies Snam (SRG.MI) and Enagás (ENAG.MC) trade at.

At the same time, selling Wintershall to ADNOC offers a smoother exit and a potentially higher valuation than the initial public offering previously planned by BASF, which owns 73%, and investment firm LetterOne, which holds the rest. Abu Dhabi’s oil riches mean the UAE firm has the wherewithal to pay 5.5 billion euros for BASF’s Wintershall stake.

The one thing in ADNOC,’s favour is that its quarry can’t move fast. Wintershall is still working on legally separating its Russian division, which is expected to be done by the middle of next year. Its strategic importance to Norway and Germany may also prompt both states to look closely at the fine print. Still, at a time when the UAE is having to face down accusations it is just using COP28 to strike oil deals, adopting a steady pace may be no bad thing.

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CONTEXT NEWS

Abu Dhabi National Oil Company is exploring an acquisition of BASF’s energy business Wintershall Dea, Bloomberg reported on Nov. 23.

Any deal could value Wintershall Dea at more than 10 billion euros ($11 billion), Bloomberg reported.

BASF holds a 72.7% stake in Wintershall Dea. Investment firm LetterOne owns the rest of the company.

BASF shares were up 1.7% on Nov. 24.

Editing by George Hay and Streisand Neto

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

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