#AbuDhabi’s Santos Deal Boosts Ambitions to Shape Gas Giant - Bloomberg

Abu Dhabi’s Santos Deal Boosts Ambitions to Shape Gas Giant - Bloomberg

Abu Dhabi is boosting its ambitions to build a top liquefied natural gas producer with its biggest energy deal, as the petrostate targets a market it sees as key to its economic growth.

The $19 billion offer for Australia’s Santos Ltd. by the investment unit of government-owned Abu Dhabi National Oil Co. would give access to production and export of LNG feeding straight into fast-growing Asian markets. The unit — XRG PJSC — would add Santos to a tally of gas and chemicals deals on the US Gulf Coast, Africa, the Middle East and Europe.

The United Arab Emirates, the oil-rich Gulf state of which Abu Dhabi is the capital, is seeking to parlay its natural-resource earnings into lasting economic growth by investing in technology, manufacturing and tourism. It aims to be self-sufficient in natural gas this decade and is striving to play a role as a global supplier of the fuel.

“Abu Dhabi is long oil, but is seeking to be a more material player in LNG markets,” Bernstein analysts including Neil Beveridge said. “The acquisition of Santos would help enable Adnoc to become a bigger LNG player in key growth markets in Asia.”

Adnoc as a group would be thrust into the ranks of oil majors Shell Plc and Exxon Mobil Corp. in terms of LNG production and exports, according to analysts at Bernstein, if the deal is completed.

Santos’ capacity is set to reach 7.5 million tons a year once Australia’s huge Barossa LNG project starts later this year, according to Bernstein.

Bernstein’s calculations factor in Abu Dhabi’s domestic production, including LNG export terminals in the Gulf with capacity of 6 million tons a year of and a planned 9.6 million-ton facility being built on the coast.

Still, with other companies also adding capacity, Adnoc could be comparable to the likes of ConocoPhillips and Eni SpA, according to Bloomberg Intelligence.

“It would still be a big leap from where they are now, which is mostly domestic-focused,” said Salih Yilmaz, a senior analyst at BI. “Depending on how Adnoc scales its own portfolio, it could be positioned in the 15-20 MTPA range — which would make them a mid-tier LNG position globally.”

A deal could also further Adnoc’s ambitions to expand its trading operations, he added.

XRG is the investment unit founded by Adnoc in November with an enterprise value of $80 billion. It plans to double that in a decade as it bulks up to become Adnoc’s international gas and chemicals arm.

The unit is seeking upstream production to add to a supply contract for 1.9 million tons of LNG annually over 20 years from the Rio Grande LNG facility being developed in the US by NextDecade Corp.
Growth Market

The company is targeting LNG capacity of 20 million to 25 million tons a year by 2035, it said earlier this month.

While it has little operational LNG export capacity so far, XRG has a pipeline of about 6.5 million tons of LNG capacity annually between supply contracts and equity stakes in projects in operation or on the drawing board, according to Bloomberg calculations based on company disclosures. With Santos’ 7.5 million tons of capacity, XRG would have a 14 million-ton stable of projects, production and supply.

The deal would also give Adnoc access to a major market that it has yet to tap. A presence in Asia will allow XRG into high-growth markets and diversify away from the US, where most new deals are getting done.

Middle East IPOs Remain on Track as Investors Monitor Israel-Iran War - Bloomberg

Middle East IPOs Remain on Track as Investors Monitor Israel-Iran War - Bloomberg

The escalating conflict between Israel and Iran is injecting fresh uncertainty into the Middle East’s equity capital markets, putting what has been a resilient region so far this year to the test.

While no initial public offerings have been officially delayed or pulled, there’s now greater risk that trading conditions will be choppy for new deals. The impact of a protracted conflict on the next window of opportunity, after the summer break, also remains unclear.

“Large, government-backed IPOs are unlikely to proceed in the short term due to elevated regional uncertainty,” said Akber Khan, acting chief executive officer of Al Rayan Investment in Doha. “However, domestic-focused, smaller IPOs shouldn’t be greatly affected.”

The geopolitical tension could create a more chaotic backdrop for the trading debut of Saudi Arabian low-cost carrier Flynas Co., which is expected in the coming weeks. The listing, which is the largest Middle Eastern IPO so far this year, will test the region’s equity markets amid all the uncertainty. It has attracted more than $100 billion in orders, indicating strong institutional demand.

The Middle East has had solid ECM activity so far this year, shaking off the disruption from US tariffs faster than other regions.

Emirates NBD Capital Ltd.’s CEO Hitesh Asarpota said the Dubai-based bank did not have any IPOs lined up until September, and that its post-summer pipeline remains unaffected. “Investor sentiment remains cautiously optimistic with regional markets that appear to be stabilizing,” he added.

The conflict broke out as several firms in Saudi Arabia were advancing with their IPO plans. Specialized Medical Co. is set to conclude the retail subscription of its $500 million IPO this week, with a listing date yet to be announced, while gym chain operator Sports Club is slated to reveal the price range of its IPO on June 22. Developer Dar Al Majed Real Estate Co., Marketing Home Group Co. and tech firm Ejada Systems Ltd. all have regulatory approval to list.

As hostilities between Israel and Iran show little sign of easing, concerns are mounting over the potential for a drawn-out conflict. But Middle East equity markets have proved resilient to breakouts of violence over the past few years.

“The recent history for MENA equities is that markets realize quickly that a spasm of fighting does not impact the medium- to long-term economic and earnings trajectory,” wrote JPMorgan Chase & Co. analysts David Aserkoff and Inga Q Galeni in a client note on Friday seen by Bloomberg.

Still, the likelihood that the military violence will last for weeks, not days, is higher this time, and they believed the risk of broader escalation is greater, the analysts said.

While geopolitical tension has injected volatility into equities, it may also offer some support to Gulf markets through higher oil prices. Brent crude has rebounded to around $75 a barrel — seen as favorable for the Gulf Cooperation Council’s oil-exporting economies — after falling earlier this year on expectations of increased OPEC+ supply.

“In the coming days and weeks, any news flow regarding a sustained shock to oil supply will be critical,” Al Rayan’s Khan said.

Gulf markets rebound amid Israel-#Iran conflict | Reuters

Gulf markets rebound amid Israel-Iran conflict | Reuters

Stock markets in the Gulf ended higher on Monday, recovering some of their losses from previous sessions when they were jolted by the escalating conflict between Israel and Iran.

Saudi Arabia's benchmark index (.TASI), opens new tab advanced 1.3%, led by a 1.5% rise in Al Rajhi Bank (1120.SE), opens new tab and a 6.9% jump in ACWA Power Company (2082.SE), opens new tab.

The upward trend mirrored similar movements in both Asian and European markets, where a temporary improvement in sentiment was bolstering investor appetite, said Osama Al Saifi, Managing Director for MENA at Traze.

"This optimism was partly fuelled by positive economic data from China, which showed an acceleration in retail sales despite U.S. tariffs," he said.

Dubai's main share index (.DFMGI), opens new tab added 0.8%, with utility firm Dubai Electricity and Water Authority (DEWAA.DU), opens new tab rising 2.2%.

Iranian missiles struck Israel's Tel Aviv and the port city of Haifa before dawn on Monday, destroying homes and fuelling concerns among world leaders at this week's G7 meeting that the confrontation could lead to a broader regional conflict.

Israel said it had targeted Iran's nuclear facilities, ballistic missile factories and military commanders on Friday at the start of what it warned would be a prolonged operation to prevent Tehran from building a nuclear weapon. Iran, which says its nuclear programme is for civilian use, has promised a harsh response.

Iran said its parliament was preparing a bill to leave the Nuclear Non-Proliferation Treaty (NPT), adding that Tehran remains opposed to developing weapons of mass destruction. Passing the bill could take several weeks.

In Abu Dhabi, the index (.FTFADGI), opens new tab finished 0.2% higher.

Oil prices - a catalyst for the Gulf's financial markets - edged down, paring back Friday's 7% surge, as renewed military strikes by Israel and Iran over the weekend left oil production and export facilities unaffected.

The Qatari benchmark (.QSI), opens new tab climbed 1.7%, a day after falling more than 3%, buoyed by a 2.5% leap in the Gulf's biggest lender Qatar National Bank (QNBK.QA), opens new tab.

Outside the Gulf, Egypt's blue-chip index (.EGX30), opens new tab inched 0.1% higher, helped by a 1.4% rise in Commercial International Bank (COMI.CA), opens new tab. On Sunday, the index fell 4.6% marking its biggest intraday fall in about 14 months.

Why #SaudiArabia raised oil output before Israel’s attack on Iran

Why Saudi Arabia raised oil output before Israel’s attack on Iran

Israel’s sudden attack on Iran has threatened to disrupt oil supplies in the Middle East, placing the Opec+ cartel’s recent decision to increase crude production into the spotlight. 

The Saudi Arabia-led producer group has surprised the oil market this year by fast-tracking the return of idled production even as crude prices fell. It has prompted speculation that the cartel was responding to White House pressure to boost output ahead of a confrontation with Iran. 

The US had held several rounds of nuclear talks with Iran, but President Donald Trump had also warned he would consider military options if diplomacy failed, while Israel had openly pushed for strikes. 

“I have no doubt that Trump asked the Saudis to pump more oil to deal with his three biggest problems: Iran, Russia and inflation,” said Bob McNally, a former adviser to President George W Bush and now head of Rapidan Energy Group. 

“But it is a big leap to suggest this ‘ask’ was to make the attack possible.” 

Officials in Riyadh were well aware that pumping more oil would have pleased Trump, who in January said he would ask Saudi Arabia and Opec to “bring down the cost of oil”. 

But analysts and traders say the producers had their own reasons to begin unwinding production cuts, independent of geopolitical events. 

After holding back supply for almost three years to push prices higher, the output curbs were no longer having as much impact, said analysts. It made sense to begin restoring output in the hope of retaking market share. 

Several Opec+ members — notably Kazakhstan — had been pumping above their quota. That was frustrating Saudi Arabia, the group’s biggest exporter and de facto leader. It had shouldered the majority of the curbs, reducing its own output by as much as 2mn barrels a day — about 2 per cent of total world supply. 

Despite the US’s “maximum pressure” campaign on Iran — including Trump’s threats to further constrain the country’s oil exports — Riyadh was reluctant to pump more crude in advance of any disruptions. 

Saudi energy minister prince Abdulaziz bin Salman privately told people that the kingdom would not repeat its mistake of 2018, when Trump cajoled Opec+ into boosting output ahead of a crackdown on Tehran’s exports, only for the US president to then grant waivers to many importers of Iranian oil. 

The moves helped send oil prices to a punishing low of less than $50 a barrel by December of that year — well below budget break-even prices for many producer countries. 

Saudi Arabia remembers that sequence of events and Abdulaziz has insisted it will not repeat the error, say people familiar with the matter. The Saudi energy ministry did not respond to a request for comment. 

If Saudi Arabia’s recent production moves were a response to the US, it may have been less about Iran and more about the kingdom’s effort to win access to American technology, said Helima Croft, head of global commodity strategy at RBC Capital Markets. 

Trump lauded Saudi crown prince Mohammed bin Salman during a US visit to Saudi Arabia last month. 

“Though there has been significant push back against the suggestion that there was a ‘pump for Trump’ deal, Riyadh came away from the Trump visit with significant deliverables for their artificial intelligence build out, their civilian nuclear programme and their defence sector,” Croft said. “They certainly have favoured nation status in Washington.” 

Still, the big jump in crude prices on Friday after Israel’s attack on Iran will narrow Trump’s options in dealing with other looming geopolitical issues and raises concerns that it could spur US inflation, say analysts. 

“The OPEC+ supply additions created space for some of the supply disruption that could come from the Israeli attack on Iran. And it is also true they could have created space for new Russia sanctions. But they don’t create space for both,” said Kevin Book, head of ClearView Energy Partners in Washington. 

He said Trump could turn to the US Strategic Petroleum Reserve, the world’s largest emergency stockpile, if the oil price surge is prolonged or Middle East supplies risk being disrupted. 

The SPR has around 400mn barrels, well below its 727mn barrel capacity, following drawdowns by former President Joe Biden to limit price increases after Russia’s full-scale invasion of Ukraine. 

Trump could also ask the Saudis to pump even more oil, although this would raise difficult questions for Riyadh. Iran is one of the original members of Opec and the kingdom will be wary of disrupting a détente between Iran and its Arab neighbours in the Gulf, analysts said. 

“What do presidents do when oil prices go up? Well the first thing is they pick up the phone and ring Saudi Arabia. But Riyadh and other Opec+ members would likely respond cautiously,” said Rapidan’s McNally.