A $2bn (£1.6bn) joint offer by supermajor BP (BP.) and the state-owned Abu Dhabi National Oil Company (Adnoc) for 50 per cent of an Israeli natural gas company has highlighted the industry's growing appetite for deals in the region. The BP and Adnoc bid for half of Tel-Aviv-listed NewMed Energy (IL:NWMD) shows the changing approach, both in terms of geopolitics and the bid level.
“One of the common themes of the past six months has been the renewed gusto in a sector awash with cash and looking for new opportunities to deploy its cash flow to strengthen and expand current shareholder returns into the medium term,” said David Mirzai, an analyst at broker SP Angel. Referencing the NewMed offer, he said major companies were “increasingly looking to access new large-scale resource bases”. NewMed holds 45 per cent of the Leviathan gas field in the Eastern Mediterranean. Chevron (US:CVX) is the operator.
Ro Lazarovitch, a partner at energy-focused law firm Bracewell, said Adnoc – as a state-owned Gulf entity – bidding for an Israeli company would have been “unthinkable” before the 2020 Abraham accords between Gulf countries, the US and Israel.
The signing last year of a US-brokered maritime sea border deal between Israel and Lebanon has also triggered greater interest in the area. Producers in the region such as Energean (ENOG) are even positioning themselves as potential sources of gas for Europe. Bracewell’s Lazarovitch said that “geographically, the east Mediterranean is a natural and obvious source of gas for Europe to replace Russian gas”.
A mooted £5bn pipeline between the region and Europe is up for final investment decision by the end of the year, according to its operator, and is backed by the Greek, Cypriot and Israeli governments. Ministers reiterated support for the pipeline at a meeting this week.
BP said the Adnoc joint venture would be “focused on gas development in international areas of mutual interest including the east Mediterranean”.
The NewMed deal is worth Shk12.05 (271p) a share for half of the company. The BP/Adnoc joint venture wants to buy NewMed’s free float shares, which would mean taking control of 45 per cent of the company, plus 5 per cent of NewMed owner Delek’s (IL:DLEKG) holding.
The energy majors will report Q1 profits this month, with Shell (SHEL) first out of the blocks with a trading update on 6 April. Analysts at RBC Capital Markets said lower earnings from weaker oil and gas prices (until Opec's surprise supply cut) in the first quarter would partly be balanced out by trading profits, given the volatility still seen in markets. Investor payouts should remain solid, they said. “Given balance sheets are much healthier than in prior downturns, we believe payouts can be sustained despite weaker organic cash generation.”
