BP, ADNOC’s Mediterranean debut ticks three boxes

The production platform of Leviathan natural gas field is seen in the Mediterranean Sea, off the coast of Haifa
The production platform of Leviathan natural gas field is seen in the Mediterranean Sea, off the coast of Haifa, northern Israel, June 9, 2021. REUTERS/Amir Cohen

LONDON, March 28 (Reuters Breakingviews) - BP (BP.L) and the Abu Dhabi National Oil Company (ADNOC) are tying the knot. The duo plan to set up a joint venture to buy gas assets in the eastern Mediterranean. Their opening gambit: a $2 billion offer to purchase half of Israeli offshore natural gas producer NewMed Energy (NWMDp.TA), and take it private in tandem with current top shareholder Delek (DLEKG.TA).

The 12.05 shekel ($3.4) per share offer price implies a 72% premium over NewMed’s Sunday share price. That’s less generous than it seems, given the shares have slumped since last summer. NewMed also has 45% of the prize Leviathan offshore gas field, the largest in the Mediterranean, and plans to double production to up to 24 billion cubic metres (bcm) by 2027. On the other hand, the $4 billion NewMed net asset value implied by BP and ADNOC’s bid is some way ahead of the $2.6 billion estimated by hedge fund Palliser during NewMed’s autumn dalliance with Capricorn Energy (CNE.L).

Still, ADNOC’s $150 billion acquisition war chest gives some capacity for largesse. And after rethinking the speed with which it’s cutting its oil and gas production, BP wants to show investors that it can identify suitable fossil fuel projects. NewMed has $1.8 billion of net debt it could do with paying down, and Israel has signed an agreement with the European Union to fill in the supply hole Russia has left. NewMed shares only jumped 38% to around 10 shekels on Tuesday, implying doubt about whether the deal will happen. But there are strong drivers for it to do so. (By Yawen Chen)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by George Hay and Oliver Taslic

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