Shares in the oil major BP surged by 3.4% on Friday following reports that the United Arab Emirates’ (UAE) state-owned oil company had recently considered purchasing the UK-based company but withdrew from preliminary talks.
The exact reason for the loss of interest remains unknown, but there is a UK law, the National Security and Investment (NSI) Act, which the British government has informed BP it will use to block any foreign bids for the major.
The NSI Act, enacted in 2022, empowers the government to intervene in acquisitions on national security grounds, particularly in industries such as energy. Reuters reported that UK governments have previously informed London-listed BP that they would thwart any takeover attempts by foreign entities due to the company’s strategic importance.
Although it’s uncertain if the current government would maintain the same stance, analysts note that the administration, led by PM Rishi Sunak, faces an election by early 2025 and is trailing significantly in the polls, making it unlikely to further antagonize voters.
In mid-March, Sunak’s government passed special legislation blocking a UAE-backed bid for London’s conservative Telegraph newspaper. Therefore, approving a bid for BP from the same source would be political suicide.
Reuters also revealed that the UAE had expressed interest in UK nuclear power infrastructure in March, which would likely face similar resistance due to the sensitivity of nuclear power in the UK and Europe.
Despite direct discussions between Abu Dhabi National Oil Company (ADNOC) and BP in recent months, ADNOC concluded that BP was not the right fit for its strategy, with political hurdles being a significant factor.
The potential bid would have been around $US125 billion (£88 billion). ADNOC sought advice from investment banks on the deal, but the obstacles proved insurmountable.
BP, valued at £88 billion ($110.3 billion), has underperformed its competitors for years, making it a potential takeover target. While US oil giants are currently consolidating, European oil majors have not yet been involved.
Other European governments are likely to share the UK’s reluctance to allow Middle Eastern governments to acquire oil and gas companies, especially considering their role in pushing up oil and gas prices and inflation.
Investors have criticized BP’s plan to reduce fossil fuel production and accelerate its shift toward renewables compared to rivals such as Shell, Exxon, and Chevron. ADNOC, on the other hand, has been expanding its oil and gas production capacity and aims to become a global oil major.
BP and ADNOC have a history of collaboration spanning over 50 years in the Middle East, including joint ventures and investment offers, despite the recent setback in acquisition talks.