(Bloomberg) -- For years, Abu Dhabi’s main oil producer was known as a sleepy state company content to churn out crude from its vast oil fields. But that stodgy reputation is getting a dramatic makeover as it uses a $150 billion budget to become one of the world’s most active energy dealmakers.

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Abu Dhabi National Oil Co. this week took a big step in its global push by suggesting it could raise an offer for German chemicals maker Covestro AG to about $12.5 billion. It’s already strung together a number of smaller deals, but a Covestro purchase would be the biggest international acquisition by a Gulf company and announce Adnoc’s ability to pay top dollar to match its outsized goals.

The Gulf company’s ambitions were fired up about eighteen months ago at a board meeting inside Adnoc’s glass-clad skyscraper overlooking the blue Gulf waters along Abu Dhabi’s corniche. There UAE President Sheikh Mohammed bin Zayed Al Nahyan boosted the company’s budget by nearly a fifth to increase oil and gas production capacity and to snap up assets in chemicals, gas and clean energy across the globe.

Since then the flow of bankers from around the world to Adnoc’s doorstep has surged, with some even proposing what would have been an audacious move for oil major BP Plc, according to people familiar with the matter. While the BP idea never advanced, Adnoc continues to be among the most aggressive companies in searching for energy deals, according to the people.

Despite this sharp appetite for growth and abundance of oil riches, the Middle Eastern producer has — like many of the wealthy entities around the Gulf — so far struggled to close a big international deal. The Covestro transaction has itself stretched on for a year and could still fall through. But a successful close would offer credibility to Abu Dhabi’s ability to execute sophisticated cross-border acquisitions and provide impetus for even bigger deals, people familiar with the Gulf company said.

“This is also a matter of prestige,” said Ben Cahill, who covers Gulf oil producers as a senior fellow with Washington-based Center for Strategic and International Studies. “Adnoc wants to operate like an international energy company with a global presence.”

The Middle East’s petro-states are using M&A to diversify their economies from oil, but they’ve had mixed success so far. Cash-rich energy producers like Saudi Arabia, Qatar and the UAE have looked beyond trophy assets like sports clubs and luxury properties to buy into industries that can help spur growth at home. Still, the transition from portfolio investors to owners hasn’t been smooth with deals like Abu Dhabi’s pursuit of Standard Chartered falling through and outright acquisitions have been few.



The Gulf entities have faced a string of challenges, from regulatory setbacks overseas to pushback from foreign governments. Meanwhile, deals from the region often need the sign-off of a senior royal, which can lengthen the process.

The Covestro deal has also seen a stream of hurdles over the past year. When Adnoc’s interest first became known, Covestro’s CEO showed little support, publicly saying that the German industry should get more backing at home.

The deal appeared to stall until this month, when Adnoc offered to raise its bid should due diligence go well. Covestro’s CEO Markus Steilemann and Khaled Salmeen, the head of Adnoc’s refining, chemicals and trading businesses, developed a relationship that has helped talks to progress, according to people familiar with the matter.

Ultimately it was MBZ, as the UAE president is known, who signed off on the higher offer, a person familiar with the matter said. The chances of a deal going through have now risen as Covestro has agreed to concrete negotiations and opened up its books. Adnoc and Covestro declined to comment.

Adnoc’s race for assets is being led by Chief Executive Officer Sultan Al Jaber, who also heads the UN’s annual climate conference which the UAE hosted last year. He’s overseen the creation of a team to look at strategic investments that includes former bankers and industry experts.

Over the past year, the company has signed gas agreements across three continents, including its first-ever deal in the US. Its clean-power unit, Masdar, has bought a renewable energy company in Greece and another is in the running for fuel stations in South Africa.

Still, other pursuits have been held up. A deal for Brazil’s Braskem SA was abandoned, a plan for creating a $30 billion petrochemical giant by combining units with those of OMV AG has stalled on valuation issues, and a push to buy an Israeli gas producer was suspended because of the war in Gaza.

“Clearly there’s an ambition to do a lot and to do things quickly, but these are big deals and they don’t always come through quickly,” said Rachel Ziemba, an adjunct fellow covering energy and economics at the Center for New American Security.

Adnoc is pursuing a “healthy deal pipeline” and complex deals take time, Chief Investment Officer Klaus Froehlich, the ex-banker tasked with spearheading Adnoc’s acquisition push, said in an interview in May.

That could change if Adnoc prevails with its purchase of Covestro. Most other large Gulf transactions such as Saudi Aramco’s $69 billion purchase of state-owned chemical maker Sabic have been domestically focused.

US deals such as Exxon Mobil Corp.’s $60 billion takeover of Pioneer Natural Resources Co. dwarf the Adnoc bid for Covestro.

Still, a Covestro deal is unlikely to be Adnoc’s last. People familiar with Adnoc expect more to come as it could target other assets in LNG and chemicals or even solar projects though Masdar.

Gulf states are learning that ownership of such assets “is a huge political advantage, a sound long-term investment, and also a means to exert influence,” said Karen Young, a senior research scholar at Columbia University’s Center on Global Energy Policy.

--With assistance from Eyk Henning.

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