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Companies spent two months discussing a merger that aimed to capitalize on the rising demand for natural gas resulting from the war in Ukraine

SYDNEY—Woodside Energy WDS 0.53%increase; green up pointing triangle and Santos STO -5.84%decrease; red down pointing triangle have ended talks over a merger that could have created a gas company worth some $57 billion, representing a rare setback in the global energy sector, where producers have been rushing to do deals.

Woodside and Santos spent two months discussing a merger that aimed to capitalize on the rising demand for natural gas resulting from the war in Ukraine. With interests in gas-export projects in Australia and Papua New Guinea, the two companies appeared well placed to take advantage of any prolonged pause in approvals for new plants to export U.S. liquefied natural gas.

“While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation,” Woodside Chief Executive Meg O’Neill said Wednesday.

Energy companies have been doubling down on fossil fuels in a bet that the world will continue to have an appetite for oil and natural gas for decades, even as many nations are seeking to cut emissions and move toward green energy. In October, Exxon Mobil agreed to buy Pioneer Natural Resources for about $60 billion, while Chevron said it would acquire Hess for $53 billion.

Other companies have sought to get bigger to take advantage of the Ukraine war, which is reshaping the map for global natural-gas supply. The Biden administration’s decision late last month to effectively freeze the approval process for LNG exports further underscores the importance of plants already in operation.

Talks over a merger with Santos had helped to lift Woodside’s shares from a 16-month low in early December, and the stock has risen around 9% since then. Analysts said a merger could have increased Woodside’s earnings even if the Perth, Australia-based company had paid a 20%-30% premium for control of its smaller rival. Being bigger would have enabled Woodside to reduce debt costs and expand its trading business, although combining its Australian assets with those of Santos could have created domestic competition concerns, they said.

“Following an initial exchange of information, sufficient combination benefits were not identified to support a merger that would be in the best interests of Santos shareholders,” Santos said.

For many investors, natural gas holds appeal as a fuel that can help the power sector to bridge the time it will take from ending coal use to relying heavily on renewables.

In a report published in October, the International Energy Agency said the LNG market balance would likely remain precarious in the near term. New LNG projects, however, could add 250 billion cubic meters a year of liquefaction capacity by 2030, equal to almost half of today’s global LNG supply, the IEA said.

Woodside, already Australia’s 10th-largest company by market capitalization, operates assets throughout Australia as well as international projects including in the Caribbean and the majority owned Shenzi oil-and-gas field, about 120 miles off the coast of Louisiana. It plans to invest $5 billion in new energy projects by 2030, including a proposed hydrogen project in Oklahoma.

The moves are part of Beijing’s efforts to strengthen its EV and automobile industry market share by increasing exports of its EV and hybrid vehicles

China is encouraging its electric vehicle makers to expand their overseas presence, including forging tie-ups with foreign research institutions and countries to build industrial clusters.

Companies are encouraged to establish research & development centers overseas and collaborate with shipping companies to integrate warehousing and logistics resources in foreign markets, the Ministry of Commerce said in a statement on Wednesday.

The ministry said it would optimize credit support by encouraging banks to support EV supply chain companies domestically and overseas financially. Banks will also be encouraged to expand the scale of cross-border settlements in yuan.

The moves are part of Beijing’s efforts to strengthen its EV and automobile industry market share by increasing exports of its EV and hybrid vehicles. China’s BYD, the Warren Buffett-backed company, had recently surpassed Tesla to become the world’s largest EV maker by sales after it sold almost five times 242,000 Units in 2023. It is expanding showrooms across Europe as it targets more sales there this year.

Industry organizations are also encouraged to strengthen research on overseas markets and guide new energy vehicles and their supply chain companies to optimize international cooperation based on market size, trade potential, consumption structure, and country risks. the ministry said.

Chinese EV shares are mixed in Hong Kong trade on Wednesday, after an overnight rebound in the U.S. At midday BYD shares were up 2.4% while Li Auto and Xpeng were 0.1% and 0.45% lower in Hong Kong, respectively.

Senators assail consultants for helping Riyadh use ‘soft power’ to build influence in the US

The heads of consulting giants McKinsey and BCG told US lawmakers on Tuesday that their employees in Saudi Arabia could face jail if the firms handed over details of their work for the country’s sovereign wealth fund without approval from the kingdom.

Bob Sternfels of McKinsey and Rich Lesser of BCG had been summoned to appear before Congress, along with the chief executive of smaller consultancy Teneo and the dealmaker Michael Klein, after the four firms failed to comply with a subpoena demanding information about their work for the $700bn Public Investment Fund.

A Senate committee is investigating how Saudi Arabia is using “soft power” such as sports investments to extend its influence in the US, and lawmakers assailed the consulting groups for their work in the kingdom at a hearing on Tuesday.

“We want to determine what work these companies have done and are doing that allows a foreign sovereign to use instruments of commerce in the United States to increase its influence within our shores, and rebrand its tarnished image after years of horrific human rights abuses,” said Richard Blumenthal, the Democratic senator and chair of the permanent subcommittee on investigation.

“You say you are between a rock and a hard place but you have chosen sides; you have chosen the Saudi side, not the American side.”

The PIF sued the four firms in Saudi Arabia, claiming that documents demanded in the US were classified. It has allowed only a fraction of the requested material to be handed over, often with substantial redactions.

A PIF spokesperson said: “We have made, and are continuing to make, significant efforts to facilitate the production of requested information from our advisers consistent with the laws of Saudi Arabia, which should be recognised like those of any other country.”

Klein, a longtime PIF adviser who helped broker an agreement last year between the fund and the US PGA Golf Tour, said the Saudi court orders “expose me and my employees to not just civil liability, but criminal penalties, including a potential 20 years in prison. As I hope the committee can understand, that is simply not a risk I can take for myself or for my employees.”

Under fire from subcommittee members, the executives insisted they were fighting in the Saudi courts and pressing PIF to allow fuller disclosures. Only Teneo, however, responded to a request to reveal any of the fees they have made in Saudi Arabia. The firm said it made a little less than $10mn in 2022 from work for the PIF.

Lesser said BCG was a private firm and would not reveal revenue numbers, while Sternfels said McKinsey only broke out its financials regionally and would provide the committee with figures for the Middle East, Africa and eastern Europe at a later date. These amounted to less than 10 per cent of McKinsey’s global revenue, he said.

Saudi Arabia has leaned heavily on foreign consultants to help accelerate its ambitious plan to diversify its oil-dependent economy, creating a lucrative market that London-headquartered Source Global Research estimated was worth more than $2bn in 2022. 

Woodside and Santos call off merger talks to create Australian LNG giant

$52bn deal between country’s two largest oil and gas companies would have created dominant liquefied natural gas provider

Australia’s two largest oil and gas companies have called off merger talks, ending months-long negotiations to create a $52bn liquefied natural gas company.

Perth-based Woodside and Adelaide’s Santos entered negotiations three months ago over a merger that would have all but consolidated Australia’s independent LNG sector into one company.

Woodside, the larger of the two companies, said on Wednesday that it had “ceased discussion regarding a potential merger with Santos”. Woodside shares edged up 1 per cent, while Santos’ fell 6 per cent.

A combination of the two Australian companies would have created an LNG group with similar volumes to those of BP. The talks followed moves by US majors including ExxonMobil and Chevron to acquire smaller rivals and bulk up their portfolios as a consolidation wave has hit the sector.

A deal to bring together Woodside and Santos would have combined their assets in US oil, Senegal and Papua New Guinea, but analysts questioned whether the combination would have merit.

Some investors have publicly expressed concern that Woodside would have to pay too big a premium to secure a merger with Santos, which has struggled in recent years as its large Barossa gas project in the Timor Sea has faced significant opposition from indigenous groups and environmentalists.

Woodside merged with BHP’s oil and gas business in 2022 and has thrived as LNG prices soared in the wake of Russia’s invasion of Ukraine. Meg O’Neill, Woodside’s chief executive, has stressed in recent weeks that the company would be careful in judging the benefits of a merger with Santos.

“We continue to be disciplined in our approach to mergers and acquisitions and capital management to create and deliver value for shareholders,” she said in a statement after the Santos talks collapsed.

“While the discussions with Santos did not result in a transaction, Woodside considers that the global LNG sector provides significant potential for value creation.”

Santos said in a statement that the two companies had not found “sufficient combination benefits” to support a deal that would have been in the best interest of its shareholders. It said it would continue to review options to unlock value.

Saul Kavonic, an analyst with research company MST Marquee, said the talks’ collapse showed the two companies’ diverging paths. He expects investors to support Woodside if it wants to make other acquisitions, particularly in the US, because it has a record of being disciplined.

Kavonic added that Santos could continue to “languish” for some time and might consider asset sales or a break-up to strengthen its balance sheet in the absence of other bidders, he said.

Bordeaux incident highlights the need to accelerate technological innovation in aviation management

Apologies in advance for another depressing story about aviation. This one at least has a happy ending. Yet a near-miss at Bordeaux-Mérignac airport, outlined in a report by France’s aviation accidents bureau last month,  highlights the urgent need for modernisation of air traffic control systems.

On New Year’s Eve 2022, an air traffic controller at Bordeaux airport authorised an easyJet A320 aircraft carrying 179 passengers to land on runway 23. It had slipped his mind that he had already authorised a small, two passenger jet to approach the same runway. The leisure pilot, listening on the radio, reminded air traffic control of his presence. Luckily, easyJet pilots were able to abort the landing just 103ft from the tarmac, avoiding disaster. The pilot of the small aircraft, and his nine year old son, were shaken by the roar of the A320’s engines as it flew over their heads.

So that was the happy ending. Yet France’s Bureau d’Enquêtes et d’Analyses found that while some mistakes might be specific to Bordeaux airport, archaic technology, some of which is widely used across Europe, also played a role.

First, the conditions specific to Bordeaux: Controllers there had been working to an informal rota, which meant they had completed only about 60 per cent of their officially scheduled hours by the last day of 2022. Only three people were on duty at the time of the incident, when six were on the official rota. The backup controller, the reinforcement in case of emergency, did not even turn up for work. Worst of all, management knew about the practice, but ignored it to maintain “social peace”.

Even for militant French air traffic controllers this is shocking. 

But in dissecting the incident, the BEA investigators noted that Bordeaux and most French airports have no “reliable” means to identify which controllers have come into work, how long they stay or what functions they actually fulfil.

And like controllers across Europe, they still use slips of paper placed on a board to show where an aircraft is on a runway. The December 22 incident happened because one controller juggling four different jobs was so busy he forgot to place the slip on the board. 

The technology used in France is not unusually antiquated. For example, controllers across the bloc still communicate with pilots by voice radio, often not in their native languages, rather than giving instructions via a computer datalink to the aircraft.

“We have been in the process of implementing this for many years and it is still not complete,” one senior European aviation official told me. “That is an obvious safety enhancement that is not high tech.”

And ground technology such as surface radar, used to alert controllers to runway incursions and potential collisions, is still the exception.  Finally the air traffic management organisation Canso wants controllers worldwide to be allowed to use simulators much more for training, just as aircraft pilots do.

It is important to note that despite these flaws, flying is still far safer than driving a car. According to IATA, the global aviation trade body, on average a person would need to take a flight every day for 25,214 years to experience a fatal accident. Controllers are also highly trained to withstand the most stressful situations and they avert disasters daily.

But even if the existing system is safe, there is still a lot of margin for improvement, especially as the number of flights increases. 

The industry is understandably nervous of change when human lives are at stake. And then there is the difficulty of introducing change in a hugely complex ecosystem, where everyone needs to transition together for maximum safety — from airlines reluctant to pay more for navigation services, to governments and service providers unwilling to take on over-powerful unions.

But a major obstacle seems to be the absence of any incentive for change. “Some invest in new technologies and others don’t,” the aviation official said. “Those who don’t, suffer no consequences. There are no incentives to modernise.”

Europe has struggled for 20 years to implement the Single European Sky initiative which aims to overcome the fragmentation of its airspace, with all air navigation service providers managed at national level.

It has made some progress on innovation. However, there should be greater effort to harmonise and incentivise minimum standards for technology in air traffic management across the bloc. Safety should always be the priority. But that should not rule out change for the better.

Israel’s business ties to UAE tested by Gaza war fury

Entrepreneurs operating in Gulf state hope that their delicate commercial links can withstand the conflict

In the days after Hamas’s October 7 attack and the war that followed, Israeli entrepreneur Ron Daniel left Dubai, his home since 2021, fearing that he was “sitting on a volcano”.

The chief executive of asset manager and financial technology company Liquidity Group flew back to the United Arab Emirates a month later after deciding these concerns were “mainly in my head”.

Daniel is among a small band of Israelis who have been living and working in the UAE since it normalised relations with Israel four years ago. His decision to return reflects hopes among Israeli businesspeople that the US-brokered normalisation with the UAE and three other Arab states — which allows them to openly seek deals in the Middle East — can withstand the fury and anguish created by Israel’s war in Gaza.

“The peace survived, the interest survived, the friendships survived,” said Daniel, adding that while it was “awkward” with Emirati friends at the start, “very quickly it was like, ‘it’s got nothing to do with us’.”

The UAE, like all other Arab states, has condemned the devastation wrought by Israel’s bombardment of Gaza, which has enraged Emiratis and a large part of the majority expatriate population.

But anger and hurt have largely been contained to private conversations in the autocratic state, where protests are prohibited. This has led to an absence of the kind of large scale demonstrations in support of the Palestinians seen across the region and other parts of the world. The authorities have also warned against overt displays of Palestinian solidarity.

The UAE’s leaders have stated their commitment to the deal with Israel known as the Abraham Accords, despite their concerns about Israel’s Gaza offensive.

“The UAE has taken a strategic decision, and strategic decisions are long-term,” presidential foreign affairs adviser Anwar Gargash told a conference in Dubai last month.

The UAE has long been unhappy with Prime Minister Benjamin Netanyahu’s far-right government. But it considers its decision to become the third Arab state to normalise ties with Israel as vital to its interests, both in terms of security and its economic ambitions.

The UAE needed to keep “communication, intelligence and diplomacy” channels open and see if it “can put them to use”, said Abdulkhaleq Abdulla, an Emirati analyst. “We knew there would be ups and downs.”

Unlike the “cold peace” that Egypt and Jordan agreed with Israel, the UAE — which never fought a war with the Jewish state — embraced the relationship and pushed for greater economic ties, with a particular desire to tap Israeli technology. And with the UAE and Israel sharing a foe in Iran, the accord also enabled Abu Dhabi to overtly develop intelligence sharing and security co-operation.  

Most of the new business that followed the accord was conducted with Emirati state-affiliated entities, particularly those in Abu Dhabi, the oil-rich capital that drove the normalisation deal.

Even before the war, tapping private UAE family offices was harder than expected for Israeli entrepreneurs, who wanted to use the Abraham Accords to gain a regional foothold and access to deep-pocketed Gulf investors.

There was an idea that “Israeli entrepreneurs would come over, raise a lot of capital and come back”, said Elie Wurtman, co-founder of Jerusalem-based PICO Venture Partners. But “that is not the way business gets done there”. 

The Israel-Hamas war has now chilled nascent prospects of Emirati private businesses doing deals with Israeli companies because of the simmering fury among merchant families — many of whom were already wary of dealing with Israelis — over the destruction in Gaza.

“Whether it’s business or socially, everyone who is here will think twice,” said an Emirati executive. “If I had business with an Israel company, I would stop that right now,” he added. “Emotions are very high.” 

The most significant deals have involved Abu Dhabi’s state-affiliated companies. G42, Abu Dhabi’s artificial intelligence company chaired by Sheikh Tahnoon bin Zayed al-Nahyan, the UAE’s powerful national security adviser, was the first Emirati business to open an office in Israel. Abu Dhabi state fund Mubadala has invested $1bn in an Israeli gasfield and $100mn in Israeli venture capital and start-ups.

And even if some business may have slowed, there are signs that in other areas it is moving ahead.

Israel-based senior researcher Yoelle Maarek said last month that she was moving ahead with opening a Haifa branch of Abu Dhabi’s Technology Innovation Institute, renowned for its open-source large language model Falcon. TII said it had established itself in Israel early last year, and that Maarek “was in a recruitment process with us since late summer of 2023” — prior to the war’s outset — and has now been “onboarded”.

The Gulf state’s airlines have continued services to Tel Aviv even as other carriers cancelled flights, underscoring the interest in maintaining the relationship with Israel.

For many Israelis doing business in the Emirates, the Israel-Hamas war has sharpened the need for friends in a hostile region. 

“Since October 7, perhaps the Abrahamic Accords is no longer in its honeymoon phase — but it’s still our future,” said Noa Gastfreund, co-founder of the Israeli-Emirati business forum UAE-IL Tech zone. The group is being rebranded as simply Tech Zone “in light of the sensitivities and need for wider regional collaborations”.

Arik Shtilman, chief executive officer of the Israeli-founded financial technology company Rapyd, which has about 100 employees in the UAE, said the war’s impact on his business was “literally nonexistent”.

“Everything is business as usual” in the UAE, he said, adding that there has been a greater change in Europe where it has become more challenging to sign on new clients. 

The bilateral flow of goods between Israel and the UAE, excluding software, topped $2bn from January to August 2023, according to Israel’s ambassador in Abu Dhabi. A UAE-Israel partnership deal came into force last year, lowering tariffs and aiming to boost bilateral trade to $10bn within five years.

Wurtman of PICO Venture Partners said a crucial aspect was that Israelis still felt welcomed in the Gulf state. “It’s one of the safest places in the world today to be Israeli,” he said.