XRG’s Grand Energy Deals Unravel Under Regulatory and Commercial Strain

Abu Dhabi’s XRG, the ambitious investment arm of ADNOC, has abandoned its US$18.7–19 billion bid to acquire Australia’s Santos Ltd after failing to agree on key commercial terms, while its takeover attempt of German chemicals firm Covestro AG faces serious threats from an EU competition and subsidy probe.

The Santos takeover fell apart largely over valuation disagreements and tax liabilities, according to people familiar with the negotiations. The offer, made in June and backed by a consortium including ADNOC, ADQ, and Carlyle, had proposed A$8.89 per share—about a 28 per cent premium to Santos’s share price at the time. Despite the board recommending the deal and two exclusivity‐period extensions to allow for due diligence and obtaining regulatory approvals, XRG concluded that unresolved issues made a binding agreement unfeasible. Santos shares dropped sharply upon announcement of the withdrawal.

In parallel, the Covestro transaction, valued at roughly €14.7 billion, is under heavy scrutiny by the European Commission under the EU’s Foreign Subsidies Regulation. The antitrust watchdog is investigating whether state subsidies—from unlimited UAE guarantees to committed capital increases—distorted the terms of the deal. XRG is preparing remedies including converting a planned capital injection into a shareholder loan and removing or mitigated guarantees to satisfy EU requirements. Covestro remains confident the transaction can close during the second half of 2025, though deadlines may shift.

These twin setbacks expose the formidable barriers facing XRG’s ambition to become a global energy powerhouse. Santos represented a high‐profile international expansion, especially in liquefied natural gas supply and gas infrastructure. Covestro offered entry into European chemical and materials markets. Both deals reflect ADNOC’s strategy to diversify beyond oil.

Industry analysts warn that these failures may raise doubts about XRG’s ability to navigate divergent regulatory regimes and cross‐border tax and valuation issues. In the Santos case, demands such as covering capital gains tax liabilities and meeting domestic energy policy and foreign investment oversight in Australia proved hard to reconcile with the terms the consortium was willing to accept. In Europe, concerns over state aid and fair competitive conditions are delaying or potentially derailing cross‐continent acquisitions.

For Santos, CEO Kevin Gallagher has emphasised strong upcoming projects—including major gas and oil developments in both Australia and Alaska—that are expected to substantially bolster cash flow over the coming years. Shareholders are now refocusing on organic growth rather than sale options. Meanwhile, XRG is said to maintain a “rich pipeline” of investment opportunities in gas, LNG, chemicals, and energy solutions, though its willingness to proceed with equally large cross‐border deals appears tempered by the Santos and Covestro experiences.