Occidental $8bn Middle East deal held up by political row

Oil and gas producer says tensions have made it too complicated to win agreement for a single sale to a group made up of the UAE, Oman and Qatar.

Occidental Petroleum said a political dispute in the Gulf was complicating plans to sell to a single investor group. David McNew / Reuters

Occidental Petroleum, seeking to raise as much as US$8 billion by selling a stake in its Middle East business, said a political dispute in the region was complicating plans to sell to a single investor group.

The oil and gas producer may need to break up the assets and sell them to individual countries because political tensions have made it too complicated to win agreement for a single sale to a group made up of Oman, the UAE and Qatar, the chief executive, Steve Chazen, said on Tuesday.

“The notion that they were going to somehow cooperate with each other in an oil investment is difficult at best right now,” Mr Chazen said. “At their suggestions, we’ll probably make separate deals with the three countries with somewhat different assets in each one. In some ways, that’s a lot simpler.”

The failure of the deal as it was originally envisioned is the first major sign of how a political rift between Qatar and other Arabian Gulf nations over Qatar’s support for the Muslim Brotherhood is hurting business decisions in the oil-rich region. Qatar has drawn criticism from its neighbours that have cracked down on the Islamist organisation after it gained power in Egypt with the 2012 election of Mohammed Morsi as president.

“This reflects the reality of the differences between the countries as well as the inherent differences in the assets,” said Pavel Molchanov, an analyst with Raymond James & Associates in Houston, Texas.

Melissa Schoeb, an Occidental spokeswoman, did not respond to a phone message and email requesting further comment.

Abu Dhabi's Mubadala Development, Qatar Petroleum and Oman Oil formed the group late last year to buy as much as a 40 per cent stake in Occidental's Middle East operations.

A spokesman for Mubadala declined to comment. Qatar Petroleum and Oman Oil were not immediately available to comment.

Saudi Arabia, the UAE and Bahrain recalled their envoys from Qatar on March 5, accusing the state of undermining regional security in a dispute that threatens efforts to integrate the GCC economies. The process has already been slow, as plans for a common currency were delayed and disputes broke out over regional politics.

Qatar backed the Brotherhood with $8bn in aid after the Egypt election.

Saudi Arabia and the UAE welcomed Mr Morsi’s overthrow last year and, along with Kuwait, they have pledged about $15bn to support the military-backed government.

Under pressure from shareholders over lacklustre returns, large oil companies including Occidental, Hess and Apache are pursuing break-up plans and asset sales.

Occidental is seeking to sell assets in the Middle East as part of a break-up plan started last year after shares in the Los Angeles-based company fell for two consecutive years in 2011 and 2012, the worst performance in more than two decades. In the Middle East, the company has assets in the UAE, Qatar, Oman, Bahrain, Iraq, Yemen and Libya.

Occidental is also planning a spin-off of its California business and will use proceeds from the transactions to buy back shares.

Mr Chazen hosted a lunch last week with more than a dozen analysts who cover the company and suggested then that political challenges could delay the Middle East sale, said Roger Read, an analyst with Wells Fargo.

Occidental may not close a transaction in the deal before the end of the year, Mr Read said.

The plan to sell pieces of assets to individual countries should yield about the same proceeds as the stake sale, Mr Chazen said. A sale of 40 per cent of the assets would be valued at about $8bn, based on the $20bn value Mr Chazen placed on the business late last year, according to two people with knowledge of the matter.

Occidental may opt to keep some properties it otherwise would have included in the sale, such as the Dolphin Gas project in Qatar, the chief executive said.

“I think we’ll make reasonable progress over the next few months,” Mr Chazen said.

* Bloomberg News