November 30, 2017

ADNOC Accelerates Partnership Initiatives and Expands Investment Opportunities

Sultan Ahmed al-Jaber
Sultan Al Jaber, CEO of the Abu Dhabi National Oil Company, speaks at the Abu Dhabi International Petroleum Exhibition and Conference in Abu Dhabi, United Arab Emirates, on Nov. 7, 2016. (AP Photo/Jon Gambrell)

The aggressive restructuring of the Abu Dhabi National Oil Company is moving at a break neck pace, essentially rewriting its ambitious energy playbook in less than two years. In November alone, ADNOC signed oil and gas contracts worth at least $10 billion, announced plans to increase refining capacity by almost two-thirds and triple petrochemical production, had its debut for syndicated loans in international markets, and revealed details for a landmark partial privatization of the company’s fuel distribution business. ADNOC’s 2030 Strategy aims to create more profitable oil production by improving operational efficiencies and reducing costs, developing a more valuable refining and marketing business, and securing greater access for its products in key Asian growth markets.

The latest plans build on ADNOC’s newly expanded partnership model that includes the company’s entire oil, gas, refining, petrochemical, and services business chain as well as the more proactive financial management strategy of its assets that it unveiled in July. “In this new energy era, we need more creative strategies and more flexible business models to capture growth,” ADNOC CEO Sultan Al Jaber said. He added, “This expanded partnership model marks a key milestone in the future growth of ADNOC. At its core is a re-defined, more integrated and flexible partnership model for our oil, gas, refining and petrochemical businesses.”

UAE Oil Production TrendsThe Supreme Petroleum Council approved ADNOC’s expanded strategic investment and growth plans on November 27. The SPC signed off on ADNOC’s plans for increased capital expenditure of approximately $109 billion (400 billion UAE dirhams) over the next five years for expansion of the company’s oil production capacity to 3.5 million barrels per day (mb/d) from the current 3.1 mb/d. The SPC also approved funding for exploration and appraisal of unconventional gas resources, the refining sector, and the petrochemical industry, as well as increased investments in the international refining and marketing business.

Vanguard of Change

ADNOC announced the flurry of new projects and investment opportunities at the Abu Dhabi International Petroleum Exhibition and Conference. ADNOC’s increasingly attractive partnership and investment opportunities were a key driver of the record level of 100,000-plus energy executives that attended ADIPEC this year. At the opening of the conference, Jaber announced that the company would list a minority stake of 10-20 percent in ADNOC Distribution on the Abu Dhabi Securities Exchange. Mirroring the lightning speed of change taking place at the state oil company, the initial public offering, which marks yet another major shift in strategy, could be valued at as much as $2 billion and is expected to be floated in December.

During the four-day event, ADNOC signed oil and gas contracts worth at least $10 billion as well as a new expansive framework agreement with the China National Petroleum Corporation that includes offshore oil and sour gas projects. The UAE currently has $63 billion worth of active oil and gas projects, according to BNC Network.

UAE Select Energy Infrastructure

The international oil companies were out in force at ADIPEC as they vie for the upcoming awards for the prized offshore oil and gas concessions. ADNOC is in advanced discussions with more than a dozen potential partners for the contracts, which are expected to be announced early in 2018. ADNOC is still in the process of redesigning the existing legacy offshore contract run by Abu Dhabi Marine Operating Company (ADMA-OPCO) with the project now expected to be split into two or more concessions to increase partnership opportunities and with improved terms to unlock greater value. The concessions, which currently produce around 700,000 barrels per day (kb/d), will include the Lower Zakum, Umm Shaif, Nasr, Umm Lulu, and Satah Al Razboot fields with ADNOC maintaining a 60 percent shareholding. Existing shareholders in ADMA-OPCO are BP, Total, and the Japan Oil Development Co. Ltd., which are all expected to retain some level of participation, in addition to new partners.

International Market Debut

ADNOC is also broadening the type of companies it partners with to include specialized infrastructure and energy investors, and global investment institutions as part of its strategy to take a more hands-on approach to managing its portfolio of assets and balance sheet. ADNOC is now raising financing from international capital debt markets to fund its expansion plans as part of an overhaul of its capital structure and reviewing IPOs for minority stakes in some of its operating units.

In its first public debt issue, ADNOC’s wholly owned subsidiary Abu Dhabi Crude Oil Pipeline LLC completed a project bond for $3 billion on November 6. ADCOP operates a key pipeline that runs from Abu Dhabi’s onshore fields to the Fujairah oil export terminal, which provides access to the Arabian Sea and international shipping routes.

ADNOC followed with a $6 billion syndicated loan among 12 banks on November 20. The company said tapping into international debt markets is a “highly compelling and viable option for the long-term strategic financing of the ADNOC Group.”

ADNOC Powers Economic Reforms

ADNOC embarked on a major management and operational restructuring following the appointment of Jaber in February 2016. Under his leadership, ADNOC has proved a critical pillar of broader reforms given the pivotal role of the energy sector in the economy and the drive to increase the development of the private sector. ADNOC’s massive project developments are providing significant opportunities for private sector investments and commercial opportunities for the company’s domestic suppliers and the local economies. The plans have also created more highly skilled, attractive job opportunities, a key goal of the economic reform efforts led by Abu Dhabi’s Crown Prince Mohammed bin Zayed al-Nahyan.

ADNOC aims to further strengthen the UAE’s private sector through its new In-Country Value strategy announced on November 15. The strategy is expected to create new partnerships and opportunities for domestic economic growth and create more private sector jobs for UAE nationals, including women. Jaber recently reaffirmed the company’s plans to empower women in the oil and gas workforce as part of its strategy for smart growth that focuses on talent development.

Diane Munro is a non-resident fellow at the Arab Gulf States Institute in Washington.