UAE & Abu Dhabi Review

Adnoc ... considering an IPO

Adnoc ... considering an IPO

Adnoc announces bold future plan; mulls IPO of services

The national oil company has clarified that there will be no stock listing of the group holding company and that the Abu Dhabi government will continue to fully retain possession of its most-prized asset

Uae energy giant Adnoc has announced it is considering the part-privatisation of select businesses within the group structure, in order to drive efficiency and optimise value from assets in its organisational portfolio.

In an official statement, Adnoc states it is considering the IPO of minority stakes of some of its services businesses ‘which have attractive investment and growth profiles’.

'Central to Adnoc’s new approach will be the more active management of its portfolio of assets and businesses. Such IPOs would support the growth and expansion of the UAE’s private sector and equity capital markets and will allow the public, and other investors, to invest alongside Adnoc and benefit from the future growth of these assets,' Adnoc mentions in an official press release.

This reformist move by the Abu Dhabi National Oil Company (Adnoc) is along expected lines, especially since Saudi oil behemoth Aramco in January last year made public its plans to sell 5 per cent of its shares through an initial public offering (IPO).

With Aramco galloping ahead with its plans for the stock listing of some of its assets, it was only a matter of time before its Gulf peer Adnoc would follow suit with a similar strategy.

Adnoc has clarified, however, that there will be no stock listing of the group holding company and that the Abu Dhabi government will continue to fully retain possession of its most-prized asset. Moreover, Adnoc will also remain the majority shareholder in any business whose shares would be floated.

The statement did not mention details about the timing of the stock listing, the percentage of shares that it would offer; which capital market/s, at home or abroad, it is eyeing for the IPO; or the assets within its portfolio it has potentially identified for privatisation. We expect information on these crucial aspects, as well as on the financial element associated with this key strategic plan, to emerge in the coming days.

Much like the Aramco IPO decision, which was part of the package of reforms implemented by the leadership in its strive towards Saudi Vision 2030, Adnoc says its transformation scheme is aligned with the objectives of its own 2030 growth strategy to deliver a more profitable upstream business, a more valuable downstream business, and an economic and sustainable supply of gas for Abu Dhabi.

'It (the endeavour) will enable Adnoc to unlock and maximise significant value from across the group, drive business and revenue growth, optimise performance, and secure greater access for its products in key growth markets,' the statement reads.

Commenting on the pragmatic approach adopted by Adnoc, the state-owned oil giant’s CEO and UAE Minister of State Dr Sultan Ahmed Al Jaber, says: 'Shifting global trends are creating a new energy landscape where new rules of engagement are required. In this new energy era, we need more creative strategies and more flexible business models to capture growth.'

'Expanding our partnership model across the whole of our value chain and more actively managing our portfolio will allow us to both unlock value and reinvest capital into new, high growth opportunities. It will enable us to accelerate our growth, increase revenue and improve integration across the Adnoc value chain. It will also spur domestic economic growth as well as bring new jobs and benefits to the UAE and its citizens,' Al Jaber was quoted as saying in the press release.

At the heart of this new approach, ‘is a range of new and compelling partnership and co-investment opportunities in the oil, gas, refining and petrochemical space’. Some of these opportunities will include, but will not be limited to:

Upstream - develop and further expand a regional, fully integrated drilling company. The development of upstream concessions with value-added partners that may also seek to strategically partner with Adnoc in other parts of the value chain;

Midstream - create a new energy infrastructure venture to both generate value and further optimise Adnoc’s assets. This venture might include, for example, the bundling of select Adnoc infrastructure assets such as oil, gas or refined products pipelines and storage facilities;

Downstream - further open Adnoc’s downstream business to create a number of new partnership and investment opportunities across its portfolio of refinery and petrochemical assets. These new ventures will bring in partners to improve integration, realise synergies and expand technological capability and output to meet the rising global demand for petrochemical products.

Adnoc has developed a clear set of criteria by which it will select new partners, including; the ability of partners to secure better access to the world’s fastest growing target markets for Adnoc’s products; the willingness to contribute technical expertise and co-develop new technologies alongside Adnoc’s own capabilities; and, the potential to co-invest strategically across different parts of a more integrated organisational value chain.

Adnoc says it will in turn offer innovative, attractive and stable investment opportunities that will bring select investor access to Adnoc’s world-class asset base that is both logistically and strategically advantaged and located in an investor friendly environment.

Adnoc will also look to broaden both the range and type of partners it works with, to include, for example, specialist infrastructure and energy investors, long term global investment institutions and other energy, services and petrochemical players, while also deepening its engagement with existing partners.

The new initiative will bring significant benefits to the UAE and its citizens. Most importantly it will create new, high-skilled jobs and attractive career opportunities across all parts of the Adnoc value chain, the UAE oil major hopes.

It is also expected to create greater commercial opportunities for the UAE private sector, SMEs and other Adnoc suppliers and will provide an additional boost to the domestic economy, as well as to the UAE’s own in-country value creation. Lastly, it will also increase foreign direct investment, technology and knowledge transfer into the UAE.

Al Jaber says: 'We are looking for partners who are forward thinking and fast acting. We want value-add partners who share our values and are willing to contribute both capital and technological expertise for the joint pursuit of new growth opportunities and attractive returns. The ideal partner will bring tangible strategic value to Adnoc, including access to new markets, technical expertise, and a willingness to invest alongside us across our value chain.'

He concludes: 'Our new partnership model represents an ambitious new direction for Adnoc that will allow us to compete and lead in the new energy era.'

The past year has seen continued delivery against key objectives of Adnoc’s 2030 strategy.

In upstream, Adnoc is adapting to the evolving market environment by maximizing operational efficiencies, increasing crude oil production capacity targets, and reducing costs. Adnoc is also focusing on the application of new and innovative technologies for Enhanced Oil Recovery.

In downstream, Adnoc aims to stretch the margin of each refined barrel of oil and expand petrochemical production from 4.5 to 11.4 mtpa by 2025. It will develop new, high-value products to meet growing demand and increase refining capacity to create new revenue streams. Historically, Adnoc has been a major player in upstream hydrocarbon production. In the years ahead it will significantly increase its focus and resources in downstream – and particularly in refining.

In the gas business, Adnoc will exploit a variety of natural gas sources, including tapping into gas caps and undeveloped deep and sour gas reserves. Adnoc will seek to capitalise on its success and experience in sour gas development as it explores a potential US $20 billion investment to develop the Hail, Ghasha, Delma, Nasr and Shuwaihat fields, which could produce 1.2 Bscfd of gas. It will also increase production from its Shah field to 1.5 Bscfd and explore commercially sound avenues of developing the sour gas fields of Bab and Buhasa. In addition, the company will deploy innovative technology such as Carbon Capture Utilisation and Storage to replace natural gas with C02 in Enhanced Oil Recovery – thereby liberating gas for other purposes.

Abu Dhabi National Oil Co (Adnoc) could list more than 10 per cent of its fuel retail business by early 2018 and one or two more businesses later as part of a major shake-up, sources familiar with the matter says.

The listing for Adnoc Distribution, which manages petrol stations and convenience stores across the United Arab Emirates (UAE) as well as bunkering facilities and lubricant plant, comes as Abu Dhabi and other Gulf states, are privatising energy assets to make them more competitive and efficient in an era of cheap crude.

Adnoc says in July it planned to float stakes in some of its services businesses, but did not give details.

For Adnoc Distribution, Reuters reported in late July that banks had been mandated for the IPO (initial public offering), citing sources familiar with the matter.

'They are still working on it, there may be other services [to be listed] but it will not be that fast,' says one source.

Adnoc may in future choose to float one or maximum two more of its businesses such as its drilling arm, National Drilling Company, or energy infrastructure if the IPO of Adnoc Distribution proves successful, several sources familiar with the firm’s plans says.

'The value of this is when you take a company through the IPO process you make it efficient, you optimise it, it becomes a better company as a whole,' a second source says.

Listing of the fuel retailer business is likely to be on the Abu Dhabi stock exchange and could happen early next year, several sources told Reuters.

An Adnoc spokesman says: 'As announced on July 10, Adnoc is expanding its partnership model and creating new investment opportunities across all areas of its value chain.'

'Central to Adnoc’s new approach will be the more active management of its portfolio of assets and businesses. Adnoc is therefore considering the potential IPO of minority stakes of some of its services businesses which have attractive investment and growth profiles,' the spokesman says.

Since the appointment of Sultan Al Jaber as Adnoc’s chief executive last year, the company – dubbed 'a sleeping energy giant' by one source – has launched a major shake-up.

A sharp drop in crude prices since mid-2014 has forced the oil industry to cut costs and look for ways to boost efficiency amid competition from new producers such as US shale firms.

The transformation of Adnoc is also seen as part of an economic reform drive led by His Highness Shaikh Mohammad Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.

Adnoc has already begun consolidating the operations of two oil companies into a new entity, and a merger of three of its shipping and marine services businesses is expected to be completed by the end of the year. It is looking to set up its own trading unit.

Adnoc produces some 3 million barrels of oil per day, or around 3 per cent of global production. It also produces more than 9.8 billion cubic feet of raw gas per day.

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