July 30, 2017

ADNOC seeks to reduce costs, explore joint ventures

New opportunities. ADNOC CEO Ahmed al-Jaber, also a minister of state of the UAE government, speaks at Gastech, the world’s biggest expo for the gas industry in Chiba in Japan, last April. (Reuters)

Washington - In a bid to generate revenue and create domestic jobs for nationals, Abu Dhabi’s state energy firm announced plans to work with international in­vestors on joint ventures and pos­sibly sell minority stakes in related businesses. One major subsidiary of Abu Dhabi National Oil Company (ADNOC) is poised for an initial pub­lic offering (IPO) on Abu Dhabi’s stock exchange by year’s end.
This is a further indication of how the low oil prices battering Gulf Arab economies are prompting govern­ments to find traditional and crea­tive ways to cut expenses, such as reducing energy-related subsidies and generating new taxes. At the same time, they are seeking to open opportunities for foreign investors in local economies and disposing of in­terests in valuable state entities.
ADNOC has emphasised that, un­like Saudi Aramco’s IPO slated for late next year that will sell off as much as 5% of the oil giant, shares in ADNOC itself will not be floated. Rather, ADNOC will focus on selling minority stakes in the firm’s service businesses. There are suggestions that ADNOC could spin off some downstream operations — refining and petrochemicals — through priva­tisation.
ADNOC is wasting little time in identifying prospects within its oper­ations for a limited IPO, with reports that a listing of ADNOC Distribution, the energy firm’s leading retail busi­ness, will occur by the end of 2017. ADNOC Distribution, which markets, distributes, stores and transports pe­troleum products, manages 460 pet­rol stations and convenience stores across the United Arab Emirates.
ADNOC said it expects the valua­tion of its retail subsidiary to be $14 billion with proceeds from the share sales potentially pulling in as much as $1.5 billion-$2 billion for Abu Dha­bi’s state coffers. ADNOC has report­edly hired local bank First Abu Dhabi Bank and three foreign financial in­stitutions — HSBC, Bank of America Merrill Lynch and Citigroup — to play lead roles in the IPO, with Rothschild serving an advisory role. It is unclear how much of ADNOC Distribution will be sold.
ADNOC announced that “at the heart” of its expanded partner­ship approach is “a range of new and compelling partnership and co-investment opportunities in the oil, gas, refining and petrochemical space.” As part of this partnership fo­cus, ADNOC is considering develop­ing a regional fully integrated drill­ing company, creating an “energy infrastructure venture” that would bundle select ADNOC assets — such as oil, gas and refined products pipe­line and storage facilities — and pro­viding partnership and investment opportunities for foreign players in its refining and petrochemical opera­tions.
UAE Minister of State Sul­tan Ahmed al-Jaber, who also is ADNOC group director and CEO, said: “Shifting global trends are creating a new energy landscape in which new rules of engagement are required. In this new energy era, we need more creative strategies and more flexible business models to capture growth.”
Jaber was named ADNOC’s direc­tor general and CEO by government decree in February 2016. The change in leadership was designed to reor­ganise and streamline the state oil firm to make it more efficient and competitive. Jaber is also the chair­man of Abu Dhabi’s renewable en­ergy firm Masdar, chairman of Abu Dhabi Ports and serves on the Abu Dhabi Supreme Petroleum Council.
Within months of assuming the helm of ADNOC, Jaber replaced six directors of key divisions and named six new heads of operating units. In a significant cost-savings move, AD­NOC announced in October 2016 that it would merge its two large offshore firms, Abu Dhabi Marine Operating Company and Zakum Development Company, by early 2018.
ADNOC also disclosed that it would merge three of its shipping and port services operations — Abu Dhabi National Tanker Company, Pe­troleum Services Company and Abu Dhabi Petroleum Ports Operating Company — into a single entity by the end of 2017. In a sign of the economic pressures it is facing from depressed oil prices, ADNOC made a bold move last year by trimming its 55,000-per­son workforce by 5,000 jobs.
ADNOC is said to be exploring an opportunity to bring in additional revenue by establishing a unit to trade oil and products, either on its own or in partnership with an in­ternational oil major or large trad­ing house. That would follow in the steps of some of its state-owned Gulf counterparts: Oman Oil Company entered into a 50/50 trading joint venture with Swiss-based trading house Vitol in 2006 but Vitol’s inter­est was subsequently bought out by the Omani government in 2015.
In 2012, Saudi Aramco established Saudi Aramco Products Trading Company for trading refined prod­ucts. In May of this year, Iraq’s State Oil Marketing Organisation (SOMO) joined forces with Litasco, the mar­keting subsidiary of Russian oil giant Lukoil, in a Dubai-based joint ven­ture trading firm named LIMA En­ergy to trade Iraqi, Russian and other crude grades.

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