ADNOC seeks to reduce costs, explore joint ventures
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.