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Foreign Investors Are Pouring Into This Middle East Oil Giant

Highly leveraged U.S. exploration and production (or E&P) companies have lately been struggling with dwindling valuations and endless bankruptcies as investors lose their appetite for shale while private equity markets increasingly close their doors. 

In sharp contrast, Middle East state-owned oil and gas companies (national oil companies, or NOCs) seem to be having little trouble courting foreign investments. 

Middle East NOCs tend to be notoriously secretive, with Saudi Aramco’s much-hyped IPO and subsequent $2 trillion valuation an exception rather than the rule. But they are increasingly coming to the limelight as they tap into foreign markets in a bid to modernize their operations and expand. 

And while anyone who hasn’t been living under a rock knows about the highly publicized Saudi Aramco IPO, few hear about the other Middle East oil giant that actually beat Aramco to the public punch. 

The Abu Dhabi National Oil Company (Adnoc) is the crown jewel of the United Arab Emirates. As one of the world’s leading diversified energy and petrochemicals groups, Adnoc has a daily output of around 3 million barrels of oil and 10.5 billion cubic feet of natural gas. It’s also got 14 specialist subsidiaries and joint ventures, which makes it the key to UAE growth--and more recently, diversification into major renewable energy projects. 

While all attention has been on Aramco, Adnoc has been raising billions of dollars in foreign markets, without making a public fuss over it like the Saudis, whose crown prince, MBS, pushed an IPO partly as a vanity project, and partly for funding for his ambitious Vision 2030 plan. 

In the meantime, a Reuters report says Adnoc has raised more than $19 billion, or roughly two-thirds what the Saudi Aramco IPO fetched, in overseas markets over the past three years.  Related: Phase 1 Trade Deal Won’t Spark An Oil Export Boom

Adnoc has adopted reform and modernization plans in a bid to draw more foreign investments and plans to invest $45 billion for expansion and growth of its extensive refining and petrochemical business. Adnoc supplies nearly 3 percent of global oil demand, with 2017 production pegged at 3.1 million barrels of oil per day and 9.6 billion cubic feet of raw gas.

Here are some key deals the state oil company has struck over the past two years:

#1 Infrastructure deals

In February 2019, giant US investment firms Blackrock and KKK signed a $4 billion infrastructure deal with Adnoc to develop the company’s midstream pipeline assets for a 40 percent stake--a rare foray for both companies into Middle East NOCs.

Singapore’s sovereign wealth fund, GIC, also agreed to invest $600 million in Adnoc’s crude pipeline infrastructure for a 6 percent stake.

#2 Refining and trading

Last year, Italy’s Eni and Austria’s OMV agreed to pay a combined $5.8 billion to take a 20 percent stake in Adnoc’s refining business. The deal will expand Adnoc’s access to European markets; help Eni to diversify away from its traditional Africa production and also give OMV a downstream oil business outside Europe.

#3 Distribution IPO

In 2017, Adnoc raised 3.1 billion dirhams ($851 million) on the Abu Dhabi Securities Exchange through an IPO of its fuel distribution unit, ADNOC Distribution. The subsidiary sold 1.25 billion shares, or 10 percent of its share capital, though it had initially planned to sell a 20 percent stake.

#4 Concessions

Adnoc has signed a series of 40-year concessions with multiple international energy companies across the globe.

In 2018, Adnoc awarded France’s Total a 20 percent stake in the Umm Shaif and Nasr concession as well as a 5 percent interest in the Lower Zakum concession.Total paid 5.3 billion dirhams ($1.44 billion) in participation fees.

In the same year, Adnoc granted PetroChina 10 percent stakes in two offshore concessions with the Chinese energy giant paying 4.3 billion dirham ($1.17 billion) in participation fees. Related: Hydrogen Costs Could Be Set To Plunge By 50%

ENI won a 10 percent stake in Umm Shaif and Nasr in 2018 as well as a 5 percent stake in Lower Zakum. The Italian company paid 3.2 billion dirhams ($871.27 million) in participation fees.

In May 2018, Adnoc awarded a 20 percent stake to Spain’s Cespa in the SARB and Umm Lulu offshore concession. Cepsa parted with 5.5 billion dirhams ($1.5 billion) as participation fees.

In February 2018, a consortium led by India’s Oil and Natural Gas Corp. took a 10 percent stake in Lower Zakum after paying a participation fee of 2.2 billion dirhams ($600 million).

Adnoc does not publish financial results, but investors appear pleased with the direction the company is moving, nonetheless. 

As Sultan Ahmad Al Jaber, Minister of State and CEO of Adnoc Group has told Gulf News: “The company looks to increase its share of the international market for crude oil and fuel. We don’t want cooperation to be limited to known or traditional partners, as we want to explore and seize all opportunities.”

Investors appreciate the fact that Adnoc supplies nearly 3 percent of the world’s oil demand, and no one blinked when Adnoc’s upstream executive director Abdulmunim al-Kindy recently told Retuers that “our oil is our gold”. 

That’s because Adnoc is all about low-cost production and high-level efficiency, and investors seem willing to trade transparency for faith. In this case, it’s faith in Adnoc’s proven ability to fully drive the monetization of its resources. 

By Alex Kimani for Oilprice.com

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