x Abu Dhabi, UAESunday 22 October 2017

Adnoc opens up for more partnerships in new era

Investment partnerships across all areas of the group, IPOs for select services businesses on local markets, economy to benefit from jobs, investment and contracts

Adnoc
Adnoc
A new era for Adnoc
· Investment partnerships across all areas of the group · IPOs for select services businesses on local markets · Economy to benefit from jobs, investment and contracts
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A new era for Adnoc

Investment partnerships across all areas of the group IPOs for select services businesses on local markets Economy to benefit from jobs, investment and contracts

KickerThis is a kicker.

The Abu Dhabi National Oil Company will attract billions of dollars of new investment from some of the worlds biggest institutions through the creation of new ventures and the potential stock market flotation of some of its services businesses. The approach is designed to create and grow new revenue streams from existing assets and support Adnocs efforts to boost profitability and secure market access for Abu Dhabi key planks in the companys 2030 strategy. At the heart of this new approach are potential partnerships and co\-investments for the first time across the group, not just in oil & gas production and petrochemicals but also in drilling, storage, pipelines and refining. Under the Adnoc Group, assets will be opened up for partnerships and positioned for growth. In exclusive remarks to The National, Sultan Al Jaber, UAE Minister of State and Adnoc group chief executive, said: This approach 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 bring growth, new jobs and significant benefits to the UAE and its citizens. High\-skilled jobs will be created \- as Adnocs operations expand \- in refining, petrochemicals and other areas of the business such as finance and corporate development. Local suppliers, especially those with a track\-record of developing Emirati talent, will get more commercial opportunities as Adnoc grows.

Adnoc is understood to have begun discussions with potential partners and announcements will be made later in the year. The key difference between the new groups of strategic investors sought and the long list of current Adnoc partners is that they could also include large trading houses, international pension funds, private equity investors and global infrastructure specialists rather than just national oil companies and international oil companies. But like the latter group, the new investors should also be able to support Adnoc in terms of securing market access for its products, particularly in Asia, offer technology and knowledge transfer opportunities and be able to deploy capital for growth. Adnoc is also planning to list minority stakes in some of its services businesses through initial public offerings \(IPO\) on local equity markets to raise capital and create a broad investor base. It also hopes that these listings will support the growth and expansion of the UAEs private sector and capital markets. Unlike with Saudi Aramcos planned listing of a five per cent stake of the whole company, an IPO of Adnoc at the group holding level is not on the table, said Mr Al Jaber. The first potential IPO of one of Adnocs services businesses will be announced in the next few months, according to company executives briefing The National. Both the planned new partnerships and potential IPOs are likely to stir up significant interest regionally and globally including from Asian quarters given their focus on securing reliable supplies of energy. Our new approach comes at a time when global economic growth and energy demand is shifting east. These changes in energy demand also sit alongside a rapid increase in demand for products derived from hydrocarbons \- petrochemicals, plastics and polymers, said Mr Al Jaber. Adnoc has been undergoing a transformation since Mr Al Jaber took over last year with a mandate to modernise the organisation and make it more efficient and performance driven. He has changed both management and operating structures and looked to leverage the groups scale to find cost savings and opportunities for growth.

Ambitious and bold strategy for todays energy sector

Sultan Al Jaber, the chief executive of the Adnoc Group, discusses the companys new approach to strategic partnerships and co\-investment and how it builds on Adnocs flexible operating model to help deliver their 2030 growth strategy. He outlines the rationale and benefits of this new and expanded approach for Adnoc, its partners and the UAE. He also explains how this approach will create several partnership and co\-investment opportunities and what they will look like. Lastly, he sets out the criteria that Adnoc will use to find the right parties for these new partnership opportunities. **We spoke in detail in April 2016. What has happened at Adnoc since then?** Back then, we were at the beginning of Adnocs transformation program. We undertook a comprehensive root and branch review of our entire business from downstream to upstream to understand how to make our company more efficient, performance\-driven, flexible, resilient and competitive. While there is still much to do, I am pleased to say that in the past year we have achieved real progress against our objectives and have already delivered material business improvements and operational efficiencies across our entire Group. To give you just a few examples of the progress made: we have begun to consolidate our offshore operations and started the integration of our shipping and marine services to capture greater synergies and efficiencies. We have also introduced smarter, group\-wide procurement that will optimize costs and enhance our interaction with suppliers. These efforts across our operations have enabled us to significantly reduce our production cost per barrel. In addition, we have rolled out best\-in\-class training for our employees and a new performance management system to better incentivize high performers. We have also adopted a new organizational structure that is more streamlined and better aligned to our strategic priorities. Most importantly, in November last year, under the guidance of the UAEs wise leadership, the Supreme Petroleum Council approved Adnocs 2030 strategy aimed at generating a more profitable upstream, a more valuable downstream, a more economic and sustainable supply of gas, while developing world class talent. And of course, Adnocs 2030 strategy is defined by, and fully aligned, with the UAEs long term vision and plans. With the foundations of Adnoc now firmly reinforced, we are ready to embark on the next phase of our transformation a new and dynamic partnership and co\-investment approach, to create an Adnoc that is fit to both lead and compete in the new energy era. **In light of the evolving energy landscape, can you tell us more about this new expanded approach to partnerships and co\-investment?** Shifting global trends are creating an energy landscape where new rules of engagement are required. In this new energy era, we need to adopt more creative strategies and more flexible business models to capture growth. So, over the last few months, we have developed a new and expanded Adnoc approach to partnerships and created several highly compelling investment opportunities across our entire value chain from the upstream to the downstream. Our new approach will deliver two key benefits to Adnoc. Firstly, it will allow us to unlock and maximize value and invest in growth. Secondly it will enable us to accelerate our growth, whilst improving integration across the Adnoc business. This more open partnership model will also enable us to more proactively and efficiently manage our asset portfolio and capital structure. Crucially, these new types of partnerships will also help optimize our operational and financial performance at both the Adnoc Group and asset level and they will help secure access to target markets and the new centers of global demand. They will also bring technological expertise and foster better knowledge sharing between Adnoc and our partners, as well as enable the co\-development of cutting edge intellectual property and technology. This alternative and tailored approach to value creation aims to capitalize on the key trends in the industry as well as leverage the unique competitive advantages that we possess. These include our flexible and open operating model, our 45 years of successful energy partnering and experience, our robust financial strength and stability, and the UAEs investor\-friendly environment and reputation. **Can you give us some more details on these new partnerships and how you will more actively manage your portfolio?** What is new about these new partnership opportunities is that they will span the entire Adnoc value chain, not just in upstream but in our midstream, refinery and petrochemical businesses as well. Some examples of these new partnership and investment opportunities include, but are not limited to; **Upstream**, where we will further develop and grow a leading, fully\-integrated drilling company. We will also continue to develop upstream concessions with value\-added partners that may also seek to strategically partner with us in other parts of our value chain. **Midstream**, where we are creating a new, innovative energy infrastructure venture to both generate value and optimize our assets. This new venture might include the bundling of select Adnoc infrastructure assets such as oil, gas or refined products pipelines and storage facilities. **Downstream**, we are further opening our business to create new investment and partnership opportunities across our portfolio of refinery and petrochemicals assets. These new ventures will bring in partners to improve integration, realize synergies and expand both our technological capability and output to meet the rising global demand for petrochemical products. We will make further, more detailed announcements on these and other new partnership opportunities over the next twelve months and beyond, but this gives you a flavour of some of the exciting ideas and out of the box thinking we are developing. As part of the more proactive management of our portfolio of assets and businesses, we are also considering the IPO of minority stakes in some of our Adnoc service businesses which have attractive investment and growth profiles. Such IPOs would support the growth and expansion of both the UAEs 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 will, however, continue to be a committed, majority shareholder in any businesses that are listed. But let me be very clear, we will not IPO Adnoc, the Group holding company. Adnoc will remain fully owned by the Government of Abu Dhabi. **Why are these investment opportunities attractive to potential partners?** These investment opportunities will bring multiple benefits to both our partners and Adnoc. Our partners will benefit from select access to Adnocs world class asset base that is logistically advantaged and located in an investor\-friendly and stable environment. Our new approach will also provide partners access to more flexible and agile supply chains, as well as some new and novel energy and petrochemical investment opportunities. These new long term strategic partnerships will not only help us deliver our 2030 strategy but will also benefit the UAE. They will bring greater foreign direct investment, as well as knowledge and skills transfer into the UAE and will expand and increase the overall competitiveness of our energy, refining and petrochemical industries. Critically, our new approach will support the creation of new high\-skilled jobs in the UAE and new career paths and opportunities for our citizens across all parts of our business. It will also ensure we remain focused on our core Adnoc business while, at the same time, working more closely with the UAEs private sector in those areas, for example, that are non\-core to Adnoc. We also expect this new growth initiative to create further commercial opportunities for the UAE private sector, SMEs and other Adnoc suppliers and will provide an additional boost to the local domestic economy, as well as for the UAEs own in\-country value creation. **Adnoc announced a new integrated strategy late last year. How will your new partnership approach contribute to achieving this strategy?** Our new approach will allow us to both accelerate and better enable the delivery of our 2030 strategy. I briefly touched on it earlier but, in summary, our 2030 strategy targets a more profitable upstream, a more valuable downstream, a more economic and sustainable supply of gas, while developing world class talent. In upstream, we are adapting to the evolving market environment by maximizing operational efficiencies, increasing our crude oil production capacity targets, and reducing costs. We are also focusing on the application of new and innovative technologies, especially for enhanced oil recovery. In downstream, we are looking to stretch the margin of each refined barrel of oil and expand petrochemical production from 4.5 to 11.4 mtpa by 2025. Historically, Adnoc has been a major player in upstream hydrocarbon production. In the years ahead we expect to significantly increase our focus and resources in downstream and particularly in refining and petrochemicals, where we will develop new, high value petrochemical products to meet growing demand, and increase refining capacity to create new revenue streams. In gas, we will meet the growing needs of the UAE by continuing to improve operational efficiency and integration of our gas value chain. This will be achieved by tapping into a variety of natural gas sources such as new offshore and onshore resources, such as gas caps, as well as undeveloped deep and sour gas reserves. Adnoc will capitalize on its success and experience in sour gas development and invest a potential US $20 billion 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 at Bab and Buhasa. We are also integrating our offshore gas resources with onshore gas processing facilities to increase both availability and reliability of our supplies. We are deploying innovative technology such as Carbon Capture Utilisation and Storage for Enhanced Oil Recovery, in turn liberating gas for other purposes which would otherwise be injected into oil reservoirs. These efforts, along with the revisited gas prices, will be fundamental in ensuring a more sustainable and economic gas supply. **What are some of the key challenges you face in executing this new approach?** With the global energy industry changing rapidly, a key challenge for us, and our peers, is to think and act differently. We need to adapt the way we approach our business as well as how we develop and execute new ideas. And at all times we must ensure that we constantly stay agile and alert to quickly seize new opportunities as they present themselves. This means we need to adopt a more flexible and open mindset when it comes to deciding how best to grow each of our businesses, how best to leverage new technologies to support our ambitions and who are the best partners for our long\-term success. We have a long history of creating successful partnerships at Adnoc but the scope, scale and pace of the new partnership approach we are creating represents a step\-change from our past activities. So, a key step for us now is to both internally develop, as well as bring in, the right skills and capabilities to support our new initiatives. We have started this process and so far weve made good, rapid progress. We also need to broaden our universe of stakeholders and partners to ensure we are engaging with all third parties who can provide the best, long term strategic and operational fit for our assets and businesses. This means we must look to establish a dialogue with new types of partners and investors, for example, infrastructure or energy specialist investors, or even international pension funds. **What are you looking for in an ideal partner for Adnoc?** For decades, Adnoc and the UAE have pioneered a partnership approach to their energy businesses. It is one of Adnoc and the UAEs defining strengths and it has helped enhance Adnocs global reputation as a trusted and reliable business partner. Moreover, it reflects the spirit of partnership that defines the ethos of the UAE itself, and so we want to leverage that. 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 growth opportunities and financial returns. The ideal partner will bring tangible strategic value to Adnoc including access to new markets and a willingness to invest alongside us, and across our entire value chain. And of course, as I mentioned earlier, we will create new partnership and investment value propositions that are beneficial to both sides. We believe this new, expanded partnership approach marks a key milestone in the future growth of Adnoc. It marks the beginning of the next, exciting phase of Adnocs ongoing transformation and it presents a unique opportunity for both new and existing partners to work alongside us and benefit from our mutual growth from IOCs, NOCs and large trading houses to international pension funds, private equity investors and global infrastructure specialists. In this spirit we want to open a dialogue with both new and existing partners as we begin this next stage of growth. In short, it is a bold, new and ambitious approach. One that will allow Adnoc to compete, lead and thrive in the new energy era.

Adnoc's new approach to a changing energy sector

**Group CEO Sultan Al Jaber outlines the firms plans to unlock value of existing assets for accelerated growth.** The Abu Dhabi National Oil Company is embarking on what it is calling a bold and ambitious approach to drive growth including forming new ventures alongside strategic investment partners and the IPO of some of its services businesses. This marks the latest phase of a transformation strategy implemented by chief executive Sultan Al Jaber,who took on the role last year with a mandate to make Adnoc more efficient and much more performance\-driven, similar to a modern international energy company. In just over a year, its offshore operations are going through a consolidation, the integration of its shipping and marine services has begun, procurement has been centralised at group level, the operation of some of its non\-core operations has been outsourced to the UAE private sector and a new management performance system has been introduced. The companys headcount and structure has also been streamlined. These efforts across our operations have enabled us to significantly reduce our production cost per barrel, Mr Al Jaber said in exclusive remarks to The National.

Adnoc is now turning to ways to increase revenue as outlined in November, when the Supreme Petroleum Council approved its 2030 strategy to make its upstream businesses more profitable, increase the value of its downstream operations and secure a more economic and sustainable supply of gas. Targets set out include expanding petrochemical production to 11.4 million tonnes per annum by 2025 from 4.5 mtpa currently and increasing crude production capacity to 3.5 million barrels per day by 2018 from 3.1 million bpd currently. Adnoc is also working to boost the supply of natural gas for the UAE. Last month, it said it is considering proposals for a US$20 billion development of the Hailand Ghasha, Delma, Nasr and Shuwaihat ultra sour gas fields forecast to produce 1 billion cubic feet per day \(cfd\), which would meet about 18 per cent of the UAEs current demand. Adnocs new approach includes drawing on some of the assets and businesses in its portfolio to attract billions of dollars of new, long\-term investment from partners who can help accelerate the drive towards meeting its strategic goals. The partnerships and co\-investments will, for the first time, apply across all areas of the group not just in oil & gas concessions and petrochemicals but also in drilling, pipelines, storage and refining and potential partners include international pension funds, private equity investors and global infrastructure specialists. This broadens out Adnocs typical group of partners, which consists mainly of national oil companies and international oil companies such as BP, which at the end of last year joined Abu Dhabis main onshore oil concession, Adco.

Mr Al Jaber is calling this co\-investment approach a more open partnership model. That means, for example,alongside concessions, we are offering strategic partnerships and co\-investments across our service and refining businesses and select infrastructure assets, such as Adnoc pipelines and storage facilities, which weve not done before, he said. The potential areas for partnership under consideration include the further development and expansion of a leading, regional drilling company and a new energy infrastructure venture to be formed around the bundling of select Adnoc oil, gas or refined products pipelines and storage facilities. More downstream ventures are also under consideration, that might also be along the lines of Borouge, the joint venture that Adnoc currently has with Austrias Borealis, according to a briefing from Adnoc executives. We will make further, more detailed announcements on these and other new partnership opportunities in the coming 12 months, said Mr Al Jaber. It is understood that early discussions with potential investors have begun. Adnoc will remain the major shareholder in any potential new partnership. Adnoc has crafted the new approach over the last few months, both as part of its continued transformation as well as a response to a rapidly changing global energy industry amid increased oil price volatility, lower prices for related products such as petrochemicals and shifting production and demand trends including rising shale output in the US. The overall trend of rising energy demand, particularly in Asian economies also offers an opportunity to be seized upon. In this context, Adnoc has developed a more flexible and open mindset for deciding how best to grow each of its businesses, how to leverage new technologies to support its growth ambitions and determining who are the best, value added, partners for its long term success. The expanded drilling company, most likely to be built around Adnocs oldest subsidiary the National Drilling Company, would immediately benefit from a partner with complementary drilling experience coming on board. The co\-investment approach, once the right partner is secured, would also allow it to increase efficiency, shorten drilling times and boost revenue.

Potential partners will also help Adnoc to secure access to target markets for its products beyond the UAE, particularly in high demand regions such as Asia. This is a key aim of the new approach as Adnoc does not make investments internationally like other national oil companies to secure market access, preferring to utilise a partners scale and reach in other geographies to help move its products. Potential partners will also demonstrate an ability to deploy long\-term capital for expansion of these new co\-investment ventures. These partnerships must also support the development of cutting edge intellectual property and technology. Adnoc expects its new approach will also result in broader benefits for the UAE, including the creation of high\-skilled jobs, the boosting of GDP and foreign direct investment into the country.Local, private sector SMEs and other suppliers should also benefit from more business, according to the company. While Adnoc has no plans for a group level IPO in contrast to the centrepiece of Saudi Aramcos own transformation strategy it is considering the potential public listing of minority stakes in some of its services businesses on local equity markets. Adnoc has not named which of its businesses will potentially be floated but it is understood that one of its services providers is currently undergoing the pre\-IPO process.

Such potential IPOs would support the growth and expansion of both the UAEs 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, Mr Al Jaber said. He said that the select services businesses that could potentially be listed would have attractive investment and growth profiles particularly given Abu Dhabis reputation as an investor\-friendly and stable environment. Mr Al Jaber said that Adnoc would continue to be a committed, majority shareholder in any businesses that are listed. The recent integration of three of its shipping and marine services businesses Adnatco, Irshad and Esnaad rules them out as potential IPO candidates for the time being. Their integration is expected to be completed by the end of this year. The National Gas Shipping Co would also be unlikely to be selected for a listing as it is part of the streamlining strategy even though it remains a separate company in which Adnoc owns a 70 per cent stake.

Investors, both locally and internationally, would however be interested in participating in the public listing of any of the services businesses owned by national oil companies in the Arabian Gulf, according to Sbastien Henin, head of wealth management at asset manager Alienor Capital in Bordeaux. Usually these companies are well managed \- above regional standards \-and have already reached the critical size, said Mr Henin, who was previously based in Abu Dhabi for six years with another asset manager. They also offer good diversification for local investors, different from banking, real estate,construction \[stocks\]. It has been a relatively quiet period for initial public offerings on local equity markets but with Saudi Aramcos listing plans and other announced IPOs in the UAE and elsewhere, the outlook is brighter, even amid concerns about overall liquidity with economic conditions less than ideal and oil prices at under US$50 a barrel. The liquidity is not an issue,money is always available when you have good opportunities, said Mr Henin.

Credits Writer: Mustafa Alrawi Images: Adnoc Video: Kevin Jeffers, Emmanuel Samoglou, Adnoc