After a year of unprecedented shake-up at the Abu Dhabi National Oil Company, more change is in store as it aims to get on par with its top private sector industry peers, according to the state oil and gas producer’s chief executive.
Since taking over last February, Sultan Al Jaber, who is also Minister of State and a member of the Supreme Petroleum Council, the emirate’s top oil sector decision-making body, has moved rapidly to implement a level of change rarely seen at such a large energy company, especially one in the state sector.
The collapse in oil prices from late 2014 hit the worldwide oil industry hard and gave renewed impetus for reform, especially at the Arabian Gulf’s state oil companies.
“Under the guidance of the Abu Dhabi leadership, we have collectively decided that Adnoc has to evolve to simply meet the realities of the paradigm shift we have experienced in the energy sector,” said Mr Al Jaber.
“We cannot be in denial about the changes taking place.”
Mr Al Jaber has made wholesale changes to Adnoc’s top layer of management and among many other structural changes, the company streamlined its operating units, including merging its key offshore companies as well as shipping and ports companies.
Now Adnoc will also be taking a different approach to partnerships in order to meet ambitious targets for the five-year business plan and the broader 2030 goals, Mr Al Jaber said.
“Our model of engagement is changing,” he said. “We are going to be more open for more business partnerships and more investors. [But] we are only looking for strategic, value-add investors and partners. ”
The Adco deal with BP last month “is one example of how we are changing our operating model”, he said.
The US$2.2 billion share-swap solution would previously have been deemed too risky, but Adnoc is now more comfortable with such a deal (and the value of the BP stake has since risen 13 per cent).
“Now it is going to be across the board – in the upstream, in the midstream and in the downstream,” said Mr Al Jaber.
“We will aggressively pursue downstream opportunities, whether it is refining or petrochemicals or fertilizers.”
It’s not just cash and technology, but Adnoc wants partners that will also “secure the market”.
With Royal Dutch/Shell ruling itself out of an Adco stake, Chinese companies are favoured to take some or all of the remaining 12 per cent stake still available for foreign ownership in the main onshore concession, according to industry sources.
“The fastest growing market today is Asia, it is a fact,” said Mr Al Jaber, referring to both crude and oil products demand.
“We want to set a new model for Adnoc.
“We want to make sure that our revenues are not dependent only on what the market price [of crude] is ... That is why we are aggressively pursuing more gas, more refining and more petrochemicals,” he said. The most ambitious part of its production expansion plans is in petrochemicals, which is set to grow from 4.5 mtpa last year to 11.4 mtpa by 2025.
For Adnoc to be able to contemplate such big targets and meet its cost-control objectives, some fundamental changes had to be made in a hurry, Mr Al Jaber said.
“Technology was somewhat underestimated [in the past at Adnoc],” he said.
Consultants – including Boston Consulting Group – and other advisers had to work fast last year.
SAP, for example, had to instal enterprise resource planning software at Adnoc’s new headquarters in six months, half the time it normally would take for such a project.
“The introduction of technology into how we run our business helped in a big way to reduce our cost.
“At the same time we have introduced new methodologies and approaches and policies for our procurement and inventory strategies that also have made significant contributions to reducing cost. Also, we resized organisational structure,” Mr Al Jaber said.
Patrick Pouyanné, chief executive of Total, said that Mr Al Jaber quizzed him pretty hard this year about the changes the French oil major made to bring its costs down by more than any of its peers. “What I wanted to do from day one is build on our partners’ expertise and knowledge, the BPs, Exxons, Shells, Totals and Jodcos of this world,” said Mr Al Jaber.
“The beauty of this exercise is it allows us to integrate the best from each organisation.
“It is difficult for them to adopt what their competitors are doing, [but as a state oil company] we learnt from all, we took all those lessons learnt and we integrated it all in one model and this is what we hope for Adnoc to become.
“Is there more room for improvement? Yes. We just got started and I am confident that there is more room for improvement.”
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