Adnoc charts strategic path that will strengthen links with global economy

According to industry experts, the Abu Dhabi state-owned firm is taking a distinctive approach to ensure its future growth in a changing energy landscape

IHS Market's Daniel Yergin says Adnoc's approach “represents a multi-faceted approach to interlock [the company] with the global economy at many different levels." Picture courtesy Adnoc

The Abu Dhabi National Oil Company is charting a course unlike many of its peers as it prepares to face a radically different energy future, said experts including Daniel Yergin yesterday.

The company's leadership made it clear in comments to The National on Monday that it will not be following the path that many national oil companies (NOCs) have – and which close neighbour Saudi Arabia plans – in selling off a piece of the parent company.

Rather, Adnoc, which has a long history of foreign partnerships, is reinforcing this strategy by widening the variety of players it will be open to and deal structures it would accommodate – rather as GE runs its businesses as a financially-driven portfolio.

"It is clear that Adnoc – and Abu Dhabi leadership more generally – is taking a very distinctive 'Made in Abu Dhabi' approach to how to go forward," said Mr Yergin, co-chairman of IHS Markit, a consultancy, and author of The Prize, a Pulitzer-winning history of the oil industry. "If you look at what they are doing, it represents a multi-faceted approach to interlock Adnoc with the global economy at many different levels," said Mr Yergin.

Adnoc has previously outlined this approach and shown the kind of new deals it wants to do with the US$2.2 billion share swap it agreed with BP in December, taking a 2 per cent stake in the London-based oil major in exchange for a 10 per cent award in the company operating Abu Dhabi's main onshore oil assets, Adco.

In February, it awarded the final 12 per cent of Adco open to foreign ownership to a Chinese consortium that included CEFC China Energy, a financial conglomerate.

Abu Dhabi – and the UAE in general – started earlier than most down the path of diversifying the economy, but there is a new urgency pushing leading oil economies to turn their natural resource advantage into a greater diversity of downstream businesses to cope with prolonged low oil prices and a changing energy landscape.

“These governments face a more existential level of threat, firstly from the continuation of an oil price that yields less than half of its 2014 revenue, and secondly from the tangible growth of energy alternatives ... that are starting to pull the era of peak oil to within a horizon of 25 years,” according to Paul Navratil, an Abu Dhabi partner at consultants EY. “It is likely to be necessary to adopt a more expansive policy and to redefine the role and function of the NOC”, which is driving Adnoc's ambitious goals for “downstream value capture”, he said.

On Monday, the Adnoc chief executive Sultan Al Jaber said to expect new types of partners, such as commodities trading houses, pension funds, or infrastructure investment specialists. This suggests an even closer partnership with Mubadala Investment Company, whose $125bn portfolio is one-third international energy and which already has a number of Adnoc co-investments. Mubadala has shareholdings and/or partnerships with many potential industrial or financial entities that might also partner with Adnoc.

Adnoc's planning around IPOs for now will be be confined to minor services businesses, although some type of public float for oilfield services or shipping companies might eventually be on the cards.

The key question for an investment is how it might jolt some entrepreneurial juice into the company, bring in technology for the future and make sure it helps in the transition to a post-oil world.

“It’s clear that [the leadership] wants the organisation to be more entrepreneurial,” said Mr Yergin. “This is a way to do that. It brings in companies that have particular expertise in business segments that will help to be globally competitive in a world in which you can’t count on rising oil prices.”