Abu Dhabi is set to embark on a major oilfield research and development push that could help to add as much as US$500 billion of value to oil reservoirs.
Abu Dhabi National Oil Company is making a strategic push into R&D through a large investment in a new centre at its Petroleum Institute in the capital.
The expansion reflects a major departure in R&D for both Adnoc and the Petroleum Institute, which includes a specific mandate for the institute to come up with ways to add 5 per cent – or about $500bn of value – to Abu Dhabi's oil reservoir recovery rates, according to the Petroleum Institute president Thomas Hochstettler.
It includes a new $90 million Petroleum Institute research building, which is due to open by the end of the year. It will house hundreds of new staff, including dedicated researchers in its 32 laboratories, and have an initial annual operating budget of about $33m.
A second facility of about half the size is slated to come onstream at a later, unspecified date. The expansion reflects a determination to get more value for money, according to Marc Michel Durandeau, a former long-serving Total executive who has been appointed to run the new centre.
“The new strategy is to ensure that PI can contribute to and benefit from projects,” Mr Durandeau said. “Before the contribution to projects we were funding maybe 5 per cent – just someone travelling once a year to see some people in a university. For me this money was not well spent. It was more like a donation.”
The approach has not made commercial sense for Adnoc either. As Mr Durandeau explained, the state oil company had largely relied on its private sector partners – including Total, as well as BP, Shell and Exxon – for advanced field development technology that they have developed elsewhere in the world where conditions may not be applicable.
“Adnoc has the same problem we have,” Mr Durandeau said. “If you don’t do your own research you have to rely on that which is produced outside.
“Big companies are coming here to get concessions and to get them they offer new technologies. But if you don’t have good knowledge of the capabilities and suitability of the technology how can you make the business case? If you don’t have your own in-house knowledge it is difficult to assess what you need.”
The new centre will be central to Adnoc’s new system, whereby each of its operating companies will have R&D units focused on deploying R&D in field conditions. The initiative also marks a new level of academic maturity for the 15-year old Petroleum Institute.
The institute has applied to the Abu Dhabi educational authority to introduce a doctorate programme next year.
“The heart of the PhD programme is the ability to set up and direct a programme on an original topic of research,” said Murray Gray, provost and head of academics at the institute.
Adnoc’s strategic partners will also be part of the process with BP, Shell, Total and Japan Oil Development Company (Jodco) helping to fund the research centre.
amcauley@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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