Sultan Al Jaber, the Minister of State and chief executive of Abu Dhabi National Oil Company, has revealed further details of his ambitious strategy to make the government-owned company a world leader in the energy sector.
The plan involves streamlining operations across all of Adnoc’s activities in an effort to drive efficiency, performance and profitability in the business. It will also involve establishing a new commercially oriented mindset among Adnoc’s 55,000 employees.
The goal is to ensure Adnoc remains a central contributor to the UAE's economic diversification strategy and performs on a par with any multinational company, with focus squarely on shareholder value, Mr Al Jaber told The National.
A master plan has begun to align upstream and downstream gas operations across 18 businesses to secure effective implementation, following the decision to rebalance the amount of gas being re-injected to make more available.
Demand for natural gas in the UAE has been rising rapidly – about 6 per cent a year – and the country has had to import an increasing amount since 2008. "A focus will be placed on ensuring we provide a sustainable and economical supply of gas through an integrated gas master plan," he said.
Another major focus of the new strategy is the upstream operation, which Mr Al Jaber has identified as one of the areas in which Adnoc needs to maximise profitability.
"For example, in group procurement we are looking to leverage our purchasing power and improve the efficiency of our operations by optimising inventory and working capital," he said.
“We will also be more economically minded in the smarter use of crude oil. Murban, our flagship product, is sold on the market at a premium, so instead of using it in the refining process we are exploring how to replace this valuable resource with offshore blended crude instead,” he said.
The strategy is also aimed at creating value for Adnoc's downstream business. "We are exploring how to align and create more synergy among our downstream operations, how best to maximise the use of our resources and to produce new petrochemical products," Mr Al Jaber said.
The company’s new focus is in part a result of the changed market conditions following the fall in the price of crude oil from historic highs in the summer of 2014, and reflects Adnoc’s role as a key wealth generator and a driver of the diversification plan laid out in Economic Vision 2030.
Mr Al Jaber’s plan, which has been delivered to Adnoc executives in the first 100 days since he was appointed the chief executive in February, will be implemented progressively in the coming years, in what has been described internally as a “journey to the future” for Adnoc.
Benchmarking practices have been introduced, using best practice industry standards on the key criterion of operating cost per barrel (opex). The vital opex benchmark has been built into the performance contracts of Adnoc entities and the senior executives that run them.
The new strategy will also make Adnoc business units more accountable, and help them to adhere to international best practice. But the company is not believed to be considering an initial public offering of its holding company or any business units on stock markets, an Adnoc source said.
The introduction of aligned key performance indicators across the company, as well as encouraging national talent, is seen as especially significant within Adnoc. These indicators underpin the whole strategy and ensure that performance and commercial criteria are hardwired into the company and its employees.
fkane@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.”
