The Abu Dhabi National Oil Company agreed to form a fertiliser joint venture with Dutch entity OCI as part of an ongoing strategy to expand its downstream assets.
The Abu Dhabi company will combine Adnoc Fertilisers with OCI’s regional nitrogen-based fertiliser platform, to create one of the largest exporters of the product globally. OCI has fertiliser production operations in Egypt and Algeria.
Adnoc will hold a 42 per cent stake in the combined entity, with OCI, which is owned by Egyptian billionaire Nassef Sawiris, taking the majority stake. Combined annual revenues of the entity, which will be registered at the Abu Dhabi Global Market, will be $1.74 billion (Dh6.39bn).
The joint venture will be the largest nitrogen-based fertiliser company in the Middle East and North Africa, with a production capacity of 5 million tonnes of urea and 1.5 million tonnes of sellable ammonia. The bulk of this output is for export purposes, with little sold into local markets. It will be the largest exporter of these products in the world at 6.5 million tonnes per annum and will account for 10 per cent of global seaborne exports for ammonia and urea, based on figures from 2018, OCI noted in an investor presentation. Adnoc’s fertiliser subsidiary also signed a new long-term gas agreement with the state oil company to procure new feedstock for its operations, based on a competitive pricing formula, the company said without specifying volumes.
The merger of fertiliser assets will enable Adnoc to "access new markets, benefitting both existing and new customers”, said Dr Sultan Al Jaber, Adnoc Group chief executive and UAE Minister of State. Dr Al Jaber will be the chairman of the new entity. Currently Adnoc sells fertiliser products to customers in India, the US, Latin America and Australia.
"Pooling our assets and capabilities is a value enhancing step for both companies, allowing us to leapfrog competitors to become the top nitrogen export platform globally,” he said. The new company will have a centralised commercial team and storage and distribution infrastructure with access to key ports in the Mediterranean, Red Sea and Arabian Gulf.
"This unique business combination is in line with Adnoc's approach to value-added partnerships and will improve the profitability and cash flow of our fertiliser portfolio,” he added.
Adnoc said the business will be well positioned to pay its shareholders "attractive dividends". It will also pursue potential acquisitions.
Mr Sawiris, who will be the venture's chief executive, said it has "significant potential for future growth and value creation".
The move comes amid a pivot to build a stronger product portfolio among Middle East national oil companies. Adnoc announced last year it would invest Dh165bn alongside partners in downstream, which refers to the refining and chemicals segments of the energy value chain. The company has also been undergoing a transformation since Dr Al Jaber became chief executive in early 2016, which has allowed Adnoc to pursue more revenue-generating deals and opportunities.
"There haven’t been that many deals on the nitrogen side in the last two or three years, so this would be a fairly large transaction because of the nitrogen element of it," said Arvind Aggarwal, principal Emea at consultancy Nexant.
Adnoc and OCI, which also has a large phosphate base, could leverage their mutual capabilities in the fertilisers business, he added.
"The national oil companies have sulphur in their refineries, and a lot of phosphate companies require sulphur in their business," said Mr Aggarwal. "Having this partnership allows for internal integration."
Adnoc Fertilisers operates two plants in Ruwais – in Abu Dhabi's Al Dhafra Western region – which is set to become a global petrochemicals hub as part of the company's downstream push.
Last year, Adnoc bought a 33 per cent stake in the fertilisers unit owned by France's Total, as it prepared to expand its capabilities in the sector.