BlackRock, the world's largest asset manager, and private equity firm KKR & Co are investing $4 billion (Dh14.69bn) in the Abu Dhabi National Oil Company's pipeline infrastructure, as part of a long-term agreement.
The state-owned oil and gas producer will receive the $4bn upfront from the two companies, while 18 of Adnoc's pipelines, totalling 750 kilometres in length and with a capacity of 13 million barrels per day, will be leased for 23 years through a special purpose vehicle (SPV) created for the transaction.
The agreement marks the first time that leading international financial institutions are able to make investments related to the company's midstream assets and follows a competitive selection process by Adnoc. As part of the agreement, Adnoc will retain absolute sovereignty and management of the pipelines, which transport stabilised crude and condensate from its onshore and offshore fields to export and refining facilities.
The SPV – called Adnoc Oil Pipelines – will receive a tariff from the state-owned company for its share of crude and condensate transported through the pipelines. Minimum volume commitments are also in place.
Adnoc Oil Pipelines will be majority owned by Adnoc, which will collect 60 per cent of the revenue during the lease period. The remaining 40 per cent in the vehicle will be held collectively by a consortium of funds managed by BlackRock and KKR.
The tie-up with BlackRock and KKR will align the long-term interests of all three parties. It is also part of Adnoc's broader push to make the company's business more commercially focused, it said on Sunday.
The partnership "paves the way for further significant foreign direct investment in the UAE," said Dr Sultan Al Jaber, Minister of State and Adnoc Group chief executive.
Additionally, Adnoc said it is "laying the groundwork" for more infrastructure deals with institutional investors and has created a wholly owned unit, under which all of its pipeline interests will be held. This unit will also function as the platform for any future deals.
"We are creating a range of attractive opportunities for global and regional institutional investors to partner and invest alongside Adnoc to enhance value from our sizeable infrastructure base, drawing on our expertise in structuring and packaging value-enhancing partnership programmes that preserve Abu Dhabi’s ownership and control of its assets," said Dr Al Jaber.
Adnoc, which produces much of the UAE's oil, has embarked on an increasingly commercial business strategy since early 2016, when Dr Al Jaber became chief executive. The group has listed a stake in its fuel retail arm and positioned itself to leverage more value with the addition of downstream capacities at home and abroad. It has also brought outside partners –Italy's Eni and Austria's OMV – into its refining subsidiary.
The tie-up with BlackRock and KKR comes a week after Fitch rated Adnoc as the most creditworthy oil and gas player globally.
The transaction, which awaits regulatory approvals and customary closing conditions, is expected to be finalised in the third quarter of 2019, Adnoc said.
KKR will make what is its first direct investment in the region through its $7.4bn Global Infrastructure Investors Fund.
The New York-headquartered company has been picking up pipeline assets in the north and central Americas, including in the Gulf of Mexico, DJ Basin, Canada's British Colombia and Alberta Montney regions, as well as Mexico's Bay of Campeche.
"We have created an innovative core midstream infrastructure platform alongside Adnoc and BlackRock that can be a catalyst for further foreign investment and broader economic transformation in the United Arab Emirates. With this transaction as a precedent, we believe there is substantial potential to do even more," said Henry Kravis, KKR's co-chairman and co-chief executive.
BlackRock, which has almost $6 trillion in assets under management, will be investing through its third Global Energy & Power Infrastructure Fund.
"This transaction reflects our strong commitment to the UAE and the Middle East more broadly. Public-private partnerships like the one we have forged with Adnoc will be critical to the continued growth of the region, and we look forward to continuing to participate in such partnerships in the future," said Larry Fink, BlackRock's chairman and chief executive.
Adnoc's financial advisors on the deal included Bank of America Merrill Lynch and JP Morgan, while Moelis & Company acted as an independent financial advisor.