The Abu Dhabi National Oil Company said on Tuesday that it has been assessed by Fitch to be among the most creditworthy oil and gas producers in the world.
The outcome represents a strong validation from one of the world's leading credit ratings agencies of Adnoc's strategy and transformation into a more commercially driven and innovative organisation.
As a result of Adnoc’s “high upstream output, significant reserves and strong profitability”, Fitch Ratings assigned the group a standalone credit rating of AA+, which is the maximum given to companies in the energy sector according to Fitch policy. A standalone rating only takes into account the particular entity’s creditworthiness without including the ecosystem connected to it.
The standalone rating is higher than the sovereign rating of the government of the emirate of Abu Dhabi, which is Adnoc’s sole shareholder. Fitch has assigned Adnoc a long-term issuer default rating – which is the metric typically referred to by the market when a company borrows – of AA with a stable outlook, which is the same as Abu Dhabi’s.
Fitch cited Adnoc’s strong links with the government for capping the final rating at AA, and “the influence the state potentially can or does exert on the company through regulating the level of production, taxation and dividends”.
Its “very strong” standalone rating, however, reflects “the company's high upstream output coupled with low production costs, significant reserves, downstream integration and a conservative financial profile,” Fitch said.
In comparison, Petrochina, Shell, BP and France’s Total are rated A+, AA-, A and AA- respectively by Fitch.
The UAE accounts for 4.2 per cent of the global production of crude, most of it from Adnoc-owned and operated fields in Abu Dhabi. The company said in November that it discovered large hydrocarbon deposits equivalent to a 1 per cent increase to existing oil reserves and a 7.1 per cent addition to proven gas reserves.
Currently, Adnoc has the capacity to produce 3.5 million barrels per day and plans to increase this to 4 million bpd by 2020 and 5 million bpd by 2030. It also plans in the next five years to become a net-exporter of gas.
Future expectations of oil and gas prices are also a factor in how credit ratings are calculated. When Brent crude crashed in early 2016, a number of companies in the sector received ratings downgrades. Prices have now recovered and Brent is at about $66 a barrel.
Adnoc’s “low lifting costs and low upstream capex are a significant advantage in the volatile oil price environment," Fitch said.
Although Adnoc said on Tuesday that it has no plans to issue bonds at the group level, obtaining a rating should help lower the cost of capital for any of its subsidiaries that may be looking to borrow from local or international debt markets.
“These ratings further enhance transparency for all our stakeholders including our shareholder, partners, investors, lenders and employees as we seek to more proactively manage our resources, assets and capital to unlock greater value from every hydrocarbon molecule we produce,” said Dr Sultan Al Jaber, Minister of State and Adnoc Group chief executive.
Adnoc has been going through a rapid and comprehensive transformation since Dr Al Jaber became chief executive in early 2016. The changes are aimed at optimising resources and efficiency, strengthening overall performance and fostering a more commercial culture, according to Adnoc. Going through the process to attain a credit rating from Fitch is part of this new approach, Adnoc said.
Dr Al Jaber said the high grade of the Fitch credit rating also reflects “our more open and flexible approach to strategic partnerships and the more efficient and active management of our capital and assets and validate the bold ambitions we have set for Adnoc under our progressive 2030 Strategy”.
In its assessment released on Tuesday, Fitch said it believed that "Adnoc's profitability should further strengthen compared with peers as its downstream performance improves in 2019 and beyond”.
A $3 billion bond issued in 2017 by an Adnoc unit that manages crude pipelines – which was more than three-times oversubscribed – was already rated AA by both Fitch and Standard & Poor's.
Last year, Adnoc announced Dh29.1bn in offshore concession participation fees and the securing of markets for 40 per cent of the UAE’s oil for the next 40 years, including deals with Spain’s Cepsa, Japan’s Inpex, an ONGC Videsh-led consortium from India, and Austria’s OMV.
It is also broadening its pool of potential partners beyond the energy sector to also include the global financial and investment community.
Bank of America Merrill Lynch and Citigroup advised Adnoc during the credit rating process.