US oil services provider Baker Hughes will pay $550 million (Dh2.02 billion) for a 5 per cent stake in Adnoc's drilling subsidiary as part of a partnership aimed at capitalising on the efficiencies that can be achieved from the GE company's expertise and on growing the business including expansion into other markets in the Middle East.
The landmark deal, which values the drilling business at $11bn, is the first time that Adnoc has sold a direct interest in one of its existing services units to an international company. It also marks the latest development in the transformation that Adnoc has been undergoing under chief executive Dr Sultan Al Jaber, which aims to create and grow new revenue streams from existing assets and support Adnoc's efforts to boost profitability.
At the heart of this new approach has been partnerships and co-investments in oil and gas production and petrochemicals, which has now extended to services. These assets are then positioned for growth. The Baker Hughes agreement will support Adnoc’s efforts to develop its oil and gas resources, including those that require unconventional methods of extraction and which are typically costlier to drill for.
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Adnoc Baker Hughes
Analysis: Baker Hughes drilling partnership could spur boom for UAE energy industry
Timeline: Adnoc's transformation under CEO Sultan Al Jaber
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“Together, Adnoc and Baker Hughes will deliver more competitive well completion times, greater drilling efficiencies and better well economics, and will capitalise on new business opportunities as Adnoc Drilling grows through its new expanded offering,” a company statement said.
Adnoc has committed to reducing the costs associated with drilling for new oil and gas by speeding up well completion times as it seeks to obtain as much value as possible from every barrel it produces. Baker Hughes, one of the world’s biggest oil and gas services companies, will bring its considerable experience and technical ability to Adnoc Drilling, expanding the number of services it is able to provide.
Baker Hughes is currently working across the region including in Saudi Arabia and Egypt’s super-giant Zohr gas field in the Mediterranean and is deploying a number of new technologies such as the digitisation of oilfields and the use of big data to make its operations as efficient and competitive as possible.
Adnoc Drilling, established as the National Drilling Company in 1972, describes itself as the largest drilling company in the Middle East and operates a fleet of more than 90 onshore and offshore rigs. It provides drilling equipment to the wider group and also some services, but after the Baker Hughes investment, the aim is to capture 30 per cent of the market over the next three years, due to the added expertise and quality it will be able to provide customers.
However, it is understood that Adnoc Drilling will still be subject to competitive tendering for group projects and will also be sub-contracting a chunk of work to the private sector. There will also be opportunities outside of the UAE that Adnoc Drilling will be well positioned to win thanks to the partnership with Baker Hughes, Dr Al Jaber said.
“The combined capabilities and expertise… will also drive job creation and economic growth, as well as maintain a healthy level of competition in the dynamic UAE oilfield services market,” he said.
It is also understood that Adnoc was in discussions with a number of global oil and gas services providers before proceeding with the Baker Hughes partnership.
“We chose Baker Hughes after a rigorous and competitive process as a partner with whom we have a long-standing working relationship and who shares Adnoc’s long term vision and values,” Dr Al Jaber said.
Baker Hughes chief executive Lorenzo Simonelli said the deal would support “predictable revenue streams and long-term growth”. The agreement is expected to be completed before the end of the year and joint operations will start in 2019.
