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Adnoc opens up

The company now faces a group-wide transformation

John Carey was hired by the UAE's state oil firm Adnoc last September to spearhead the initial public offering (IPO) of its retail unit and help revise its business model. Today, he sees the company on the cusp of huge changes in how it operates and manages its portfolio.

"I came into the company as much to lead a transformation as I came in for the listing," Carey, deputy chief executive of Adnoc Distribution, told Petroleum Economist in an interview. "The reason for the IPO in the first place was that Adnoc decided they needed to be much more active with the management of their portfolio and therefore they saw the need for transformation across the organisation."

The deal, which raised $850m in December, is the first privatisation anywhere in the Middle East for years. It was also the biggest IPO on the Abu Dhabi Exchange since the insurer National Takaful Company sold shares in 2012; and the biggest listing on the stock market for the past decade.

Adnoc had initially hoped to raise as much as $2bn in a sale of 20% of the unit, which includes 360 fuel stations and 235 Oasis-branded convenience stores across the UAE.

However, management decided to sell just 10% of the company after Western investors expressed concern over the possibility of regional instability. They cited developments such as the Saudi-UAE-led economic blockade of Qatar, the arrest of senior members of the royal family in Saudi Arabia and the Houthis in Yemen firing rockets at the kingdom.

"Given some of the things going on in the region, management are over the moon with where things have landed," said a banking source close to the transaction. "Plus, while they have fixed, stable margins on fuel in the UAE, which is highly cash generative, the rest of the equity story was around the promise of transformation and growth in the future."

More transparency

Carey, who joined Adnoc after a decade in senior roles for BP around the globe, says the company is now very committed to opening up and being more transparent with its external investors. "What is clear is this is a region that people increasingly understand, but the more we can be transparent the better," he added.

Carey has relocated from London to Abu Dhabi, confirming his desire for a hands-on role: "We are absolutely committed to getting out there and it's part of my DNA anyway of doing face-to-face meetings rather than conference calls until we get to know people."

The listing comes as neighbouring Saudi Arabia and Oman seek to privatise energy assets on public markets, with lower oil prices having squeezed revenue. Analysts say Adnoc won bragging rights over Saudi Arabia by beating its national company Aramco to the market with a listing. Saudi Arabia plans to list 5% of Aramco next year, which officials predict could raise $100bn, making it the world's biggest IPO.

Head for heights: Adnoc beats Aramco to market IPO

Carey spent much of his first three months at Adnoc talking to investors in London, New York and Boston about the IPO. "I believe it's the first time they did a bookbuild within the UAE and it was a very new experience for them," he said. "Over 30% was from international investors, 10% from the retail sector and the remainder from local institutions."

Carey says Adnoc's approach to listing is fundamentally different to Aramco's. "Adnoc has made it very clear it would never sell down the parent company whereas Aramco is selling down the parent," he continued. "Adnoc is looking at it and is actually saying we have 17 parts to the business: how do we maximise each part? Aramco is looking at it and saying we have one business: how do we bring in foreign investment into the one business?"

All of the IPO proceeds will be transferred to the parent company and go towards an ambitious capex plan worth $100bn over the coming five years.

The next step in terms of capital markets activity could be an IPO of some of Adnoc's upstream assets, although Carey is hesitant to spell out any future deals: "There are lots of conversations and very open conversations about joint ventures with partners—and working with international partners to drive some value there." As for potential secondary equity deals for Adnoc Distribution, Carey says the group would never sell more than 30% of the equity.

Adnoc now plans to expand its distribution locations into Dubai—the only emirate that the company doesn't supply—in the second half of 2018; and further across the Gulf into Saudi Arabia. In 2017, the company opened more than 20 new stations in Abu Dhabi and the Northern Emirates. Under its Oasis brand, Adnoc also boasts of a chain of 365 convenience stores.

"Adnoc and Adnoc Distribution are hugely synonymous with the UAE," says Carey. "By a multiple of four, we have the largest number of petrol stations across the UAE and the largest number of convenience stores."

Management shake-up

Founded to capture the country's bonanza of oil in 1971, Adnoc has grown into the world's 12th-largest crude producer and fourth-biggest within Opec, with output of about 3m barrels a day. While the UAE is less dependent on hydrocarbons than other gulf states, oil still accounts for 30% of GDP and is crucial to the country's economic health.

Sultan al-Jaber, appointed Adnoc's chief executive in February 2016, was shaking things up even before the IPO. He overhauled the group's top tier of management and streamlined its operating units, merging its offshore companies, and shipping and ports operations.

As for oil production, Abu Dhabi typically toes the line set by its more powerful Gulf neighbour Saudi Arabia. The UAE accepted a 139,000-b/d reduction as its part of the Opec/non-Opec cuts deal even though its long-term target is to increase output to 3.5m b/d.

As one of the world's leading upstream and downstream businesses, with a shipping arm and refineries processing more than 900,000 b/d, Carey says the group plans to grow its revenues with broad investment in its petrochemicals and refining activities.

'There are lots of conversations about working with international partners to drive some value'—John Carey

Jaber, who is also a UAE Minister of State, said in November last year that Adnoc was also setting up an oil trading unit amid a new strategy aimed at beefing up its sales and creating new revenue streams. The UAE is also developing production of sour gas—with high sulphur content—to meet rising demand from the power generation and petrochemical sectors, and other industries. Company say Adnoc intends to nearly triple production of petrochemicals and higher-value products to 11.4m tonnes a year by 2025, from the current 4.5m t/y.

But the upstream still represents the core of Adnoc's activities. Over a dozen companies have expressed interest in the Adma-Opco offshore oil concession that's up for renewal in March this year. The current shareholders are BP (14.7%), Total (13.3%) and Japan's Jodco (12%). The Abu Dhabi government, through Adnoc, has a 60% stake.

This comes after the completion of 40-year onshore concession terms in 2014-17, which began with agreements in 2016 with international oil companies for equity stakes in Adco. The protracted negotiations were followed by the news in December 2016 that Adnoc had acquired a 2% stake in BP in exchange for a 10% award of the Adco concession, which covers six deposits, is the largest in the country and has the capacity to produce about 1.5m b/d. In February 2017, Adnoc allocated the final 12% share in Adco available to foreign partners to a Chinese consortium comprising of CFTC China Energy and China National Petroleum Corporation.

Carey, who spent 10 years at BP running various downstream businesses and marketing operations in the US, foresees deeper cooperation with investors and its existing partners, including his former employer.

"There is a real feeling that bringing in international investment and listing it would help Adnoc overall by having Adnoc Distribution leading the way and using international benchmarks," says Carey.

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