Related Articles
Forward article link
Share PDF with colleagues

Adnoc toasts its resilience

Reforms in response to the last industry downturn have equipped Abu Dhabi’s oil heavyweight to cope with the current crisis

State-owned Adnoc has, according to chief executive Sultan al-Jaber, left behind its conservative past in a "transformation" over his four-year tenure that has positioned it to "better respond to changing market dynamics".

His claims, made as he hosted Abu Dhabi’s Crown Prince Mohammed bin Zayed al-Nahyan at the firm’s flagship Ruwais refinery in mid-June, are not ill-founded. The company is nimbler and better able to cope than it was during the 2014-16 price crash. But it has still had to adopt some of the tactics it employed during the previous downturn— paring contractor costs, deferring some larger capital projects and looking to novel means to financially leverage its asset base. 

Smarter services

The Adnoc chief’s reforms were originally laid out in a radical long-term strategy promulgated in November 2016. Its commitments included greater collaboration with the firm’s myriad equipment and service providers. One of the best examples was US oil services firm Baker Hughes acquiring a 5pc stake in the Emirati parastatal's Adnoc Drilling subsidiary in late 2018 as part of an agreement to offer an integrated drilling service, accelerating the well completion process and reducing expenses.

The company's immediate response to March’s price slump was still to instruct suppliers to find financial savings achievable on existing contracts. But the income squeeze has also galvanised a strategy long deployed by regional counterparts to enter so-called framework agreements' with selected contractors—creating a pool of firms automatically and exclusively prequalified for certain job categories and committed to fixed rates, increasing tendering efficiency and reducing costs.

A rollcall of international engineering stalwarts submitted technical pitches in June to enter three-year deals for the provision of engineering services work across the business. The same model has been rolled out for project management consultancy. 

Part-privatisation has also been an element of the strategic roadmap. In February 2019, a consortium led by two US private equity firms acquired a 40pc stake in Adnoc’s domestic oil pipeline network for $4bn, while $5.8bn was raised five months later through the sale of a combined 35pc interest in the refining business to Italy’s Eni and Total.

4.2mn bl/d – Adnoc record output in April

Adnoc has also taken advantage of investor appetite for safe haven infrastructure assets by monetising its extensive gas pipeline network. A group consisting of Canada’s Brookfield Asset Management and the Ontario Teachers’ Pension Plan Board,  New York-based Global Infrastructure Partners, Singapore sovereign wealth fund GIC, South Korea's NH Investment and Securities and Italy's Snam has agreed to spend $10.1bn to buy a 49pc stake in a new pipeline subsidiary.

Upstream boost

The cash injection will help maintain momentum for upstream capacity increases also included in the long-term plan. Construction phases on certain larger projects have been delayed, most notably on the first two projects to develop the emirate's offshore sour gas fields. But Adnoc is still proceeding with a drive to increase oil production, in contrast to the hasty retrenchment under way elsewhere in the industry.

Bids are due by the end of June on an estimated $400mn engineering, procurement and construction contract to raise capacity at the offshore Umm Shaif field, one of Abu Dhabi’s oldest and most prolific, by 75,000bl/d to around 475,000bl/d. And a tender was floated in May for work at the Al-Dabbiya onshore field, designed to sustain output at some 110,000 bl/d.

Adnoc recorded an all-time production record of 4.2mm bl/d in April, remaining on track for a target it has been aiming for since November 2018 to reach 5mn bl/d by 2030. But there is now a bump on that road—the firm has committed to cutting output by an unprecedented 1.7mn bl/d in May-July and to continue limiting supply until early 2022 to comply with new Opec ceilings. 

Abu Dhabi's low production costs should render the emirate's crude competitive long after competing supply sources such US shale have fallen by the wayside. But Adnoc is focussed on more than just its headline oil output number.

Sheikh Mohammed's visit was billed as a celebration of progress on developing the Ruwais site—already home to a substantial refinery and petrochemicals complex—into an integrated downstream and industrial hub, a project with an expected investment of some $45bn. The diversification is partly a response to concerns about the long-term health of global oil demand by ensuring that increased production can be absorbed and processed profitably in a domestic supply chain. At the same time, it makes a contribution to added-value exports, to diversification away from just crude and to creating skilled jobs for the UAE’s fast-growing young population.

Also in this section
Libyan production languishes under ‘illegal blockade’
4 August 2020
National Oil Corporation reports its lowest production since the blockade started in January as external forces gear up for clash over Sirte basin oilfields
Turkey’s ambitions have imperial echoes
4 August 2020
Facing the challenge of a domestic economic crisis, President Recep Tayyip Erdogan hopes that successful military interventions in the surrounding region will foster nationalist solidarity
Bolivian election delay further dampens gas investment appetite
31 July 2020
The Andean country’s natural gas sector will be a casualty of a second vote being pushed back yet again