ADNOC and BHGE Form a Strategic Partnership to Improve Drilling Efficiencies and Grow ADNOC Drilling Into a Fully-Integrated Drilling and Well Construction Business
Strategic partnership will expand ADNOC Drilling’s capabilities into
the integrated drilling and well construction segment and expand BHGE’s
presence in the UAE
BHGE will acquire a five percent stake in ADNOC Drilling, valuing the
business at $11 billion, and the partnership will enable ADNOC Drilling
to gain greater market access and new business opportunities
ADNOC Drilling will obtain exclusive access to BHGE capabilities,
market leading technology and equipment portfolio in the UAE to
strengthen its service offering, technical expertise, improve drilling
efficiencies and know-how
ADNOC will capture more value from growth across its conventional and
unconventional hydrocarbon resources, expand local talent development
opportunities and generate greater in-country value for the UAE
Abu Dhabi National Oil Company (ADNOC or the Group) and Baker Hughes, a
GE company (BHGE:NYSE) today signed a strategic partnership agreement,
that will enable and support the growth and development of ADNOC’s
subsidiary, ADNOC Drilling, into a fully-integrated drilling and well
construction provider. As part of the agreement, BHGE will acquire a
five percent stake in ADNOC Drilling. The transaction values ADNOC
Drilling at approximately $11 billion. BHGE will be the sole provider of
certain proprietary leading edge and differentiated equipment and
technologies related to the integrated drilling offering, supporting
ADNOC Drilling’s growth. Together, ADNOC and BHGE will deliver more
competitive well completion times, greater drilling efficiencies and
better well economics, and will capitalize on new business opportunities
as ADNOC Drilling grows through its new expanded offering.
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The partnership represents the first time that ADNOC has brought an
international strategic partner to acquire a direct equity stake in one
of its existing services businesses. ADNOC Drilling is the largest
drilling company in the Middle East and the sole provider of drilling
rigs and associated services to ADNOC Group companies. ADNOC Drilling
also possesses decades of market experience and detailed knowledge of
the UAE’s subsurface, enabling reduced risk in drilling activities. With
more than 40 years of operations in the country, BHGE has deep domain
expertise and a proven track record of solving complex drilling
challenges through innovative technical solutions. Ongoing access and
support from BHGE’s market-leading technology and equipment portfolio
will help accelerate ADNOC Drilling’s ongoing growth and development of
a broader product offering, including drilling and well completion
services. This partnership structure aligns the interests of both ADNOC
and BHGE in driving greater productivity and efficiency while increasing
returns.
The partnership is expected to generate predictable, long-term revenue
streams and growth in the market for both companies through a
mutually-beneficial, attractive commercial structure, pre-defined work
plans and future dividends. ADNOC Drilling and BHGE will set up an
advisory board with representation from both companies to oversee the
implementation and ongoing operations, and BHGE will join ADNOC
Drilling’s Board of Directors.
The partnership will enable ADNOC to capture more value from every
barrel of oil it produces as it plans to grow its conventional drilling
activity by 40 percent by 2025 and substantially ramp up the number of
its unconventional wells, in line with its 2030 smart growth strategy.
ADNOC Drilling will remain the sole rig provider to ADNOC Group
Companies and capitalize on ADNOC’s growing upstream activity by
deploying its new integrated offering to capture up to 30 percent of the
drilling and completion market over the next three years, as it
demonstrates increasing drilling efficiencies and improved customer
service levels.
The two partners will be able to leverage ADNOC Drilling’s existing rig
fleet capacity with limited capital expenditure outlay. The partnership
will gain significant new business opportunities, including the
potential to offer integrated drilling services beyond the UAE’s borders.
H.E. Dr Sultan Ahmed Al Jaber, UAE Minister of State and ADNOC Group
CEO, said: “We are very pleased to be partnering with BHGE in ADNOC
Drilling, in line with our wise leadership’s guidance to create and
enhance value across our business by forming strategic partnerships. We
chose BHGE 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. This unique partnership with BHGE comes at
an important time in the drilling needs of Abu Dhabi as ADNOC grows its
conventional and unconventional hydrocarbon resources and as we see
future potential for further regional growth. It will ensure we will be
able to better service our upstream growth while capturing and retaining
greater value.
“The partnership forms an important building block of ADNOC’s 2030 smart
growth strategy as we continue to drive operational efficiency and
performance, and unlock even more value from every barrel we produce.
The combined capabilities and expertise from this partnership will
create greater drilling efficiencies and faster well completion times,
generate attractive returns and enable the transfer of know-how and
access to technology. Importantly, it will also drive job creation and
economic growth, as well as maintain a healthy level of competition in
the dynamic UAE oilfield services market.”
This partnership is another important step in ADNOC’s group-wide
transformation and value creation program that addresses the evolving
energy landscape and helps ensure ADNOC remains a resilient and flexible
company able to take full advantage of market opportunities – from
upstream to downstream. The Group’s transformation is supported by a new
and expanded approach to strategic partnerships and co-investments as
well as the more proactive management of ADNOC’s portfolio of businesses
and allocation of capital.
“This partnership brings together BHGE and ADNOC, backed by a close and
long working relationship. We are very pleased to take a minority stake
in ADNOC Drilling to jointly develop and further grow the company’s
technical capabilities, market access and value. In a unique way, it
allows us to drive predictable revenue streams and long-term growth for
both companies and lets us invest in a stable, reliable and secure
market environment. Supported by BHGE’s leading technology and service
portfolio, ADNOC Drilling will enable ADNOC to unlock significant value
from their untapped resources, while building local capabilities and
accelerating overall market growth,” said BHGE Chairman and Chief
Executive Officer Lorenzo Simonelli. “The transaction significantly
increases our activity in the region and demonstrates our unique ability
to create value for our customers and shareholders through innovative
commercial arrangements, partnerships and leading technology solutions.”
The UAE is located in one of the world’s largest hydrocarbon
super-basins with significant potential to tap its undeveloped
reservoirs and further develop its existing resources. Realizing this
potential, alongside the ongoing growth and development of ADNOC
Drilling, will provide more opportunities for local third-party service
providers to compete for and support ADNOC’s expanding integrated
drilling and ancillary service requirements. The transformation of ADNOC
Drilling will improve the integration of UAE private sector service
providers, as well as create new career opportunities for ADNOC
employees and support domestic economic growth. The partnership
reinforces ADNOC’s in-country value creation strategy and demonstrates
BHGE’s longstanding commitment to the country.
Today, BHGE employs more than 1,000 employees in the UAE and supports
customers with products and services spanning the entire oil and gas
value chain. BHGE will maintain its existing operations and footprint in
Abu Dhabi and will continue to leverage its fullstream portfolio to
serve ADNOC and other customers in the Middle East region.
Transaction Highlights
The partnership leverages a robust commercial framework and aligns the
interests of BHGE and ADNOC Drilling to drive significant and
predictable long-term earnings streams for both companies and supports
near and long-term development and growth of ADNOC Drilling.
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BHGE will acquire a five percent stake for $550 million in ADNOC
Drilling. The transaction values ADNOC Drilling at approximately $11
billion, including approximately $1 billion of net debt
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Transaction includes an activity and milestone-based deferred
consideration mechanism, beginning in 2023, linked to the development
of ADNOC’s new conventional and unconventional development program
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Partnership is a key step for capturing more value from ADNOC’s
upstream growth and the substantial increase in the number of wells
required, as well as a vehicle for the potential expansion of regional
drilling services
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Partnership will support ADNOC’s target to reduce drilling time by 30
percent by the end of 2019
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BHGE will receive a seat on ADNOC Drilling’s Board of Directors
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ADNOC Drilling expects to generate stable annual dividends with an
estimated long-term yield in the range of seven percent per annum for
both shareholders
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BHGE to provide ongoing technology, software, equipment and training
support
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With operations commencing in 2019, the commercial framework accounts
for BHGE’s working capital requirements and equipment lead times
including milestones payments
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Expected to be accretive to BHGE’s earnings per share starting the
first year
The transaction was approved by the Board of Directors of each company
and is expected to close in the fourth quarter of 2018, subject to
customary closing conditions including appropriate regulatory approvals.
Moelis & Company is acting as exclusive financial advisor to ADNOC and
Citi is acting as advisor to BHGE.
About ADNOC
ADNOC is a major diversified group of energy and petrochemical companies
that produces about 3 million barrels of oil and 10.5 billion cubic feet
of raw gas a day. Its integrated upstream, midstream and downstream
activities are carried out by 14 specialist subsidiary and joint venture
companies.
To find out more visit: www.adnoc.ae
For further information: media@adnoc.ae
About ADNOC Drilling
Established in 1972, ADNOC Drilling provides drilling rigs and
associated services to ADNOC Group companies. ADNOC Drilling is the
largest drilling company in the Middle East, and operates an expansive
fleet of rigs that includes 60 land rigs, 20 jackup rigs, and 11 island
rigs, that drilled over 7,200 wells and more than 46.8 million feet.
To find out more visit: www.adnoc.ae/en/adnoc-drilling
About Baker Hughes, a GE company
Baker Hughes, a GE company (NYSE: BHGE) is the world’s first and only
fullstream provider of integrated oilfield products, services and
digital solutions. We deploy minds and machines to enhance customer
productivity, safety and environmental stewardship, while minimizing
costs and risks at every step of the energy value chain. With operations
in over 120 countries, we infuse over a century of experience with the
spirit of a startup – inventing smarter ways to bring energy to the
world.
To find out more visit: www.BHGE.com
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