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ADNOC and BHGE form a strategic partnership
08 October 2018 , 12:08Neftegaz.RU381
Abu Dhabi, October 8 - Neftegaz.RU. Abu Dhabi National Oil Company (ADNOC) and Baker Hughes, a GE company (BHGE) 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.
BHGE reported this on October 8, 2018.
As part of the agreement, BHGE will acquire a 5% stake in ADNOC Drilling.
The transaction values ADNOC Drilling at approximately 11 billion dollars.
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.
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% 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% 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.
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.
BHGE will acquire a five percent stake for $550 million in ADNOC Drilling. The transaction values ADNOC Drilling at approximately 11 billion dollars, including approximately 1 billion of net debt
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
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
Partnership will support ADNOC’s target to reduce drilling time by 30 percent by the end of 2019
BHGE will receive a seat on ADNOC Drilling’s Board of Directors
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
BHGE to provide ongoing technology, software, equipment and training support
With operations commencing in 2019, the commercial framework accounts for BHGE’s working capital requirements and equipment lead times including milestones payments
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.
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