Energy & Mining

Spheres of Influence

ADNOC’s Partnership Model

Following the announcement of an expanded partnership model and a more active approach to managing its businesses and portfolio of assets, a series of cooperation accords position the national oil company as a champion of commercial liberalism.

According to political scientist Andrew Moravcsik, states orient their behavior to the precise nature of changing preferences. As a country heavily reliant on its hydrocarbon resources, it is fair to assume the recent developments of the energy industry represent extremely influential factors in determining Abu Dhabi’s nature of preferences and, consequently, ADNOC’s innovative partnership approach. Oil prices fluctuations, the increase in global population and energy demand, the advent of North American shale oil, the Asia Pacific witnessing half of global GDP growth from 2017 to 2027, technical difficulties in extracting remaining hydrocarbon resources, the move toward gas, growth potential in petrochemical assets, and diversification of the energy mix are just a few of the global trends that, in the words of Dr. Sultan Al Jaber, ADNOC Group CEO, “are creating an energy landscape where new rules of engagement are required.”

A key pillar of ADNOC’s 2030 strategy, the new partnership model has clear goals: a more profitable upstream, more valuable downstream, and more sustainable supply of gas. For an NOC to achieve these goals, it must adopt an approach that looks both at how to increase revenues and cut costs in the long term, while at the same time advancing Abu Dhabi’s national interests. Such an approach aims at securing a stable stream of profits regardless of external factors. Indeed, Mubadala Investment Company, the second-largest sovereign fund of the Emirate, holds 24.9% of OMV and recently acquired 10% of the Shorouk concession in Egypt from Eni, asset leader, through its wholly owned subsidiary Mubadala Petroleum.
Broadening and diversifying ADNOC’s partnership base relies on two sub-goals. The first consists of creating and growing new revenue streams from existing assets. As such, ADNOC listed 10% of its Distribution business on the Abu Dhabi Securities Exchange; issued a USD3-billion bond, and opened up to “large trading houses, international pension funds, private equity investors, and global infrastructure specialists.” These measures represent a clear method of drawing on existing assets and businesses in its portfolio to attract new, long-term investments from existing and new partners.

The second sub-goal consists of securing market access for Abu Dhabi by deepening strategic relationships with companies from select countries. Undoubtedly, ADNOC has been forming most of its new upstream partnerships with direct off-takers of oil and gas from the East to gain smoother access to those markets where demand for petrochemicals and plastics—including light-weight automotive components, essential utility piping, and cable insulation—is forecast to double by 2040. Thus, the new licensing strategy, inclusive of longer-term agreements with IOCs and stricter frameworks with exploration and production companies (EPCs), seeks to capitalize on contributions from the most important markets from a downstream point of view.
The concession agreement with China National Petroleum Company, through its majority-owned listed subsidiary PetroChina, offers compelling evidence of such an approach, which grants the Chinese IOC a 40-year 10% interest in the Umm Shaif and Nasr concession and a 10% interest in the Lower Zakum concession.

Speaking on the subject, the ADNOC Group CEO stated: “Energy cooperation is an important aspect of the UAE’s relations with China, which is the number-one oil importer globally and a major growth market for ADNOC’s crude, refined products, and petrochemicals.”

At the same time, the developments of the energy industry are asking for ADNOC and IOCs to adapt and work more closely to apply the right technologies for the development of more and more complex oil and gas reservoirs. As a consequence, ADNOC has been signing strategic partnerships with Western players to gain maximum benefits in terms of experience, technology, and capital deployed.

As expressed by Hatem Nuseibeh, President of Total E&P UAE, “ADNOC will now look at the economic advantage of each project, which was not how it operated in the past. As an IOC we have to look at the economics, and this means that working together will become more productive as we will give more”. Total has recently seen won two 40-year concession agreements with 20% of the Umm Shaif & Nasr and 5% in the Lower Zakum fields, confirming itself as ADNOC’s largest and most historical partner. Similarly, Exxon, present in the UAE since the first half of the 20th century, was last year given a 10-year extension for the Upper Zakum concession, originally due to expire in 2041, until 2051, highlighting ADNOC’s appreciation for the innovative artificial-island-based development combined with extended-reach drilling technology. On the other hand, Austria’s largest listed industrial company OMV was awarded a 20% stake in ADNOC’s SARB and Umm Lulu offshore fields, while Italy’s Eni was awarded a 10% stake in Abu Dhabi’s Umm Shaif and Nasr offshore concession and a 5% stake in Lower Zakum concession. Both of these deals, apart from representing the first real upstream project for both companies, reveal an even deeper relationship between the two IOCs and the Abu Dhabi government.

Holding multilateral ties with an ever-growing array of partners, ADNOC’s commitment to profitability and efficiency is building an array of investment relationships that place Abu Dhabi as a powerful balance holder in the global arena.