Adnoc Drilling IPO Set For October

Copyright © 2021 Energy Intelligence Group

Abu Dhabi National Oil Co. (Adnoc) announced Monday plans to sell a 7.5% stake in its drilling unit in an initial public offering (IPO) next month, in the state oil giant’s latest move to monetize its assets to raise funds.

Adnoc, in its Intention to Float statement, said the shares would be listed on the Abu Dhabi Securities Exchange (ADX), where the company’s retail unit, Adnoc Distribution, is already listed.

Individuals and other investors in the United Arab Emirates along with Adnoc group employees and national retirees,along with qualified institutional and other investors, will be able to participate in the offering, the company said.

Energy Intelligence previously reported that the IPO in Adnoc Drilling might happen in the fourth quarter, followed by an offering in Abu Dhabi-based fertilizer producer Fertiglobe, in which Adnoc holds a 42% stake. That IPO is expected to proceed in thhe coming months, a person familiar with the matter said.

Adnoc said all shares to be offered would come from its existing holdings and that it would remain the unit's majority shareholder. Adnoc has owned 95% of the drilling unit’s shares since 2018 when Baker Hughes acquired a 5% stake in a deal that valued Adnoc Drilling at about $11 billion.

Growing Drilling Provider

The partnership with Baker Hughes has enabled Adnoc Drilling to offer a complete range of drilling services from start to finish, making the company an integrated drilling services provider.

As of Jun. 30, Adnoc Drilling owned 96 and rented another 11 rigs, while acting as the sole provider of drilling rig hire services and other rig-related services to Adnoc, making it the largest national drilling company in the Middle East by rig size, according to today’s statement. The company plans to add 23 rigs by 2030.

Adnoc Drilling reported revenues of $2.1 billion and profit of $569 million for 2020. During the first half of this year, its revenues stood at $1.1 billion while profit reached $282 million.

Strategic Shift

In recent years, Mideast Gulf national oil companies such as Adnoc and Saudi Aramco have begun to rethink their oil and gas policies. To raise cash after the sharp fall in revenues during the coronavirus pandemic, and to hedge against demand uncertainty, they have turned to IPOs, asset lease deals and other avenues to monetize infrastructure and assets.

The Adnoc Drilling IPO is the second sale of an Adnoc unit after 10% in Adnoc Distribution was offered in 2017. That offering was followed by the sale of a further 10% stake in 2020 and another 3% to institutional investors this year.

At the same time, Adnoc is working towards raising oil production capacity to 5 million barrels per day by end-2030, from above 4 million b/d now, even as the push towards decarbonization of the global energy system accelerates. The company argues that its low-carbon, low-cost crude production will give it a competitive advantage, even in a world where overall demand for fossil fuels declines.

Adnoc Drilling said it was well positioned to capitalize on the capacity expansion and plans to produce 1 billion cubic feet per day of unconventional gas, also by the end-decade.

“Adnoc Drilling’s planned value creation opportunities, including a major rig fleet expansion and well drilling program, ideally position the company to take full advantage of emerging opportunities across the upstream value chain,” Adnoc CEO Sultan al-Jaber said.

Dividend Policy

Adnoc Drilling plans to pay dividends biannually in April and October. The first post-IPO fixed dividend payment of $325 million for the second half of this year will be made in April 2022, it said.

Thereafter, it expects to grow the dividend amount from $650 million -- the annualized dividend of the second half of 2021 -- by an annual growth rate of 5% on a dividend per share basis until 2026.

“This dividend policy is designed to reflect the company’s expectation of strong cash flow and its expected long-term earnings potential, while allowing the company to retain sufficient capital,” Adnoc Drilling said.

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