DUBAI: The Abu Dhabi National Oil Co., the UAE energy company, is to spin off a chunk of its drilling business in an initial public offering that underlines the Emirates’ commitment to long term oil growth.
ADNOC said it will sell 7.5 percent of its shares in ADNOC Drilling in an offering on the Abu Dhabi Securities Exchange. On recent valuations, the share sale would be around $750 million.
ADNOC announces its intention to float a 7.5% minority stake of ADNOC Drilling on ADX, marking another key milestone in its value creation strategy.#ADNOCDrilling
— ADNOC Group (@AdnocGroup) September 6, 2021
Coming after the flotation of ADNOC’s distribution arm in 2017, the drilling unit’s IPO will be the second big divestment from the corporate parent.
Sultan Al-Jaber, ADNOC managing director and chief executive, said: “This offering marks another significant milestone in ADNOC’s ongoing journey in unlocking and maximizing value across our integrated asset base.”
National oil companies in the region, including the largest Saudi Aramco, have been looking at ways of maximizing the value of their energy assets.
Al-Jaber added: “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 said it would retain its holding in the drilling business after the share sale, expected next month. US oil services company Baker Hughes also has a 5 percent holding in the drilling business which it will retain.
No value has yet been put on the business, which was valued at $10 billion two years ago when Baker Hughes first bought shares in return for oil services cooperation. The price of shares on offer will be set later, after a bookbuilding roadshow run by advising banks.
One source close to the process said: “It will be competitive.”
The shares will be on offer to UAE institutions and retail investors, as well as international investors.
In line with this strategy, the UAE has argued forcefully for higher production levels within the OPEC+ alliance of producers led by Saudi Arabia and Russia.
ADNOC said one rationale for the IPO was to “capitalize on plans to increase crude oil production capacity to 5 million barrels per day and produce 1 billion cubic feet per day of unconventional gas by 2030.”
The share offering comes amid some western investor resistance to fossil-fuel investment, but international investors are expected to be drawn to the steady cash flow of the business and its strong dividend policy.
ADNOC said it achieved profit margins of 50 percent in the three years to 2020 and “robust” net cash from operating activities of more than $1 billion in the same period. The IPO carries a commitment to pay an annualized dividend of $650 million and to increase this by 5 per cent per year until 2026.
Nasser Saidi, a regional economics and markets expert, told Arab News: “The plans to float part of the drilling unit is just part of the current trend of privatizing some of their fossil fuel assets.
“Listing like these and future privatization of fossil fuel assets using the capital markets could massively increase the size and transform the UAE’s markets into a global centre for energy and its financing.”