Baker Hughes, the Houston-based oilfield services business, agreed to buy a 5% stake in Adnoc Drilling, a deal that values the unit of government-run Abu Dhabi National Oil Co. at about $11 billion. The investment marks the first time that an international partner takes a direct equity stake in an existing Adnoc services business, the companies said Monday in a joint statement. The valuation of Adnoc Drilling includes about $1 billion of net debt.
Baker Hughes, a GE company, will provide specialized equipment and technologies to Adnoc Drilling, which supplies oil rigs to other Adnoc businesses and is the Middle East’s largest drilling company, they said. The agreement may help Adnoc Drilling expand outside the United Arab Emirates, an Opec producer in which the emirate of Abu Dhabi holds most of the oil, the companies said.
The Organization of Petroleum Exporting Countries (Opec) is seeking to boost supply to offset a decline in oil exports from Iran, due to US sanctions, and plummeting production in Venezuela. The increase has yet to significantly reduce prices, with Brent crude 25% higher this year.
The partnership with Baker Hughes “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," Adnoc chief executive officer Sultan Ahmed Al Jaber said.
Baker Hughes CEO Lorenzo Simonelli said the deal will help “drive predictable revenue streams and long-term growth for both companies and lets us invest in a stable, reliable and secure market environment".
The partnership aims to help Adnoc boost its conventional drilling activity by 40% by 2025, increase the number of its unconventional wells and reach its target of reducing drilling time by 30% by the end of 2019, according to the statement. Having a single company provide all necessary services will prove “transformative" for Adnoc, said Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy.
“We needed to get away from operating in different silos, from different contractors working the well," Abdul Munim Al Kindy, director of Adnoc upstream and chairman of Adnoc Drilling, said in a Bloomberg TV interview. The agreement with Baker Hughes “is about removing the interfaces between different services that go to complete a well and integrate it all in one company," he said.
The deal will close in the fourth quarter, upon regulatory approval, and Baker Hughes will hold a seat on Adnoc Drilling’s board of directors, the companies said.
Moelis & Co. is acting as exclusive financial adviser to Adnoc in the transaction, while Citigroup Inc. is advising Baker Hughes.