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Aramco to sell shares, ADNOC considers; why are oil companies raising money?

Saudi Arabian Oil Company Aramco recently grabbed the headlines with news that it was still going ahead with plans to sell 5 per cent of its shares.

With estimated reserves of 260 billion barrels of oil, Aramco’s $2trn valuation means that an Initial Public Offering (IPO) on international markets, including the US, UK and even Saudi Stock Exchange Tadawul, will bring $100bn in needed liquidity.

That money will be reinvested in the Saudi form of sovereign wealth fund, the Public Investment Fund, and will likely cover deficit spending or fulfill vision 2030 aims.

Read:Saudi Aramco floating shares, but it’s not sure where

Now Abu Dhabi National Oil Company (ADNOC), an OPEC member with approximately six per cent of global reserves, is considering selling stakes in maritime subsidiaries.

These share sales would support IPOs in the region where, according to Bloomberg, companies in the Middle East and Africa have raised more than $2.9bn from IPOs that began trading in the last 16 months. Compared to global figures of $204 billion, the Middle East has only a 1.9 per cent share of those deals.

So why are oil companies raising money?

Offshore on the selling blocks?

The CEO of ADNOC, Dr. Sultan bin Ahmad Sultan Al Jaber, made it clear on October 17 that the company is considering plans to conduct a minority stake IPO on some of its offshore subsidiaries, mostly service units.

The news announced by state media agency WAM did stress the fact that the ADNOC IPO doesn’t mean that the company will relinquish control of its operations.

Merging maritime

A month earlier, Bloomberg said that ADNOC was merging three maritime transport and service businesses and would only decide on whether to sell a minority stake in the new unit through IPO once that transaction is done, quoting unnamed sources.

“Sale isn’t likely to go ahead before 2019,” it said.

It was all confirmed, when Al Jaber told UK conference attendees: “To deliver the next wave of our growth we are actively seeking fast acting partners who can deliver access to high growth economies, apply the latest technology to our upstream, midstream and downstream operations and financially savvy partners who can deploy long-term capital for attractive, sustainable returns.”

He added: “As part of the active management of our portfolio of assets we are looking to optimise our balance sheet to both free-up capital for re-investment and enhance returns. ADNOC is therefore considering various options with regards to its future financing strategy.”

An ADNOC spokesperson told AMEinfo: “As announced on July 10, ADNOC is expanding its strategic partnership model and creating new investment opportunities across all areas of its value chain, as well as the more active management of its portfolio of assets. ADNOC is therefore considering the potential IPO of minority stakes of some of its services businesses which have attractive investment and growth profiles.”

“Importantly, there will be no IPO of ADNOC, the Group holding company. ADNOC will remain fully owned by the Government of Abu Dhabi.”

Read: Bloomberg: Saudi Aramco needs $60-$70 oil for IPO 

ADNOC’s future plans

ADNOC Logistics & Services transports petroleum and other products for several ADNOC Group companies in Japan, North Africa and South America, with a tanker fleet carrying cargo for both ADNOC and other customers globally.

It aims to deliver operational and cost efficiencies through consolidation of Abu Dhabi Marine Operating Company ADMA-OPCO and ZADCO offshore operations, which have a total production capacity of 650,000 bpd and operate 218 oil and gas wells and 36 platforms across two major Abu Dhabi fields.

It plans to develop and expand a fully integrated drilling company, including the Upper Zakum field and National Drilling Company (NDC), which has drilled over 6,200 wells.

ADNOC seeks to develop untapped reservoirs and increase production capacity to 3.5m bpd in 2018.

The company plans to increase gasoline production to 10.2 MTPA by 2022, grow petrochemicals production from 4.5 MTPA in 2016 to 11.4 MTPA by 2025 and achieve a 10 per cent increase in energy efficiency of operations in 2020 vs. 2016.

ADNOC currently produces approximately 3m barrels of oil and 9.8 billion cubic feet of raw gas a day, with integrated upstream, midstream and downstream activities carried out by 16 specialist subsidiary and joint venture companies.

Read: ADNOC unveils expanded partnership approach as transformation increases

Pre-IPO branding

Like any smart organization aiming to raise money through partnership, stake share sales or financial loans, ADNOC put on a new suit with a unified brand, bringing together its subsidiary companies under one common identity, aimed at projecting the true scale and breadth of its business.

The launch of ADNOC’s unified brand, “One Vision One Brand”, was celebrated with high flying maneuvers by Al Fursan, the UAE Air Force’s aerobatic and demonstration team.

“We are confident that bringing the Group together, under one brand, will significantly enhance the visibility and positioning of ADNOC at a local, regional and international levels,” Al Jaber recently said.

Will the era of oil consumption ever end?

Recenly, Paris announced that cars running on fuel would be banished by 2030, as only electric cars or those using renewable energy would be allowed. The arrival of hyperloop, which uses electromagnetic power sources, raises the issue of the end of oil.

But Jaber expressed confidence that hydrocarbons would continue to be the bedrock of economic growth for decades to come. He said that, by 2040, oil and gas would still be essential to the global energy mix, supplying over half of the world’s energy needs, while renewables and nuclear would make up to 27 per cent and coal would fall to 22 per cent. Meanwhile, petrochemicals will have grown 150 per cent by 2040.