S04 ORME 7 2016 Analysis 01_Layout 1 26/10/2016 10:51 Page 20

 ADNOC

ADNOC’s newly-appointed chief executive, Sultan Al Jaber, who is also UAE Minister of State, called the consolidation of ADMA-OPCO with ZADCO a “logical step” in light of the group’s recent focus on driving efficiency, performance and profitability. Sure enough, the merger comes after a leadership reshuffle during the course of 2016, with the appointment of Al Jaber himself earlier this year, followed by another major shake-up in the summer. The new joint offshore entity is to be headed by Yaser al-Mazrouei, the current chief executive of ADMA-OPCO.

International partners The strategy shift also has repercussions for Abu Dhabi’s big international upstream partners. ADNOC holds a 60 per cent share in both ADMA-OPCO and ZADCO, but the remaining equity is held by various heavyweights from around the world. The remaining shares in ADMA-OPCO are owned by BP, Japan Oil Development Company (JODCO), and Total; while in ZADCO, the balance rests with ExxonMobil and JODCO. To oversee the integration of the two offshore entities, Abu Dhabi has set up a steering committee with all of its joint venture partners. Al Jaber insists that the existing rights of the partners in the concessions currently operated by ADMA-OPCO and ZADCO “will not be affected” by the consolidation.But, potentially, that could change. He added, "ADNOC will continue to review and consider all options, and pursue partners for concessions expiring in 2018.” ADMA-OPCO’s concession with its partners expires in 2018. Its oil and gas production comes from two main fields, Umm Shaif and Lower Zakum.

Fear of change While international firms will no doubt understand the logic behind the move, it does nothing to guarantee their position long term. Abu Dhabi’s lucrative upstream sector has long been watched by other upstream investors, notably from Asia, with many firms keen to get their hands on a slice of the action. Given that much of the country’s production is exported eastwards to the Far East, again there is logic here too. And it is not only investors that might be fearful of the changes. Despite the reassurances, locals might well be wary as well, with thousands of job cuts in the offing, according to reports. With around 55,000 staff, ADNOC’s significance to Abu Dhabi and the UAE cannot be overstated. Redundancies and layoffs are never easy topics to address, and while officials have kept quiet on the subject, the new strategic goals of efficiency, profitability and performance are 20

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Issue 7 2016

Three of ADNOC’s shipping units are set to be combined. (Photo: Kanok Sulaiman/Shutterstock)

often repeated by senior staff.

Onshore transition Abu Dhabi’s onshore concessions have already been through a major transition, which could point the way ahead for its offshore sector as well. A bunch of major overseas players, including Shell, Exxon Mobil and BP, dropped out of a partnership with ADNOC in January 2014 when their onshore concession expired.They were replaced a year later when Japan’s Inpex and GS Energy Corporation of South Korea – plus Total, one of the previous partners – won stakes totalling 18 per cent of a new venture to run the same onshore fields.

Abu Dhabi’s lucrative upstream sector has long been watched by other upstream investors.” Abu Dhabi Company for Onshore Oil Operations (ADCO) produces around 1.6 mn bpd but is looking to raise this number potentially to 1.8 mn from 2017 onwards. It still leaves 22 per cent of the ADCO venture free to be awarded should Abu Dhabi opt to do so, and thereby maintaining its usual 60 per cent interest. ADNOC officials have quietly conceded that they are still open to interest in the remaining equity, but appear to be in no rush to put pen to paper.

Non-producing units ADNOC’s non-producing subsidiaries are also facing up to big change. The group plans to consolidate the operations of three of its shipping, marine and services companies into one entity, again to boost efficiency and control costs. It confirmed in October that the three units – Abu Dhabi National Tanker Co., Petroleum Services Co. and Abu Dhabi

Petroleum Ports Operating Co. – will all be combined. Again, Al Jaber highlighted the same themes behind the strategic move. "By leveraging the experience and assets across the three companies, we aim to deliver an improved and cost-effective service to meet the needs of the ADNOC Group," he said. The integration of the three units is expected to be completed by the end of 2017, creating a new entity that will operate more than 165 vessels, including liquefied natural gas (LNG) carriers, chemicals and products tankers, containers and other vessels. However, another subsidiary, the National Gas and Shipping Co. (NGSCO), will remain a distinct entity, although ADNOC will look to transfer its 70 per cent stake in this firm to the newly merged shipping company in order to maximise synergies.

Business as usual And yet, in spite of the upheaval, Abu Dhabi remains a steady and reliable oil and gas producer as it has been for many decades, a reassuring trait in a market so prone to volatility and unpredictability. ADNOC has played a key role in keeping the ship steady and, even though changes to the make-up of its major upstreamproducing ventures are in the air, this is something that is expected to continue. The consolidation of other units may not have much of a direct impact on consumers or existing investors, but clearly underscores the leadership’s intent to see major restructuring reform. The logic makes sense given the downturn in energy markets and sets ADNOC up as a leaner, fitter vehicle for carrying Abu Dhabi’s oil and gas industry into the future. Indeed, it forms only a part of a wider shift taking place, as Abu Dhabi, like other Gulf states, begins to explore alternative sources of energy. ADNOC’s central position at the heart of the emirate’s economy remains intact, but perhaps the real changes, as the world turns increasingly to cleaner, non-fossil fuel energy, are still to come. n