Lukoil #344 (February-March 2019)

Lord Browne, the former chief executive of BP, is going to float a new company - Wintershall DEA - on the stock market next year. Wintershall DEA, is a new company being formed from a merger of the oil and gas interests of German chemicals giant BASFwith those ofLuxembourg investment Lord Browne is returning to the global oil business group LetterOne. The float, which is likely to be on the Frankfurt stock market, could value Wintershall DEA at as much as £23bn, according to some estimates. The deal to form Wintershall DEA will be the biggest merger in the exploration and production sphere in Europe for more than a decade. The United Arab Emirates (UAE) bet on major foreign investment to develop their oil and gas industries. COME ONE, COME ALL! А t the end of 2018, the UAE’s Supreme Petroleum Council approved a five-year investment program for the Abu Dhabi National Oil Company (ADNOC) totaling over $132 billion. The plan foresees UAE oil production increasing from 3.5 to 5 million barrels a day by 2030. The strategy also includes accelerated development of the country’s gas resources, attaining energy independence and, as a result, entering the world’s natural gas market. Realizing the strategy will require attracting foreign investment into all sectors of the oil and gas industry – from exploration to refinement and sales. The UAE’s leadership wants to not only attract financial resources, but also gain access to lucrative foreign markets. Going Public Liberalization of the UAE’s oil and gas industry began after Sultan Ahmed Al Jaber, a staunch supporter of sustainable development concept, took charge of ADNOC in February 2016. One of his first moves was to IPO t he company’s sa les unit, ADNOC Distribution, in 2017. Currently 10% of the company’s stock is traded on the Abu Dhabi Securities Exchange (ADX), putting its total capitalization at $7.6 billion. ADNOC Distribution shows good financial results – its profits increased by 18% in 2018 and totaled $572 million. The company is planning both domestic and international expansion: it wants to open 10 new gas stations in the Dubai and another 10 in Saudi Arabia in 2019. Restructuring Production ADNOC’s production unit has also seen major changes over the last two years (see High Level Cooperation in the May 2017 (#335) edition of Oil Journal). The ADCO consortium, which was responsible for land- based oil production, was reorganized into ADNOC Onshore. After several years of negotiations, ADNOC Onshore’s owners became Total (10%), BP (10%), INPEX (5%), GS Energy (3%), CNPC (8%) and CEFC (4%). Meanwhile, offshore consortiums ADMA-OPCO and ZADCO combined into ADNOC Offshore. Foreign investors were offered the option of acquiring parts of three concessions of ADNOCOffshore: Lower Zakum, Umm Shaif/Nasr, SARB/Umm Lulu. Lower Zakum was bought by ONGC consortium (10%), INPEX (10%), Petrochina (10%), ENI (5%) and Total (5%). Umm Shaif/Nasr was bought by Total (20%), ENI (10%) and Petrochina (10%). Meanwhile, CEPSA (20%) and OMV (20%) bought up shares of SARB/Umm Lulu. ADNOC retained 60% of all concessions. As in all similar deals, the investors cover royalties, profit taxes and capital investments. Licensing Rounds The UAE, however, has introduced a completely new concept for its oil and gas industry: licensing rounds and tenders for its exploration works. The first ones were held in April 2018 in the Abu Dhabi, Ras Al Khaimah and Sharjah Emirates: they offered 16 oil and gas blocks to investors. In January 2019, the Emirates transferred five of them to exploration by foreign companies. Two blocks in the Abu Dhabi Emirate will be explored by a consortium of ENI (70%) and PTTEP (30%), while another three in Sharjah will be explored by ENI with the Sharjah Emirate’s relevant state operator. According to the contracts, the investors will take on all the exploration and reserve estimating costs. If commercial reserves are discovered, they’ll be able to claim 40% of the concessions. Gas Strategy One of the UAE’s most important goals is to develop sour gas. Until recently, Occidental, which operates the Shah gas field (with a daily production rate of 1.35 billion cubic feet of gas), was the main foreign investor into this sector in the UAE. However, ADNOC signed deals with three companies (ENI (25%), Wintershall (10%) and OMV (5%)) for an offshore Ghasha consortium (consisting of the Hail, Ghasha, Dalma and other fields) at the end of 2018. They plan to produce a total of over 1.5 billion cubic feet of gas and over 120 thousand barrels of oil and condensate daily. Developing offshore fields will play an important role in satiating an increasing domestic demand for gas. By 2030, ADNOC plans to fully replace gas imports. Investments into Oil Refining The same foreign companies – ENI (20%) and OMV (15%) – invested into the capital of ADNOC Refining at the beginning of 2019. It operates two oil refineries in Abu Dhabi (the Ruwais and Abu Dhabi Refineries) with a total capacity of 0.9 million barrels a day. They plan to modernize the UAE’s largest refinery (Ruwais) and increase its daily capacity from 0.8 to 1.5 million barrels, making it the world’s largest refinery in the process. Meanwhile, they also plan to also develop a joint trading business. The Logical Conclusion Most of the announced projects will only bring real dividends by the middle of the next decade. But ADNOC’s new strategy has already gotten the praise of top ratings agencies: in January 2019, Fitch gave the company an AA+ rating, noting its strong production and financial indicators, as well as its effective business model. It’s not an exaggeration to call ADNOC the world’s most investment-attractive oil and gas company today as even industry giants like BP (A), Shell (AA-) and Total (AA-) can’t beat its investment ratings. 4 Strategy