ADNOC and BHGE Form a Strategic Partnership with BHGE Acquiring a Five Percent Stake in ADNOC Drilling

By Craig Resnick

Acquisition or Partnership

Abu Dhabi National Oil Company (ADNOC) and Baker Hughes, a GE company (BHGE) signed a strategic partnership agreement that will help to enable and support the growth and development of ADNOC’s subsidiary, ADNOC Drilling, into an integrated drilling and well construction provider.  As part of the agreement, BHGE will acquire a five percent stake in ADNOC Drilling.  The transaction values ADNOC Drilling at approximately $11 billion.  BHGE will be the sole provider of certain proprietary equipment and technologies related to the integrated drilling offering, helping to support ADNOC Drilling’s growth.  Together, ADNOC and BHGE will offer solutions designed to help deliver more competitive well completion times, greater drilling efficiencies and better well economics, and will capitalize on new business opportunities as ADNOC Drilling grows through its new expanded offering.

The partnership represents the first time that ADNOC has brought an international strategic partner to acquire a direct equity stake in one of its existing services businesses.  ADNOC Drilling is reportedly the largest drilling company in the Middle East and the sole provider of drilling rigs and associated services to ADNOC Group companies.  ADNOC Drilling also possesses many years of market experience and detailed knowledge of the UAE’s subsurface, which can help to reduce risk in drilling activities.  With over 40 years of operations in the country, BHGE has extensive domain experience and a track record of solving drilling challenges through its technical solutions.  Ongoing access and support from BHGE’s technology and equipment portfolio will help to accelerate ADNOC Drilling’s growth and development of a broader product offering, including drilling and well completion services.  This partnership structure aligns the interests of both ADNOC and BHGE in helping to drive greater productivity and efficiency while increasing returns.

The partnership is expected to generate more predictable long-term revenue streams and growth in the market for both companies through a mutually-beneficial commercial structure, pre-defined work plans and future dividends.  ADNOC Drilling and BHGE will set up an advisory board with representation from both companies to oversee the implementation and ongoing operations, and BHGE will join ADNOC Drilling’s Board of Directors.

The partnership will help to enable ADNOC to capture more value from each barrel of oil it produces as it plans to grow its conventional drilling activity by 40 percent by 2025 and ramp up the number of its unconventional wells, in line with its 2030 smart growth strategy.  ADNOC Drilling will remain the sole rig provider to ADNOC Group Companies and leverage ADNOC’s upstream activity by deploying its new integrated offering with a goal of capturing up to 30 percent of the drilling and completion market over the next three years, as it helps to demonstrate increasing drilling efficiencies and improved customer service levels.

The two partners will be able to leverage ADNOC Drilling’s existing rig fleet capacity with limited capital expenditure outlay.  The partnership will pursue additional business opportunities, including the potential to offer integrated drilling services beyond the UAE’s borders.

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