Adnoc awards Italy's Eni and Austria's OMV refining stakes

UAE energy giant establishes trading joint venture with Eni and OMV that is expected to close in the third quarter of 2019

Adnoc plans to invest Dh165bn with partners to build the world’s largest integrated refining and chemicals complex by 2025. Victor Besa / The National

State-owned Abu Dhabi National Oil Company awarded Eni and OMV 20 and 15 per cent stakes, respectively, in its refining unit, and established a trading joint venture with the Italian and Austrian companies as part of its drive to become an integrated energy player.

The Abu Dhabi company will retain a 65 per cent stake in Adnoc Refining, which has an enterprise valuation of $19.3 billion (Dh71bn). Proceeds from the sale of the stakes are estimated to be $5.8bn subject to completion adjustments, Adnoc said on Sunday.

“These innovative partnerships will support our ambition of becoming an international downstream leader with the flexibility to respond quickly to shifting market needs and dynamics,” said Dr Sultan Al Jaber, Adnoc Group chief executive and UAE Minister of State.

The UAE, which accounts for about 4.2 per cent of global crude production, much of it from fields owned and operated by Adnoc is looking to double refining and triple chemical capacities by 2025. The Abu Dhabi major unveiled plans to invest Dh165bn with partners across the downstream value chain, amid ambitions to build the world's largest integrated refining and chemicals complex by 2025 in the emirate's western region of Ruwais.

Adnoc Refining has a total refining capacity of 922,000 barrels per day and is the world's fourth-biggest single site refinery. After the development of a new 600,000 bpd refinery, the unit's capacity is expected to rise to process crude and condensate amounting to 1.5 million bpd, rivalling India's 1.24 million bpd at the Jamnagar refinery, the world's biggest.

The sale of stakes in Adnoc's refining unit would open up opportunities "to supply markets in Africa, Asia and Europe," the company said.

The three partners will support short and mid-term growth plans for Adnoc Refining, supported by the entity's high cash-flowing generation capacity. The partners also agreed to "a comprehensive capital allocation framework to achieve self-funded growth, paired with an attractive dividend policy," Adnoc added.

Eni and OMV will also own 20 and 15 per cent stakes, respectively, in the newly established trading JV, that will export up to 70 per cent of volumes generated by Adnoc Refining. The remaining 30 per cent locked in for the domestic market will be managed by the Abu Dhabi producer.

In April last year Adnoc announced its intention to set up a non-speculative trading unit as the company looks to expand revenue streams and beef up sale of crude and products. Other state-owned firms in the region have adopted a similar strategy.

The three-way trading JV between Adnoc and its European partners will be incorporated at the Abu Dhabi Global Markets, with "physical and derivative trading" likely to commence as early as 2020, following completion of necessary processes and procedures. The transaction is expected to close in the third quarter of this year, pending customary closing conditions and regulatory approvals, Adnoc said.

Adnoc Refining, which has a product range that includes liquefied petroleum gas, naphtha, gasoline, jet fuel, gas oil and base oils, fuel oil as well as petrochemical feedstocks such as propylene, will see better optimisation of systems and management of international product flows following the establishment of the trading unit.

"The stated objective of the trading joint venture is to expand its global presence over time,” the company said.

The transaction is the second for Eni this year with the Abu Dhabi major following the award of two offshore exploration blocks in Adnoc's first ever competitive bid round. The Italian major in consortium with Thailand's PTT Exploration and Production Public Company paid Dh844 million for exploration and appraisal of the concessions.

The latest transaction represented a 35 per cent increase in Eni’s global refining capacity and was in line with the strategy to make the company’s portfolio more diversified, Eni chief executive Claudio Descalzi said.

Eni has had successful head start in ongoing upstream competitive bids in the UAE, picking up three concessions in Sharjah's first licensing round in January.