Fitch affirms Adnoc's AA+ rating on the back of high output and low cost of production

Fitch affirmed Abu Dhabi National Oil Company's standalone credit profile at AA+ on the back of high upstream output, vast oil reserves and very low cost of production. Adnoc's long-term issuer default rating was assessed at AA, with a stable outlook. It cited the state oil company's continued integration into downstream operations, "very conservative financial policies, high financial flexibility and low leverage". Fitch also attributed the credit rating to strong unit profitability comparable to that of global oil majors. The UAE accounts for 5.6 per cent of the world's proven oil reserves as well as 4 per cent of global output.The majority of the UAE's production comes from fields managed by Adnoc. The state oil company last month announced plans to spend $122 billion over the next five years, of which $43.5bn will be directed towards the local economy. The company also announced substantial recoverable unconventional oil resources onshore, estimated at 22 billion barrels. There was also an increase of 2 billion barrels in conventional oil reserves, which maintains the UAE's position as the holder of the world's sixth largest oil reserves. "Adnoc's low lifting costs, low maintenance capex and ability to manage production are a significant advantage in the volatile oil price environment," Fitch said in a note on Thursday. Adnoc's plans to create a "hydrogen ecosystem" with export capabilities could mitigate potential risks for national oil companies stemming from energy transition, the agency said. The state oil firm is also considering investments into alternative fuels and technologies such as carbon capture, utilisation and storage, in order to lower its carbon intensity. Adnoc plans to expand its carbon capture programme to store about five million tonnes of carbon dioxide annually. Big oil companies have pledged to reduce their carbon footprint this year amid a change in narrative in the fossil fuel industry prompted by coronavirus-induced restrictions. Movement restrictions, which led to a halt in global air and ground transport and curbed oil demand, also prompted oil and gas companies to re-evaluate their strategies. Adnoc has also pledged to lower its carbon footprint by 25 per cent over the next decade. Fitch viewed Adnoc's planned spending favourably, noting the company will fund its capital expenditure programme largely from its operating cash flows. "Its dividends will continue to be based on excess cash generated during the year adjusted for capital investments and debt movements," Fitch said. The agency also commended the state oil company's strategy of bringing in minority partners to its operating entities in order to attract funding and improve access to overseas markets. Adnoc raised $15.9bn through a series of transactions involving some of the world's leading private equity firms and pension funds. The amount raised this year was higher than the $10.6bn in 2019. Adnoc concluded some large-scale transactions in the middle of the pandemic, such as a $20.7bn deal for its midstream assets. Global Infrastructure Partners, Brookfield Asset Management, Singapore’s sovereign wealth fund GIC, Ontario Teachers’ Pension Plan Board, South Korea's NH Investment & Securities and Italy’s Snam are all investors in the assets. The transaction unlocked $10.1bn in foreign direct investment into the UAE. Adnoc also signed an agreement to monetise its non-core real estate assets with Apollo Global Management, in a deal worth $5.5bn. Adnoc received direct upfront proceeds of $2.7bn from the transaction.