Abu Dhabi, BHGE Form Alliance

Baker Hughes GE is to take a 5% stake and a seat on the board of Adnoc Drilling, a wholly-owned subsidiary of Abu Dhabi's national oil company Adnoc, valuing the subsidiary at about $11bn. In exchange, Adnoc Drilling will gain access to a wider market and new business opportunities through the exclusive use of BHGE technology, they said October 8.

With its implicit price-tag of $550mn, the deal is expected to complete this year and to add value in its first year.

The diversification comes a week after BHGE's parent, US technology giant GE, ousted its CEO and continued a major restructuring.

"Together, Adnoc and BHGE will deliver more competitive well completion times, greater drilling efficiencies and better well economics, and will capitalise on new business opportunities as Adnoc Drilling grows through its new expanded offering," they said.

The partnership will enable Adnoc to capture more value from every barrel of oil it produces as it plans to grow its conventional drilling activity by 40% by 2025 and substantially ramp up the number of its unconventional wells, in line with its 2030 smart growth strategy, they said.

This is 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 also possesses decades of market experience and detailed knowledge of the UAE’s subsurface, enabling reduced risk in drilling activities. With more than 40 years of operations in the country, BHGE has deep domain expertise and a proven track record of solving complex drilling challenges through innovative technical solutions.

The partnership is expected to generate predictable, long-term revenue streams and growth in the market for both companies through a mutually beneficial, attractive 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.

Adnoc Drilling will remain the sole rig provider to Adnoc Group Companies and capitalise on Adnoc’s growing upstream activity by deploying its new integrated offering to capture up to 30% of the drilling and completion market over the next three years, within and outside the United Arab Emirates.

The UAE minister of state and Adnoc Group CEO Ahmed Al Jaber said that BHGE was chosen after a rigorous and competitive process as a partner with whom Adnoc had a long-standing working relationship and who shares Adnoc’s long-term vision and values. The partnership will ensure Adnoc captures and retains greater value from its upstream growth.

BHGE CEO Lorenzo Simonelli said his company was "very pleased to take a minority stake in Adnoc Drilling to jointly develop and further grow the company’s technical capabilities, market access and value. In a unique way, it allows us to drive predictable revenue streams and long-term growth for both companies and lets us invest in a stable, reliable and secure market environment.... The transaction significantly increases our activity in the region and demonstrates our unique ability to create value for our customers and shareholders through innovative commercial arrangements, partnerships and leading technology solutions.”

BHGE will maintain its existing operations and footprint in Abu Dhabi and will continue to leverage its fullstream portfolio to serve Adnoc and other customers in the Middle East region.

Adnoc Drilling expects to generate stable annual dividends with an estimated long-term yield of about 7%/year.

Ahmed Al Jaber (right) and Lorenzo Simonelli