Abu Dhabi oil giant builds internal ‘investment bank’ to chase $50bn in global deals

The Abu Dhabi National Oil Company has amassed a nearly 50-strong team of dealmakers and is pursuing roughly $50bn in transactions as part of a push to diversify its business and expand abroad.

Adnoc, led since 2016 by Sultan al-Jaber, has quietly assembled a suite of Wall Street talent, according to people familiar with its inner workings, transforming the United Arab Emirates’ once sleepy state group into a business more like an energy supermajor.

The investment team, run by former senior Morgan Stanley executive Klaus Froehlich, has become one of the most important units for the company’s strategy, with insiders describing it as akin to an “internal investment bank”.

Adnoc’s pursuit of a bevy of multibillion-dollar acquisitions under Jaber’s strategy has stood out in an otherwise dismal year for dealmaking. The group is pursuing deals simultaneously with Brazilian petrochemical maker Braskem, Austria’s OMV and German chemical company Covestro.

“They are supercharged, with the investment team given the mandate to go out and look at investments,” said one banker familiar with the company. “They have pivoted from an internally focused portfolio management mindset to one that is internationally focused.” 

The shift marks the latest step in the transformation of Adnoc from a highly profitable but staid state oil and gas producer to a company with ambitions of building a global portfolio spanning chemicals, plastics and beyond.

Jaber’s appointment in January as president of this year’s COP28 climate summit in the UAE has sparked heavy criticism from environmental activists as well as a group of more than 130 EU and US lawmakers who called for his removal.

But he has shaken up Adnoc in ways previously unimaginable among Gulf state oil companies, streamlining its workforce and monetising its assets.

Froehlich, group chief investment officer, joined in 2020 after a more than 16-year career at Morgan Stanley, including as head of Mideast and north Africa investment banking, and three years as chief financial officer at the Saudi Binladin construction group before founding his own advisory firm.

People close to the company say one attraction of working there is that while many other deals in the industry fall through, Adnoc has a record of aggressive execution.

The company has earmarked $150bn in capital expenditure over the next five years towards expanding its oil and gas production, with $15bn set aside for low-carbon solutions over a longer period. It was an early mover in selling off assets and streamlining its business, taking a different approach to the region’s top producer Saudi Aramco, which floated a piece of the entire company.

In 2019 Adnoc sold off stakes in its pipelines to BlackRock and KKR in a $4bn move to fund development that was part of a broader plan to generate cash from existing assets and partner with blue-chip international groups.

Over the past two years it has floated five subsidiaries at a roughly $140bn combined market capitalisation.

“They’re increasingly thinking more like an investment manager and, like the UAE itself, want to build a bigger global footprint,” said Raad Alkadiri at Eurasia Group. “Part of it is ambition, part of it is prestige, but part is how do you manage your own fortune rather than leaving it to the whims of the energy transition.”

Despite Jaber’s jam-packed schedule this year as he jets around the world to build support for COP28, deals involving Adnoc keep stacking up.

Not only is the company seeking a €13bn takeover of Covestro and in the midst of a nearly $8bn joint bid for Braskem alongside US investor Apollo, it is also working on an ambitious plan to merge its chemicals division with that of Austria’s OMV in what could be a more than $30bn deal.

Meanwhile, it has teamed up with BP to launch a $2bn bid for a 50 per cent stake in an Israeli natural gas group as part of a plan to jointly pursue gas projects in the eastern Mediterranean. On Friday it announced it had taken a 30 per cent stake in an Azerbaijan gasfield, giving the group a foothold in pipeline supplies to the EU.

“They see a huge amount of capital required in the energy sector, a lot of people not investing sufficiently, and a big opportunity for a company that’s investing aggressively,” said Robin Mills, a Middle East energy expert and chief executive of Qamar Energy.

“This is the new Adnoc and it’s much more aggressive and innovative than it ever used to be,” he added.

While Adnoc has built out extensive internal capabilities, it still works with external advisers, including Wall Street banks, according to people familiar with the matter.

The company must navigate complex dynamics to seal some of its acquisitions.

Under the OMV deal the Austrian group’s chemicals arm Borealis would be combined with Borouge, the chemicals company majority owned by Adnoc and listed in Abu Dhabi.

Each side holds stakes in the other but under an announced framework OMV said the aim would be to become “equal partners under a jointly controlled, listed platform for potential growth acquisitions”.

The talks have been “quite start-stop”, according to a person familiar with the matter, but both sides are motivated by the prospect of creating a new market leader by sharing technology and combining expertise in Europe and the Middle East.

The two sides must reach an agreement on a valuation for the unlisted Borealis, which could be valued at about $10bn, while Borouge trades at a market capitalisation of about $22bn. Other issues to be hammered out include where the merged business would be listed and headquartered.

Covestro, meanwhile, has rebuffed a €13bn approach from Adnoc, prompting the state group to raise its offer.

Jaber is also using dealmaking to strengthen Adnoc’s renewables business. His company has taken a stake in Masdar, the Emirati renewable energy company that he helped launch in 2006, with plans to further its growth.

“In terms of their strategic thinking they are generally way ahead of most other state energy companies when it comes to thinking about their place in the energy transition,” said Amrita Sen at Energy Aspects. “But their ability to execute on their strategy is yet to be fully tested.”

Additional reporting by Arash Massoudi