09 October 2018, News Wires — Baker Hughes, the world’s second-largest oil services company, will take a 5 percent stake in Abu Dhabi National Oil Company’s (ADNOC) drilling unit for $550 million under a tie-up announced on Monday.
Baker Hughes becomes the first foreign company to take a stake in one of state-owned ADNOC’s services companies under the agreement which values ADNOC Drilling at about $11 billion.
It will allow Baker Hughes to cement its presence in the Middle East, the fastest growing region for oil and gas operations, and enable ADNOC Drilling to gain access to the know-how and technical expertise of a global player.
Since its acquisition by General Electric Co last year, Baker Hughes has sought new business models following a sharp decline in global drilling activity since 2014. That includes offering a suite of services to oil and gas producers from exploration to drilling.
“To us this is not just another partnership… this will allow ADNOC Drilling to be not only a local player but a global specialist in the drilling and oil service business,” ADNOC’s Chief Executive Sultan al-Jaber told Reuters in an interview in Abu Dhabi.
It would help make ADNOC Drilling “the most efficient and the most competitive,” al-Jaber said.
Baker Hughes’ CEO Lorenzo Simonelli said BHGE will have a representative on the board of ADNOC Drilling and will create a dedicated training team.
The partnership will offer drilling services in the UAE and possibly abroad as well, al-Jaber said.
The transaction is expected to close before the end of this year, with operations starting in 2019, ADNOC and BHGE said in a joint statement.
Al-Jaber said “there are no plans at this point of time” to float a stake in ADNOC Drilling.
While analysts said the deal would bode well for Baker Hughes’ long-term prospects in the United Arab Emirates, some lamented that the firm was paying too high a price in its acquisition.
“We’re just not fans of OFS (oilfield service) companies having to ante up” to tap into revenue growth, analysts for investment firm Tudor Pickering Holt & Co wrote in a note on Monday.
Shares of Baker Hughes were down roughly 1 percent at midday on Monday, trading around $31.65.
Moelis is acting as the financial adviser to ADNOC on the transaction, while Citi is the adviser to BHGE, the two companies said in the statement. (Reporting by Rania El Gamal Additional reporting by Liz Hampton in Houston Editing by Susan Fenton and Chizu Nomiyama)