Photographer: Duncan Chard/Bloomberg

Abu Dhabi Merger to Build Oil Producer Dwarfing OPEC’s Libya

  • Sovereign funds Mubadala, IPIC to join amid lower oil prices
  • Oil production, refining, chemical assets span Canada to Japan

Abu Dhabi’s proposed merger of two of its largest sovereign investment funds would create a global energy business that produces more oil than OPEC member Libya and with more assets than ConocoPhillips. 

The Persian Gulf emirate with about 6 percent of the world’s crude reserves will combine  Mubadala Development Co. and International Petroleum Investment Co. to cut costs and boost efficiency, the state news agency WAM reported Wednesday. The deal would pool assets of about $135 billion, many of them non-energy-related, and debt of about $42 billion, according to Bloomberg calculations. ConocoPhillips, by comparison, had $97 billion in total assets as of Dec. 31, 2015.

Like other oil producers in the region, Abu Dhabi is struggling to maintain state spending after crude prices fell by half since 2014. A union of Mubadala with IPIC would create an entity akin to integrated oil companies that pump oil and process it into fuel and petrochemicals used to make plastics and consumer goods, according to Robin Mills, chief executive officer of Dubai-based consultant Qamar Energy.

Streamlining Operations

“It’s more about streamlining and getting rid of duplication in the business,” Mills said of the planned merger. The combined funds would have “an integrated assets base that’s geographically spread out,” he said. “IPIC is more involved in refining and chemicals, and Mubadala is mostly focused in oil and gas production abroad.”

Middle Eastern oil producers have intensified their push into refining and petrochemicals over the last decade. Abu Dhabi, the capital and largest sheikhdom in the United Arab Emirates, has also used Mubadala and IPIC to invest in assets that provide access to natural gas and technology needed to expand its manufacturing industries. Officials for both companies declined to comment.

The planned merger indicates Abu Dhabi’s “strategy to have an energy-focused fund with its fingers in different parts of the industry,” said Edward Bell, a commodities analyst at lender Emirates NBD PJSC in Dubai.

Spain, Pakistan

Mubadala, through its oil and gas unit Mubadala Petroleum, has a stake in daily output of 411,000 barrels of oil equivalent. IPIC’s wholly owned Spanish subsidiary Cia Espanola de Petroleos SAU, known as Cepsa, produces about 130,000 barrels a day of oil, mainly in Algeria and Spain, according to the unit’s website.

Their combined output is more than double that of Libya, which pumped 250,000 barrels a day in May and is the smallest producer in the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg. 

Mubadala pumps oil in Thailand, where IPIC too has a stake in energy concessions. Mubadala also produces gas in Indonesia and supplies the fuel to homes and industries in the U.A.E. and Oman through its 51 percent stake in Dolphin Energy Ltd., which operates a pipeline from Qatar. Mubadala’s renewable energy unit Masdar has solar and wind projects from Abu Dhabi to the U.K.

IPIC’s Cepsa can process about 520,000 barrels a day of crude at its three refineries in Spain. The fund owns 21 percent of Japanese refiner Cosmo Oil Co. and a holding in 100,000 barrels a day of refining capacity in Pakistan at Pak-Arab Refinery Ltd. IPIC bought Canada’s NOVA Chemicals in 2009 and has a stake in Austrian chemical maker Borealis AG.

IPIC generates operating cash flow of $3 billion to $5 billion a year and has annual capital expenditure of $2 billion to $3 billion, Emirates NBD said Wednesday in a note. Mubadala has $1 billion to $2 billion in cash flow against capital investment of $3 billion to $5 billion, the Dubai-based lender said.

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