How Adnoc’s XRG will achieve its bold investment ambitions

Adnoc

• Adnoc launched XRG in November
• Aims to be top five in chemicals
• Gas is a likely target

When XRG, the newly formed investment arm of the Abu Dhabi National Oil Company (Adnoc), launched last month it said that it wanted to double its $80 billion in assets under management by 2035. 

For comparison, Abu Dhabi’s ADQ, the world’s 10th largest sovereign wealth fund and the younger sibling of Adia and Mubadala, had a portfolio of AED721 billion ($196 billion) in assets in 2023.

XRG will start operations in the first quarter of next year, and will focus initially on gas, chemicals and low-carbon energy, Adnoc said.

On Thursday Adnoc confirmed that XRG would become the new majority shareholder of Covestro, the German chemical giant. XRG confirmed it now owns 91.3 percent of the company’s outstanding shares.

XRG’s executive chairman, Sultan Al Jaber, who is also Adnoc’s group chief executive, said in a statement: “Today’s significant milestone marks the first major transformational investment for XRG in chemicals, accelerating our ambition to become a top five global chemicals player.”

The takeover still needs to meet regulatory conditions and is expected to close in the second half of next year. When finally rubber stamped, it will be the largest recorded foreign acquisition by a Gulf company.

Adnoc, which owns 100 percent of XRG, has declined to give details of the new subsidiary’s strategy. But the composition of the new company’s board may give some insight into its likely direction.

Serving under Al Jaber are Jonathan Gray, the president of Blackstone, the world’s largest private capital group, and the Egyptian entrepreneur Nassef Sawiris.

Also on the team are Bernard Looney, the former chief executive of BP; Mohamed Hassan Alsuwaidi, the UAE’s investment minister and head of ADQ; Ahmed Al Mazrouei, the head of the president’s office for strategic affairs; and Ahmed Jasim Al Zaabi, the head of Abu Dhabi’s finance department. 

A person close to Adnoc says that XRG is accelerating the group’s response to the investment opportunities presented by artificial intelligence, the transformation of energy systems and the rising energy demands of emerging economies.

“XRG has bold ambitions and is looking to grow very quickly,” the person says.

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Joseph Dahrieh, managing principal at Tickmill, a City of London-based brokerage with offices in Cyprus, the Seychelles and Malaysia, says that XRG’s focus on becoming a top five global chemicals player is in order to take advantage of an estimated 70 percent growth in demand in the sector by 2050.

Dahrieh says other fast-growing sectors in XRG’s focus are likely to include natural gas, to address a projected 15 percent increase in global demand over the next decade and a 65 percent increase in LNG by 2050.

Low-carbon ammonia, which is projected to grow to 70 to 90 million tonnes annually by 2040, is also likely to feature, he says. 

Another industry observer says the formation of XRG is part of efforts by Adnoc, once a passive oil and gas group, to become a global energy major.

Since 2016 Adnoc has boosted its investment team by hiring the former senior Morgan Stanley executive Klaus Froehlich, the Financial Times reported, and according to Reuters, a suite of Wall Street bankers to pursue multi-billion dollar acquisitions.

Further transfers to XRG from Adnoc may include Borouge, the ADX-listed joint venture between Adnoc and Borealis; Fertiglobe; and Adnoc’s international natural gas assets.

Adnoc holds 12 percent in the Houston-based LNG company NextDecade’s Rio Grande LNG project in Texas, a 10 percent stake in Area 4 in Mozambique and  30 percent of the Absheron gas field in Azerbaijan.

This week XRG, which has yet to announce a CEO, announced the creation of Arcius Energy, a joint venture with BP. 

Hatem Ali, an Egypt-based gas expert, says that the joint venture is likely to look at upstream exploration activities, particularly in Egypt’s Eastern Mediterranean basin and underexplored offshore fields.

It is expected to unlock fields such as Atoll in the North Damietta concession in the East Nile Delta, owned by BP, and Zohr, the largest gas field ever discovered in the Mediterranean, 200km north of Port Said, in which BP has a 10 percent interest.

It is also likely to explore promising new blocks such as North El Tabya and North El Fayrouz, both also off the Egyptian coast and owned by BP, and which Ali says “are rich with potential, yet require advanced recovery techniques and substantial investment”.