Baker Hughes (NYSE: BHGE) on Monday said that it has signed a deal with Abu Dhabi National Oil Co. (ADNOC) to acquire a 5% stake in ADNOC subsidiary ADNOC Drilling.
Under the terms of the deal, Baker Hughes will pay $500 million for become a “strategic partner” to own a stake in ADNOC Drilling, which is “the largest drilling company in the Middle East.”
The deal, which values ADNOC Drilling at about $11 billion including approximately $1 billion of net debt, makes Baker Hughes the first international company to directly buy an equity stake in one of ADNOC’s services businesses, Baker Hughes said in a press statement.
Baker Hughes, now a subsidiary of General Electric, is the world’s second largest oil field services company. ADNOC is the state-owned oil company of the United Arab Emirates that is the UAE’s biggest company and the world’s 12th largest oil company by production. Meanwhile, ADNOC Drilling is the sole provider of drilling rigs and associated services to ADNOC Group companies.
Strategic Partnership To Benefit Each Company
Baker Hughes said that the strategic partnership agreement allows it to grow and develop ADNOC Drilling into a fully-integrated drilling and well construction provider.
“Together, ADNOC and BHGE will deliver more competitive well completion times, greater drilling efficiencies and better well economics, and will capitalize on new business opportunities as ADNOC Drilling grows through its new expanded offering,” according to a joint press statement issued by the companies on Monday morning.
Baker Hughes said that the partnership would generate long-term revenue streams in the market for both companies through a “mutually-beneficial, attractive commercial structure, pre-defined work plans and future dividends.”
Baker Hughes Joining ADNOC Drilling’s Board
ADNOC Drilling and Baker Hughes will set up an advisory board with representation from both companies to oversee the implementation and ongoing operations. Meanwhile, Baker Hughes will join the board of directors of ADNOC Drilling.
Further, Baker Hughes said that the partnership will support ADNOC’s plans to grow its conventional drilling activity by 40% by 2025 and reduce drilling time by 30% by the end of 2019.
The deal was approved by the board of directors of each company and is expected to close in the fourth quarter of 2018, subject to customary closing conditions including appropriate regulatory approvals.
Moelis & Company is acting as exclusive financial advisor to ADNOC, while Citi is serving as advisor to Baker Hughes.
Shares of Baker Hughes were trading down about 1% as of midday.