Investment Thesis - Drilling
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Investment Thesis

ADNOC Drilling's investment case is built on three key features:

  • A solid base, as the contractual framework with ADNOC provides the company with stable revenues and profit margins superior to other drilling industry competitors 

  • The secure delivery of a resilient financial performance paired with a strong and prudent balance sheet

  • A captive growth both on the drilling side, given ADNOC’s strategic plans, and on the Integrated Drilling Services side of the business

High returns, limited risk

  • The unique contractual regime with ADNOC allows long-term de-risked rig investments, generating double digit IRRs over a 15-year timeframe, providing high visibility and strong downside protection. 
  • Compelling contractual IRRs generated on the rigs over long periods of time drive a robust and resilient cash generation.
  • The contractual framework and associated high return / limited risk terms lead to a special financial profile, with high and stable margins, consistent and strong returns, and high cash conversion that underpins a progressive dividend policy that commits to material and resilient distributions and hence, shareholder returns. 

Superior financial performance

  • ADNOC Drilling shows undisputed returns leadership through the cycle.
  • Its unique status within ADNOC Upstream not only provides certainty in business, but also visibility in top line, and margins unheard of in the drilling sector.
  • The company’s margin profile stands out, both in terms of absolute EBITDA and Net Income margins, as well as stability, despite volatility in commodity prices or related to external factors like the recent Covid-19 pandemic.
  • ADNOC Drilling’s balance sheet is solid and can support superior shareholder returns. With a Net Debt / EBITDA ratio at less than one, one of the lowest in the industry, it presents further room for capital optimization. 
  • We are currently investing, and this until the end of 2023, in building out our rig fleet to cater for ADNOC’s upstream growth targets, which requires growth capex today, but will enable substantial operating cash flow growth from our drilling and Integrated Drilling Services tomorrow.

Significant leverage to growth

  • Our strong revenue growth outlook is underpinned by growth plans of the Emirate of Abu Dhabi.
  • ADNOC strategic upstream targets and planned upstream activity translate into drilling activity and a significant captive demand for us to provide the necessary infrastructure and services. 
  • The accelerated growth into Oil Field Services (OFS) supported by the Baker Hughes' partnership is adding further upside to the topline. OFS is expected to become a material scale business over the coming years and be a substantial driver of earnings growth going forward. 
  • Further potential for disciplined domestic and regional expansion also exists.