High visibility on revenues, profits and cash flows, and significant leverage to growth
As the sole provider of drilling services in Abu Dhabi, the main driver of our business is ADNOC’s upstream long-term activity. Our business is not a function of oil prices. ADNOC’s strategic production targets in oil and gas and related planned upstream development projects directly translate into drilling activity and hence into tangible financial performance for ADNOC Drilling. We provide the drilling infrastructure and the services needed to support ADNOC’s targets and hence we benefit from significant visibility for our business. Our revenues, amounting to $2.1 billion in 2020, are substantial, stable and growing, despite all the turmoil in 2020.
Post partnership with Baker Hughes, ADNOC Drilling has developed the skill set to provide the full suite of drilling and completion services to the ADNOC Upstream operating companies and we are expanding down the Oil Field Services (OFS) value chain. While the OFS business is currently a small contributor to our business and financial performance (10.6% of 2020 revenues and 4% of our total 2020 $960 million EBITDA), we expect it to become a material scale business vs drilling over the coming years and be another substantial driver of growth.
We provide drilling services to ADNOC under a unique contractual framework that gives us double digit IRRs over a 15-year time frame for each rig investment. These contracts provide us with unrivalled returns, high visibility and strong downside protection. We demonstrate superior and reliable EBITDA and net income margins compared to anyone among Onshore players, Offshore players or OFS providers in the industry, at respectively 46% and 27% in 2020.
The volatility of our historical financial performance is low. We also show a resilient and superior cash conversion profile than the broader drilling and OFS sector.
We have managed to achieve such results with almost the lowest gearing of any player in the industry, with a Net Debt to EBITDA ratio well below 1 for 2020. 2020 capex, including expansionary capex, was $375 million. We are currently investing in building out our rig fleet to cater for ADNOC Upstream growth targets which requires an elevated capex of $2.5 – 3.0 billion from 2021 to 2023. Thereafter our sustaining capex will decrease to an average of $150 – 200 million p.a. generating a substantial increase in free cash flow.