Abu Dhabi: Consolidation activity is expected to pick up in the Gulf countries as oil prices remain low and the government looks for ways to cut spending, analysts said.
In a major decision on Tuesday, Abu Dhabi National Oil Company (Adnoc) announced the integration of two offshore oil firms, Abu Dhabi Marine Operating Company (Adma-Opco) and Zakum Development Company (Zadco) into a new company.
The process is likely to be completed by early 2018 under a steering committee formed by Adnoc and its parents, Adnoc said.
This is the third such consolidation effort in the last three months after the merger of National Bank of Abu Dhabi with First Gulf Bank and that of Mubadala with International Petroleum Investment Company (Ipic) in June.
The development comes as low oil prices hit the revenue of oil producing countries and the government look for ways to diversify the economy and undertake cost cutting measures.
From more than $110 per barrel in 2014, oil prices plunged to less than $50 per barrel in recent times due to overproduction and weak demand.
Oil prices are not expected to go up much despite a deal by the Organisation of the Petroleum Exporting Countries (Opec) to cut production at their next meeting in Vienna in November.
The group has not decided how much output would be slashed but it is expected that it would be in the range of 700,000 to 750,000 barrels per day.
Akber R. Naqvi, Head of Asset Management & Executive Director of Al Masah Capital Management said consolidation is inevitable. “Governments, government related entities and private companies all realise the new business environment and they will need to adapt quickly if they haven’t already in order to remain competitive and relevant,” he said.
Ada Perniceni, partner, A.T. Kearney consultancy said there are significant opportunities in the UAE and broader Middle East oil and gas sector to leverage consolidation as a lever to enhance efficiency and effectiveness.
“In light of the current oil price environment this is the right time for companies to reshape their corporate structure and operating models to achieve synergies,” she told Gulf News.
Mario Camara, head of Saxo Dubai in a statement to Gulf News said: “If Oil prices remain low, it is likely that entities in non-diversified jurisdictions attempt to reach efficiencies of scale by merging interlined subsidiaries”
UAE at present produces about 3.1 million barrels of oil per day and it is intending to increase production in the future.
The country has recently opened very large crude carrier (VLCC) jetty in Fujairah to transport crude bypassing the sensitive area of Strait of Hormuz in the Arabian Gulf as it seeks to increase its market share.
