Q: Mubadala has accelerated energy sector investments over the past 18 months. What benefits have you realized from the increase in scale in your portfolio following the merger with IPIC in 2017?
A: Our investment business is now well-established and we are very pleased with the progress since the merger. Today we have moved on to a new phase.
The past couple of years have allowed us to acquire a deep understanding of the assets in the portfolio. We have developed solid relationships at all levels and are working closely with the respective management teams to support them in delivering superior performance by seizing opportunities and managing risks.
Today, we can confidently say we have a clear view as to where the opportunities and challenges lie. More importantly, we are leveraging synergies and sharing knowledge amongst the various asset companies within the boundaries allowed by respective governance structures.
As a result, our business is making a very significant contribution to Mubadala Investment Company, which now ranks among the top 15 sovereign wealth funds in the world with a value of more than $229bn.
Q: What are the key areas for near-term growth within the existing portfolio and new investments for wider expansion?
A: As an engaged investor, we are committed to the growth of our businesses through fit-for-future investments and commercially attractive projects that will help to meet the ever-increasing global energy demand.
Our priority is ensuring that the key projects managed by our portfolio companies, involving investments of near to $13bn during the past 30 months alone, are delivered on time and within budget.
Looking forward, we see continued investment opportunities aligned with our strategy, which include: main focus on gas, low-cost oil opportunities, energy infrastructure and in the downstream sector, leveraging growth of entry into emerging markets, to utilize proprietary technology and competitive feedstock to organically grow our petrochemicals investments.
Q: What has been the strategy that has guided your investment decisions?
A: Our 2019 strategy has been focused on growth and delivery, and consolidation when the time and valuation enabled us to realize the value we have created. We focused on seeking alignment with our assets to build and manage the Petroleum and Petrochemicals platform in line with the expectations of our shareholder. Looking ahead, we will strategically invest in the gas sector and related infrastructure as a crucial energy resource for the energy transition.
A recent example of our strategy in action includes the sale to Carlyle of a significant minority shareholding, 37%, in Spain’s Cepsa from Mubadala [MEES, 12 April]. In the LNG sector, we have successfully gained the first exposure to the US Gulf Coast market through the recent deal with NextDecade [MEES, 25 October]. Similarly, we also acquired a 2% stake in Spanish Enagas, which is the world’s largest LNG regasification terminal operator by number of terminals.
As you can see, the transition from a development vehicle to an investment company is well underway and gaining traction.
Q: Mubadala’s Petroleum & Petrochemicals has become increasingly integrated across upstream, midstream and downstream. What are the key advantages of this?
A: We are focused on maintaining and developing a balanced portfolio of investments across the value chain that reflect our strategic view of the energy markets, the ongoing energy transition and the opportunities that are offered by the changing landscape. This approach is also reflective of our strategy of managing upstream and downstream cycles while providing a natural hedge against fluctuating prices.
Globally our main upstream focus is to identify material investments in gas production, with a secondary focus on low-cost, opportunistic oil plays. In downstream, our focus remains on projects that target growing or premium markets for refined or chemical products, leveraging proprietary technologies and the operating expertise of our portfolio companies and access to competitively priced stock. We are also actively looking at investments in the midstream sector; particularly focusing on energy infrastructure, such as gas pipelines that provide low-risk, predictable income largely insulated from commodity price risks.
Q: What are the priorities when choosing foreign partners?
A: We are a truly global player, and as such, execute investments that reflect the opportunities and future direction of the energy markets. Abu Dhabi and the UAE have strong international relationships which have proven valuable in enabling us to identify and access superior business opportunities. When selecting our partners, we look for strategic alignment in core values, among other important characteristics.
Q: What is the significance of the recent transaction with Carlyle in Spain’s Cepsa?
A: The successful transaction between Mubadala and Carlyle is a clear demonstration of our approach as an investor, actively managing our portfolio and the associated risks and opportunities, while optimizing returns on our invested capital.
We have established a strong track record demonstrating our ability to monetise positions when the timing and valuation are right. Furthermore following this transaction, Mubadala remains the majority Cepsa shareholder with 63% ownership with Carlyle having 37% ownership. We look forward to working closely with both Carlyle and the Cepsa management team under the leadership of CEO Philippe Boisseau, focusing on growing the business and creating even greater value from the company’s integrated portfolio.
Q: What were the key drivers of the sale of equity to Carlyle Group rather than integrating Cepsa with Mubadala Petroleum? There appears to be a lot of overlap between the various portfolio companies?
A: We manage a diverse and balanced global energy portfolio of investments across the petroleum value chain while our upstream businesses complement each other, also there are very few areas of overlap. Each business asset has their own set of strengths, technologies, market knowledge and technical expertise.
Mubadala and Carlyle have been partners for many years. As such, the key drivers in the equity sale of Cepsa to Carlyle were straightforward. Carlyle is a known and trusted partner of Mubadala and an experienced and knowledgeable investor in the energy sector.
During the ongoing energy transition, the smartest, most nimble and innovative companies will win out as the pace of change accelerates into a new energy era. Bringing in an investor, such as Carlyle alongside our own experienced team will bring a broad range of insights and support us in delivering growth plans and additional value. Furthermore, Mubadala was built on the strength of partnerships with the best in class!
Q: Regarding the recent agreements in Indonesia, are you pursuing any particular downstream projects? Do you perceive Indonesia as a particularly strong growth market?
A: Indonesia is indeed a strategic market for us. Through Mubadala Petroleum and more recently Cepsa, we have been present in the country for over 10 years. We hold interests in a number of exploration blocks in the Andaman Sea offshore Aceh, building on our successful operation of the Ruby gas field in the Makassar Strait. Cepsa, together with JV partner Sinar Mas, have built a fatty alcohols plant in Indonesia to advance the surfactants business.
Yes, the recently signed MoU is further testimony to the potential we see in Indonesia with its substantial population and developing economy, combined with our interest in exploring further opportunities in the petrochemicals sector alongside our portfolio company, OMV.
Q: On the upstream side, there has been a general focus on Asia, but there was a move into Russia last year [MEES, 7 September 2018]. What is Mubadala’s strategy?
A: As a global investor, well-established across the region and with a strong international presence, we are continuously assessing opportunities in key global markets. This particular deal with Russia is, therefore, aligned with our strategy. We have worked closely with the Russian Direct Investment Fund for a number of years, and have successfully deployed capital in almost 40 opportunities in diverse sectors; all are delivering positive returns for the Russian economy and for Abu Dhabi via Mubadala.
Within this context, we saw Gazprom Neft Vostok as an opportunity to make our first investment in the Russian oil and gas sector because it is strategically in line with our target of investing into proven, long-term, low cost oil production. We own a part of a JV to develop oil fields in the Tomsk and Omsk regions of Western Siberia.
Q: Having taken 10% of Egypt’s Zohr last year, you added a stake in Eni’s nearby Nour gas field earlier this year. Do you plan further expansion in Egypt?
A: We have made a number of successful investments in the gas sector, a crucial energy resource in the energy transition. Last year alone saw an increase in demand for natural gas. The IEA forecasts average annual gas demand growth of 1.6% to 2024. Trade in gas has quadrupled over the past two decades thanks to burgeoning demand and expanding LNG facilities. We firmly believe in the investment potential of this resource, particularly in the emerging economies of the eastern hemisphere.
Consequently, we have been pleased with our entry into the Egyptian gas sector through a 10% stake in the Shorouk concession that contains the supergiant Zohr gas field. Zohr has enjoyed accelerated development and reached initial plateau production well ahead of schedule. We also hold a 20% interest in the Nour offshore gas exploration block. These investments have enabled Mubadala Petroleum to expand its position in Egypt while deepening the strategic partnership with Eni.
These assets further build on Mubadala Petroleum’s strong and well-established gas portfolio which include: Dolphin Energy; operated production in Indonesia through the working interests in Ruby; the development of the Pegaga gas field in Malaysia; and the successful bid in partnership with PTT to acquire the Erawan gas field in Thailand when the current concession expires in 2022. At platform level, we have also made recent investments in gas infrastructure and LNG, so gas is an important and growing part of our portfolio worldwide.
Q: It was notable that two firms in which Mubadala has stakes, OMV and Cepsa, won acreage in Adnoc’s bid round last year. What is the driver behind investing in your domestic market?
A: Through our partnerships and our investment portfolio of industry-leading businesses, we are continuing to create long-term value, and bring technology and operational expertise, when applicable, to the UAE through our investee companies.
Two of our best-in-class assets, OMV and Cepsa, won acreage in Adnoc's’s bid round due to superior bid submissions anchored by the expertise and technology they offer to Adnoc's. Both companies have wider relationships with Adnoc's in a range of initiatives; for example, OMV has struck an agreement with Adnoc'sto acquire a stake in Adnoc's Refining worth $2.43bn [MEES, 2 August].
The success of our investor companies in Abu Dhabi is very much based on the technological and commercial competitiveness of these companies.
Q: Domestically is Mubadala eying further opportunities from the downstream expansion work at Ruwais?
A: Our aim is to continue to support the development of Abu Dhabi’s downstream sector where it fits our commercial and strategic goals, and this includes making the most of the opportunities offered at Ruwais.
Borouge has begun the construction of a fifth polypropylene unit at its third plant in the Ruwais facility. The project is set to boost polypropylene capacity by more than 25% to 2.24mn t/y. With the addition of the latest unit, Borouge’s total production of polymers will increase by almost 11% to reach 5mn t/y.
Q: Mubadala’s portfolio companies are developing a sizeable petrochemicals hub in Texas through the Baystar joint venture [MEES, 5 October 2018]. How important is this to your strategy?
A:The Baystar project is a 50/50 venture owned by Total Petrochemicals and Refining and Novealis – itself a joint venture co-owned by Borealis and Nova Chemicals. An official groundbreaking ceremony for a new additional 625,000 t/y Borstar polyethene unit was held earlier this year in February in Texas. This is an exciting development for our assets Borealis and Nova Chemicals and Total is a company we know well. The project will enjoy highly competitive feedstock in the form of shale gas to produce enhanced polyethylene products for the most demanding applications.
Q: How is Mubadala positioning itself in the short term with developments like IMO 2020 from January and longer term with the increasing debate over the energy transition?
A: Global energy demand is increasing in parallel with the transition towards a lower carbon world. Digitalization and new business models in accelerating topics such as single-use plastic products and waste disposal are concrete examples of how companies are required to innovate and develop collaborative approaches. Our portfolio companies Nova Chemicals, Borealis, OMV and Borouge, are proactively addressing the increasing challenges deriving from the poor disposal of single-use plastic products.
Borealis is emerging as a strong leader in implementing a circular economy strategy with the signing of an agreement with OMV that utilizes recycled plastic waste as feedstock in its polyolefin plant, and with the launch of Borcyle™, a new technology producing high quality compounds with up to 80% recycled content. Significant investments are being made in recycling operations and working with customers to ensure a greater proportion of the materials produced by the company can be recycled beyond their initial use.
The company is also a founding member of Project STOP, a growing initiative that aims to eliminate the leakage of plastic waste into the environment and encourage local solutions that also support economic development.
Nevertheless, we should not lose sight of the essential role of plastics as the base for strong, lightweight materials to manufacture components essential in delivering future technologies, including solar panels, wind turbine blades, batteries, thermal insulation for buildings and electric vehicle parts.
We have a unique perspective and insight on tackling the challenges and opportunities in the ongoing energy transition. Our energy portfolio extends beyond oil and gas to renewables through our wholly-owned company, Masdar, a global leader in both solar and wind energy projects. This adds to our ability to leverage on the many investments in the technology we have made in the various Private Equity and Venture Capital funds we own.
Bridging traditional and renewable energy sources with innovative technologies will be key to making the ongoing energy transition a success. We will need all forms of energy, including oil and gas, as well as hydrocarbons-based materials for the future.
Interview conducted by Senior Editor Jamie Ingram