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Mubadala continues to invest globally in the energy value chain

Nov 11, 2019
9 min read
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Musabbeh Al Kaabi, CEO, Petroleum and Petrochemicals, Mubadala Investment Company talks exclusively to Pipeline Magazine’s Julian Walker about Mubadala’s growing global investment portfolio in oil, natural gas and petrochemicals around the world 

What are Mubadala’s key areas for near-term growth within the existing portfolio and new investments for wider expansion?

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 nearly US$13 billion 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 utilise proprietary technology and competitive feedstock to organically grow our petrochemicals investments.

What has been the strategy guiding Mubadala’s investment decisions over the past months?

Our 2019 strategy has been focused on growth and delivery, and consolidation when the time and valuation enabled us to realise the value we have created. We have put the focus 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 include the sale to Carlyle of a significant minority shareholding, 37 per cent, in Spain’s Cepsa from Mubadala. In the LNG sector, we have successfully gained the first exposure to the U.S. Gulf Coast market through the recent deal with NextDecade. Similarly, we also acquired a 2 per cent stake in Spanish Enagas, which is the world’s largest LNG regasification terminal operator by number of terminals. We have now the first building block of an LNG portfolio in the European and U.S. LNG markets.

As you can see, the transition from a development vehicle to an investment company is well underway and gaining traction.

What is the significance of the recent transaction with Carlyle in Spain’s Cepsa?

The successful transaction between Mubadala and Carlyle in Cepsa is a clear demonstration of our approach as an investor, actively managing our portfolio and the associated risks and opportunities, while optimising 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 shareholder with 63 per cent ownership with Carlyle having 37 per cent ownership. We look forward to working closely with both Carlyle and the Cepsa management team under the leadership of the CEO Philippe Boisseau focusing on growing the business and creating even greater value from the company’s integrated portfolio of operating assets.

Mubadala’s Petroleum & Petrochemicals platform has become increasingly integrated across upstream, midstream and downstream. How much of a strategic priority has this been and what are the key advantages?

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.

On the upstream side, there has been a general focus on Asia, but there was also a deal in Russia. What is Mubadala’s strategy here?

As a global investor, well-established across the region and with a strong international presence, we are continuously assessing opportunities in key markets across the globe. 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 now, 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 Tomsl and Omsk regions of Western Siberia.

You also took a stake in Eni’s nearby Nour gas field earlier this year. Can you tell us more about Mubadala’s involvement in the gas sector?

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 International Energy Agency (IEA) is forecasting an average of 1.6 per cent increase per year in global gas demand going forward 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 per cent 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 per cent 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 PTTEP 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.

Domestically is Mubadala eying further opportunities from the downstream expansion work at Ruwais?

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 also 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 per cent to 2.24 million tons per year. With the addition of the latest unit, Borouge’s total production of polymers will increase by almost 11 per cent to reach 5 million tons per year.

How is Mubadala positioning itself in the short term with developments like IMO 2020 from January and longer term with topics such as growing plastics demand and increasing debate over climate change?

Global energy demand is increasing in parallel with the transition towards a lower carbon world, digitalisation and new business models in accelerating topics such as single-use plastic products and waste disposal. There 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 the implementation of a circular economy strategy with the signing of an agreement with OMV that utilises 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 per cent recycled content, targeting appliances manufacturing.  Significant investments are also 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-own company, Masdar, a global leader in both solar and wind energy projects. Additionally, we have the ability to leverage on the many investments in technology through 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.

This interview first appeared in the November issue of Pipeline Magazine