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Baker Hughes to Acquire Stake in ADNOC Through $500M Deal

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Baker Hughes, a GE company (BHGE - Free Report) plans to buy 5% stake in Abu Dhabi National Oil Company’s (ADNOC) drilling business, through a deal valued at $550 million. The strategic partnership makes Baker Hughes the first foreign company to buy interest in the UAE-based state-run energy company’s any of the units. The move is expected to enhance Baker Hughes’ presence in Middle East, where oil and gas operations are rapidly increasing, and entitle it to secure a seat in the Board of Directors of ADNOC Drilling.

The deal values ADNOC Drilling at $11 billion and provides it access to the technical expertise of Baker Hughes, which can aid in making the former an international player. The knowledge that ADNOC will gain from Baker Hughes will enable it to increase drilling efficiencies and well economics, as well as unlock greater value from its conventional and unconventional hydrocarbon resources. ADNOC’s drilling unit is the sole rig provider to ADNOC Group of Companies, which has plans to increase conventional drilling operations by 40% within 2025. The partnership is also expected to provide services all around the globe.

The deal is anticipated to aid Baker Hughes to generate predictable revenue streams for a long term from operations in the Middle East. The partnership is expected to slash ADNOC’s drilling time by 30% within 2019-end. The deal is expected to close in the final quarter of this year and operations will likely start next year.

Price Performance

Houston, TX-based oilfield service provider, Baker Hughes has lost 8.8% in the past year compared with 9.9% collective fall of the industry it belongs to.

Zacks Rank and Stocks to Consider

Baker Hughes currently carries a Zacks Rank #3 (Hold). Some better-ranked players in the oil and gas sector are Petroleo Brasileiro S.A. (PBR - Free Report) or Petrobras, Shell Midstream Partners, L.P. (SHLX - Free Report) and Chevron Corporation (CVX - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Petrobras is the largest integrated energy firm in Brazil and one of the major players in Latin America. It pulled off an average positive earnings surprise of 10.4% in the last four quarters.

Shell Midstream Partners is involved in owning, operating, developing and acquiring pipelines, and other midstream assets. The partnership delivered an average positive earnings surprise of 7.9% in the trailing four quarters.

Chevron is an integrated energy company based in San Ramon, CA. The company’s top line for 2018 is expected to grow 17.7% year over year.

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