KKR and BlackRock Invest $4 Billion in Abu Dhabi Pipelines

KKR & Co. and BlackRock Inc. agreed to invest $4 billion in Abu Dhabi’s oil pipelines, securing two decades of guaranteed returns and providing the Middle Eastern energy producer a cash injection to help diversify its economy.

Abu Dhabi National Oil Co. will receive the payment upfront and the deal paves the way for similar investments, Sultan Al Jaber, chief executive officer of government-run Adnoc, said in a statement posted on Twitter. The deal is the first investment by foreign asset managers in the infrastructure of a Middle Eastern government-owned oil producer, Al Jaber said.

Adnoc aims to help the United Arab Emirates, where Abu Dhabi is the capital, build new industries for a post-oil future by generating cash from its biggest assets. The company has attracted about $10 billion in investments this year. Saudi Aramco, the world’s biggest oil company, is also seeking investors and plans to sell bonds soon.

“It’s substantial that investors of the caliber of KKR and BlackRock are putting money into Adnoc when traditionally they’ve raised funds in this region for projects back in the U.S.,” said David Hodson, managing director of Dubai-based energy consultants Blue Pearl Management. The deal should “increase visibility of the region for U.S. investors.”

23-Year Lease

KKR and BlackRock will become partners in the newly formed Adnoc Oil Pipelines, which will lease the assets for 23 years. Adnoc committed to minimum transit volumes under the deal, the company said in a statement. It will own 60 percent of the joint venture, and BlackRock and KKR will together hold the rest.

The deal, which is expected to close in the third quarter, gives the partnership leases on 18 pipelines. Adnoc, which produces about 3 million barrels of crude a day, will continue to manage operations of the pipelines.

The state oil producer will house its stake in Adnoc Oil Pipelines along with similar assets in a single infrastructure unit. That business plans to expand and attract new investments, Adnoc said.

“With this transaction as a precedent, we believe there is substantial potential to do even more,” KKR Co-CEO Henry Kravis said in a statement.

Bank of America Merrill Lynch and JPMorgan Chase & Co. acted as financial advisers to Adnoc, while Moelis & Co. was Adnoc’s independent financial adviser.

Last month, Italy’s Eni SpA and Austrian oil and gas producer OMV AG agreed to pay about $5.8 billion for a stake in Adnoc’s refining unit. Adnoc agreed in October to sell a 5 percent.