This week Fitch Ratings affirmed its long-term issuer rating of Abu Dhabi Crude Oil Pipeline LLC (ADCOP) and the Abu Dhabi Crude Oil Pipeline 4.6% 2047 at AA with a stable outlook.
Abu Dhabi Crude Oil Pipeline 4.6% 2047 remains a favoured holding for us for a number of reasons. First, we view the strong links with the Abu Dhabi Government, a wealthy nation, as a strength. ADCOP is indirectly owned by the Abu Dhabi government through its 100% ownership of ADNOC and ADNOC Infrastructure. ADCOP owns a 405km pipeline running from Habshan in Abu Dhabi to Fujairah Port transporting a significant portion of ADNOC’s (Abu Dhabi National Oil Company, the state-owned integrated oil company managing ~95% of the UAE’s proven oil reserves) exports. ADNOC owns 60% of ADNOC Onshore and ADNOC Onshore is ADCOP’s main counterparty through a 37-year use and operation agreement (U&O).
Second, as Fitch highlights in their commentary that “Under the U&O agreement, fixed payments of at least USD219 million a year are not affected by the volume of crude oil transported, or the pipeline's availability, even if there are force majeure events.” Plus, we note there is the potential for revenues to be higher if the volume shipped is above 600,000 barrels per day (bpd). Fitch also notes “The robust contractual framework ensures the intervention of ADNOC in case of non-payment under the U&O agreement as ADNOC has to make a termination payment to cover the outstanding bonds. ADNOC also provides significant cost support to ADCOP in line with the contractual framework.”
Third, we note that the structure of the ADCOP project has reduced many risks: the pipeline is operational since 2012, uses established technology, the pipeline runs through the UAE (Fujairah port exit) and bypasses the Strait of Hormuz and the contract and agreements with ADNOC Onshore mitigate many of the risks to ADCOP. Fitch note: “The material de-risking of the project and high cash-flow visibility offset the low coverage metrics of the average debt service coverage ratio (DSCR) of 1.04x and a minimum of 1.02x, including sinking fund transfers.”
Finally, Abu Dhabi Crude Oil Pipeline 4.6% 2047 screens attractively on our models trading on a yield of ~2.9% and trades over 4.6 credit notches cheap using its AA rating.