Shale gas revolution drains Taqa profits

Profits at Taqa fell last year as North American gas prices and disrupted oil production in the United Kingdom contrasted with solid results by the company's power and water business.

Production at Taqa's North Sea oilfields, above, declined 3 per cent on the year after a leak at the Cormorant Alpha platform forced a shutdown at the site. Courtesy Taqa

Profits at Abu Dhabi National Energy Company fell last year as North American gas prices and disrupted oil production in the United Kingdom contrasted with solid results by the company's power and water business.

Net profit dropped 13 per cent to Dh648 million (US$176.4m), while revenue increased 15 per cent to Dh27.8 billion.

The government-controlled company, known as Taqa, has been stung by the shale gas revolution in the United States and Canada, where the company is producing gas. The increased supply has sent prices tumbling. Taqa responded by slimming its North American gas portfolio, shedding low margin assets and buying into more profitable fields.

"While we have continued to endure a tough pricing environment in North America, there is reason for some optimism, as prices have recovered from their low point," said Carl Sheldon, Taqa's chief executive. "Nonetheless, we have taken decisive action to restructure our North American business."

The company divested assets in Canada worth Dh1.8bn, and invested Dh569m in new production sites. Capital expenditure in North America for this year has been cut by 30 per cent.

Production at Taqa's North Sea oilfields declined 3 per cent on the year after a leak at the Cormorant Alpha platform forced a shutdown at the site. Cormorant Alpha's 10,000 barrel per day (bpd) remainshut in, but Taqa's other North Sea wells are pumping again after the company resumed operation of the North Sea Brent pipeline.

Nevertheless, oil and gas revenue increased by Dh22m to Dh12bn. The acquisition of BP's North Sea assets last year for $1bn will add a further 20,000 bpd to Taqa's current production capacity of 40,000 bpd during the course of 2013.

The year also marked Taqa's first foray into Islamic finance with a 650m Malaysian ringgit (Dh768m) sukuk. This affected the company's financing costs as higher interest rates on the sukuk and an earlier bond increased the cost of capital by 10 per cent to Dh5bn.

Dept grew by Dh5.6bn to Dh79.5bn last year.

Revenue from the company's power and water operations grew by 9 per cent to Dh8.5bn. But this was offset a decline in fuel revenue, which fell 24 per cent to Dh3.6bn, as Taqa's domestic power plants reduced their reliance on alternative fuels.

Taqa majority-owns all of Abu Dhabi's conventional power plants, and is steadily expanding its overseas portfolio. Plants are under construction in Morocco and Ghana, and the company bought a stake in a 1,000 megawatt facility in the Kurdistan region of Iraq last year.

It also signed a memorandum of understanding with the state-owned power operator Euasto build power plants and develop coal mines in Turkey, a deal that could be worth up to $12bn.

Entry into Turkey is "strategically highly important for us", said Mr Sheldon.

The Abu Dhabi Securities Exchange-listed company is proposing a dividend of Dh0.10 per share.