Taqa reports Dh3 billion loss for 2014, will cut capital expenditure

Abu Dhabi National Energy Company posted a second consecutive annual loss in 2014 as tumbling crude oil and natural gas prices forced it to take a one-time charge.

Taqa's gas storage Bergermeer project in the Netherlands. Courtesy Taqa

Abu Dhabi National Energy Company, known as Taqa, will cut spending sharply and suspend dividend payments as it reported another sharp annual loss because of the declining value of its oil and gas assets.

The company said on Wednesday that total revenue rose last year by 6 per cent to Dh27.3 billion, but although top-line earnings also rose the company had to write off Dh3.3bn in the post-tax value of its oil and gas assets, meaning that it posted a loss attributable to shareholders of a little more than Dh3bn.

Last year’s loss comes after a Dh2.5bn net loss the year before.

Taqa’s senior executives said that even though cash flow improved, the weak oil price meant that the company would not pay a dividend this year and would further cut capital expenditure by 39 per cent this year – to about US$1bn – on top of last year’s 23 per cent cut.

“The results have to be seen in the context of the weakening oil price in the second half of the year,” said Ryan Wong, Taqa’s chief financial officer. “The commodity price environment should not detract from the fact that Taqa delivered a very strong underlying performance.”

But Taqa’s shares suffered and were down yesterday by nearly 9 per cent, or 7 fils, at 0.73 dirhams on the Abu Dhabi Securities Exchange. The shares are lower by more than 50 per cent since the start of last year.

“There were a few bright spots, but given the weakness in the oil price the fact they took a big impairment is not a surprise,” said Martin Kohlhase, a corporate credit analyst at Moody’s Investors Service.

Taqa executives were keen to focus on improvements in the company’s operational performance and underlying finances, although the news was painful for shareholders, who were dealt a 65 per cent negative return on their equity last year on top of a 46 per cent negative return the year before.

Taqa is majority owned by Abu Dhabi Water and Electricity Authority (Adwea), with other government shareholders bringing the total owned by Abu Dhabi to about 76 per cent. The remaining shares are publicly held by about 100,000 shareholders, all UAE-based, according to Taqa.

Taqa has had a bad run, having to write down the value of assets several times over the past few years. The company entered the North American upstream sector in 2007, buying Calgary-based Northrock Resources for $2bn. That proved to be the top of the market, and in 2009 it announced a Dh271 million impairment on those investments.

By 2011, the company had started to sell off oilfields and shut down one of its processing plants the following year as gas prices continued to drop.

It wrote off $884m in the value of North American assets for the financial year 2013, and in spring last year its chief executive, Carl Sheldon, resigned.

With oil prices falling by more than 50 per cent since last June, the asset write-off was even greater last year. Not only did Taqa have to write down Dh1.8bn at its North American assets, but also nearly Dh1.4bn in the UK North Sea holdings and another Dh120m of Netherlands holdings.

The Taqa chief operating officer, Edward LaFehr, who took over day-to-day management last year, pointed to the companies’ operational improvements, including record oil and gas production of nearly 160,000 barrels of oil equivalent per day, record power production and record earnings before interest, tax, depreciation and amortization, which was up nearly 8 per cent at Dh14.5bn.

The company has been trying to refocus on less risky assets such as its Gas Storage Bergermeer project in the Netherlands but it is still some way short of its financial targets, such as earnings cover for interest and debt payments.

Although its debt rating is investment grade – A3 with Moody’s – it has a “baseline credit assessment” (what it would rate without an implied government guarantee) two notches below investment grade at Ba2.

Taqa’s room for manoeuvring is limited because of oil price weakness.

“Even if they wanted to exit the [oil and gas upstream] market there probably are only a few buyers out there with oil prices so low,” said Mr Kohlhase. “It’s probably a decision the management of Taqa now has to make – to fix and hold or to sell because of volatility and capital intensity involved in upstream.”

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