Taqa swings to first quarter loss amid coronavirus pandemic

The company reports a loss of Dh1.7bn for the first quarter as it booked impairments linked to lower oil price expectations

Abu Dhabi National Energy Company swung to a first-quarter loss as revenue decreased and impairment losses climbed amid lcoronavirus pandemic. Ravindranath K / The National

Abu Dhabi National Energy Company, or Taqa as it is better known, swung to a first-quarter loss as revenue fell and the company booked impairment losses due to a collapse in energy demand induced by the coronavirus pandemic.

The state-owned oil company reported a loss of Dh1.7 billion for the three months ending March 31, compared to a profit of Dh6 million a year earlier, it said in a statement to Abu Dhabi Securities Exchange, where its shares trade. Revenue for the period fell 9 per cent to Dh4bn and it declared Dh2bn worth of impairment losses.

“As a result of the significant and prolonged effects on oil demand due to Covid-19, and in line with peers, the group reduced its 2020 and 2021 oil price assumptions, requiring a write-down of the group’s carrying amounts of certain oil-specific assets with a post-tax, bottom-line impact of Dh1.5bn,” Taqa said on Monday.

Brent crude prices dropped from highs of almost $69 per barrel in January to $19.33 by mid-March as demand buckled due to movement restrictions put in place to stop the spread of Covid-19. However, prices recovered to more than $40 per barrel on the back of an Opec+ agreement to cut production by 9.7 million barrels per day, with tapering of supply in place until 2022.

Earlier this year, Abu Dhabi Power Corporation (ADPower) agreed to a deal that will see it transfer the majority of its water and electricity generation, transmission and distribution companies to Taqa in return for convertible shares in the latter.

The deal is effectively a reverse takeover which will create a new, regional utilities champion with total assets worth about Dh200bn and more than 85 per cent of its revenue coming from regulated and contracted businesses.

It will help Taqa to become “a top-10 integrated utilities player in the EMEA (Europe, the Middle East and Africa) region by regulated assets and one of the largest publicly-listed companies in the UAE, based on market capitalisation,” Taqa said.

“As we look to close the landmark transaction with ADPower in the upcoming weeks, Taqa will not only become a fully integrated utility, but will benefit from the financial strength to lead the UAE’s power and water sector transformation,” Saeed Al Dhaheri, chief executive of Taqa said.

The company’s liquidity as of March 31 remained strong at Dh11.9bn, including Dh2.6bn in cash and cash equivalents and Dh9.3bn of undrawn credit facilities.

Moody's Investors Service earlier this year placed all of Taqa's credit ratings under review for an upgrade following the asset swap deal with Abu Dhabi Power Corporation.

“The review for upgrade reflects Moody's view that a successful transfer of the ADPower assets would reinforce the strategic importance of Taqa for the government of Abu Dhabi,” the ratings agency said.

Taqa’s A3 long-term issuer rating and P-2 short-term issuer rating, among others, are likely to be upgraded following the deal's completion, Moody’s said in February.

The group’s average oil and production in the first quarter fell 4 per cent to 121,622 boepd (barrels of oil equivalent per day) mainly due to lower production in Europe. Global power generation during the period rose to 18,103 GWh, from 17,597 GWh in the first quarter of 2019, it said.

Global oil companies are under pressure as demand for oil has fallen during the coronavirus pandemic. Earlier this month, oil giant BP said it will write off as much as $17.5bn (Dh64.3bn) from the value of its assets as it revised down its long-term energy price assumptions due to weaker demand.

Established in 2005, Taqa has investments in power generation, water desalination, oil and gas exploration and production, pipelines and gas storage. The company's assets are located in the UAE, Canada, Ghana, India, Iraq, Morocco, Oman, Saudi Arabia, Netherlands, the United Kingdom and the US.