Abu Dhabi's Taqa shares take a hit but future remains rosy

What's Down: Taqa shares have taken a hit over a gloomy outlook on the oil price.

After releasing bumper first-quarter earnings on Thursday, the Abu Dhabi National Energy Company, also known as Taqa, started this week on a low, its shares dropping by more than 3 per cent on the Abu Dhabi Stock Exchange.

The index traded lower yesterday as concerns over the European economy led to a gloomy outlook for oil demand.

This affected UAE stocks in general and Taqa in particular, as the Abu Dhabi company is heavily invested in crude production in the United Kingdom's North Sea.

Furthermore, a first-quarter increase in pretax profit of 46 per cent was largely driven by asset divestments, which hid the company's underlying vulnerability to extremely weak gas prices in North America, where Taqa owns significant gas production sites.

Its oil and gas income remained flat, in spite of hefty increases in the oil price over the course of the last year, as prices fetched for gas from its Canadian wells slumped.

The company also remains exposed to windfall taxes on hydrocarbon revenue in the UK.

Nevertheless, Taqa can still rely on some strong fundamentals. Oil demand is predicted to pick up again in the coming months and Brent, the benchmark for crude traded in Europe, is still selling at a significantly higher price than crude in the United States.

The company also has a stake in all eight of Abu Dhabi's power plants that are run as public-private partnerships, which generate steady long-term returns. Majority-owned by the Abu Dhabi Government, 21 per cent of Taqa's shares are held by the emirate's Farmers Fund, a further sign of the company's solidity.

Upcoming projects also give cause for optimism. This month, a Dutch court rejected an appeal against a gas storage project, enabling the company to invest in the lucrative European market.

A ninth power plant in Abu Dhabi might be tendered for after the summer, which would eventually add to the company's returns.

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