Abu Dhabi National Energy Company, known as Taqa, said on Thursday that it continued to make deep cuts across the board as financial losses piled up, and its chief operating executive warned that the company’s lower investment levels could not be sustained in the long run.
The company reported that revenue for the second quarter of the year was down about 28 per cent compared to the same period last year, at Dh4.7 billion. Taqa reported an after-tax loss attributable to shareholders of Dh421 million for the three months to June, compared to a Dh 239m profit in the same period last year.
For the first six months of the year, Taqa said revenues were down 29 per cent at Dh9.8bn and the pre-tax loss for shareholders was Dh165m, compared to a Dh513m profit last year.
Company executives wanted to highlight Taqa’s operating performance amid the worldwide industry squeeze, with oil and gas prices having more than halved since last year.
“These are challenging times in the oil and gas industry,” Edward LaFehr, Taqa’s chief operating officer, said in a call discussing the numbers. “The current commodity price environment has impacted the whole industry…[but our] operating performance is helping us offset some of the effects of lower prices on our bottom line.”
Costs were 19 per cent lower compared to the same period in 2014 after Taqa cut operating expenses by more than Dh1bn in the first six months of the year.
The lower costs have come partly from slashing jobs. The company, which employed about 2,800 worldwide before the cost-cutting programme, said it had cut 22 per cent of employees from its main oil and gas divisions, and 32 per cent at its headquarters in Abu Dhabi. While he couldn’t supply exact numbers, a spokesman said that equated to “hundreds” of jobs from the oil and gas divisions – particularly the North Sea and North American units – and “tens” from the Al Maryah island HQ, which had employed about 150.
“We have targeted Dh1.5bn cash cost savings by the end of next year and we are well on track to deliver that,” said Mr LaFehr, adding that more than half of those cuts had already been achieved.
The company also had targeted a 40 per cent cut in capital expenditure and Mr LaFehr said capex was down Dh1bn in the first half of the year at Dh 1.9bn.
The company’s lower spending resulted in production rate declines of just 5 per cent – to an average of 150,000 barrels per day in the first half – compared to “natural decline rates” of between 15 and 20 per cent, which has been “because of the great work of the business units,” Mr LaFehr said. But, he warned, “you are starting to see the trend – at these levels of capex investment you cannot sustain our production levels.”
Apart from the oil and gas price slump, Taqa has been dragged down by a series of badly timed investments – especially in oil and gas assets in North America – and a very high debt load.
While it has been trying to manage down interest-bearing debts of nearly US$20bn, its finance costs continue to run ahead of its gross profit, even in a low interest rate environment.
In answer to a question from the Barclays analyst Walid Bellaha, Taqa’s chief financial officer, Grant Gillon, said the company continues to explore opportunities to sell assets and lower the debt burden. He did not comment on reports that Taqa has hired Blackstone, the private equity firm, to help it in this process.
The company noted that its debt ratings from Moody’s Investors Service and Standard & Poor’s remained investment grade. But the rating agencies made clear recently that is only because of the implied government guarantee behind Taqa’s debt, which is majority owned by Abu Dhabi government entities. Without that backing its debt would carry a “junk” – or highly speculative – rating.
Taqa’s equity base has halved in the past year as it has had to write off the value of assets. That would have been much worse if an unidentified “related party” (which is assumed by analysts to be its government parent), had not agreed to buy assets at above-market prices, saving Taqa from having to write off billions of dollars more in asset values.
The company’s shares were down Dh0.03 yesterday at Dh0.67, having halved in the past year.
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