Abu Dhabi National Energy Company (Taqa) made progress to lighten its heavy debt load last year, although it posted a 29 per cent drop in annual revenue and pre-tax losses widened by more than 40 per cent to Dh2.4 billion.
The company, which is majority owned by Abu Dhabi’s water and electricity utility and other government entities, has also managed to keep from reporting much higher losses by putting a deal in place to sell assets in North America, Europe and the Kurdish region of Iraq, at prices above current market value.
Taqa reported that revenues fell to Dh19.3 billion last year from Dh27.3bn the previous year, with oil and gas revenues nearly halving at Dh6.29bn, while electricity and water was down Dh700,000 at Dh9.68bn.
Edward LaFehr, Taqa’s chief operating officer, said the company last year concentrated on controlling costs and refinancing its heavy debt load, making progress on both fronts. He said capital spending this year would decline sharply, but he expected oil and gas output to stabilise as the much-delayed Atrush project in Iraq brings onstream 30,000 barrels per day in the second quarter.
“We … reduced our capital investment and cash costs by 52 per cent and 21 per cent, respectively, compared to 2014,” Mr LaFehr said. “This yielded a Dh5bn cost structure improvement to significantly offset the lower oil and gas price impact. We also achieved record high production for our power and water business. Our oil and gas production of 145,300 barrels of oil equivalent per day represents a modest 8.6 per cent decline.”
Mr LaFehr said that lower capex comes partly from the completion of four major projects, but he acknowledged that other projects have been put off and will not be resumed until Canadian natural gas prices and North Sea crude prices recover.
Taqa said that capital expenditure this year would be cut by another 42 per cent, or Dh1.8bn, in the coming year, on top of last year’s Dh3.3bn cut.
“These reductions have resulted from cancelling or deferring most discretionary oil and gas investment,” Mr LaFehr said, adding that the company cut 900 jobs, or about 25 per cent of its global workforce, last year. Oil and gas jobs accounted for 32 per cent of the cuts, with cuts at head office making up 55 per cent.
“I see there was quite a drastic additional cut in capex [last year] and North America is already at a low historic level,” the Barclays analyst Walid Bellaha noted.
The company reiterated plans to divest its stakes in Abu Dhabi-based Massar Solutions and the Lakefield wind power project in the United States.
Taqa reported earnings before interest, tax, depreciation and amortisation of Dh9.6bn, compared with Dh14.5bn the previous year. With Dh4.6bn in finance charges and Dh6.5bn depreciation in asset values, partly offset by a Dh1.3bn tax credit, the company reported a loss for the year of Dh1.1bn, compared to a reported loss of Dh2.28bn the year before.
Mr LaFehr said the company also took an impairment charge on its assets of Dh681 million, which meant the loss attributable to shareholders was Dh1.8bn for the year, compared with Dh3bn the previous year.
Notably, however, the company’s loss last year would have been far greater if it had taken “fair value” impairment charges on its assets. Taqa requested that its accountant, Ernst & Young, recognise a deal it has in place with “a related party” which has agreed to buy the assets at a price much higher than current market value.
A deal previously in place for 2014 had allowed Taqa to avoid recognising a US$1.8bn decline in the value of its North American assets. The company reported that deals in place for North American, European assets, plus its Atrush asset allow it to avoid booking a decline in value of those assets of Dh12.6bn ($3.4bn).
Taqa has declined to identify the “related party”.
The purpose of the deals are to take a longer-term “life of assets” view to allow the company some financial support in the hope that asset values will recover in line with oil and gas prices.
Taqa, which has about 100,000 individual shareholders in the UAE who account for the 23 per cent of the company that isn’t owned by Adwea and other government entities, did not declare a dividend for last year.
The company has put considerable effort into reducing its debt, refinancing $3.1bn in the third quarter and total interest-bearing loans for the year were down to Dh67bn from Dh72bn.
Grant Gillon, chief financial officer, said the company is negotiating with banks and other potential financiers about refinancing $800 million of debt financing that matures next year, as well as other outstanding loan facilities.
“No firm decision has been taken on this. We are halfway through our transformation programme and only refinanced our revolving credit facility six months ago. We have a number of options available and will provide an update to the market in due course,” Mr Gillon said.
“We are only now beginning to see the impact of the cost savings and we will be recalibrating new [cost saving] targets for this year and next,” he added. This will in turn factor into the company’s debt needs.
Taqa shares rose 6.5 per cent in Abu Dhabi.