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TAQA reports strong performance in 2012 in water and power sector

posted on 14/03/2013: 773 views



Abu Dhabi National Energy Company PJSC ("TAQA" - ADX: TAQA), the global integrated energy company; today reported its full year 2012 operational and financial results.

TAQA delivered a resilient financial performance in 2012, reporting a 15 per cent increase in revenues underpinned by an outstanding performance in the power and water sector.

The company continues to report a solid financial performance while positioning itself for future growth with several large scale strategic energy infrastructure projects under construction.

Net profits dropped by 13 per cent in the 12 months to December 2012, reflecting a series of one-off items and a challenging price environment in North America.

In Power '&' Water, TAQA delivered a strong operational performance with very high availability and low forced outage rates, firmly placing it among the top performers globally. Its organic expansion plans are also progressing apace, with Jorf Lasfar Units 5 '&' 6 now 80% complete and on budget. Similarly, the expansion project at Takoradi, Ghana, is now under way with all approvals secured and construction in progress.

TAQA also entered in to two new markets during the year, having signed a Memorandum of Understanding with E?A?, the Turkish national power company, in respect of a major project in Southern Turkey, and investing in a 1,000 MW power plant in Sulaymaniyah in the Kurdistan region of Iraq.

In the UK North Sea, despite some operational challenges, including unplanned shutdowns which impacted performance, TAQA benefited from the buoyant Brent oil price and a number of acquisitions during the year. The most significant being the agreement to acquire from BP a range of assets in the Central North Sea, together with associated subsea infrastructure.

To help address the on-going weak market conditions for natural gas in North America, non-core North American acreage was sold, new acreage was acquired in TAQA's core production region and uneconomic production shut-in. In the last quarter of 2012, natural gas prices recovered somewhat and have maintained an upward trend since.

Reflecting TAQA's broader focus on the MENA region, it acquired a majority stake in the Atrush exploration block in the Kurdistan region of Iraq - its first operated oil and gas asset in MENA.

During the course of 2012, TAQA completed several landmark financing transactions, including its maiden Sukuk issuance, and the largest non-sovereign US$-denominated issuance from MENA in 2012.

Profitability. Total revenues for 2012 were AED 27.8 billion, 15% higher year-on-year, compared with total revenues of AED 24.2 billion in 2011. Cost of sales, excluding construction expenses, were AED 16.3 billion in 2012, an increase of 5%.

Power '&' Water revenues, excluding supplemental fuel and construction revenues, grew by 9% to AED 8.5 billion from AED 7.4 billion in 2011. The increase in revenues was driven by greater available capacity from the Shuweihat 2 plant, which commenced phased operations in July 2011, combined with continued high levels of technical availability across the entire fleet. Construction revenues from the Jorf Lasfar 5 '&' 6 and Takoradi projects of AED 3.6 billion were offset by construction costs of AED 3.5 billion, leaving a profit margin of AED 76 million.

Supplemental fuel income decreased 24% year-on-year to AED 3.6 billion, due to significantly lower use of alternative fuel supplies at TAQA's domestic power plants.

Operating expenses for Power '&' Water (which excludes fuel costs and construction costs) were flat year on year at AED 2.0 billion. Depreciation, Depletion and Amortisation ("DD'&'A") expenses for Power '&' Water were AED 1.8 billion in 2012 compared with AED 1.6 billion in 2011, principally due to Shuweihat 2.

Total Oil '&' Gas revenues (including gas storage and other income) were stable at AED 12.0 billion for 2012. This was driven by lower production across all our producing regions and continued weak North American gas prices, offset by higher sales at Bergermeer, which saw other operating revenue grow by AED 357 million.

Oil '&' Gas expenses rose from AED 3.6 billion in 2011 to AED 5.0 billion in 2012, principally due to stock movements (AED 829 million), and higher repair and maintenance costs in the UK, mainly due to the Otter acquisition. Oil '&' Gas DD'&'A expense was flat at AED 3.7 billion in 2012.

Finance costs increased from AED 4.6 billion in 2011 to AED 5.0 billion in 2012, an increase of 10%. The increase was due to interest on the Malaysian Sukuk issued in March 2012 and the USD bonds issued in end of 2011. The new fixed term debt replaced short term bank loans that carried significantly lower interest rates.

Profit Before Tax was AED 3.5 billion in 2012, 14% lower year-on-year than AED 4.1 billion in 2011, due to lower revenues from Oil '&' Gas, principally due to lower North American gas prices and higher finance costs as outlined above.

During 2012, TAQA rationalised its portfolio to focus on its core operations and footprint. In April, TAQA's holding in Tesla Motors was sold for a total consideration of AED [956] million, recognising a gain of AED [415] million. In North America, and in line with its stated strategy, TAQA disposed of various non-core assets for AED [1.8] billion, recognising a gain on disposal of AED [380] million.

Income from Associates and Joint Ventures fell by 48% to AED 151 million. The decline was principally driven by the performance of Sohar Aluminium Company which was impacted by falling aluminium prices.

Income tax expense was AED 2.2 billion for 2012 compared to AED 2.5 billion in the prior year. The effective tax rate remained unchanged at 62%, and reflects the higher tax rate environment, in particular within the UK North Sea.

Profit for the period (after minority interests) was AED 649 million, a decrease of AED 95 million compared to AED 744 million in 2011. The decline was principally driven by lower operating profit, offset in part by the gains recognised on assets disposal conducted during the period.

Total debt of AED 79.5 billion in 2012 increased from AED 73.9 billion in 2011, following new bond issuances during 2012 in anticipation of bond maturities in 2013.

In line with its funding strategy, TAQA completed several landmark financing transactions during 2012. At the start of the year, it successfully completed a MYR 650 million Sukuk issuance as part of MYR 3.5 billion Sukuk programme established in 2011. The programme also provides TAQA with an important source of long term, diversified funding.

In December, TAQA completed a landmark US$ 2.0 billion dual tranche bond, the largest non-sovereign US Dollar denominated issue for the MENA region in 2012. It also secured the lowest coupon ever achieved by TAQA for five and ten year funding of 2.5% and 3.625% respectively.

Finally, in December, a new US$ 2.5 billion dual tranche multi-currency revolving credit facility was signed.

Consolidated cash on hand as at 31 December 2012 was flat year on year at AED 3.8 billion. TAQA had unused credit lines of AED 20.3 billion at the end of 2012, compared to AED 14.2 billion at the end of 2011, and total available liquidity of AED 24.1 billion, compared to AED 18.0 billion for 2011.

TAQA's Power '&' Water business performance continues to generate steady, stable cash flows, with a top-quartile performance for technical availability.

TAQA produced 75,124 GWh of electricity and 240,801 MIG of water in 2012, up from 67,390 GWh and 220,530 MIG of water during 2011, generating total revenues of AED 8.1 billion for the year. The 9% increase in revenues compared to the same period last year, reflects the full year contribution from Shuweihat 2 which had partial production from May 2011 and was fully operational in October 2011. This performance was carried through into EBITDA of AED 6.6 billion, an increase of 13% over 2011, and net income of AED 2.2 billion.

Technical availability across the fleet was high, at an average of 94.6%, an increase of almost 2% over 2011. Combined with a forced outage rate of only 2.1% in 2012, TAQA is operating in the top quartile of its peer group globally in terms of performance. In particular, the domestic UAE fleet recorded a very strong performance, with a forced outage rate of 2%, and four of the eight power plants recorded a forced outage of less than 1%. In respect of the international fleet, it had a forced outage rate of 3%, including at Jorf Lasfar - a strong performance given that a 4.5-5% outage rate represents top quality performance for coal-fired technology.

TAQA's domestic portfolio of assets generated 55,275 GWh of electricity and 240,801 MIG of water during 2012, reflecting the additional 1,500 MW of power generation and 100 MIGD of water desalination capacity of Shuweihat 2. Domestic availability was 94.6%.

TAQA's international power portfolio, which comprises of assets in Morocco, Ghana, India, Saudi Arabia, Oman, Iraq and the United States, generated 19,849 GWh of power during the year. International technical availability was 91.4%, slightly higher than the same period last year.

In Morocco, the 700 MW expansion project at Jorf Lasfar continued to progress well and was 80% complete at the end of the year. The expansion will bring Jorf Lasfar's gross capacity to 2,056 MW. The commissioning of the two expansion units is planned for the end of 2013 and early 2014.

In June 2012, TAQA signed a US$ 1.4 billion equivalent, 16-year, multi-currency non-recourse project financing for the Morocco expansion. This was the first project financing in Morocco to be arranged in over a decade and the first major IPP financing in Morocco since the original Jorf Lasfar financing in 1997.

In Ghana, TAQA secured appropriate approvals for, and commenced construction of, the 110 MW expansion of Takoradi 2 in Ghana. The US$330 million financing for this expansion was a significant landmark, as it was the first IPP project financed in Ghana and the largest financing in sub-Sahara Africa during 2012. The TAQA-operated power plant currently represents 15% of Ghana's installed power production capacity.

During the year TAQA signed a number of significant agreements to expand its power footprint in its core MENA and India region, including entering two new markets - Iraq and Turkey: A joint venture agreement with Mass Global Investments Company Limited, through which TAQA acquired a 50% interest in a 1,000 MW gas-fired IPP situated near Sulaymaniyah, in the Kurdistan region of Iraq.

Acquisition of a 100 MW run of river hydro plant in the Himachal Pradesh region of India. The plant is TAQA's first fully operated merchant facility and is expected to commence commercial operations by H1 2013.

In October, the Government of the Republic of Turkey and the Government of the Emirate of Abu Dhabi signed a joint declaration expressing their strong support for the co-operation between Turkey's national power company E?A? (Electricity Generation Co. Inc.) and TAQA. This is part of the long term commitment by the Turkish Government to deliver over 7,000 MW of thermal power from domestic resources.

AQA's Oil '&' Gas business comprises strong, well-resourced centres of excellence supporting a portfolio of assets with viable growth potential across North America, the UK North Sea and the Netherlands.

Total Oil '&' Gas revenues, including gas storage and other operating revenues, were AED 12.0 billion for 2012, flat year on year compared with 2011. This was driven primarily by lower production and lower pricing - particularly in North America, where average net realized gas prices declined by 34%, offset by higher gas storage revenues.

Total average global daily production for 2012 decreased to 135.4 mboe/day, compared with 139.1 mboe/day in 2011, a fall of 3% due to the unplanned shut downs in the UK North Sea, the disposal of non-core acreage in North America and the shut-in of uneconomic production.

Reserves were replaced in excess of 100%. Total proven plus probable reserves at the end of December 2012 were 599.6 mmboe compared with 582.6 mmboe at the end of 2011.

In North America, an average of 85.9 mboed was produced during 2012. In the face of continued low natural gas prices, unprofitable dry gas production was shut-in and operational costs and overheads were reduced.

A key aspect of this was a review of exploration acreage during the year to ensure the most efficient operating footprint. As a consequence, the North American project pipeline was slimmed down from over 60 to just 12 key projects, and outlying acreage in southeast Saskatchewan was divested, realising AED 1.8 billion.

Subsequently, AED 569 million was invested in acquiring assets in core production areas, adding 5,000 boed of production, larger reserves and important mid-stream assets, all at a very attractive price.

Furthermore, as a consequence of low gas prices, North American capex was cut by 30% in the 2013 investment plan, and has been focused on those opportunities which continue to be attractive at these low prices.

During the year, a major overhaul was undertaken at TAQA's Crossfield plant, which has increased processing capacity from 48 mmcfd to 70 mmcfd and the efficiency rate to 97%. This investment will also allow us to process additional third party gas.

Despite the difficult pricing environment during the year, there has been a sustained uplift in prices towards the end of the year, with Henry Hub spot prices rising from US$2.81 on 1 September 2012 to US$3.42 on 31 December 2012. This positive trend has been continued post period.

Production volumes in the UK North Sea averaged 41.8 mboe/day during the year, a 3% decrease compared to the same period last year, largely due to the unplanned shutdowns in the Otter field pipeline and North Cormorant.

During the year, a number of significant developments were announced, including: In February, the acquisition of a 50% interest in licences that include the Darwin oil discovery, these are located next to the North Cormorant and Pelican fields.

In October, a new oil accumulation was discovered at the Contender prospect, which was drilled from the North Cormorant platform, with an early estimate of approximately 10-30 million barrels of oil in place. The field is being developed under the new name Cormorant East and commenced production in January 2013.

Furthermore, TAQA increased its stake in the Cladhan field, which is tied back to its Tern platform, and completed the Causeway tie-back to North Cormorant - this was TAQA's first third party tie-back in the North Sea.

In November, TAQA announced an agreement to acquire a major portfolio of operated oil and gas assets from BP for more than US$1 billion, with an effective date for the majority of the assets of 1 January 2012. The acquisition consisted of interests in the Harding (70%), Maclure (37.03%), and Devenick (88.7%) fields in the Central North Sea.

The acquisition also increases TAQA's non-operated interests in the Brae area and associated transport infrastructure, including the SAGE, Forties-Brae and Forties-Braemar pipelines. These assets are expected to increase net production by 19 to 21 mboed in 2012-2013. In addition, this constitutes a second major development hub in the central North Sea, opening up further investment opportunities, such as infill drilling on Harding, the ability to unlock significant discovered gas resources together with other adjacent field owners, and the development of the Morrone field. This transaction is expected to close in the first half of 2013.

Production in the Netherlands averaged 7.7 mboe/day, a 5% decrease compared to the same period last year. Operations in the Netherlands maintained very high availability at the PGI facility in Alkmaar and completed a large turnaround on the P15 platform without incident. TAQA also signed agreements to extend the operating life of the P15 platform until at least 2022. TAQA participated in a successful discovery on the F17 oil field with an estimated 30 mmboe of recoverable reserves.

A highlight for the year was receiving the final permits for the Gas Storage Bergermeer project and subsequently starting construction. More than 70% of the total working volume has now been sold under long-term storage contracts and the remaining capacity is intended to be offered annually based on short term storage contracts, with the first auction planned for autumn 2014. Commercial gas storage operations at Bergermeer are scheduled to start in 2014, with full capacity available in 2015.

In 2012, the WTI oil price remained largely flat year on year at an average of US$94.13/bbl for 2012, compared with US$95.11/bbl in 2011. Prices for Brent also remained fairly consistent, at an average of US$111.68/bbl in 2012 versus US$110.91/bbl in 2011. NYMEX gas prices for 2012 averaged US$2.83/mmbtu, in comparison to US$4.03 /mmbtu for the equivalent period in 2011.

During the fourth quarter, the oil price weakened with Brent prices declining by 6% and WTI prices by 5%. However, North American gas prices showed a more positive trend, with Henry Hub spot prices increasing by 22%, albeit from a very low level.

TAQA's Energy Solutions business has global responsibility for developing alternative and advanced technology solutions for energy production and generation. Alternative energy generation projects include wind, solar, geothermal, and waste-to-energy, as well as unconventional fossil-fuel projects such as gas to liquids, shale gas and using CO2 for enhanced oil and gas recovery.

Its approach has been to leverage TAQA's existing business footprint and resources, and is initially focused on those markets where it already has strong relationships, such as Abu Dhabi, Canada, Morocco and the Netherlands.

In June, TAQA joined forces with The Centre of Waste Management Abu Dhabi to evaluate the feasibility of developing one of the world's largest waste-to-energy facilities in Abu Dhabi. This would divert up to one million tonnes of waste from landfill every year.

In September, TAQA became a member of the Abu Dhabi Sustainability Group (ADSG), which was established by the Abu Dhabi Environment Agency, with the support of the Executive Council of the Emirate of Abu Dhabi, to integrate sustainability into the Emirate's economic and social development programmes.

TAQA agreed to buy a 50% interest in the 205.5 megawatt (MW) Lakefield wind project located in the Midwestern United States from a subsidiary of France-based utility Electricite de France SA (EDF). This project has the capacity to generate emissions-free electricity for more than 68,000 homes.

TAQA discovered oil in the new Darwin oil field in the Northern North Sea area near the Shetland Islands in Scotland. – Emirates News Agency, WAM

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