The Abu Dhabi National Energy Company is in the process of maturing from an acquisitive state-backed start-up to an IOC-standard upstream & utilities powerhouse.
Taqa is turning a corner. Known on the Abu Dhabi Securities Exchange as the Abu Dhabi National Energy Company, TAQA has only been around since 2005, but has already made a big impression on the world stage.
The company was founded in as ‘Abu Dhabi’s energy champion’. In practice, this has meant taking private ownership of ADEWA’s power and water assets, and utilizing the huge capital injected by their majority shareholder – the Abu Dhabi government – to acquire assets in the power, water and upstream oil & gas sectors with a view to becoming a global leader in the energy sector.
Abu Dhabi’s state utilities arm ADEWA owns 51% of the shares in TAQA, with the rest traded on the Abu Dhabi Securities Exchange. The company provides 98% of the water and electricity requirements for the Emirate of Abu Dhabi and also has facilities in Ghana, Morocco, Saudi Arabia, Oman, and India and together it has a power capacity of 14,834 MW and 787 MIG/d of desalinated water capacity.
TAQA’s Oil & Gas operation comprises crude oil and natural gas exploration, production, processing, transmission and storage in North America, the United Kingdom and the Nethlerlands. As at December 31, 2010, TAQA had 587 mmboe of proven and probable reserves and produced an average of 134.6 mboe/d throughout the year.
For TAQA, starting up meant spending big, on a broad range of power, water and upstream oil and gas projects. Under former CEO Peter Barker-Homek, the company went on an acquisition spree, making large investments at the peak of the market, some of which the company has since sold.
The company has now adopted a more mature growth strategy.
“Taqa could be characterised as a giant start-up,” explains David Cook, executive officer and head of upstream. “In the last 18 months to two years we have been working really hard to get things on track for delivering the kind of business that we want this to be… we’re now much more about organic growth than we were in the first few years of the company.”
Changing of the guard
Bringing in new talent with track records from international supermajors and trusting them to manage the business, has been essential in advancing TAQA’s ongoing maturity. “All these people bring the capabilities and expertise that TAQA needs,” explains Cook. “It’s part of our natural progression.”
Cook joined in October 2010 from BP’s operations in Russia, having built a broad base of international experience within BP’s businesses. “I’ve joined recently to bring in more Oil & Gas expertise, as well as experience of the industry internationally,” he explains.
Stephen Kersley joined in May as CFO, bringing 23 years’ experience from Shell, and Ken Boyle, who also built his career at BP, joined in February as Group Vice President for Human Resources.
In June this year H.E. Abdulla Saif Al Nuaimi stood down as TAQA’s CEO to focus on his primary role as Director-General of ADEWA, with Carl Sheldon, the company’s General Manager and an experienced energy lawyer with the company since inception, taking over.
Al Nuaimi “wasn’t able to dedicate the time needed at Taqa” in light of his promotion, says Cook. “The chairman and government of Abu Dhabi were very comfortable in allowing these changes to occur.”
Going for growth
In the second quarter of this year Taqa bounced back from a disappointing Q1 in which increased revenue from was marred by losses on foreign currency contracts and a surprise UK tax hike on North Sea profits.
TAQA’s profit before tax for Q2 2011 was AED 1.4 billion ($381 million), 151% higher year-on-year, due to increased revenues from high oil prices and increased production in the Netherland and the North Sea, where production is up 27% year-on-year. Global oil & gas revenues of AED 3.125 billion ($850 million) are up 53% on Q2 2010.
Sheldon emphasised that TAQA has “good liquidity and a good cash position”, in a conference call to the media, with AED 4 billion ($1.089 billion) in cash and cash equivalents.
Despite the UK Treasury’s North Sea tax sting, Cook sees Taqa continuing to invest in the North Sea. “The announcement of the tax was, well, not pleasant,” he says. “I think the government will keep this under review and find ways to continue to incentivise the development of the North Sea. There are, however, reserves there that could be abandoned if producers are penalised at very high levels.”
“That said I don’t see the new tax regime overly affecting our business,” Cook explains. “Our cash flows coming out of the North Sea are tremendous. We are having a good year and continue to increase production at low cost.”
Bridging the gap
Another source of promise for TAQA is opportunities for synergy between the utilities and hydrocarbons arms of the business, which Cooks says is “a big part of what makes TAQA distinctive.”
Cook discusses synergy opportunities with Frank Perez, his counterpart for power and water, regularly, and integration is something they are both examining, both at existing facilities and in locations where TAQA would be a new entrant.
Moving to MENA
After the acrimonious departure of Peter Barker-Homek, TAQA’s CEO from April 2006 to October 2009, the company re-thought its geographical strategy.
“We are going to be shifting our centre of gravity towards the Middle East and North Africa,” says Cook.
Recently, this has included divesting assets in Jamaica and the Caribbean. The company purchased a 40% stake in the Jamaica Public Service Company and a 50% stake in Marubeni three years ago, and managed to sell both on without sustaining a loss.
“The Caribbean is certainly not part of our core business,” explains Cook. “On the power and water side we are focused on the Middle East and North Africa, so we can take the funds from the sale of our Caribbean assets and deploy them in our core areas, either on the power and water or across in the oil & gas part of the business.”
TAQA’s new $2 billion a year investment program – of which the company has spent $920 million so far this year – is focused on the expansion of the company’s power and water offering in Morocco and Ghana, the Bergermeer gas storage project in the Netherlands, with continued investment in North Sea and North America drilling.
The Bergermeer project – in which TAQA plans to transition the area into a gas re-export hub by storing gas in previous depleted reservoirs – has been delayed by a court order over concerns from local residents about earth tremors, but Sheldon is confident the project will go ahead, and be completed in 2014.
“One of the things that our oil & gas business has developed already is a skill set in a range of different environments both onshore and offshore, for everything from exploration to storage and transportation which we think are exportable anywhere in the world,” says Cook.
“We have the Abu Dhabi passport, which has a positive impact on geopolitical relations and access. Our view of risk is maybe different from some companies because of where we sit.
Combining that with our version of an integrated model of oil & gas with power & water, and obviously the Middle East, Gulf, Indian Sub Continent and West and North Africa make a lot of sense.”
Cook echoes Sheldon, who said the Middle East and North Africa is “clearly a region where those opportunities are likely to be greater so we are looking carefully at opportunities to grow the business across the region. If the right opportunity presented itself in the MENA region for an oil & gas play we’d be interested in it, but it has to have the right return dynamics.”
The company has been bolstering its Abu Dhabi head office, consolidating its ancillary function under one roof.
In an integrated upstream to power model, using gas feedstock clearly makes sense, and this is being reflected in TAQA’s strategy. “As an integrated business, gas is the preferred set of molecules for TAQA in terms of transport and utilisation. However, oil is still going to be a necessary product for the globe for a long time yet.”
“In the Middle East in general we are seeing more of a focus on gas. And it’s a cleaner fuel that can be utilized in lots of ways. So our strategy is shifting to gas, looking at it as a non-renewable energy source.”
Playing it safe
Cook is keen to emphasise that TAQA has put in place safety standards that stand up to those used by international oil and gas supermajors, and that the company is committed to continuous improvement.
“We even brought in a third party to evaluate all our drilling operations around the world and ensure they are up to standard,” Cook explains. “I’m a believer in the ‘bigger brain’: you don’t necessarily know all the answers so it can be smart to reach outside your company for a fresh pair of eyes on things.
We are going to continue to do this, not so much because of Macondo, but because we are in a risky business and there’s nothing worse than the loss of a human life or damage to the environment.”
The ex
As with any adolescent, Taqa has experienced growing pains. Previous CEO Peter Barker-Homek applied his experience as a mergers and acquisitions executive at BP to undertake a $25 billion acquisition spree at the top of the market, buying a diverse spread of assets including 14 major acquisitions from – to the Caribbean.
Barker-Homek is now suing TAQA for $460 million, alleging corruption at the company and a subsequent cover-up. Barker-Homek claims TAQA runs an “Enron-like accounting scheme” regarding the company’s UAE assets and that on raising this he was press-ganged into signing a settlement agreement under duress and was subsequently smeared by executives at the company.
While Cook joined TAQA after Barker-Homek’s departure, he is categorical that Barker-Homek’s claim is without merit. Cook says that TAQA has filed a motion to dismiss Barker-Homek’s case in the US on 21 and 22 June, and awaits the result of the hearing.
Dumping the debt
An ongoing legacy of TAQA’s ambitious beginnings is a high level of debt. The company enjoys an ‘A’ credit rating from Standard & Poor’s, but analysts believe the company would not have this without an implicit state-backed guarantee, something the company is keen to dispel. While there is no commercial pressure on the company to deleverage, paying down debt is now a priority.
“This question is essentially one that I asked when I came in to the company,” says David Cook. The company’s CFO, Stephen Kersley speaking to Oil & Gas Middle East, points to the company’s track record over the last 5 quarters, in which the company has been getting toward investment-grade rations of debt to equity and debt interest to EBITDA.
“We’re making progress,” Kersley says. “Our gearing is going down, our plans to pay down debt are robust against oil prices, so while we are not going to predict how long it is for us to get there but certainly moving to a standalone investment-grade rating is an important objective of the company, and we are confident we will reach this in the medium term.”
“The thing to remember is that the business does have a string of very strong and stable cash flows,” says Cook. “Nonetheless, we certainly do look to reduce our debt over the medium term. We are going to be making investments and acquisitions over the coming years, but these are going to be entirely funded by our operating cash flows.”
“I have great confidence in our business plan,” says Cook. “What I see is that we hold ourselves out to IOC standards, so we don’t rely on the government backing to be the thing that pushes us forward.”
Summary: Taqa’s oil and gas assets worldwide
TAQA’s Oil & Gas operations are located in North America, the United Kingdom and the Netherlands and comprise crude oil and natural gas exploration, production, processing, transmission and storage.
In North America, TAQA has over two and a half million gross acres containing 465 mmboe of proven and probable reserves. TAQA’s average production in this region for 2010 was 88,582 boe/d.
In the United Kingdom, TAQA produced an average of 37,329 boe/d in 2010 through four operated platforms and non-operated interests in the UK North Sea. TAQA is also the operator of the Brent Pipeline System.
In the Netherlands, TAQA is primarily a midstream operator with the PGI Alkmaar gas storage facility and various pipeline interests. Together with its partner, TAQA is planning on building a second gas storage facility near Alkmaar, the Netherlands: the Bergermeer Gas Storage.
The facility is expected to be fully operational in 2013. The Company also produced 8,716 boe/d in 2010 through onshore and offshore facilities.
