Taqa second quarter and first half 2009 financial results

Key highlights for the first six months of 2009:

- Despite the lower relative pricing environment and currency effects, total revenue was flat year-on-year at Dhs8.6bn compared with Dhs8.6bn for the same period in 2008.

- Revenue from the electricity and water business, excluding supplemental fuel, increased by 14% to Dhs2.9bn, from Dhs2.6bn for the same period in 2008. This was primarily due to the expansion of Taweelah B and revenue from the Red Oak toll acquired in December 2008.

- Supplemental fuel revenues were Dhs2.0bn in 2009, compared with Dhs1.4bn in 2008 due to higher back up fuel cost in 2009 primarily in the domestic subsidiaries. These costs are passed through to the offtakers.

- Revenue from oil and gas activities (including gas storage and other revenue) declined by 22% to Dhs3.6bn, compared with Dhs4.6bn for the same period in 2008, as a result of lower net realized oil and gas prices and devaluation of CAD and EUR against Dhs, partly offset by revenue from Northern North Sea assets acquired in December 2008.

- Cost of sales were Dhs6.3bn in 2009, an increase of Dhs1.5bn (33%) over Dhs4.7bn in 2008. The increase was primarily driven by Dhs1.2bn of costs related to assets acquired in December 2008 and an increase of Dhs734m related to fuel costs (which are passed through to the offtakers).

- Administrative and other expenses were Dhs351m in 2009 compared to Dhs432m in 2008. The decrease of 19% was attributable to lower foreign exchange rates, as well as savings due to synergies.

- Net profit, after minority interests, was Dhs176m compared with Dhs869m in the same half in 2008. The decrease in net profit was mainly attributable to lower commodity prices.
- EBITDA was Dhs3.9bn for the first half of 2009, versus EBITDA of Dhs5.2bn in the same period in 2008.

- Basic earnings per share was 3 fils for the half, compared with 21 fils for the same period in 2008.

- Total assets as at 30 June 2009 were Dhs90.2bn.
- Net cash was Dhs5.0bn, up from Dhs4.1bn at the end of Q1 2009.

- Net debt to capital (including Minority Interests) was 85.2%, down from 87.0% at the end of Q1 2009.

Key highlights for the second quarter of 2009:

- Total revenue reached Dhs4.4bn compared with Dhs4.6bn for the same period in 2008, a decrease of 4%.

- Revenue from the electricity and water business, excluding supplemental fuel, increased by 14% to Dhs1.6bn, from Dhs1.4bn for the same period in 2008. This was primarily due to the expansion of Taweelah B and revenue from the Red Oak toll acquired in December 2008.

- Revenue from oil and gas activities (including gas storage and other revenue) declined by 30% to Dhs1.8bn, compared with Dhs2.5bn for the same period in 2008 as a result of lower net realized oil and gas prices.

- Cost of sales were Dhs3.2bn in 2009, an increase of Dhs802m (34%) over Dhs2.4bn in 2008. The increase was primarily driven by operating costs related to the Northern North Sea assets acquired in December 2008 and an increase of Dhs407m related to fuel costs (which are passed through to the offtakers).

- Administrative and other expenses were Dhs184m in 2009 compared to Dhs251m in 2008. The decrease of 27% was attributable to lower foreign exchange rates as well as savings due to synergies.

- Net profit, after minority interests, for the quarter was Dhs136m compared with Dhs472m in the same quarter in 2008. The decrease in net profit for the quarter is mainly attributable to lower commodity prices.

- EBITDA was Dhs2.0bn for the second quarter of 2009, versus EBITDA of Dhs2.9bn in the same period in 2008.

- Basic earnings per share were 2 fils for the quarter, compared with 11 fils for the same period in 2008.

Peter Barker-Homek, Chief Executive Officer of Taqa, said:

"Our downstream performance has been exemplary, with average technical availability rising from 89% in Q1 to 97% in Q2. We also benefited from the consolidation of Red Oak, and the increased capacity of Taweelah B, which have boosted downstream revenues.

We continue to drive operational excellence and this is reflected both in the confidence placed in us by our partners in the North Sea who have entrusted the operatorship of the Brent system to us, as well as the over Dhs30m of synergy savings we have achieved at Taqa North during the last six months alone.

As the oil price has improved from its lowest point, our second quarter performance has shown an improvement in comparison to the first three months of the year. With the oil price trending up to over $70 per barrel post-quarter, we are now a long way from the lows we saw earlier in the year.

While performance of our upstream business is still lower than the same period in 2008, when oil prices were very strong, we have seen a welcome strengthening in business performance."

Market overview

While year-on-year oil prices were significantly lower than in 2008, when the WTI price on 1 April 2008 was $95.07 and Brent was $96.11, global energy markets continued to improve quarter on quarter, with the Brent oil price rising from $52.70 at the 1 April 2009 to $69.90 on the 30 June 2009.

This position was also reflected in North America, with the WTI crude price rising from $53.79 to $70.84.

Gas prices were largely flat, with the Henry Hub Natural Gas Price increasing from $3.55 / mmbtu on 1 April 2009 to $3.70 / mmbtu on 30 June 2009.

Although the US dollar strengthened against the Canadian dollar year-on-year, rising from CDN$1.02 / $1 on 1 April 2008 to CDN$1.26 / $1 on 1 April 2009, it weakened during the second quarter to CDN$1.16 / $1 on 30 June 2009, reaching a low of CDN$1.08/$1 on 2 June 2009.

Downstream

- Taqa's international and domestic downstream activities are a critical component of its diversified portfolio and now comprise 47% of total revenues and 37.8% of EBITDA. During the second quarter of 2009, Taqa's downstream activities generated revenues of Dhs1.6bn, excluding supplemental fuel.

- Subsequent to the acquisition of power generation facilities in the Caribbean, as at 30 June 2009, Taqa's downstream operations represent total global generation capacity (gross) of 12,909 MW.

- During the second quarter of 2009, total power production was 13,558 Gwh, comprising 9,994 Gwh in the domestic market, an increase of 65% over Q1 2009, and 3,563 Gwh internationally, a 5.4% increase over Q1 2009.

- Taqa's total water desalination for the period was 52,904 MIG, with an installed capacity of 654 MIGD.

- Technical availability of the power generation businesses averaged 97.4%, with an average domestic availability of 98.7% and an international average availability of 92.0%.

Upstream and midstream

- Upstream activity generated revenues of Dhs1.7bn (including gas storage and other revenue), 53% of total revenues and 62.2% of EBITDA.

- Total production was 138.2 thousand barrels of oil equivalent per day (mboe/day) in the second quarter of 2009, split between Taqa North (92.8 mboe/day), Taqa Bratani (40.2 mboe/day) and Taqa Energy (5.2 mboe/day), up from 119.2 mboe/day in the second quarter of 2008.

- Taqa Bratani has shown the greatest production increase, with production growing from 15.1 mboe/day to 40.2 mboe/day, an increase of 166% over the same period last year, showcasing the benefits of Taqa's investment programme.

- Taqa North production declined by 4%, due to decreased capital investment as a result of lower gas prices.

- Average net realized price of crude oil sold was $53.12 per barrel for Taqa North and $55.15 per barrel for Taqa Bratani.

- Average net realized price for natural gas sold was $3.45 per thousand cubic feet (mcf) for Taqa North, $6.02 per mcf for Taqa Bratani and $8.19 per mcf for Taqa Energy.

Finance

- For the half, finance costs were essentially flat year on year at Dhs1.9bn. An increase related to new acquisitions in December 2008 and the breakage cost on early debt repayment at Jorf Lasfar Energy Company (JLEC) in 2009, was partly offset by lower interest rates on revolving debt.

- A favourable Dhs253m change in value of derivatives is primarily from the Red Oak acquisition that was consummated in December 2008, contributed by higher contracted electricity prices and lower gas prices versus the period end prices in respect of transactions entered into during the period.

- Loss on exchange was Dhs143m in 2009 compared with a gain of Dhs71m in 2008. Last year's gains were primarily from the repayment of the UK and US debt at Taqa North. The current year loss arose from exchange movements of Moroccan Dirhams and GBP against Dhs.

- During the period, Taqa continued its bond buyback programme, with a Dhs260m gain recorded in 2009 from the buy back of its 2036 bonds of a nominal value of $323m. Taqa continues to evaluate the potential for further bond buybacks in the future.

Corporate activity during the period

- On 30 April, the Abu Dhabi Water and Energy Authority announced that it would transfer 90% of its shares in the Fujairah Water and Power Company to Taqa. The Fujairah Water and Power Company owns 60% of the Fujairah Asia Power Company which owns the Fujairah 2 plant.

- On 12 May, Taqa signed an agreement with the Office National de L'Electricite in Morocco to extend the capacity of JLEC by two new supercritical coal fired units of at least 350 Mw each by early 2013. This agreement aims to help the Office National de l'Electricite meet the strong growth in electricity demand in Morocco.

JLEC will build, own, and operate the new units under a 30-year power purchase agreement. JLEC currently owns and operates four units, with a total capacity of 1,356Mw, providing about half of the country's annual electricity production.

- On 30 June, Taqa North acquired two large land blocks in the highly prospective Horn River Basin in North Eastern British Columbia, Canada for a total of CAD$ 63m. The sale represents the last substantial blocks of land available in the basin, which is expected to provide a major North American source of natural gas in the future.

Post period developments

- On 29 July, Taqa Energy agreed to purchase 100% of the share capital of DSM Energie Holding B.V. (DSM Energy) for EUR285m.

The intended acquisition is expected to close in Q3 2009, subject to regulatory approvals and notifications. Under the terms of the transaction, Taqa Energy will acquire non-operated interests in the pipeline company Noordgastransport B.V. (NGT), three other pipelines and 20 producing oil and gas fields in the Dutch North Sea.

Furthermore, the assets will provide Taqa Energy with additional daily production of approximately 5,000 barrels of oil equivalent (2008 average) of which 85% is natural gas.

- On 1 August, Taqa Bratani took over the operation of the North Sea Brent System pipeline and facilities from Shell UK Exploration and Production, which held the position since the mid 1970s.

- On 4 August, Taqa Energy acquired a 15% interest in the L8-D Unit, L11b-A production platform which services the L8-D gas field, and a pipeline connection to the Noordgastransport pipeline.

Taqa Energy was also appointed as operator to the L11b-A production platform with effect from 1 August 2009. First production is expected to commence before the end of the year.