Taqa third quarter and nine month 2009 financial results

Key highlights for the first nine months of 2009:

• Total revenue was Dhs12.5bn compared with Dhs13.1bn for the same period in 2008.
o Revenue from the electricity and water business, excluding supplemental fuel, increased 13% to Dhs4.6bn, from Dhs4.0bn for the same period in 2008, primarily due to the expansion of Taweelah B and Fujairah I and revenue from the Red Oak tolling contract acquired in December 2008.
o Supplemental fuel revenues were Dhs2.8bn in 2009, compared with Dhs2.2bn in 2008. This was due to higher back up fuel costs in 2009, primarily in the domestic subsidiaries, which is then passed through to the offtakers.
o Revenue from oil and gas activities (including gas storage and other revenue) decreased 25% to Dhs5.1bn, compared with Dhs6.8bn for the same period in 2008. This decrease was due to the decline in realized crude oil and natural gas prices. These declines were partially offset by additional revenue from Taqa's North Sea assets acquired in December 2008.
• Cost of sales were Dhs9.1bn in 2009, an increase of 24% over Dhs7.3bn in 2008, reflecting Dhs1.6bn of costs related to assets acquired in December 2008. It also includes Dhs551m of fuel costs (which are passed through to the offtakers).
• Administrative and other expenses were Dhs570m in 2009 compared with Dhs575m in 2008.
• EBITDA was Dhs5.8bn for the first nine months of 2009, versus EBITDA of Dhs7.8bn in the same period in 2008.
• Net profit, after minority interests, was Dhs266m compared with Dhs1.6bn in the same period in 2008.
• Basic earnings per share was 4 fils for the period, compared with 35 fils for the same period in 2008.
• Total assets as at 30 September 2009 were Dhs93.1bn, reflecting recently completed acquisitions.
• Net cash was Dhs4.3bn, up from Dhs4.2bn at the end of December 2008.
• Net debt to capital (including minority interests) was 84%, down from 85% at the end of Q2 2009.

Key highlights for the third quarter of 2009:

• Total revenue reached Dhs3.9bn compared with Dhs4.5bn for the same period in 2008, a decrease of 14%.
o Revenue from the electricity and water business, excluding supplemental fuel, increased 11% to Dhs1.6bn, from Dhs1.5bn for the same period in 2008. This increase was primarily due to the expansion of Taweelah B and Fujairah I and revenue from the Red Oak tolling contract acquired in December 2008.
o Revenue from oil and gas activities (including gas storage and other revenue) declined 33% to Dhs1.5bn, compared with Dhs2.2bn for the same period in 2008, driven by the decline in realized prices.
- Cost of sales were Dhs2.8bn in 2009, an increase of 9% from Dhs2.6bn in 2008. The increase was primarily driven by additional operating costs related to new acquisitions in December 2008, which was partially offset by overall lower operating costs.
- Administrative and other expenses were Dhs219m in 2009 compared with Dhs193m in 2008.
• EBITDA was Dhs1.9bn for the third quarter of 2009, versus EBITDA of Dhs3.0bn in the same period in 2008.
• Net profit, after minority interests, for the quarter was Dhs90m compared with Dhs723m in the same quarter in 2008.
• Basic earnings per share were 2 fils for the quarter, compared with 13 fils for the same period in 2008.

Carl Sheldon, General Manager of Taqa, said:

"The value of our diversified business model has been amply demonstrated through the stable cash flows generated by our downstream assets, which have offset the greater volatility of our upstream business. During the quarter and throughout the year, Taqa has made significant progress in maximising its existing assets. Not only did we take over the operatorship of the North Sea Brent pipeline system and facilities in August, but were also appointed operator of the L11BA platform in the Dutch North Sea, which we took over from Chevron. In the past month, we passed another milestone, having brought our first new well on-stream in the UK North Sea, effectively boosting European production by 10,000 barrels of oil equivalent a day."

"In October, we were pleased to announce, on behalf of the Bergermeer Gas Storage Consortium, a positive final investment decision for what will be Europe's largest gas storage facility with third party access. This will position Taqa at the heart of Europe's future energy system.
I firmly believe that our global energy assets present our investors with significant potential value and our focus now is on fulfilling this through the optimisation of our existing portfolio into 2010 and beyond."

Market overview

Year-on-year comparisons are affected by a significant difference in commodities pricing, especially when compared to Q3 2008 during which oil prices reached a peak of over $140, before falling below $35 in Q1 2009.

However, prices have slowly recovered throughout 2009. WTI spot prices averaged $43.18 for Q1, $59.69 for Q2 and $68.14 for Q3. Brent followed a similar trajectory at $45.04 for Q1, $59.28 for Q2 and $68.25 for Q3.
Nymex Henry Hub prices averaged $3.44 per mmbtu for Q3 versus $3.81 for Q2. This can be contrasted to Q3 2008 when the average price was $8.95.

Downstream

• Taqa's international and domestic downstream business contributed 52% of total revenues during the third quarter of 2009.

• As at 30 September 2009, Taqa's downstream operations represent total global generation capacity (gross) of 12,909 MW.

• During the third quarter of 2009, total power production was 16,279 Gwh, an increase of 20% over the second quarter of 2009, due to seasonal demand in the domestic market and increased capacity at Taweelah B. Total power production comprised 12,723 Gwh in the domestic market and 3,556 Gwh internationally.

• Taqa's total water desalination for the period was 55,356 MIG, with an installed capacity of 654 MIGD.
• Technical availability of the power generation businesses averaged 97.3%, with an average domestic availability of 99.1% and an international average availability of 89.6%.

Upstream and midstream

• Upstream activity generated revenues of Dhs1.5bn (including gas storage and other revenue), 48% of total revenues.
• Total production was 132.6 thousand barrels of oil equivalent per day (mboe/day) in the third quarter of 2009, split between Taqa North (88.4 mboe/day), Taqa Bratani (39.7 mboe/day) and Taqa Energy (4.5 mboe/day), and is up from 110.5 mboe/day in the third quarter of 2008.
• Taqa Bratani has shown the greatest production increase, with production growing from 10.7 mboe/day to 39.7 mboe/day in the third quarter, an increase of 271% over the same period last year. This increase is a direct result of the integration of the assets acquired in December 2008.
• Taqa North production declined by 5% due to decreased capital investment as a result of lower gas prices.
• Average net realized price of crude oil sold was $58.51 per barrel for Taqa North and $45.01 per barrel for Taqa Bratani.
• Average net realized price for natural gas sold was $2.96 per thousand cubic feet (mcf) for Taqa North, $4.93 per mcf for Taqa Bratani and $6.70 per mcf for Taqa Energy.

Finance

• Finance costs have decreased year-on-year, to Dhs904m in the third quarter compared with Dhs984m for the same period in 2008, as a result of Taqa's bond buyback programme during the year and lower interest rates on floating debt.
• Taqa benefited from a gain in the fair value of derivatives of Dhs146m versus a loss of Dhs32m for Q3 2008. This relates to hedging in place at the Red Oak facility.
• Taqa recorded a foreign exchange loss of Dhs69m, versus a gain of Dhs84m in Q3 2008. This was due to currency movements relating to the refinancing of debt in the Moroccan subsidiary and the devaluation of the Euro and Sterling against the U.S. dollar.
• In September Taqa raised $1.7bn through a bond offering, the proceeds of which were used to pay down a revolving credit facility and to finance the acquisition of DSM Energy (which closed on 01 October).
• In early July, following a change in Standard & Poors' methodology for rating government related entities, Taqa terminated its relationship with this credit rating agency. Taqa continues to be rated Aa2 by Moody's.

Corporate activity during the period

• In July, Taqa announced the EUR285m acquisition of DSM Energy, which subsequently completed on 1 October, providing Taqa with non-operated interests in the pipeline company Noordgastransport B.V. (NGT), three other pipelines and interests in 20 producing oil and gas fields in the Dutch North Sea. The assets will strengthen Taqa's midstream position in Europe and provide additional daily production of approximately 5,000 barrels of oil equivalent (2008 average) of which 85% is natural gas.
• In August, Taqa Energy acquired interests in Dutch North Sea assets including 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 (NGT) pipeline. Following the acquisition, the L8-D Field Group appointed Taqa Energy as operator of the L11b-A production platform with effect from 1 August 2009.
• Underlining Taqa's commitment to the North Sea, on 4 August Taqa Bratani took over as operator of the North Sea Brent system pipeline and facilities from Shell UK Exploration.
• In September, Taqa Bratani completed the acquisition of four exploration blocks in the Northern North Sea from Shell U.K. Limited and Esso Exploration and Production (UK) Limited for an undisclosed sum.

Post period developments

• On 16 October, Taqa announced a restructuring of its senior management team, as the Company moves into a new phase of development. As part of the management restructuring, Carl Sheldon was promoted to General Manager, with day to day operational responsibility.
• In October, the Bergermeer Gas Storage Project Consortium confirmed the final investment decision on the project. The Consortium will invest EUR 800m in the construction and design of the gas storage facility between 2009 and 2013. Construction of the Bergermeer Gas Storage facility will start after the necessary permits have been granted, with commercial operations expected to commence in 2013.
• On 27 October, Taqa Bratani brought its first new North Sea oil well on stream. The well was drilled from the Taqa Bratani operated North Cormorant platform and was completed safely, on time and within budget. It is expected to add approximately 10,000 barrels of oil equivalent a day to Taqa's production.