Taqa announces Q1 2013 results

Profitability was consequently impacted, although in the comparable period in 2012 profitability was supported by the proceeds of disposals, making direct comparison difficult.

Power & Water faced operational challenges, due to a number of forced outages at Taqa's domestic and international plants. Taqa's organic growth projects are proceeding well, with Jorf Lasfar over 80% complete and Takoradi having broken ground. Taqa also progressing detailed negotiations to enter the Turkish energy market, following an agreement between the Turkish and UAE Governments.

Notwithstanding the shut-in of Cormorant Alpha, which is still on-going, Taqa made good progress in other areas of the North Sea, including making a discovery at the Darwin field and, post-period, securing government approval for its plans at the Cladhan field. A strong performance in the Netherlands also positively boosted Taqa's performance. Taqa commenced operations at its Atrush block in the Kurdistan region of Iraq and is currently drilling its third well.

Taqa reinforced its strong financial position with robust available liquidity of Dhs21.8bn and, post period, Standard & Poor's announced that it was raising Taqa's A rating to a positive outlook.

Carl Sheldon, Chief Executive Officer of Taqa, said, "I can take some positives from what was a challenging quarter. Our major construction and development projects in Morocco, Ghana, the Netherlands and Iraq are all progressing very well and will start generating significant revenues in the next two to three years. Stronger natural gas prices in North America position us well to take advantage of our large land position and prospects in Western Canada. Similarly, new developments and discoveries in our North Sea business promise to extend the life of these assets. The halting of production on the Cormorant Alpha platform was the right thing to do to ensure the safety and integrity of this critical piece of North Sea infrastructure."

Stephen Kersley, Chief Financial Officer, said, "We started the year in a very strong financial position having renewed our corporate credit facilities and secured all bond maturities for the year at unprecedented rates. The outlook remains strong with increased liquidity and an enhanced debt maturity profile. Although our financial performance has been affected by operational outages, our cash flows remain extremely strong and we are well placed to benefit as those operational issues are resolved. I am also delighted that the strength of our cash flows have been recognised by Standard & Poor's, which recently raised our A rating to a positive outlook. "

Financial summary: Q1 2013 versus Q1 2012

Revenues and costs
Total revenues for Q1 2013 were Dhs5.4bn, 6% lower year-on-year, compared with total revenues of Dhs5.7bn in Q1 2012. Cost of sales, excluding construction expenses, were Dhs3.5bn in Q1 2013, an increase of 1% over the prior year period.

Power & Water
Power & Water revenues, excluding supplemental fuel and construction revenues, were flat at Dhs1.9bn. Construction and Finance revenues from the Jorf Lasfar and Takoradi 2 expansion projects of Dhs517m were offset by construction costs of Dhs381m, leaving a profit margin of Dhs136m.

Supplemental fuel income decreased 31% year-on-year to Dhs658m.

Operating expenses for Power & Water (which excludes fuel costs and construction costs) rose 15% year on year to Dhs468m in Q1 2013, due to an unplanned outage at Jorf Lasfar and higher costs at Taweelah in the UAE. Depreciation, Depletion and Amortisation ("DD&A") expenses for Power & Water rose 2% to Dhs455m in Q1 2013, compared with Dhs447m in Q1 2012.

Oil & Gas
Total Oil & Gas revenues (including gas storage and other income) were down 17% at Dhs2.4bn for Q1 2013, due to lower production in the UK North Sea, offset by higher production in the Netherlands and stronger gas prices in North America.

Oil & Gas expenses rose from Dhs812m in Q1 2012 to Dhs1.0bn in Q1 2013, principally due to higher repair and maintenance costs in the UK. Oil & Gas Depreciation, Depletion and Amortisation (DD&A) expense increased by 2% to Dhs907m in Q1 2013, reflecting a higher DD&A rate in North America, due to future development costs, an amendment of reserves in the North Sea, offset by the impact of lower production in the North Sea.

Finance costs
Finance costs decreased by 1% to Dhs1.3bn in Q1 2012 to Dhs1.2bn in Q1 2013. The decrease was due to refinancing of debt at more favourable rates, partially offset by a small increase due to financing at Jorf Lasfar and Takoradi.

Profitability
Profit Before Tax was Dhs445m in Q1 2013, 68% lower year-on-year than Dhs1.4bn in 2012, due to lower revenues from Oil & Gas, principally due to lower production in the UK North Sea.

Income tax expense was Dhs220m for Q1 2013, compared to Dhs724m in Q1 2012. This consists of Dhs321m of income tax expense and Dhs101m of deferred income tax income. The effective tax rate decreased slightly to 49% from 52% in the prior year, reflecting lower production in the UK North Sea.

Profit for the period (after minority interests) was Dhs106m, a decrease of 80% compared to Dhs534m in 2012. The decline was principally driven by lower operating profit during the quarter and also reflects the disposals that were made in Q1 2012 which inflated the comparable period in the prior year.

Basic and diluted earnings per share attributable to equity holders of Taqa were Dhs0.017, compared to Dhs0.088 in the prior year period.

Financing:

Total debt of Dhs80.3bn in Q1 2013 increased from Dhs79.5bn in the same period in 2012, following new bond issuance in anticipation of bond maturities in 2013.

Consolidated cash on hand, as at 31 March 2013, was Dhs3.9bn, a slight increase from Dhs3.8bn in 2012. As of 31 March 2013, Taqa had unused credit lines of Dhs17.9bn, compared to Dhs14.7bn at the 31 March 2012, and total available liquidity of Dhs21.8bn, compared to Dhs19.9bn.

Operational Review:

Power & Water

Taqa produced 13,608 Gigawatt hours (GWh) of electricity and 57,652 Million Imperial Gallons (MIG) of water in Q1 2013, compared to 14,172 GWh and 54,114 MIG of water during the same period in 2012, generating revenues of Dhs1.9bn, excluding construction and fuel revenues. The 2% decrease in revenues compared to the same period last year, reflects forced outages at Shuweihat 1, Jorf Lasfar and Red Oak. EBITDA fell by 3% to Dhs1.4bn and net income to Dhs436m.

Technical availability across the fleet was 83.7%, a decrease of 8% over the same period in 2012.

Domestic
Taqa's domestic portfolio of assets generated 10,243 GWh of electricity and 57,652 MIG of water during the quarter. Domestic availability was 84.9%, reflecting the forced outage at Shuweihat 1. Nonetheless, five of Taqa's eight domestic plants had an Equivalent Forced Outage Rate (EFOR) lower than 1%, reflecting the modernity of the fleet.

Supplemental fuel revenues decreased as a result of less demand for back-up fuel at Taqa's UAE domestic assets.

International
Taqa's international power portfolio, which comprises of assets in Morocco, Ghana, India, Saudi Arabia, Oman and the United States, generated 3,365 GWh of power during the period. International technical availability was 80.1%, a decrease of 14% in comparison to the same period last year. This was due to a transformer failure and boiler leak at Jorf Lasfar, a rotor failure at Red Oak and a boiler failure at Neyveli.

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

In Ghana, the expansion of Takoradi 2 has broken ground and is continuing on time and on budget. The expansion will increase the plant's output from 220 MW by 50 per cent to approximately 340 MW without requiring extra fuel or producing additional emissions. The expansion is scheduled for commissioning in the fourth quarter of 2014.

In January, Taqa acquired an interest in the developer of the 100 MW Sorang hydroelectric plant in the northern Indian state of Himachal Pradesh in a joint venture with Indian infrastructure company Jyoti Structures Ltd. The plant is expected to begin operations in 2013.

Also in January, the Republic of Turkey and the United Arab Emirates signed an Intergovernmental Agreement for the development of power plants and associated mines in the Afsin-Elbistan region of Turkey. The agreement marked the start of exclusive negotiations between Taqa, Turkey's Electricity Generation Co. Inc. (EÜAŞ) and the Turkish Government for the project, with a combined power generation capacity of up to 7,000 MW.

Oil & Gas

Taqa's Oil & Gas business comprises a portfolio of assets across North America, the UK North Sea, the Netherlands and Kurdistan region of Iraq.

Total Oil & Gas revenues, including gas storage and other operating revenues, were Dhs2.4bn for Q1 2013, a decrease of 17% on last year. This was driven primarily by lower production in the UK North Sea, due to the shut-in of Cormorant Alpha in January 2013, following a hydrocarbon release in one of the concrete legs of the platform. There was a subsequent release in March within the same platform leg. While no hydrocarbons have entered the environment, Cormorant Alpha production of between 8,000 to 10,000 barrels a day continues to be shut-in.

While North American gas prices have risen significantly during the period, up 32% year on year to US$3.38 per thousand cubic feet (mcf), liquids and oil prices have fallen, impacting performance. In addition, Taqa divested a portfolio of non-core North American acreage in Q1 2012, slightly skewing the year on year comparative figures.

Operating expenses were Dhs992m in Q1 2013 compared with Dhs812m in Q1 2012, an increase of 22% due to expenditures related to subsea repairs in the UK North Sea, higher fuel costs and higher lifting and processing expenses.

Total average global daily production for Q1 2013 decreased to 126.9 thousand barrels of oil equivalent per day (mboed), compared with 134.2 mboed in the same period last year, a fall of 5%, due to the unplanned shut downs in the UK North Sea, the disposal of non-core acreage and the shut-in of uneconomic production in North America.

North America
In North America, an average of 88.7 mboed was produced during Q1 2013, an increase of 3% year on year. Revenues increased by Dhs62m to Dhs1bn, due to higher production and higher gas prices offset by lower realised prices for oil and liquids. Due to a supply imbalance, there was a significant discount during the period between Western Canadian Select (WCS) and West Texas Intermediate (WTI) prices.

UK
Production volumes in the UK North Sea averaged 28.8 mboed during the first quarter of 2013, a 30% decrease compared to the same period last year, largely due to the unplanned shutdowns at Cormorant Alpha and the consequent impact on production.

In February 2013, Taqa announced that it had discovered two oil columns during the Darwin drilling programme, which commenced in November 2012. The Darwin acreage is located next to the Taqa-operated Cormorant South, North Cormorant and Pelican fields in the Northern North Sea approximately 130 km northeast of the Shetland Islands.

Netherlands
Production in the Netherlands increased to 9.4 mboed, 36% higher than the same period last year. This was mainly due to the acceleration of Groet-Oost production near Alkmaar and a strong performance from the P15 and P18 and offshore partner-operated fields, as well as higher well rates at L11-A08.

Iraq
Taqa commenced operations at its Atrush block in the Kurdistan region of Iraq and is currently drilling its third well, Atrush 3.

Energy Solutions
During the period, Taqa Energy Solutions agreed to buy a 50% interest in the 205.5 MW Lakefield wind project located in the Midwestern United States from a subsidiary of France-based utility Electricite de France SA (EDF). Taqa also commenced a pilot project for roof-top solar air-conditioning in the UAE with Chromasun Inc. the California-based solar panel manufacturer.

In February Taqa began qualifying companies for participating in the engineering, procurement and construction (EPC) contract tender for the UAE's first waste-to-energy plant. The waste-to-energy power plant will receive approximately 1,000,000 tonnes of municipal solid waste a year and convert it into 100 megawatts of alternative power, enough energy to power more than 20,000 households in Abu Dhabi. The plant is expected to begin operations in 2016/17.

Commodity price environment
Following the decline witnessed in Q4 2012, oil prices remained relatively stable during Q1 2013 with Brent averaging $112.89/bbl and WTI averaging $94.30/bbl. Whilst marginally lower than the comparable period in 2012, the oil price continues to be supported by Asian demand which has offset the continued weak economic environment in Europe and North America.

Encouragingly, Q1 2013 continued to witness the trend for improving natural gas prices in North America. NYMEX spot gas prices averaged $3.49/mmbtu in Q1 2013 compared to $2.50/mmbtu. This stabilisation and recovery in the gas price has been driven by a more controlled supply environment coupled with strong demand, the result of a prolonged winter.

Post-period corporate developments

Taqa extended its agreement with The Center for Waste Management - Abu Dhabi, to study and develop a waste-to-energy demonstration facility at Abu Dhabi's Dalma Island.

In April 2013, Taqa received UK Government approval for its Cladhan field development. The initial phase of development will consist of two producer wells and one injection well. Cladhan is expected to produce over 17 mboed initially, with first oil expected Q1 2015. The production will be tied back to Taqa's Tern Alpha platform which lies 17.5km northeast of the Cladhan field.

On the 30 April 2013, Standard & Poor's announced that it was raising Taqa's A rating to a "positive" outlook.