Bloomberg News

Taqa Favors Iraq Energy Assets as CEO Zeroes In on Mideast

October 26, 2011

(Updates with oil price in fifth paragraph, share price in 12th, and trip to Ghana in 13th.)

Oct. 26 (Bloomberg) -- Abu Dhabi National Energy Co., the state-run company that is investing $10 billion in Canada, Europe and Africa, aims to exploit the synergy in its oil, gas and power businesses in the Middle East and surrounding countries, its new chief executive officer said.

The oil, gas and utility company known as Taqa is looking at opportunities in Iraq after it agreed to invest $46 million in WesternZagros Resources Ltd. last week, acquiring a 19.9 percent stake in the Calgary-based explorer, which has permits to seek deposits in two blocks in the Kurdish region.

“We could do power there too; we’re looking at an opportunity there now,” Carl Sheldon, 53, said in an interview in Abu Dhabi yesterday. “We’d like to see power businesses next to the oil and gas businesses, and oil and gas businesses next to the power businesses. As we begin to focus much more on the Middle East and Africa, our ability to deliver power and water solutions into those markets is powerful.”

Founded in 2005, Taqa inherited control of several United Arab Emirates power and water plants from its majority owner Abu Dhabi Water and Electricity Authority and expanded into oil and gas. The company will spend about $10 billion in the five years to 2014 on five projects in its existing portfolio: drilling in Western Canada and the North Sea, developing its natural-gas storage facility in the Netherlands, and expanding power plants in Morocco and Ghana.

Oil Prices Soar

As oil prices soar to levels last seen in 2008, when crude reached a record $147.27 a barrel, Taqa is channeling all its Canadian spending into crude reserves rather than gas. The company will produce 135,000 to 146,000 barrels of oil equivalent a day for the rest of this year and output will grow through 2014, according to Sheldon. Brent oil for December settlement dropped 37 cents to $110.55 a barrel on the London- based ICE Futures Europe exchange at 10:01 a.m.

“We’ll end this year at the top of that range and we’re expecting to increase production in Canada and the North Sea next year,” said Sheldon, who was announced as CEO in a statement today and was previously general manager. “The commodity-exposed side of the business is very, very sensitive to commodity prices. When gas goes up by a dollar per thousand cubic feet, our net income goes up by $80 million.”

Taqa’s profit more than doubled to 435 million dirhams ($118 million) in the second quarter as it benefited from a 47 percent advance in Brent crude prices to an average of $116.99 a barrel. The company will release third-quarter results on Nov. 15. Brent rose 46 percent to average $112.09 in the three months ending Sept. 30 compared with the same period in 2010.

Returns Improve

“We’d like to see those returns improve, but the capital spending program takes a long time to bear fruit,” said Sheldon. “The delivery of the Morocco power plant project, the project in Ghana and the gas storage project in the Netherlands will all start to turn into cash in the 2014-2015 period. So I’m not expecting to see a dramatic acceleration in the company’s earnings until we get past that point.”

Sheldon expects to see an increasing presence of regional banks funding Taqa as international banks become more capital constrained and devote more of their resources to their home markets. The company owes about $10 billion in public bonds and another $10 billion in bank debt, he said.

Taqa set up a 3.5 billion Malaysian ringgit ($1.1 billion) Islamic bond offering to diversify its financing options, according to a statement last month. It may tap the capital markets for funds before its next loan matures in October 2012, Sheldon said.

‘We’re opportunistic’

“We’re opportunistic,” he said. “Rates are historically low. If rates are right, we’ll take the opportunity. Markets change quickly, so the important thing is to be ready.”

Taqa shares rose 1.7 percent to 1.17 dirhams at 12:30 p.m. in Abu Dhabi, the most since Oct. 6. The stock has lost 21 percent so far this year.

Company officials are travelling to Ghana next week as part of a foreign ministry delegation along with Mubadala Development Co., an Abu Dhabi government-owned investor, and the country’s biggest phone company Emirates Telecommunications Corp. Taqa may cooperate with Mubadala, which also invests in energy, to leverage experience and relationships in the countries where either company has operations, Sheldon said.

Taqa will probably under-spend for the rest of the year as some ventures such as the Bergermeer gas storage facility are delayed. The project has been suspended by the Dutch Council of State pending a review of objections by parties including local authorities.

“You may see things like WesternZagros, small, long-term investments for the future in that sort of $50 million scale,” said Sheldon. “You won’t see a big step-out acquisition. But we don’t rule it out. As we develop our portfolio, you’re always asking yourself, ‘should I build it, or buy it’?”

--With assistance from Anthony DiPaola and Dana El Baltaji in Dubai. Editors: Raj Rajendran, John Buckley.

To contact the reporter on this story: Ayesha Daya in Dubai at adaya1@bloomberg.net;

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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