Taqa open to 'bolt-on' acquisitions but holds firm on consolidation plan

Oil and gas company rules out any return to aggressive purchases

The Abu Dhabi National Energy Company (Taqa) will stick with its consolidation plan, despite completing US$677.4 million (Dh2.48bn) of acquisitions in the past two months. Although the state-controlled oil, gas and power company would remain open to "bolt-on" acquisitions fitting its existing operations, these would not mean a return to Taqa's aggressive acquisitions strategy, Abdulla al Nuaimi, the company's chief executive, said yesterday.

"Asset optimisation and organic growth form the cornerstones of our strategy," Mr al Nuaimi said. He was named chief executive in late April, succeeding Peter Barker-Homek, who had left Taqa six months earlier after his three-year buying spree saddled the company with more than $16bn of debt as profits plunged. Yesterday, Taqa posted second-quarter net earnings of Dh171m, up 26 per cent from the same quarter last year. Revenues rose 17 per cent to Dh5.14bn.

"We have worked hard over the quarter to continue to refine our operating capability," said Carl Sheldon, the company's general manager. "This operational excellence continues to form the backbone of stability in the company's cash flow generation." Mr Sheldon attributed the improvement to higher oil and gas prices and greater power generation capacity. Taqa's recent acquisition of the Sohar aluminium plant in a $400m transaction backdated to the start of this year contributed Dh90m to its second-quarter net profit.

Mr Sheldon said the Omani plant's profitability hinged on its stable supply of low-priced electricity from a 1,000 megawatt power plant integrated into the project. The transaction was funded by a shareholder loan from the state-owned Abu Dhabi Water and Electricity Authority, which holds 75 per cent of Taqa. The recent C$285m (Dh1.01bn) acquisition of gas properties from Canada's Suncor was helping Taqa cut unit costs for gas production from western Canada. The assets interlocked with Taqa's pre-existing operations in an area yielding some of North America's lowest-cost gas.

But Taqa's profits from Canadian gas remained thin, with prices even lower than for US gas. Mr Sheldon said North American gas prices were somewhat higher than a year ago, but were likely to remain weak for at least the next two years. "We're playing a long game in Canada," he added. Taqa's five-year target for long-term debt remained 70 per cent of capitalisation, Mr Sheldon said. Unfavourable foreign currency exchange movements, however, meant the company's debt to capital ratio stood at 80.4 per cent at the end of June, down only slightly from 83.4 per cent a year earlier. Taqa's shares closed yesterday on the Abu Dhabi Securities Exchange at Dh1.22, up 1 fil. Meanwhile, Dragon Oil, the Turkmenistan-focused oil producer controlled by the Government of Dubai, reported $137.6m of first-half profit, up 31 per cent from a year earlier, while revenue rose 4.9 per cent to $276.3m. The increase was due to higher oil output and prices.

Dragon has arranged to export "significant volumes" of Turkmen crude through Baku, Azerbaijan, reducing shipments to Iran. The company's stock closed in London at 451 pence, up 3.25 pence. [e-mail]