17/04/2017 07:50 AST
Abu Dhabi National Energy Company's top management is putting together a recovery plan after taking the long-delayed decision last month to write off an enormous Dh22 billion (US$6bn) of value in its oil and gas portfolio.
The Abu Dhabi Water & Electricity Authority (Adwea), the majority shareholder in Taqa, as the company is known, filled the hole left in Taqa's balance sheet by transferring land valued at Dh18.7bn from Adwea's power and water plant sites, swallowing the entire loss of equity value itself, according to Taqa's annual results.
Having spent $25bn building up an international portfolio of oil, gas and power assets under previous management before oil and gas prices crashed, last year's writedown leaves that portfolio with a book value of about $9.5bn.
Most of the value of Taqa is now in its domestic utility assets and the property leases - about 60 per cent of assets. The clean-up process gives Taqa a fresh start after several years of severe contraction.
Adwea also quietly announced to the Abu Dhabi Securities Exchange (ADX) this month that it had taken over a stake of nearly 22 per cent from the government's fund supporting farmers in Abu Dhabi, bringing Adwea's total ownership to 74 per cent.
The farmers' fund had owned the shares since Taqa's inception in 2005, using the stake as a source of steady income for agriculture investments. But after four years without a dividend payment the decision was taken to transfer that stake.
This week, Taqa will receive nominations and elect its board, which may lead to some fresh faces being brought in and possibly even the appointment of a new chief executive.
The company has not had a chief executive since Carl Sheldon left in 2014 and has been run by a succession of chief operating officers while it has undergone a deep contraction, including the loss of about 1,000 jobs and a 70 per cent reduction in capital expenditure (capex).
The question, then, is what course will the company set for its future?
Taqa faces big challenges, including a low oil price and a high debt load, which was above Dh70bn at the end of last year.
Taqa's management has been urged by some of its lenders and advisers to concentrate its portfolio on its utility business, where it is the near monopoly provider of electricity and water in Abu Dhabi as well as owner of profitable power utilities in Morocco, Ghana and elsewhere, and to sell off the oil and gas assets in whole or in part.
But Taqa's management is confident that the company has some room to breathe financially and will not be under pressure to hold a fire sale.
"We are comfortable with our oil and gas portfolio and are not planning to sell these assets," says Saeed Al Dhaheri, who took over as acting chief operating officer in summer last year. "The transformation has resulted in our operational oil and gas assets being cash flow positive."
Taqa's free cash flow last year was up by 25 per cent at Dh7.3bn as operating expenses were pared by another Dh2bn and capex was cut to the bone, down to Dh1.1bn from Dh6.4bn two years before and as high as Dh13bn in 2012. But as Taqa's previous chief operating officer, Edward LaFehr, warned last year, the cuts are unsustainable, with oil and gas production having declined by 18 per cent in the past three years.
"There may not be much scope for Taqa to make further cost and investment reductions without it adversely affecting revenue and cash flow generation," says Julien Haddad, a debt analyst at Moody's Investor Service in Dubai, in his latest report.
The National
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