UAE energy firms advance financing, field development
Thursday, Aug 24, 2017
Two of the UAE’s parastatal energy companies moved to secure financing in early August – while both also marked progress on long-standing upstream ambitions.

Dubai government-owned Emirates National Oil Co. (ENOC) signed a new loan facility to support a strategy that comprises both downstream expansion to meet burgeoning domestic fuel demand and also investment in a recently-absorbed upstream arm. The latter was signalled by a deal signed with a prominent local marine services supplier for work at the company’s main overseas asset.

Meanwhile, Abu Dhabi National Energy Co. (TAQA) disclosed plans for an imminent bond refinancing – following a long-awaited return to profitability over the first six months and the much-delayed start-up of production in Iraq.

ENOC announced the signature of a US$500 million, three-year revolving credit facility at the start of the month with a seven-strong group of regional and international banks including ABN Amro, Bank of Bahrain & Kuwait, Citigroup, DBS Bank, Emirate’s NBD, Gulf International Bank and Standard Chartered Bank.

The funds raised will be used chiefly to support local expansion plans, according to CEO Saif Humaid al-Falasi. The largest project under way – estimated at US$1 billion – is the 50% capacity expansion to 210,000 bpd of the Jebel Ali condensate refinery, the firm’s core domestic asset. The main engineering, procurement and construction (EPC) contract was belatedly awarded to the facility’s original builder, France’s TechnipFMC, last year and completion is scheduled for 2019.

ENOC was also planning expansion of the terminal and the service station network to build local market share, the loan statement said – reaffirming plans in train since late 2015, when the federal government’s liberalisation of domestic fuel prices made such activity potentially more-profitable.

The firm has been diversifying funding sources to assist in financing such plans – signing a US$230 million, five-year unsecured loan with Beijing-owned Industrial & Commercial Bank of China in June 2016.

While announcing the integration in May of Dragon Oil – of which the government firm acquired 100% ownership in 2015 – to become the parent company’s exploration and production arm, ENOC said the primary focus in the short-term would be domestic. However, it added that international upstream expansion remains a long-term goal.

At present, the firm’s only producing asset is Turkmenistan’s Caspian offshore Cheleken contract area – where output is thought to be running at around 95,000 bpd. Continued investment to sustain production at the licence’s two fields was signalled in a US$100 million deal announced on August 8 with locally-based offshore support vessel supplier Topaz Energy & Marine – a subsidiary of Oman’s Renaissance Services.

Topaz will provide six vessels for deployment at the asset for five years, with an optional two-year extension.

The Caspian has been a core area for Topaz since the acquisition of BUE Caspian in 2005 and the Dragon contract is an important fillip for the firm, which has struggled since the oil price slump and subsequent upstream investment downturn – falling to a US$2.4 million loss in 2016 from a US$20.8 million profit the previous year.

While the Caspian output is central to current earnings, the best long-term prospect in ENOC’s upstream portfolio appears to comprise a 30% stake in the licence for southern Iraq’s increasingly-prolific block 9. The asset is operated by Kuwait Energy Co. (KEC), which has projected output of up to 250,000 bpd by the middle of next decade.

ENOC’s parastatal counterpart TAQA is looking to the company’s Iraqi operations to provide a more-immediate revenue boost. As such, the Atrush field in the Kurdistan Regional Government-controlled north of the country was belatedly commissioned in early July and is due to reach full first-phase capacity of 30,000 bpd by year-end.

“Atrush will be a significant contributor to the group’s long-term cash flows and net income,” acting chief operating officer Saeed al-Dhaheri confirmed on August 9 when presenting first-half results. These showed a return to net profit of 112 million dirhams (US$30.5 million) over the period, compared to an eye-catching 1.2 billion-dirham (US$327 million) loss in the first six months of last year.

Debt has been reduced since the start of the year by 1.7 billion dirhams (US$460 million) to a still-hefty 70.5 billion dirhams (US$19.2 billion). The Abu Dhabi-based firm has suffered from the concentration of its oil and gas portfolio in high-cost North American and North Sea assets.

Improved financial health should assist the company in implementing a plan confirmed during the results presentation to refinance imminently a US$500 million, 10-year bond maturing in October. Five- and 10-year bonds worth a combined US$750 million sold in October last year were said to have succeeded in lowering borrowing costs.

However, TAQA suffered a one-notch credit rating downgrade to A- from Standard & Poor’s in April following the expiry of a ‘put’ option on the company’s oil and gas portfolio from government utility and main shareholder Abu Dhabi Water & Electricity Authority (ADWEA). This was replaced with leasehold rights over the sites of TAQA’s power plants in the emirate.

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