By His Excellency Saeed Mubarak Al-Hajeri, Chairman of the Board.
For two years, international and local newspapers have provided us with news about the fluctuating price of oil. These prices remain under pressure from political and economic fluctuations facing the world today. Oil is one of the most strategically important resources; its prices profoundly affect economic growth and development, and extend to influence all sectors of the global economy making it the most closely followed commodity in the world.
The significant decline in oil prices has forced many oil and gas companies around the world to reconsider their business strategies and cut operational budgets. The Board of Directors of TAQA, which invests in many areas such as power generation, water desalination and oil and gas, initiated a transformation programme two years ago with the aim of becoming more efficient and allowing the company to seize new opportunities once markets recover.
The drop in oil prices to less than half the $115 per barrel rate in 2014 lead major companies to cut costs, and restructure their business plans and investment strategies. Thus, cost reduction has become a global trend to cope with low oil prices, which was done by TAQA in the past two years.
In late December 2016, Wood Mackenzie reported that major international oil and gas companies were expected to increase exploration spend in 2017 for the first time in five years. For 2017, the report predicts an increase in cash flows for the first time in three years due to recovering crude prices following expectations for OPEC to succeed in keeping the oil price above $55 per barrel. The report was optimistic, predicting that most oil and gas companies will start 2017 on a firmer note and will be able to inject capital once again with a profit margin above the breakeven point.
Since the beginning of the crisis in 2014, TAQA’s Board of Directors initiated a transformation programme mainly intended to align the company’s operations with the prevailing oil price environment. The programme consisted of several successful administrative and financial steps that had the greatest impact on reducing operating costs, conforming with the UAE Government’s directions and efforts to manage and operate the company in a safe and sustainable way.
TAQA strived to make a big difference by restructuring the base cost to align with the prevailing and fluctuating oil price environment, founded on the level of costs of our projects and assets located around the world. TAQA carried out several actions that had a great impact on achieving its objectives, namely cash cost savings of AED 2.8 billion, or 30%; the reduction of capital expenditures by AED 5 billion, or 88%; refinancing revolving credit facilities at attractive rates; and the reduction of operational costs by 35% per barrel. In terms of labour force, TAQA cut 950 jobs from global projects, resulting in 25% savings, in addition to reducing our workforce by 50% at headquarters.
TAQA succeeded through the transformation programme in retaining all assets. Meanwhile, TAQA continued its efforts to complete major projects, and postponed other large-scale projects, particularly in the oil and gas sector, or reshaped and resized them. TAQA reduced exploration and non-operational activities, while maintaining the same level of oil and gas production
Redesigning and restructuring the company’s portfolio represents our most important achievement in the past two years.
In accordance with Abu Dhabi government directives, TAQA aligned its strategy with the Abu Dhabi Economic Vision 2030, which represents a roadmap for establishing a sustainable economy focused on knowledge-based industries. TAQA also doubled the Emiratisation ratio to reach 71% in senior management positions, and increased the Emiratisation ratio in its headquarters to more than 54% from 28% at the start of the programme. TAQA enhanced cooperation with other companies in the UAE such as ADNOC and Abu Dhabi Water and Electricity Authority through the establishment of joint committees for oil and gas, electricity and water.
It was the successful application of the strategic transformation programme that has significantly strengthened the company and given it the capacity needed to go against fluctuations in prices and allowed us to increase our competitiveness and profitability.