Abu Dhabi Energy Company (Taqa) will continue to invest in oil exploration in the North Sea off the shores of Scotland, in spite of a halving of profits in the first quarter, after the company was hit by a UK tax hike.

The government-controlled investor saw net profits drop by 47 per cent to $41m, compared to $78m in the first quarter of 2010. A 12 per cent increase in taxes aimed at the oil industry diminished margins, according to Taqa chief financial officer Doug Fraser.

“That had a big impact for us in the quarter, it cost us about AED150m ($41m), and that will continue to impact on us in the future,” said Fraser in a conference call.

The new tax rate stands at about 70 per cent, says Fraser. High oil prices can offset this increase, he adds. With Brent crude currently hovering around the $117-a-barrel mark, a 12 per cent increase still allows for a healthy return on investment.

Consequently, the tax hike will not impact on Taqa’s UK investment plans this year.  “We are maintaining our $500m drilling programme for 2011, but we will certainly evaluate that on an ongoing basis,” says Fraser.

Taqa is the sole owner of Taqa Bratani, an exploration and production company with assets in the Brae fields off the coast of Scotland.

The UK investments represent a quarter of Taqa’s 2011 budget for organic growth, which stands at $2bn. Further funding can be raised for acquisitions.

Taqa will invest similar amounts into organic growth in the coming years. “We expect to continue this going forward,” says Fraser.

In the oil and gas sector, the company is also looking to invest in North America, primarily by growing existing upstream assets.

On the power and water side, Taqa is examining opportunities in Greenfield developments and acquisitions in the Mena region and countries such as Ghana and India.

Taqa is 51 per cent owned by the Abu Dhabi Water & Electricity Authority and is listed on the Abu Dhabi Securities Exchange.