UPDATE 3-UAE's Taqa sticks with N.Sea even as costs rise

* Committed to North Sea despite company's rising costs

* Sees North Sea costs falling in Q3-Q4

* Shares up 6.83 pct, outlook better with oil price rise

(Recasts with quotes, background from conference call)

By Stanley Carvalho

ABU DHABI, Aug 13 (Reuters) - Abu Dhabi National Energy Co TAQA.AD (Taqa) said it remained committed to expansion in the high-cost North Sea oil and gas sector after a buying spree there drove up costs and hit second-quarter profits.

Shares in Taqa, a state-run oil and power producer, rose 6.8 percent on the Abu Dhabi bourse as investors reacted to the company's view that higher crude prices since the end of the quarter augured well for its business.

"The outlook is positive as higher oil prices imply better margins, with oil wells operating at more than breakeven point," said Rakesh Agarwal, analyst at Abu Dhabi Commercial Bank.

Taqa has expanded into North Sea and Canadian oil and gas output after starting out as an Abu Dhabi utility.

Oil majors have dumped North Sea assets due to their high cost and low margins, but some independents believe they can squeeze more out of remaining oil and gas reserves there.

"We're real believers in the North Sea," Chief Executive Peter Barker-Homek said in a conference call. "What you've seen in our results -- taking over complex assets and pulling together a workforce of 800 people over a very short period -- would naturally lead to some cost inefficiencies."

Taqa should see costs fall in the third and fourth quarters as it absorbs the new assets, Barker-Homek said.

Taqa has accumulated assets worth more than $2 billion in the North Sea and made acquisitions in Canada. The higher cost of sales linked to the acquisitions weighed on profits, Taqa said in a statement on Thursday.

The upstream expansion has also exposed Taqa to the impact of volatile commodity prices. Lower crude prices on the year contributed to a 71 percent slump in net profit in the quarter, Taqa said.

BUYING SPREE

Taqa intends to continue its buying spree and could spend $1 billion more before the end of the year, Barker-Homek said. The company had 5 billion dirhams ($1.36 billion) in cash for acquisitions or paying down debt, and had no refinancing needs until 2010, he added.

"Uncertain times also throw up opportunities ... Taqa is well positioned to take advantage of these conditions," he said.

It continued to look at opportunities in North America and Europe, he said.

Taqa posted profit of 136 million dirhams ($37 million) in the quarter ended June 30, down 71.2 percent from 471.4 million in the prior-year period.

The results fell short of two analysts' estimates for earnings of 348 million dirhams and 289 million.

In the first six months, Taqa said it had net profit 176 million dirhams, down from 869 million last year.

Taqa cited the sharp decline in the oil price for the slump in earnings. U.S. crude CLc1 ended the second quarter at $69.89 a barrel, down from $140 a year earlier, but have more than doubled from a low of just above $32 in December.

"As the oil price has improved from its lowest point, our second-quarter performance has shown an improvement in comparison to the first three months of the year," Taqa Chief Executive Peter Barker-Homek said in a statement.

"With the oil price trending up to over $70 per barrel post-quarter, we are now a long way from the lows we saw earlier in the year."

Revenue declined 4 percent to 4.4 billion dirhams in the quarter. It said oil and gas revenue fell 30 percent while revenue from its electricity and water business rose 14 percent.

Total production was 138,200 barrels of oil equivalent per day in the second quarter, up from 119,200 barrels in the second quarter of 2008.

Taqa, 75 percent owned by the government of Abu Dhabi, is one of the vehicles the emirate uses to invest oil money. Abu Dhabi holds most of the oil reserves and wealth in the United Arab Emirates. (Additional reporting by Simon Webb in Dubai) ($1=3.673 Uae Dirham)