Dana Gas, the Sharjah-based fuel producer, reported revenue growth of 21 per cent for the third quarter thanks to revived output in Egypt.
Dana Gas-KRG legal dispute worsens, says CEO
A dispute between Iraq’s Kurdish region and Dana Gas over alleged non-payment of revenues has escalated amid a breakdown in trust between both parties.
The Sharjah-based fuel producer made the comment yesterday as it reported a dip in third-quarter profits.
Its chief executive Patrick Allman-Ward said Dana Gas felt pressured to launch arbitration proceedings after the Kurdish energy ministry offered a prime concession for sale to another company.
A company told Dana Gas that the ministry approached it about buying the rights to the Chemchemal gas field, said Mr Allman-Ward.
Those appraisal rights – awarded in one of the first exploration contracts to be signed in post-war Iraq – are held by Dana and its partners, Austria’s OMV group, Hungary’s MOL Group, and Crescent Petroleum, Dana’s sister company.
The Kurdish Ministry of Natural Resources was not available for comment.
“We felt not only was the ministry not acting in good faith, but that they were also trying to sell our assets quite literally from underneath our feet,” Mr Allman-Ward said yesterday. “We thought that was a clear escalation of the dispute.”
Last month Dana Gas launched arbitration proceedings against the Kurdish government in a London court, the first legal dispute in the region’s oil industry.
Until recently, the industry had been heralded as the world’s next great hydrocarbons frontier.
Unlike in the rest of Iraq, the semi-autonomous Kurdistan Regional Government (KRG) allows foreign oil companies such as ExxonMobil and DNO International to book reserves, and it has been largely free of the violence that plagues other parts of Iraq.
The optimism about the industry is at odds with the five-year dispute over contract terms between the KRG and Dana Gas, the region’s main partner for gas production.
Dana Gas said the KRG owed the firm US$447 million. The KRG, however, said it did not owe Dana Gas any money, instead claiming that Dana Gas owed it money for losses stemming from a delay in delivering a liquefied petroleum gas plant.
Regarding the discussions, Mr Allman-Ward said: “We’ve been trying to seek common ground and a win-win solution, and every time we thought we had found a solution we found the goalpost had been moved.
“We got to a point where our legal advisers said that under the British statute of limitations we were running out of time – that if we did not take the next step of dispute resolution, then it could be held against us.”
He added that the dispute was jeopardising investment in the region.
“Clearly when you’re not getting paid for the products you deliver to the counterparty, whoever that counterparty is, it does diminish your enthusiasm for injecting fresh quantities of money into any project, and that certainly is the case in Kurdistan,” Mr Allman-Ward said.
“We had a desire to keep investing and raising our production [but] we’ve been unable to achieve that because of the position that’s been taken by the MNR and by the petroleum minister.”
Dana Gas said a backlog of hundreds of millions of dollars in unpaid invoices at its main assets in Egypt and Kurdish Iraq had hurt its earnings.
The fuel producer has collected revenues of Dh250m from the Kurdish region this year, but it said it was still owed Dh1.64 billion.
In Egypt, Dana Gas collected revenue of Dh234m, down from Dh549m for the same period last year. Dana said it was still owed Dh1.09bn.
Revived production in Egypt helped to boost revenues, if not profits, Dana Gas said.
In the third quarter, production at the company’s Egyptian assets climbed 21 per cent to 3.6 million barrels of oil equivalent (boe) from 2.8 million boe in the same period last year. But despite a parallel jump in revenue to Dh623m from Dh512m, profit remained stagnant at Dh102m.
Meanwhile, Crescent Petroleum was expecting “an enforceable decision” by an international tribunal this year on its 25-year supply agreement with National Iranian Oil Company, Dana Gas said yesterday.