Dana Gas's finances were given a shot in the arm this week as the company received payments worth nearly $50 million for gas produced in the Kurdistan region of Iraq.
Dana Gas receives welcome boost with $50m Iraq payment
The payout comes as political developments in Iraq and Egypt cast doubt over future payments, after outstanding receipts worth hundreds of millions prevented Dana from repaying a maturing bond in October.
Dana, which produces natural gas and condensate in the region, on Sunday received $48m - 40 per cent of the $120m paid out to the joint venture it operates under - from the central government.
Baghdad in September agreed to settle some of the outstanding receipts for oil and gas producers in Kurdistan.
"We are pleased to receive this payment, and are working with the Kurdistan regional government [KRG] to further address the outstanding receivables," said Rashid Al Jarwan, the executive director and acting chief executive of Dana Gas.
Baghdad does not recognise contracts that international oil companies have struck with the KRG, which claims the contracts to be legitimate under the Iraqi constitution. Under Iraqi law, only the central government can pay hydrocarbon producers, and payments have been patchy and far below the sums promised.
Dana fears that the next payout, scheduled for next year as part of the federal budget, will be far below the $540 million or so distributed to companies this week.
"There was great optimism after the September agreement with Baghdad," said Majid Jafar, the chief executive of Crescent Petroleum, Dana's parent company. "We hope it was not a one-off, but now it looks like there may not be another payment this year, and the payment discussed for next year in the Iraqi budget is small. It surprised everybody, but it seems the dialogue is still ongoing."
While the dialogue between Erbil, the Kurdistan capital, and Baghdad appears to be stalling, the recent flare-up in Egyptian politics threatens payments for gas produced by Dana in the past.
Having emerged from the Arab Spring, Egypt is now paying for gas deliveries, said Mr Jafar, but it still owes billions to producers for supplies during the revolution that ended Hosni Mubarak's rule early last year.
Last week, the new president Mohammed Morsi sparked a fresh crisis by granting his decisions judicial immunity, sparking outrage at home and abroad - and raising the spectre of further payment issues.
"They are trying to slowly cover the costs of the receivables. Of course, things were looking better a few weeks ago, now another political crisis, it seems. Whether that affects the IMF loan [to Egypt], liquidity in Egpyt, still remains to be seen," said Mr Jafar.
Dana Gas is owed $200m by the Egyptian government, said the Crescent chief executive. "As a UAE company we find we get priority treatment, and they are going the extra mile, but their financial situation is well known."
Dana gas is currently in negotiations with creditors over the restructuring over its $1bn sukuk.
Reports suggest the company is willing to pay out $100m to bondholders, and roll over the remaining debt by issuing two new bonds, one of which is convertible to equity shares.
Correction (December 6, 2012): In "Dana Gas receives welcome boost" (Business, page 1; December 5), we incorrectly stated that Iraq's central government had released $1 billion to international oil companies operating Kurdish assets. The correct figure is $540 million, which has been corrected above.