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Abu Dhabi, UAESunday 16 December 2018

Dana Gas to balance investment against payment owed in Egypt

The Sharjah-based energy producer has just reached a settlement with debt holders on its $700m sukuk, which has since been refinanced

Dana Gas said it received Dh271 million in condensate sales from the Kurdistan Regional Government.  WAM
Dana Gas said it received Dh271 million in condensate sales from the Kurdistan Regional Government.  WAM

Dana Gas will follow a strategy of balancing new capex against payments in Egypt as the Sharjah energy-based firm posts a 17 per cent second quarter profit drop due to costs linked to the restructuring of its $700 million sukuk.

“Since the Arab Spring and the revolution, the receivables position of Dana Gas has fluctuated between $200 million and $250m on a year-end basis. There have been high points and low points," Dana Gas chief executive Patrick Allman-Ward told reporters. "The worst was over $300m and the best was at $190m odd but over the course of the last seven years the overall position has not substantially improved.”

The Abu Dhabi-listed company said its receivables position in the North African state was around $202m of which $120m was overdue.

The company received $40m from Egypt towards paying its receivables in May. Dana Gas, which finds its current payments position in Egypt untenable, will not likely opt for a legal recourse, as there are no disputes with respect to receivables outstanding.

“Unlike others there is no dispute. They [Egypt] fully recognise they owe us money and the issue is about the capacity to pay,” Mr Allman-Ward told reporters.

“And that’s why we’re not in any kind of legal process in Egypt but we’re in discussion with the government to make it clear to them that the sooner they pay us the sooner we would reinvest the money back into Egypt, which is good for Egypt and also for Dana Gas."

The company, which has operating interests in Iraqi Kurdistan as well, has emerged from a protracted legal battle with its sukuk holders, issuing a new sized down Islamic finance instrument of $530m.

The pared-down instrument, relaxed dividend covenants as well as lower profit rate are expected to reduce the company’s annual finance cost by $35m annually, translating into 63 per cent reduction, the company said on Tuesday.

The reduction would provide a “strong improvement” to the firm’s financial position and planned dividend policy, it added.

Dana Gas' net profit for the second quarter declined 17 per cent to $10m due to costs associated with the restructuring of the sukuk.

The end to the sukuk saga will help the company move forward with its exploration and development plans, Dana Gas added.

The firm, which has plans to drill a fourth exploration well in Egypt as well as boost gas production by 25 per cent in the Kurdistan Region of Iraq, has no further plans to issue debt, the chief executive said.

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Dana Gas, which is also entangled in a legal dispute with state-owned National Iranian Oil Company over a gas pipeline agreement signed in 2001, will hear the final judgment on the amount of expected damages towards the end of October.

Mr Allman-Ward declined to comment on expected damages to Dana Gas, whose parent Crescent Petroleum had inked a pact to receive 600 million cubic feet a day of gas to supply Sharjah from the offshore Salman field via an under-sea pipeline.

Apart from a test run in 2010, which found leaks during transmission, the pipeline has remained unused.

Mr Allman-Ward said the company anticipated NIOC to challenge the process and expected the legal process to continue for a year before the English high court.