The decision by Dana Gas not to sell a percentage of its Egyptian concessions could pinch its cash flow.
The gas explorer and producer was searching for a partner in May to take a stake of 20 to 30 per cent of its Egyptian operations. However, this month it announced that it would not go through with the planned initiative and would instead retain its 100 per cent interest.
The move could pay off in the long run but it will have consequences in the short term, analysts say, because Dana has a US$930 million sukuk payable next year.
"Although the farm-out initiative was not driven by any need to refinance the sukuk, the proceeds would have been a saving grace," said Hatem Alaa, an analyst at Alembic HC Securities in Cairo. In order for Dana to manage its cash flow, he said, he expected "an announcement on sukuk refinancing soon".
The Egyptian investment bank downgraded Dana yesterday to "neutral" from "overweight", with its target price lowered to 85 fils a share from Dh1.30. Mr Alaa estimates the company must refinance at least 60 per cent of the sukuk.
Dana is already committed to several large expenditures, including more than $400m in the next two years on drilling and development. A new processing plant east of the Nile as part of that expenditure is expected to cost about $150m. The plant is due to be commissioned in the second half of this year with a capacity of 20,000 barrels of oil equivalent a day.
If exports are allowed to resume in Iraqi Kurdistan, that would help Dana's cash flow, and yesterday it was announced that exports could begin next month, after a standstill of more than 18 months.
The company could also choose to sell the shares it holds in MOL, its Hungarian partner in Kurdistan.
If those two things happen, Dana's refinancing needs would drop to as low as 15 per cent of the sukuk, Mr Alaa said.
The current exploration concessions in Egypt expire next year.
