Anthony McAuley
Dana Gas said profit was hit by lower oil prices last year despite higher output, and it warned that investment in its growing Egypt operation might have to be curtailed until the government there resolves its arrears issue.
The Sharjah-based gas producer said its output climbed by 5 per cent last year as it ramped up Egyptian production, but profit fell 77 per cent because of lower oil and gas prices and the effect of a one-off payment in 2015.
The company said preliminary profit for last year was US$33 million, down from $144m the year before, with the previous year’s profit flattered by a one-off gain of $208m from settlement of a dispute with German energy company RWE over Pearl Petroleum, the consortium operating the Khor Mor and Chemchemal gasfields in the Kurdistan region in Iraq.
Excluding the RWE payment, Dana Gas lost $64m in 2015 as oil prices came down faster than its costs.
Revenue last year fell by 6 per cent to $392m, with higher production outweighed by lower realised prices for gas and liquids sales. Overall production rose by 5 per cent to 67,050 barrels of oil equivalent per day (boepd), but the average realised price was $33 per boe, compared with $45 the year before.
The company said that though total collections for the year were $200m, up from $168m the year before, the recovery rate in Egypt was only 64 per cent of billings, the worst in five years.
"The year was overshadowed by poor collections from Egypt," said Patrick Allman-Ward, Dana Gas chief executive.
He said that the company’s ambitious programme of development and new well drilling in Egypt will have to be restricted to only those already begun until the government, which had agreed an arrears payment programme with the petroleum sector in 2014, gets back on track.
"We are in close dialogue with the government, the minister of petroleum in particular, and it is our firm belief that the minister is doing everything in his power to extract payment for the petroleum sector," said Mr Allman-Ward. "But quite clearly the macroeconomic situation is such that he has been unable to secure that."
The petroleum sector had been expecting that it would receive payments after Egypt agreed a $12 billion loan from the International Monetary Fund in November, but the proceeds went to Egypt’s other pressing needs. The hope now is that some of the other financing secured since then – from the World Bank, from the African Development Bank and international capital markets – will be used to catch up with oil and gas company arrears.
Dana Gas fared better in the Kurdistan region, its other major operating sector, where it recovered 129 per cent of billables as it started to recoup some of its arrears owed there. Still, the company has outstanding arrears in Kurdistan of $713m, versus $265m in Egypt.
Mr Allman-Ward said its long-running dispute with the Kurdistan regional government (KRG) in the London Court of International Arbitration (LCIA) is expected to be completed later this year. The arbitrators have found in favour of Dana Gas and awarded a preliminary judgement of nearly $2bn so far, and last year’s cashflow included $100m the court ordered to be paid towards that settlement.
Dana Gas also has been pursuing an even longer-running contract dispute with the National Iranian Oil Co involving its partner – and largest shareholder – Crescent Petroluem. The Hague arbitration on that dispute is also expected to reach a conclusion on damages and enforcement later this year, though Mr Allman-Ward said he hopes for a negotiated resolution on both disputes.
The immediate challenge for Dana Gas is managing its cash, which was down at $302m at the end of the year from $470m the year before. A $700m sukuk is maturing in October and the company is examining its options about how to deal with that liability.
Also, the company’s third major operation – the Zora gasfield offshore the northern emirates in the UAE – has run into trouble and saw declining output. It may require a costly intervention and the company is studying the issue there and will report further on it later in the year.
Dana Gas shares were down 1.9 per cent at 53 fils on the Abu Dhabi stock exchange early Thursday.
