Dana Gas, the UAE-based natural gas producer, has reported a robust financial performance in the first quarter of 2017, due to increased production, principally in Egypt and higher realised oil and gas prices.
The Sharjah-based, privately-owned company gross revenues of $118mn, up by 44% from $82mn in Q1 2016 and a net profit of $11mn, a leap of 83% from the $6mn in the same quarter last year.
Overall group production was 69,900 barrels of oil equivalent per day (boepd), 16% higher compared to Q1 2016, while average realised prices in Q1 2017 were $42 per boe, versus $30 per boe in Q1 2016.
“Our solid financial results are testament to our ongoing efforts at maximising production while reducing costs. Group production was up for the second consecutive quarter, despite significantly reduced operating and capital expenditure,” Dr Patrick Allman-Ward, Dana Gas’ CEO, was quoted as saying in a press release sent to arabianoilandgas.com. “Further capital investment will be balanced with our collections.”
Dana Gas generated $27mn in free cash flow in the first quarter, driven by a reduction in OPEX and CAPEX and continued discipline on General & Administrative (G&A) expenditure. OPEX was down 23% due to further cost reductions in Egypt and CAPEX was down by 78%, as the company focussed on completing only those projects that were already in progress and those related to maintaining plant asset integrity and safe operations.
The Company will continue adopting a prudent approach to spending as part of its effort to preserve cash resources, the press release mentioned.
(continues on next page…..)
The current cash balance, as of 31st March 2017 was $298mn, down from $302mn at year-end 2016. In April the company repaid the outstanding $60mn loan on the Zora gas field project in the UAE, principally to avert a covenant breach and avoid the negative carry.
“Whilst we focus on short to medium term cash preservation, we remain excited about the potential for medium-term growth opportunities in Egypt and the development of our world class assets in Kurdistan over the medium to long term,” Allman-Ward said.
“Together with the potential damages claims from the arbitration cases the total value of Dana Gas’ assets are very significant. The Company needs time to realise this value, as well as collect on the circa $1 billion owed by the KRG and Egypt, for the benefit of all its stakeholders,” he revealed in the press release.
In the first quarter 2017, collections in Egypt were $13mn, representing 42% of total billings. Total trade receivables in Egypt increased to $283mn from $265mn as of 31st December 2016.
In Kurdistan, collections were $31mn, representing approximately 119% of total billings. This was due to direct sales of liquid products to the local market and regular pro-rata payments against the $100mn Peremptory Order.
Total receivable balance decreased marginally to $712mn. The Company’s overall trade receivables were $1bn at the period end, up from $982mn as of 31st December 2016.
Dana Gas’ Board of Directors, which includes Allman-Ward, has recently requested an independent external consultant to review the overall maximum potential value of the company and this was estimated to be in excess of $29bn.
These key assets include the Company’s resources and reserves in the KRI, Egypt and UAE as well as arbitration awards from the Kurdistan Regional Government (KRG) and pending damages claims.
The company is currently focussed on short to medium term cash preservation to deliver this long-term potential.
A detailed summary of Dana Gas’ country-wise activities and financial performance-related matters, as mentioned in the press release, follows on the next page……
Egypt
Dana Gas Egypt’s production was solid in Q1 2017. The onshore gas processing plant capacity at El Wastani remained at maximum output. Total output for the first quarter was 40,950 boepd, a 24% increase on the 33,000 boepd output in Q1 2016.
The company has significantly reduced its capital and operational expenditure plan for 2017, focussing on completing projects in progress or asset critical projects. In the second quarter of 2017, the El Wastani plant is planned to be shut down either in full or in part for an estimated ten day period whilst work is carried out to improve plant performance and reliability.
After the end of the first quarter 2017, the company concluded the first international condensate sale in Egypt under the Gas Production Enhancement Agreement (GPEA). The first cargo of approximately 150,000 barrels of Wastani condensate was loaded on 15th April 2017.
The buyer issued a letter of credit under which payment amounting $7.2mn will be paid directly to Dana Gas in US dollars. The cash proceeds generated from the Egyptian government’s share of the incremental condensate sales will contribute to paying down the outstanding receivables owed to Dana Gas by the government.
Kurdistan Region of Iraq
The company’s 35% share of gross production for the first quarter of 2017 was 26,500 boepd, up 4% on the 25,500 boepd in the first quarter of 2016.
The tribunal at the London Court of International Arbitration (LCIA) issued their third judgement dated 30th January 2017, ruling in the claimant’s favour regarding the most important of the issues under dispute, including complete dismissal of the KRG’s counterclaims. Following this announcement, the KRG has requested the Consortium (led by Dana Gas, which includes Sharjah-based Crescent Petroleum) to execute appraisal work and submit development plans on the world-class fields of Khor Mor and Chemchemal.
Furthermore, in agreement with the KRG’s Ministry of Natural Resources, the company has begun selling condensate directly to the government through the Jambour pipeline after it completed all its previously agreed local sales contracts, where it is spiked into the oil export stream to Ceyhan. The Consortium has been paid $20mn in advance and regular monthly payments commenced in April.
The UAE
Average daily production from the Zora Gas Field declined to 1,800 boepd in Q1 2017, as compared to 2,100 boepd in the fourth quarter 2016. Total production has declined steadily from production start-up in February 2016. The company is still undertaking further studies to review the subsurface modelling and to determine what commercially viable additional work may be required to have an impact on the gas flow rates.
(continues on next page…..)
Sukuk restructuring discussions
On 3rd May 2017, Dana Gas announced that it will commence restructuring discussions with holders of its Sukuk dated 8th May 2013. The company will be addressing the way forward on the Sukuk, which has a maturity date of 31st October 2017 in a practical manner that balances the interests of all stakeholders taking into account the continued challenges it faces around cash collections and its resulting need to focus on short to medium term cash preservation. The remaining profit payments will be addressed sensibly as part of the solution.
A copy of the press release is available at the company website www.danagas.com.
Arbitration
Very good progress has been made with regard to the arbitrations with the KRG and the National Iranian Oil Company (NIOC) affirming thecCompany’s contractual rights and paving the way for uncontested implementation and value realisation.
Over the last six months, Dana Gas has seen the KRG withdraw their claims in the English High Court to challenge the Second Partial Final Award, which was handed down on 27th November 2015. Following, the LCIA Tribunal’s third judgment dated 30th January 2017 the quantification of the claimants’ damages for the delayed development claim will be determined by the Tribunal at a further hearing scheduled in September 2017.
Similarly, in the arbitration case against the NIOC, the gas supply contract with Crescent Petroleum, through which Dana Gas has significant gas supply rights into the UAE, have been affirmed beyond doubt, while the challenges mounted by NIOC in the English High Court have now been dismissed. Final hearing of the remedies phase against NIOC for non-performance of the contract (including claims for damages and indemnities for third party claims) took place in November 2016. Due to a long post-hearing submissions timetable, the final damages award is expected at the end of 2017 or early 2018.
Dana Gas is confident that it will realise significant value resulting from these arbitrations, whether through settlement and/or enforcement of the awards.
