Iraq’s Kurdistan has reached a full and final settlement with the UAE-based Dana Gas and its consortium partners over a $2.24bn-worth legal dispute that will see the semi-autonomous Iraqi region immediately pay the Pearl consortium $1bn.
Dana Gas, its parent Crescent Petroleum and its partners filed a case against the Kurdistan Regional Government (KRG) in the London Court of International Arbitration in October 2013 regarding certain violations of their contract with the Kurdish government and accusing the latter of underpaying for gas liquids production.
The KRG has argued that the dispute emerged at the height of its fight against militants and as its budget suffered from a steep drop in revenues due to lower oil prices, which forced it to postpone and restructure payments to some counter-parties.
As per the terms of the settlement, which the two parties have announced through a press release, Kurdistan will immediately pay $600mn to the Pearl Consortium, in which Dana and Crescent own 70% and their partners Austria’s OMV, Hungary’s MOL and Germany’s RWE own 10% each.
Kurdistan will also immediately pay another $400mn to go exclusively towards Pearl’s further development to increase production in its fields. The balance of $1.24bn will be reclassified from debt to outstanding costs to be recovered by Pearl from future revenues.
“The (Pearl) companies’ investment and production to date has already delivered substantial benefits for the Kurdistan region through enabling cost-effective power generation. We are delighted by the outcome of this settlement which opens a new chapter in the relationship between the parties and will take the development of the important natural gas sector to new heights,” Dr. Ashti Hawrami, minister of Natural Resources in the KRG, was quoted as saying in the press release.
Pearl develops the Khor Mor and Chemchemal gas fields. Under the settlement it agreed to increase production at Khor Mor by 500mn cubic feet a day or 160% from the current levels within two years.
The Pearl consortium, on its part, has agreed to steeply raise gas production within two years, while the KRG has agreed to add two new blocks to Pearl’s two existing fields and improve the deal’s terms to levels it offers to international firms under production sharing agreements.
The parties have clarified that the Khor Mor block boundary coordinates and the KRG has awarded the consortium investment opportunities in the adjacent blocks 19 and 20, and added these to the areas specified in the initial contract of 2007, with commitments by the consortium to make appraisal investments on these blocks, and developments if commercial oil and gas resources are found.
Moreover, the KRG will purchase 50% of the additional gas on agreed terms to boost the gas supply to power generation plants in the Kurdistan region. The other 50% of the additional Gas (250 mmscf/d) will be marketed and sold by Pearl to customers within Iraq or by export, or can be sold to the KRG as well to further boost power generation within Iraq.
“We have always expressed our commitment to amicable resolution of matters to enable proper development of the Khor Mor and Chemchemal fields (in Kurdistan). We are pleased with this definitive agreement which follows constructive dialogue with the KRG and promises to generate significant value for all concerned,” Majid Jafar, CEO of Crescent Petroleum and managing director of the Board of Dana Gas, was quoted as saying.
“The settlement of all debts and restoration of full cooperation gives a positive outlook for further investment and full realisation of the enormous resource potential of the areas,” Jafar said.
For Dana, the Kurdish settlement will be eagerly watched by its bond holders which are disputing in courts in London and the UAE a move by Dana to restructure a $700mn sukuk bond on the grounds it is no longer Sharia-compliant.
The Pearl consortium says it has invested more than $1.2bn and produced over 150mn barrels equivalent of gas and petroleum liquids in Kurdistan, but non-payments from the region has complicated its finances.
