Dana Gas balancing act over Egyptian payments

Dana Gas will follow a strategy of balancing new capex against payments in Egypt as the Sharjah energy firm posts a 17 per cent second-quarter profit fall 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,” said Dana Gas chief executive Patrick Allman-Ward. “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 company, listed in Abu Dhabi, said its receivables position in the North African state was about $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, is not likely to opt for 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 said.

“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 also has operating interests in the Kurdish region of Iraq, has emerged from a protracted legal battle with its sukuk holders, issuing a new downsized Islamic finance instrument of $530m.

The pared-down instrument,

relaxed dividend covenants and 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 yesterday.

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

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

The new sukuk will have a three-year life, maturing in October 2020, with a new profit rate of 4 per cent per annum, Dana Gas said.

Legal proceedings in courts in the UK and UAE have been brought to an end by all parties, it added.

In June, the company secured the approval of the majority of its shareholders to move ahead with its sukuk restructuring programme.

Last month, Dana Gas received about $44m in dividends from Iraq’s Kurdish region for the first half of the year,

The company, which has plans to drill a fourth exploration well in Egypt as well as boost gas production by 25 per cent in the Kurdish region, has no further plans to issue debt, the chief executive said.

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

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 completed an agreement 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 that was conducted in 2010, which found leaks during transmission, the pipeline has remained unused.

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

We’re in discussion to make it clear that the sooner they pay us the sooner we reinvest the money back into Egypt PATRICK ALLMAN-WARD Dana Gas CEO