Arbitration court orders Kurdish government to pay Dana Gas $80 million

Dana Gas had filed an arbitration case in London last October against the Kurdish Regional Government, seeking to confirm its contract rights and to obtain payments for products it had delivered.

Above, a Dana Gas facility in the Kurdish region of Iraq. Dana Gas / Reuters

Dana Gas has won a minor victory in its attempt to claim US$583 million in what it says are unpaid revenues from the Kurdistan Regional Government of Iraq (KRG).

The KRG must pay a sum of about $80m to Dana Gas, after the London Court of International Arbitration said that Dana could claim interim relief from the Kurdish authority.

Its shares closed 4.2 per cent higher in Abu Dhabi yesterday.

The dispute centres on the price the KRG should pay for liquefied petroleum products that it buys from Dana to sell domestically.

Dana Gas has argued that it is entitled to charge its sales to the KRG at international prices. The KRG says that it is willing only to pay prices determined by local supply and demand, which are substantially lower than international prices.

Dana Gas has not received payments from the KRG since July 2013. Before this, Dana Gas was paid revenues by the KRG based on local prices for oil and gas.

While Dana Gas argues that it ought to receive $200m to $250m per year from the KRG, the most that the Kurdish government has paid the company in a single year was $140m in 2012. The KRG’s refusal to pay means that Dana’s cash flow position is deteriorating, analysts said, and that the company has only enough liquidity to comfortably meet its operating expenditures until the end of the year.

It had holdings of $155m in cash at the end of the first quarter, down $49m from the end of 2013.

Dana has previously resorted to a series of one-off moves to ensure that it has enough liquidity to continue operations.

The company renegotiated the terms of its $1 billion sukuk after it missed a payment in October 2012. It also sold its stake in the Hungarian oil company Mol in February 2013 for $134m.

One analyst, who declined to be named, said: “It’s hard to see even six months down the road how much they will collect in revenue. They depend on factors which are absolutely beyond their control.

“If Dana Gas runs out of cash, they will have to go back to creditors and find out if they’re willing to restructure again or put in more money,” the analyst said.

Dana Gas, which owns a 40 per cent stake in the Pearl Petroleum Company, a consortium of energy firms, entered into an agreement in 2007 to develop petroleum and gas assets in the Kurdish region’s Khor Mor and Chemchemal fields.

But conflict between the KRG’s ministry of natural resources and Iraq’s ministry of oil led to the central government restricting the KRG’s ability to export petroleum products to international suppliers. This has lowered the prices the KRG earns from its energy sales.

This culminated in an attempt by the ministry of oil to impose an outright ban on KRG energy exports, although this was overturned by the Supreme Court of Iraq last month.

Ashti Hawrami, the Kurdish region’s minister of natural resources, said that restrictions on the KRG’s ability to export oil were “clearly politically motivated, hostile, illegitimate, and without constitutional basis, and contrary to the fundamental interests of the people of Iraq”.

The company stressed that production continued despite the KRG’s nonpayment.

“Dana Gas and its consortium partners reiterate their continued commitment to the KRG and to the people of the Kurdistan Region and all of Iraq, and hope that any outstanding matters with the MNR [ministry of natural resources] will be resolved, amicably and in good faith, in the shortest possible time,” the company said in a statement.

The Kurdistan Ministry of Natural Resources did not respond to a request for comment.

The arbitration continues.

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