Dana Gas plans to continue cost-cutting and may review investments in Egypt next year if Cairo does not fulfil commitments to pay arrears to the Sharjah-based company, the chief executive said yesterday.
The Abu Dhabi-listed company swung to a US$13 million profit in the third quarter from a $9m loss in the third quarter last year, helped by the payment of arrears from the Kurdistan government and cost-cuts.
Third-quarter revenue rose by 9.7 per cent to $102m from $93m a year earlier as the company ramped up production in the third quarter by 14 per cent to about 70,000 barrels of oil equivalent per day (boepd) from a year earlier, mainly from higher output from Egypt.
But the company’s collections fell in the third quarter because of payment delays from Cairo, which is grappling with a dollar shortage that has exacerbated the settlement of more than $3.5 billion in arrears to oil and gas operators in the country.
“Despite our collections decreasing due to disappointing payment delays from Egypt, we have managed to offset these through better-than-anticipated collections in Iraq’s Kurdistan region,” said Patrick Allman-Ward, Dana Gas’s chief executive. “Nevertheless, we remain mindful of our long-term cash requirements and we will have to review our operational and capital expenditure in Egypt for 2017 if the situation does not improve.”
Mr Allman-Ward expressed hope that the recent flotation of the Egyptian pound to end the dollar shortage and a thriving black market and IMF plans to grant Egypt a $12bn aid package would alleviate the arrears situation.
Dana Gas’s Egypt receivables balance stood at $242m at the end of the third quarter, up from $230m at the end of the second quarter.
In the northern Iraqi region of Kurdistan, collections stood at $722m at the end of September, down from $726m at the end of the second quarter.
The Egyptian government and Dana Gas had signed an agreement in 2014 to lift production and gradually recover outstanding receivables from the incremental production of light oil or condensate, which is found in gasfields operated by the company. The deal involves increasing production from the company’s operations in the Nile Delta.
Any delay of payments will affect plans to boost production from Egypt, where output rose by 24 per cent year-on-year at the end of the third quarter to 40,000 boepd, reaching maximum plant capacity.
To implement its incremental programme, the company is looking at a number of options, including debottlenecking, a process whereby production is increased from existing facilities.
“We can debottleneck our existing plants and we are looking at taking some relatively low-cost, relatively short-term actions that will allow us to do that,” said Mr Allman-Ward. “And we are also looking at a slightly longer-term option of putting an additional temporary facility adjacent to our plant in order to also increase our production capacity.”
Dana Gas, with its partner and operator BP, also plans to fast-track the development of wet-gas at the shallower level at Mocha-1 block in Egypt’s Nile Delta, which could hold multi-trillion cubic feet of potential gas reserves, and bring it on stream at the end of the first quarter of next year.
“If Mocha-1 is successful it has the potential to be transformational for the company and would significantly impact the scale of our production and the value of our assets in Egypt,” said Mr Allman-Ward.
The company expects to continue its cost-cutting strategy for a third straight year in 2017.
“In terms of our short to medium-term priorities, we will continue to firstly focus on managing margin – in other words improving our overall financial performance in terms of increased efficiency by lowering unit costs,” said Mr Allman-Ward. “This will mean targeting further cost savings on G&A [general and administrative expenses] and opex where possible.”
The company, which has a $700m Islamic bond due next year, had at the end of the third quarter a cash and bank balance of $322m, down from $470m in December, because of final capital payments for the UAE’s Zora gas project, repurchase of $50m of the sukuk and quarterly sukuk profit payments.
dalsaadi@thenational.ae