Dana Gas production up despite cash flow problems

Overall production for the UAE-based company was up 17 per cent to 72,200 barrels of oil equivalent per day.

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

Dana Gas production in Egypt, Iraq and the UAE increased 17 per cent in the second quarter even as cash it was owed by the Egyptian and Iraqi Kurdish governments grew to about US$950 million.

Based on growing output, the company yesterday reported a 70 per cent increase in second-quarter profit as its net income rose to $46m.

Average overall production volumes increased to 72,200 barrels of oil equivalent per day compared with 61,700 bpd a year earlier.

But the Egyptian government is late on $230m of payments out of $297m total receivables outstanding, while the Kurdistan Regional Government, which owes the company $650m as of the end of June according to Dana Gas, has not paid anything in more than a year.

Dana Gas spent $72m in cash between the first quarter and the second quarter to make up for the shortfall in collections.

That is more than a third of the company’s second-quarter gross revenues of $187m.

The company said cash reserves declined 35 per cent in the first half to $132m. That plus “available-for-sale” assets of $79m is enough to last three quarters at the current rate of cash flow deterioration.

“Cash collection remains an issue that Dana Gas management are taking considerable time and energy to address,” said Patrick Allman-Ward, the company’s chief executive.

Dana Gas has taken the KRG to arbitration in London, which last month ordered the KRG to pay interim relief to the energy firm.

One of the issues in contention is how much the KRG should pay Dana for its gas.

Dana Gas thinks that the KRG should pay international prices for its products.

But the KRG, which has been shut out of international markets by the central government in Baghdad and had its oil cargoes seized, argues that it can only sell gas at lower, domestic prices.

That has not stopped Dana Gas from including revenues from the KRG – marked up to international prices – in its financial results.

A new deal with the Egyptian government may also boost the company’s cash position, Mr Allman-Ward said.

This will let Dana Gas expand production by investing in new wells, the output from which it will be able to sell on international markets.

The company expects this will bring in new cash by the second quarter of 2016.

The Egyptian government has also said it intends to make a significant payment to energy companies in the second half of the year.

As a buffer, Mr Allman-Ward pointed to liquid assets including share capital of about $79m that could be used to tide the company over.

He stressed that Dana Gas’s cash flow problems were likely to be short-term and asserted that the company’s fundamentals were strong.

The company’s operations in Iraqi Kurdistan are continuing normally with no effect so far from the escalating violence in northern Iraq, Mr Allman-Ward said.

In the UAE, he said the Zora gasfield was developing on time with first gas expected in the first half of next year, with an estimated equivalent output of 6,650 bpd.

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