Dana Gas, the energy company with assets in politically volatile northern Iraq and Egypt, said that its long-running dispute with the National Iranian Oil Company (NIOC), the state producer, may be resolved amicably after an international tribunal deemed a gas supply agreement between the two parties valid and binding.
Dana Gas said that it had been notified "that the arbitration tribunal has issued a final award for the merits phase of the proceedings, determining that the 25-year contract between it and NIOC is valid and binding upon the parties, and that NIOC has been obligated to deliver gas under the contract since December 2005."
The arbitration dispute centres on a 25-year agreement signed between Crescent National Gas Corporation — a company co-owned by Dana Gas and its largest private shareholder, Crescent Petroleum — and NIOC in 2001 for the supply of 600 million cubic feet a day of Iranian gas, scheduled to come online in 2005.
No gas has been delivered to date, which has been blamed on NIOC’s failure to complete production facilities for the Salman gasfield in the Arabian Gulf and its demand to be paid more than originally agreed.
Dana Gas said in May that it expected “an enforceable decision” by the tribunal before the end of the year. However, enforcing an award against NIOC in the Iranian courts is unlikely to be a simple matter, according international arbitration lawyers.
“My main takeaway is that we’re approaching some kind of resolution on this arbitration case and Crescent are hinting that they want some negotiated settlement to it rather than an arbitration award,” said Robin Mills, the head of consulting at Manaar Energy. “They are saying, ‘we hope this leaves it open to an amicable settlement’. That’s the next phase – to see if they have an amicable settlement or an award. And if so how much and how do they collect.”
Elsewhere, Dana Gas has had problems recovering payments from exploration and production assets in Egypt and Iraqi Kurdistan because of political turmoil. “Until I hear what the Iranians – NIOC – say about this, I think we should be cautious,” said Sanyalak Manibhandu, the manager of research at National Bank of Abu Dhabi Securities. “We are talking about a situation that hasn’t brought any progress for almost nine years. As an investor you should do nothing until you see what Crescent and the Iranians say about delivery.”
Shares of Dana Gas rose 1.4 per cent to 70 fils yesterday, paring its year-to-date drop to 23 per cent.
“You should treat these things with a lot of caution until you see them sitting around the table saying we will deliver gas at that price in that month, and until you see that, you should take this with a big pinch of salt,” said Mr Manibhandu. “All we have is what Dana Gas are saying. The Iranians may say we interpret the ruling in a different way.”
In 2005, the initial public offering prospectus for Dana Gas detailed a 25-year contract with NIOC to pump gas from Iran to Sharjah in what would have been a landmark agreement. The document described NIOC as “the entity responsible for ownership and management of the second largest gas reserves in the world”.
In turn, Crescent National Gas Corporation had also signed long-term supply agreements with government entities in Dubai and the Northern Emirates.
However, the contract was never delivered even after the company pulled off one of the most in demand listings of the year. Since then Dana Gas has been working hard to ensure that finds in Egypt and Nothern Iraq made up for the loss of the Iranian business.
Last week it reported that production across its Egyptian, Iraqi and UAE operations increased by 17 per cent in the second quarter to 72,200 barrels of oil equivalent per day, even as the cash it is owed by the Egyptian and Iraqi Kurdish governments grew to about US$950 million.
Dana Gas has taken the KRG to arbitration in London, where last month it was ordered to pay interim relief to the energy firm.
mkassem@thenational.ae
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