Dana Gas’s first-quarter profit jumped by 83 per cent from a year earlier but spending is on hold amid uncertainty over back payments and refinancing.
The Sharjah-based company said its net profit was US$11 million in the first three months of the year, up from $6m, resulting from higher production and market prices. Output climbed by 16 per cent with realised prices up by more than 40 per cent, boosting revenue by 44 per cent to $118m.
Yet outstanding arrears at the end of the quarter amounting to $1 billion from Egypt and the Kurdistan Regional Government in Iraq, in addition to arbitration with Iran, have placed more pressure on the producer.
The KRG has been consistent in making monthly payments since late 2015 but Egypt has tapered off, with trade receivable balance inching up to $283m.
“We’ve been paid, but not as much as we should,” said Patrick Allman-Ward, the chief executive of Dana Gas. He said the company would reduce spending in Egypt proportionately. “This doesn’t mean we’re freezing or switching [spending] off completely but we’re focused on only completing projects that are currently underway,” Mr Allman-Ward said.
To help trim the amount owed, Dana Gas in April made its first international sale of Egyptian gas condensate, for $7.2m. Mr Allman-Ward said that the company expected to sell three more cargoes over 12 months.
Dana Gas’s $700m Islamic bond matures in October and the company said this month that it would begin discussions to restructure the sukuk. “The company needs time to realise the full value of its assets to benefit the stakeholders,” Mr Allman-Ward said. “As a result of continued uncertainty with collections, we need to conserve cash for the short and medium terms.”
Refinancing of debt will depend on many moving parts, from how much cash is received from the KRG to a deal with the National Iranian Oil Company (NIOC), expected this year, that would probably have Iran paying in gas. Dana Gas would process the gas, which would generate a profit.
Sanyalak Manibhandu, the head of research at NBAD Securities, said that while the top-line growth and cost management boosted operating performance over the quarter, the market continues to focus on the conversion of trade receivables into cash and the refinancing of the sukuk.
“The management expressed confidence in getting a result from the ongoing arbitration process with regards to the KRG and NIOC,” he said. “While there appears to be progress, the market isn’t going to re-rate Dana Gas until there is clear evidence of some improvement to the company’s financial outlook.”
Based on how much money could come in from the KRG and NIOC, bondholders could be enticed to extend the sukuk to get a pay down over time. One bondholder said that there was the potential for significant cash flow to come into the business over the next two years, but there was a lack of visibility as to what Dana Gas wants to achieve.
“The timetable is very tight and last time it took a year for an agreement to be found with bondholders,” said the creditor, who did not want to be named.
Dana Gas declined to comment on whether it had appointed an adviser for the negotiations with creditors.
Dana Gas shares rose by 1 fils to close at 44 fils in heavy trade yesterday. The shares are down by 18.5 per cent for the year to date.
lgraves@thenational.ae
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