Sharjah-based Dana Gas said yesterday it received US$50 million from Egypt, which made $750m in back-payments to oil and gas companies this week. But smaller operators are struggling as a lack of US dollars in some government payments strains their finances.
In a filing on the Abu Dhabi bourse, Dana Gas said the payment represented 18 per cent of the company’s overdue receivables of $283m. The latest payment was in US dollars, while the $13m received in the first quarter was paid in local currency.
Egypt, which owed international oil companies (IOC) a total of $3.5 billion before this week’s payment, is struggling with paying its dues amid a shortage of dollars despite the flotation of the pound in November.
The currency devaluation was a prerequisite for the IMF’s $12bn extended fund facility, granted to help address the country’s economic challenges. The IMF loan helped ease a dollar shortage that was crippling the country. The Washington-based lender reached a staff-level agreement with Egyptian authorities last week to unlock the second instalment of its three-year facility totalling $1.25bn, subject to approval by the lender’s executive board. Egypt expects to receive the funds in June, bringing the total from the IMF to $4bn.
The Egyptian government’s payments come in a mix of Egyptian pounds and dollars, which is problematic to IOCs. While Egyptian pounds are used to cover local expenses, there are other areas of operation requiring dollars.
One small operator in Egypt, pumping about 10,000 barrels of oil per day said payments from the government came in pounds with a “dribble of dollars”. The executive, who asked not to be named, said some vendors were taking pounds, but the firm didn’t have enough to pay anyone who wanted dollars.
“Most of the companies that have offices in Egypt are taking a significant amount of local currency because they have to keep working or else they can’t make payroll,” he said, pointing to Schlumberger and Halliburton no longer asking for dollars in advance, but rather accepting pounds in the interim.
A spokeswoman for the oil services company Schlumberger said a portion of contracts may be paid in local currency to cover local expenses, but the preferred currency is US dollars. She declined to give specifics on cash in advance for products and services, saying it was based on a customer’s credit profile and Schlumberger’s management guidelines – which are confidential. Halliburton declined to comment on the matter.
Smaller firms are struggling to pay for some elements of the business, such as imported computer programmes, which require dollars.
Most IOCs are using accounting software that uses technical support services to address needs and updates – these services only accept payment in dollars. “Critical computer systems are having problems and we can’t get support or updates as a result,” the small operator said.
And while money is trickling into the sector, it will likely hit those with large investment programmes, such as the mega gas find Zohr, which is operated by Italy’s Eni and BP.
“The amounts that would be paid per IOC would be proportionate to their part of the total outstanding amount,” said Allen Sandeep, the director of research at Cairo-based Naeem Brokerage.
“The outstanding amounts vary by contractors, depending on their scale of upstream operations in Egypt. Invariably, the larger the scale, the higher the share in the payout.”
For operators such as Dana Gas, the outstanding debt has weighed on the companies’ investment strategy in Egypt.
Dana Gas has halted further investment in the country until the gap tightens on arrears, focusing on only completing projects under way.
“The art in Egypt is to balance our collections with our expenditures, and we’re continuing to walk that tightrope,” said Patrick Allman-Ward, the chief executive of Dana Gas, last week.
But he added it does not mean that if the right offer came along, the company wouldn’t sell its Egypt assets.
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