UAE’s Dana Gas abandons Merak well, hires adviser to sell Egypt assets
United Arab Emirates’ Dana Gas has hired investment bank Tudor, Pickering, Holt & Co. (TPH) to advise it on the sale of its Egyptian assets, worth over $500 million, two sources familiar with the matter said, as the company shifts its focus to its Kurdistan operations.
The Abu Dhabi-listed energy producer – whose main assets are in Egypt and in the Kurdistan Region of Iraq (KRI) – has been considering an alternative listing in London, and focusing on a single geographical area could be appealing to future investors in the company, said one of the sources. The sources did not wish to be identified because the information has not been made public.
A spokesman for Dana Gas declined to comment while TPH did not immediately respond to a request for comment, sent outside working hours.
Dana’s exploration and production assets in Egypt are onshore the Nile Delta except for Block 6 in the Eastern Mediterranean Sea.
In May Dana began drilling at the offshore Merak well in Block 6, saying it could hold up to 4 trillion cubic feet of gas.
On Sunday Dana said in a bourse filing that the drilling has not found commercial hydrocarbons and that the well is being abandoned. It added its operations in Egypt continue production normally.
The gas producer started marketing its Egyptian assets over the past few weeks and while it has received interest from the market there are no buyers lined up yet, said the first source, who added the assets are worth “well over $500 million.”
The decision to sell in Egypt is “strategic” as Dana wants to focus its resources on investments in KRI, where it has large capital expenditure requirements and sees potential for growth, the source added.
In a second bourse filing on Sunday, Dana said a new independently audited report showed the fields in which it has stakes in KRI could be “the biggest gas fields in the whole of Iraq”.
Pearl Petroleum, a consortium majority-owned by Dana Gas and its affiliate Crescent Petroleum, plans to increase gas production from the KRI’s Khor Mor field to 650 mmscf per day by 2022 and 900 mmscf per day by 2023, Dana said.
The expansion plan, worth some $700 million, will include adding two new production trains as well as drilling new wells to raise output from the current 400 mmscf a day, Dana Gas and Crescent Petroleum said in March, when they announced a 20-year gas sales deal with the Kurdistan Regional Government.
In May, Dana’s Chief Executive said Pearl Petroleum would raise funding for the KRI investments through several types of financing.
Dana’s 2019 capital expenditure for Iraqi Kurdistan was estimated at $70 million-$90 million, while its capex for Egypt this year would have been about $90 million, he said at the time.
Dana Gas, which at the end of this year’s first quarter had a cash balance of $442 million, rocked the world of Islamic finance in 2017, when it halted payments on $700 million in sukuk saying the instruments had become unlawful in the UAE.
After a protracted and complex legal dispute it reached a consensual restructuring agreement with its creditors in May last year.
Is Dana Gas planning to exit Egypt? Abu Dhabi-listed energy producer Dana Gas is looking to offload its Egyptian assets and has hired investment bank Tudor, Pickering, Holt & Co. (TPH) to advise it on the sale, two unnamed sources close to the matter told Reuters. Dana holds stakes five onshore exploration and production concessions in the Nile Delta and one offshore block in the eastern Mediterranean, together valued at more than USD 500 mn. A company spokesman refused to comment while TPH have yet to respond to inquiries.
North Arish well abandoned: The company said in a bourse filing on Sunday that it is abandoning its Merak-1 well in the North Arish concession after failing to find commercial hydrocarbons, but clarified that it is not abandoning the entirety of the concession. According to the disclosure, the concession “contains at least three other independent prospects with material resource potential that are unaffected by the Merak-1 well result.” The field is thought to hold around 20 tcf of reserves, which would make it Egypt’s second biggest after Zohr. Other exploration and production operations in the Nile Delta will continue as usual, the company said.
Are ambitions to list on the LSE behind the decision to exit Egypt? Sources said that the company is looking to focus on its operations in Iraqi Kurdistan prior to a possible listing on the London Stock Exchange. In a separate bourse filing on Sunday, the company said that its share of the Khor Mor and Chemchemal fields in Kurdistan (held through a 35% in its Pearl Petroleum JV) are equivalent to around 1 bn boe. The filing claims that this would make the gas fields the biggest in Iraq.
Background: Egypt last month paid the Emirati company USD 38 mn in overdue arrears, reducing its outstanding receivables to USD 125 mn, the lowest level since 2011. Dana Gas’ production climbed 6% y-o-y in 1Q2019 to 68.7k boepd from 65k boepd during the same quarter last year, partly due to an increase in production from its Balsam 8 field in Egypt, the company had said in April.