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Interview

Patrick Allman-Ward, CEO, Dana Gas, UAE

Patrick Allman-Ward, the CEO of Dana Gas, discusses the company’s impressive recent production increases in Egypt as well as the immense potential the company sees when looking to their assets in the Kurdistan Region of Iraq. He also expands on the UAE’s role in their efforts to diversify their portfolio, as well as what opportunities he sees for the company in the coming years.

Given the strong performance that we saw from Dana Gas in 2016, can you expand further on the strategies you undertook to accomplish this?

“We are looking across the region, and of course there are some obvious places where there is massive potential.”

Our fiscal year revenue was underpinned firstly by increased production, which we managed to increase across the board by 11 percent, but we had a particularly good performance in Egypt where, Q4 2015 to Q4 2016 we had an increase in production of more than 30 percent. On the price side, it was a disappointing year, with average oil prices down over 25 percent from 2015. However, the fact that we were able to maintain our revenues, despite the decrease in price, was a result of the increased production that we had.

In terms of net profit, a contributing factor to that was having an operating net profit last year or 33 million dollars, due in large part to continued cost cutting and increasingly raising efficiencies. We reduced operating expenses by 7 percent and we took out some 43 percent of general and administrative costs. We continued to focus on taking out costs from the equation where we can. These were the fundamentals underpinning our financial performance last year: increased production coupled with cost cutting and efficiency improvements.

As an introduction for our international readers, can you discuss what the current footprint of Dana Gas looks like throughout the region?

Our largest production comes from Egypt, where we are currently 100 percent equity owners of the development leases. We are in a joint venture with the Egyptian Natural Gas Holding Company (EGAS), through our joint operating company Wasco Energy, which carries out the work in Egypt, and we are the only private shareholder. We produce on average 40,000 barrels of oil equivalent per day (BOE/D) as a result of investments that took place between 2015-2016, when we invested over USD 300 million in Egypt, and these investments have actually maxed out the capacity of our onshore gas production in the country.

In the Kurdistan Region of Iraq (KRI), we are currently 35 percent shareholder in the Pearl Petroleum Company Ltd. Our share of production is around 26,000 BOE/D, and that production is steady and the plant configuration is at maximum output. Pending the resolution of our ongoing arbitration with the KRI regional government, this is the way that the facilities there will remain. However, we are hopeful there will be a resolution to the dispute, that there will be a negotiated settlement, and that will allow us to enter a new phase of production growth in the KRI. Overall, our production went down from 2015-2016 because we sold 5 percent of our equity interest in Pearl to RWE Group in November of 2015, resulting in an equivalent reduction in production from the KRI.

In the beginning of 2016 we started production from our offshore gas field here in the UAE, Zora, however, we have experienced some difficulties. Overall, I believe the average production over the year was 2,700 barrels equivalent, and that has been an overall net contribution to production for the year. However, this performance was not as we had hoped it would be, and we are facing some issues with respect to reservoir performance that we will need to address in order to recover the levels of production that we initially had experienced.

Do you see any exciting opportunities for growth among these three geographies?

We have significant upside growth potential in Egypt. We have exploration acreage that we are planning to drill exploration wells on, and we hope that they will be successful, and that will of course create development opportunities and increased production. However, there is no question, in terms of overall potential, that the greatest potential for the company is in the KRI.

The Pearl Petroleum Company is the asset holder for 2 fields, Khor Mor and Chemchemal. Between these two fields, we calculate that there are in-place volumes of around 75 trillion cubic feet of gas, and around 7 billion barrels of oil. These are very significant assets, on both a regional and global scale, and are the largest that we are aware of in Iraq in terms of gas. This is a huge upside growth potential, and you can understand that we are currently producing around 320 million cubic feet of gas per day, but if these two fields were to be fully developed, then we would be looking at 5-6 billion cubic feet of gas per day. Clearly, that growth potential is huge, and completely dwarfs the potential in Egypt, as exciting as we think that is as well.

Given the potential that you have spoken of both in Egypt as well as the KRI, what is the strategic importance of the UAE within the company’s portfolio?

When Dana Gas made its decision to invest in Egypt, it did so through a purchase of Centurion Energy, which was a Canadian listed company with assets in Egypt, which we subsequently acquired. We then executed a very successful exploration campaign, where we doubled reserves and increased production by 40 percent, and had more than a 60 percent commercial exploration success rate from 2007-2015, and that success rate continued during our most recent round of investment as well where we had over 90% success rate. At the time when the invest took place, in 2007, the revolution that took place in early 2011 was not envisioned. When the decision was made to invest in the KRI in 2007, clearly the geopolitical challenges on the ground were much more obvious. However, given what happened in Egypt, it has made two of our major producing asset have a certain amount of geopolitical risk attached to them, specifically with regards to getting paid for the products that we have produced and sold to the respective governments. Therefore, what was exciting about the UAE for us was to diversify our portfolio, and receive a revenue stream in a country that is stable, providing us with a 3rd stream of income. We are still very much interested in diversifying our portfolio as well, not only here in the UAE, where we are keeping our eyes open for opportunities, but in other locations in the region as well, regions where we could build additional material pieces of business.

Are there any particular regions or countries that have opportunities that you find particularly interesting?

We are looking across the region, and of course there are some obvious places where there is massive potential. We are interested of course in looking at opportunities in the southern part of Iraq, and another obvious place to look is Iran as well. In the light of the arbitration that is being undertaken by our sister company Crescent Petroleum with the National Iranian Oil Company for their failure to honor the contract to deliver gas to the UAE, clearly the levels of trust required for a successful business relationship are not there right now, and will not be there until that dispute has been fully resolved. Beyond that, we look at other areas within the MENASEA region, and we treat each opportunity on a case-by-case basis.

Could you elaborate further on Dana Gas’ cautious stance towards potential opportunities in Iran?

Dana Gas’ IPO in 2005 was based upon an Iranian Gas Import Project, or what we called the UAE gas project, which was for the importation of 600 million standard cubic feet of gas per day from Iran. Dana Gas owns in its entirety the offshore riser platform, the pipeline network and the onshore processing plant that were to be utilized in this agreement. That project was supposed to come online in 2005 towards the end of the year, and on the back of that the company was floated on the Abu Dhabi stock exchange. However, the Iranians never delivered the gas, and that was a blow to us, our shareholders and to our customers, as we had set up a suite of customers that were ready to take this gas, and it was a blow to the UAE, as this represented 10 percent of the UAE’s total gas demand. Instead of delivering this gas for commercial and business purposes, the gas was apparently burned, which makes their claim that this was a commercial dispute difficult to understand. The implications of this are that this was not so much a commercial issue, but rather a political one. I think that unfortunately the project become a political football within Iran, to the detriment of everyone involved. There was a tribunal in November of last year to consider the quantum phase of the damages incurred as a result of NIOC’s breach of contract, and we are hopeful that there will be a ruling on the damages by the end of this year or potentially the beginning of next year.

Recently in the UAE we have seen a reevaluation of the country’s energy mix, with a desire to further increase domestic gas production. What role do you see Dana Gas playing in these efforts?

First and foremost, if we can finally get gas supplied from Iran, that will supply 10 percent of the UAE’s gas requirements. What we see is that absent that source of gas, needs are increasingly being met through LNG imports, and there is a certain attractiveness about this with regards to diversification of supply. However, there is no question that pipeline gas, by definition, is going to be cheaper than LNG, which is sold at international energy prices.

In addition to these efforts, we have our Zora gas field, and we are looking to see if there is additional exploration potential in that general area. However, for a company like Dana Gas, there are opportunities within the greater Emirati area for developing gas fields that have already been discovered, but for many players are simply too small to warrant effort, particularly the assignment of personnel, to develop and exploit. We feel that these represent opportunities for Dana Gas, but of course there has to be some liberalizing legislation that takes place, to open the space for Dana Gas to move in and given an opportunity to develop those assets. Additionally, there has to be attractiveness with respect to the domestic gas price, because by definition, these kind of assets have not been developed in the past because they were not commercial. We can bring reduced costs to bear, that is the value proposition that we bring as we are a very low cost developer and producer. This moves the needle in terms of making these efforts economically viable. However, the other needle that needs to move is the gas prices, in order to find a balance, a win-win for everyone involved.

Since stepping into the leadership role here at Dana Gas, and looking across your assets in the UAE, Egypt and the KRI, what are some of the accomplishments that you are proudest of?

What we have done in Egypt through the Gas Enhancement Production Agreement was negotiate a win-win solution with the Egyptian government. We agreed to invest additional capital expenditures in development and exploration wells, and fully develop the assets we had in Egypt, and in exchange for this, we would take all of the incremental condensate that came out of that process and we would be able to sell it on the international market, directly to 3rd parties for USD. This helped us in terms of recovering the overdue receivables that we were experiencing in Egypt, and at the same time provided the government increased investment and increased gas production. I am very pleased to say that we have just concluded the sales contract for our 1st condensate cargo which will be exported this month from Egypt. That mechanism is working, and we are going to be paid in USD directly by 3rd party off-takers and traders. Moreover, in Egypt, we have secured additional exploration licenses, particularly in the offshore Block 6, and that has resulted in some very exciting prospects that we have identified, and we are moving forward towards planning an exploration well early next year.

In the KRI, while we have not grown production since 2009, what we have done is maintained our operations and maintained production uninterrupted, despite the fact that ISIS came within 35km of our plant in July of 2014. We have maintained our production throughout this period, and to do that, given the situation, is a significant achievement.

With respect to the UAE, this was our first offshore development as well as our first project that we designed and executed ourselves. The fact that it was done without any HSE incidents has been a very significant milestone for the company, and a very important learning experience as well. This will allow us to look to diversify into other assets in the region moving forward.

On a more personal note, what keeps you motivated each day to come into the office?

I love my job, and I love the industry! I am a geologist by background, and I love getting involved with my technical people in subsurface issues. I have passion for my subject, and passion for the industry. I am absolutely convinced that the reason the world has moved so many people out of poverty since World War 2 has been because the industry has been able to supply the world with affordable, reliable energy, and we continue to do this as an industry. I am motivated by the fact that I believe what I do every day makes a difference in the quality of people’s lives.

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