Dana Gas, the Middle East’s largest regional independent natural gas company, is facing restructuring talks with Islamic bond holders.
In a statement the firm said the step was necessary due to “continued challenges” around cash collections and a resulting need to focus on short to medium term cash preservation.
Holders of its Sukuk – a type of bond that does not infringe upon Islamic law – are to form a committee.
Dana Gas is currently in dispute in a arbitration case with Kurdistan Regional Government (KRG).
The outstanding, now undisputed, amount owed to the company by the KRG stood at $713 million as of December 2016.
Meanwhile at year end, collections in Egypt amounted to $79 million, representing a realisation rate of 64%, of which only $3.5 million were collected in US Dollars with the balance received in Egyptian pounds.
The outstanding receivables as of 31st December 2016 stood at $265 million.
Dana said the economic and currency crisis in Egypt persists and collections may therefore remain below expectations in the near term.
In addition, the Zora Field gas project in the UAE has experienced production difficulties and has not contributed as positively to the company’s cash balance as had been projected.
As a result, the board has implemented a cash preservation programme. As part of that , the company has reduced its costs to mitigate the low collection levels with a 43% reduction in G&A and a 7% reduction in operating expenditure in 2016.
The statement said: “Despite the successes that Dana Gas has had operationally, and in affirming its contract rights with the KRG and NIOC and establishing unchallenged debt owing from the KRG of $713 million, along with the several billion dollars of damages claims being heard in September of this year, the company needs time to realize its full value for the benefit of all of its stakeholders.
“Time will allow the company to collect on circa $1 billion due from the KRG and Egypt, but also to realize value pursuant to its remaining damages claims being adjudicated at the arbitrations described above.
“These factors provide a real opportunity for value creation and upside for all stakeholders which is the focus of the Dana Gas’ Board and management team.”