Gas is going to play an increasingly important role in the future energy mix and Sharjah-based Dana Gas is well placed to take advantage of gas’ growing role.
Patrick Allman-Ward explained: “We believe that there is a great future for gas in the region and we are well positioned as a company both operationally and geographically to take advantage of that growth in demand both for power generation as well as for petrochemical feedstock.One of the lessons of the last three years is that you should never take anything for granted, least of all continued high oil prices. We have addressed the challenge of operating profitably at significantly lower oil prices through a relentless focus on cost reductions and efficiency gains whilst always maintaining our commitment to the highest levels of asset integrity and HSSE standards.”
Good financial results
Dana Gas recently released its Q1 results and Allman-Ward believes the firm had “a good set of financial and operational results.” “We are pleased with our performance over the quarter. Financially, we returned a net profit of US$11 million on gross revenue of $118 million. Our gross profit was up 35 per cent year on year,” he added.
Operationally, Dana Gas output was up 16 per cent year-on-year, close to the firm’s “aspirational target of 70,000 boepd”.
Its Egypt production was over 40,000 boepd, a 24 per cent increase on first quarter 2016. Kurdistan was marginally up to 26,500 boepd. However, in, the UAE production dipped below 2,000 boepd, carrying-on the trend from last year.
“Despite this, it has been an excellent operational performance from the company overall. This has all came about after we achieved significant cost reductions in 2016 to our G&A by 43 per cent and operating expenditure by 7 per cent; with the former down a further 78 per cent and the latter down 23 per cent in the first quarter 2017,” he said.
Allman-Ward touched on how the global energy downturn impacted Dana Gas.
“Despite the impact it has had on our business, especially financially with lower revenue and profits, we implemented a successful cost cutting initiative with respect to our G&A and operational expenditure; we completed and brought on stream the Zora Gas Field at the beginning of 2016 and we increased our production output in Egypt from below 30,000 to over 40,000 boepd,” he said.
Allman-Ward added: “Our average realised prices in 2016 were 26 per cent lower than in 2015. On a positive note, on the back of the OPEC and non-OPEC countries agreement to cut production in the second half of 2016, prices have climbed. For the first time in four years, there is an increase in average realisation of $42 per barrel.”
Impact of COP21
Gas has the potential to play a significant role for Middle Eastern nations to comply with their COP21 commitments in lowering CO2 emissions, according to Allman-Ward.
He highlighted the fact that the Middle East Primary Energy (PE) demand is expected to increase from 14 mmboe/d to 25 mmboe/d in 2040 at a growth rate of 2.2 per cent (more than twice the OECD rate). As fossil fuels are expected to continue to dominate PE demand in 2040, curbing CO2 emissions becomes a key challenge. Middle East CO2 contribution is currently only 5 per cent of global emissions but with forecast PE demand growth through to 2040, Middle East CO2 emissions will significantly increase.
Gas currently contributes 51 per cent of the PE demand of the Middle East and by 2040 gas is expected to contribute 54 per cent in volume terms. Gas consumption is expected to increase from c. 400 bcm pa (2014) to nearly 750 bcm pa in 2040 (close to current US gas demand).
Furthermore, oil use in the Middle East is expected to fall as gas’ contribution to the power sector increases from 58 per cent to 67 per cent in 2040. As electricity generated by gas has a considerably lower carbon footprint than other hydrocarbons, the switch from oil to gas in power generation should contribute significantly to reducing CO2 emissions in line with the region’s COP21 pledges.
The role of LNG in the region
The Middle East region is seeing a big increase in gas demand but hurdles remain.
Allman-Ward noted: “The Middle East region has vast gas reserves. However, the development of domestic non-associated gas resources across the region requires the liberalisation of gas prices and the removal of energy subsidies. Inter-country gas flows in Middle East are constrained by political barriers; limited inter-country gas infrastructure and distorted gas pricing. So to meet growing gas demand the Middle East is experiencing the strongest growth in LNG demand in the world (on a relative basis).”
He feels that the emergence of new LNG markets has been enabled by floating regas terminals, increased LNG trading and shorter contract terms. These evolving LNG market dynamics have enabled the emergence of new markets in the MENA region like Egypt, Jordan and Pakistan.
“The trading led liquidity in LNG markets is likely to help in homogenising gas prices across key markets (N. America, Europe, Asia and the ME). This, together with the surge in LNG capacity construction that is due on-stream over the next four years is likely to maintain the existing glut in LNG and keep gas prices affordable. This is well timed as it will allow gas to compete and displace coal and oil in power markets enabling the reduction of GHG emissions and help achieve the Middle East’s COP21 pledges,” said Allman-Ward.
Egypt and Iraq potential
Dana Gas sees significant growth potential from its international assets.
“We see growth potential in Egypt and huge upside growth potential in our fields in Kurdistan, which position Dana Gas advantageously as the region moves towards a lower carbon, more gas intensive future,” said Allman-Ward.
On Egypt, he said the firm was doing very well operationally in Egypt.
“We have turned around our production from under 30,000 boepd two years ago to over 40,000 boepd today. We have achieved a very high success rate of 92 per cent on our exploration and development drilling campaign.”
He added: “The successful drilling campaign also resulted in our year-end reserves increasing further to 132 million barrels, representing a 115 per cent production replacement ratio.”
Dana Gas has reached maximum capacity at its El Wastani gas processing plant, according to Allman-Ward.
“Our GPEA, signed with the Egyptian Government in August 2014, has seen us invest over $300 million and successfully deliver 19 wells to date and we have another 11 wells planned for the next two years. The company is committed to drilling high impact exploration wells and remains excited by the potential represented by its portfolio of onshore and offshore exploration Concession Areas,” he said.
“We are especially excited about our offshore North El Arish, Block 6 Concession Area. We have developed a material prospect inventory and we are planning to drill the first offshore well in 2018.”
Allman-Ward also highlighted the company’s first international condensate sale on 15 April.
“This export cargo of 150,000 barrels of Wastani condensate is a direct result of the Gas Production Enhancement Agreement (GPEA) we put in place with the relevant Egyptian gov ernment agencies in 2015 and it has brought us $7.2 million in hard currency,” he said.
Dana Gas believes that the long-term growth potential of its assets in the Kurdistan Region of Iraq is huge.
“The Pearl Petroleum Company is the asset holder for two fields, Khor Mor and Chemchemal, in the KRI. 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 gas fields that we are aware of in Iraq. This represents a huge upside growth potential. 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 potential production of 5-6 billion cubic feet of gas per day,” concluded Allman-Ward.