Dana Gas, Kurdistan settle long-standing dispute

31/08/2017 08:02 AST

The Kurdistan regional government (KRG) has agreed to pay the Pearl Petroleum consortium, which includes Sharjah-based Dana Gas and its parent Crescent Petroleum, for the further development of the Khor Mor and Chemchemal gasfields in northern Iraq after several years of arbitration, the parties announced on Wednesday.

The consortium will receive US$600 million in addition to $4m. The KRG oil minister, Ashti Hawrami, said the agreement was driven by the companies' investment and production that had already delivered significant benefits for the region.

"We are delighted by the outcome of this settlement, which opens a new chapter in the relationship between the parties and will take the development of the important natural gas sector to new heights," he said.

With the conclusion to the four-year long arbitration, the consortium will begin work to increase production at the Khor Mor by 500 million square cubic feet per day over two years, more than doubling its current output. Ownership of the gas and the additional condensate from the fields will be split between the KRG and the consortium.

"The settlement of all debts and restoration of full cooperation gives a positive outlook for further investment and full realisation of the enormous resource potential of the HoA [heads of agreement] areas," said Majid Jafar, chief executive of Crescent Petroleum.

The parties originally formed a partnership in 2007, but came to a head in 2013 after the consortium accused the KRG from blocking further development on the fields. The balance of the amount awarded by the London Court of International Arbitration, $1.24bn, has been reclassified as outstanding cost recoverable from future revenues generated.

Mr Jafar added: "We're pleased with this definitive agreement which follows constructive dialogue with the KRG and promises to generate significant value for all concerned."

The settlement comes at a pivotal time for Dana Gas, which is a 35 per cent shareholder and operator for the Khor Mor and Chemchemal project. As the company faces other legal hurdles, calling into question the validity of Islamic financial instruments, the agreement with KRG may be the leverage the company needs. Dana Gas announced in May that it planned to restructure its $700m sukuk that was due this year, but then cited that the sukuk was actually non-sharia compliant.

"Due to the evolution and continual development of Islamic financial instruments and their interpretation, the company has recently received legal advice that the sukuk in its present form is not Shariah-compliant and is therefore unlawful under UAE law," Dana Gas said in June.

The National