Dana Gas PJSC (DANA) Earnings Call Transcript & Summary

Good morning, and good afternoon, ladies and gentlemen. This is Nour Eldin Sherif, and on behalf of Arqaam Capital, I'm pleased to welcome you to Dana Gas' First Half 2026 Results Conference Call. With me here today is Dana Gas's CFO, Chris Hearne; and Head of Investor Relations, Mohammed Mubaideen. With no further delay, I'll turn over the call to Mohammed to outline the presentation. Please go ahead.

Thank you, Nour. Welcome, everybody, to the Dana Gas' First Half 2026 Financial Results Call. Before we begin, I'd like to apologize on Richard's behalf as he is unfortunately unable to join us for today's call. Chris will, therefore, present the results before taking your questions. For the purpose of this call, Chris will be taking you through Slides 5 and 18 covering the first half performance, highlights and summary of the first half results. The full presentation is available on our website and will be used during the Q&A session for reference. I would also like to draw your attention to our disclaimer on Slide 3, which we encourage you to read carefully. Before moving on, I would like to note that we will not be discussing the broader geopolitical situation during today's call and will focus on the company's financial and operational performance. After the presentation, there will be sufficient time for a Q&A session, which will be handled by Chris. And also, I have here my colleague, Azfar Aboobakar, the Head of Financial Controls and Reporting, who will be also assisting in answering your questions. I will now hand over the call to Chris to discuss the results.

Thank you, Mohammed, and good afternoon, everybody. Thank you for joining the call today. I'm delighted to report that we started the year with strong operational momentum and reached our highest production level since 2018. Group output exceeded 70,000 barrels of oil equivalent per day in January, following the early completion of the KM250 project in the Kurdistan Region of Iraq. During the first half of the year, regional security disruptions resulted in temporary shutdowns of Khor Mor, constraining utilization of the expanded processing capacity. Despite these challenging conditions, the company adapted quickly and continued to supply gas for electricity generation to the local population as well as condensate and LPG. We were one of the only operators, if not the only operator to maintain production at some level. Following updated security assessments and assurances from the KRI and the government of Iraq, operations resumed after these interruptions. Today, Khor Mor's production is approximately 630 million scfs of gas and group production is exceeding 65,000 barrels of oil equivalent per day. This performance demonstrates the resilience of our assets and the professionalism of our team, allowing us to realize the benefits of additional capacity from the KM250. Overall production in the KRI was lower due to the regional security events. However, production increased in Egypt, which offset the impact of lower production in the KRI. This resulted in an overall slight increase in group production compared to last year. Please turn to the numbers on Slide 5. Net profit for the first half was $107 million, up 47% year-on-year. Please note that this includes a one-off $48 million positive adjustment relating to the gas metering reconciliation of Khor Mor that was recorded in 1Q this year. Metering adjustment is a one-off reconciliation of gas volumes supplied in the period from November 2018 to March 2024. The reconciliation was completed during the first quarter of this year and resulted in the additional invoice of $48 million. On an underlying basis, net profit for the first half of 2026 was $59 million compared to $73 million in 2025. 2026 net profit was impacted by the KM250 capitalized costs, which are now being amortized through the P&L. In addition, net profit was also impacted by increased royalties and dry hole expenses in Egypt. Net profit is expected to increase as production at Khor Mor reaches its full capacity, taking our group production to our target of 75,000 barrels of oil equivalent per day. Revenue increased to $258 million as compared to $171 million in 2025, up 51% year-on-year. Revenue figure also included the one-off adjustment. Excluding the adjustment, revenue increased by $39 million year-on-year, supported by higher realized hydrocarbon prices, higher production in Egypt and increased gas sales volumes at Pearl Petroleum. Our group production was just under 53,000 barrels of oil equivalent per day. In the KRI, we demonstrated exceptional operational resilience. In particular, the plant demonstrated additional capacity in January with Khor Mor gas production exceeding 700 million scfs per day. That translated into around 15,000 barrels of oil a day of additional production, taking group output to around 70,000 barrels a day for the first time since 2018. The additional processing capacity remained available throughout the period, although regional security-related disruption constrained utilization at certain times during the first half of the year. Development of the Chemchemal field also remains a priority for growth with Dana Gas and its partners progressing this important project under $160 million investment program. Following the reporting period, gas supplies commenced to Iraq's Ministry of Electricity, marking an important step as we begin to realize the benefits of the KM250 expansion and to further diversify our customer base. In Egypt, we continue to see encouraging results from our investment program. Production increased year-on-year in both quarters, resulting in production growth of 7% across the first half. We drilled 3 new wells and recompleted 1 well during the period. One of those wells identified an estimated 10 Bcf of gas resources as compared with the original prognosis of 3 Bcf and may support a further 12 Bcf of future gas resources across the license area once developed. We plan to drill 4 additional wells during the end of 2026. Moving on to liquidity. The business remains in a robust financial position. We ended the first half with $230 million of cash. Of that $95 million is held at the Pearl Petroleum level. Collections during the period reached $168 million. In the KRI, first half collections totaled $104 million, and we received a $61 million dividend from Pearl. This compares to $56 million last year. The collection rate in the KRI has reduced to 78%, and we continue to engage constructively with the KRI on improving collections. In Egypt, collections totaled $64 million, representing a strong collection rate of 194% with all overdue receivables settled and payments continuing in full and on time. We also secured a $75 million bank facility in March at a very competitive rate despite the challenging regional environment. The facility was fully drawn in April, further strengthening our liquidity and financial flexibility. During the period, we were pleased to be able to pay an increased dividend of 6.5 fils per share, representing a total cash distribution of $124 million to shareholders. This represented an attractive yield of 7.2% at the time of announcement. So to summarize, we delivered higher revenue and net profit, maintained group production broadly in line with last year and continued to advance our growth projects. In Egypt, production growth continued. The drilling program delivered resource upside and overdue receivables were fully settled. In the KRI, the KM250 capacity remains available, and we are focused on increasing utilization as conditions allow. In addition, we are focused on progressing the development of Chemchemal. Commencement of gas supplies to Iraq's Ministry of Electricity this week marks an important step as we begin to realize the benefits of the KM250 expansion, expanding our customer base while supporting Iraq's growing electricity demand. Improving collections from the KRG also remains a key priority. We continue to engage constructively with the KRG to ensure improved collections, which are an important enabler of future investment to help meet the region's growing electricity demand and to support the long-term sustainability of shareholder returns and dividend payments. From here, our focus is on maximizing the use of our production capacity and pursuing our growth projects. As conditions allow, we are well positioned to increase revenues, support growth and enhance shareholder value. Thank you. I'll happily hand back to Mohammed, and we can take any questions now.

Thank you, Chris. Nour, please go ahead and moderate the Q&A session.

Thank you. [Operator Instructions] We have a question from Ahmed.

I just wanted to get some clarity on one thing, and I'll step back in the queue if I have more questions, but I don't want to hog the session. Are you able to quantify the actual utilization rate for KM250 during the quarter? And then where are we today utilization-wise after the reporting period? And I'm asking this in the context of the new contract that was signed with Federal Iraq and trying to understand the implications of that going forward.

I might ask you to repeat the second question, but utilization, yes. I mean, in January, we were delighted. I mean we got over 700 million scfs out of the plant, the new plant and the existing. Everything worked well together. We were really pleased with how you've got an old plant right next to a new one, works extremely well. Level of trips was much below expectation. Obviously, we all know what happened. And as a result, we did have to moderate the production at the time. That was all done based on assessment from professional security and advice that we received. So we did have to turn down. But yes, I mean, so far, the capacity that KM250 has demonstrated has been extremely good. I'm sorry, could you repeat your second question? We didn't quite catch it over the mic.

Yes. Well, they're both the same question really. I just wanted to get a sense of where -- what the utilization has been percentage-wise in Q2. And since Q2, since the end of the reporting period, where are we now capacity utilization? And I'm asking that in the context of the new offtake agreement that was signed with the Federal Iraq to get a better understanding of what the implications of that from a utilization standpoint.

So well, at the moment, we're producing around 630 million scfs a day. As you know, the plant capacity is now up to 750 million scfs. So you can see given the security situation that we had and shutdown and now we've built right back up to 630 million scfs. And obviously, we're looking to build that going further forward. I'm not actually going to comment today on the gas sales to Federal Iraq. We're actually going to be making a separate announcement shortly after this call with regard to that. So actually, I'm going to refer all of those questions on gas to Federal Iraq to that statement that we're going to be making shortly.

Okay. Fair enough. One other question I wanted to ask is that there was an other expense of about $33 million in the quarter. Can you shed some light on what that is? And then I also saw there was a loss from discontinued operations similarly, if you can provide some more context on that.

I say that again? We're just trying to kind of identify what number...

$33 million other expenses and then $7 million loss from discontinued operations.

We really don't -- we only think in dollars...

Other expenses, Ahmed, they have 3 components to it. One is we've got an arbitration going on against the previous EPC contractor for the KM250. There's some cost for that. There was $4 million of board fees, which is now being charged off. And there was a $3 million provision for overdue receivables, which we have in the joint venture. The one you referred to discontinued operations, I guess you're referring to the impairment of assets. These were the 2 dry holes. So there were 2 dry holes drilled in Egypt in the first quarter, for which we had written off $7 million.

And by the way, just to mention, those were exploration-based wells. The program in Egypt is going extremely well. We're pleased with it. Obviously, when you -- the program had development wells, lower risk ones, but also had exploration ones, too, it's likely to suffer some exploration disappointment. And those 2 were disappointing. And as a result, we did write them off.

Our next question comes from Gus.

I just wanted to follow up on -- with some other questions. One is, in Egypt, it's really great to see that -- I mean, I think this is the first time in a long time that Egypt has cleared all of its overdue receivables, and that's fantastic. I'm just curious about how the ongoing -- so I mean there's the legacy receivables that have now been fully repaid. And how are ongoing receivables being repaid as well? Is the collection rate 100%? Is it on time? Just curious on that to start, please.

Good to hear from you. We've been delighted. I mean, from the end of last year, frankly, when we got that $50 million receivable. And since then, the collection rate has been great. I mean they are -- it's -- I think the industry there is all being well paid. And I think there's been a change of sort of policy where the government rather than sort of drip-feeding people has really recognized that the industry, if you give them money, will invest it. And that is a sensible thing to do given that there is domestic gas that can be recognized on behalf of the government rather than having to import expensive gas. And you're seeing the outcome of that. So yes, we've been almost exactly fully paid up on an ongoing basis, they're paying on a monthly basis. We're obviously not getting the big dollars of cash that call us up. But now going forward, we're being paid on a more regular smaller amount. And yes, we're receiving that sort of in full as we go along. So it's a great story.

That's great, Chris. And then when it comes to Chemchemal, I apologize if I missed this in the slide, but can you give us an update on what the CapEx that has been spent so far is out of the total? And also what timing looks like for first production, first revenue from that build-out? I know we're early on, but I think it's a year out, if I'm correct.

Yes. So with respect to Chemchemal, as you know, we announced around $150 million CapEx. So that would include the drilling of 3 wells and then the early production facility. We're still in early stages. So we will be expected to drill the first well end of this year, early next year, and that would initiate the CapEx expenditure on Chemchemal.

Okay. Got it. And I just want to clarify...

Sorry, Gus, $150 million on gross level. So that's -- so our share of that CapEx would be around 35%.

Okay. Got it. And then what kind of infrastructure are you able to use your infrastructure at Khor Mor for any of the processing? Or do you need to build out a new train at Chemchemal? Just curious how that looks.

Okay. Well, what we're talking about is 2, 3 wells and an extended well test facility. No, that would be done separately, not part of Khor Mor. When you move to a bigger development, that obviously will be dependent on what we discover in the extended well test and how best the economics is to using existing infrastructure at Khor Mor or obviously building incremental facilities at the time. That decision is down the road.

Got it. The final one is just trying to understand what the impact of this conflict has been on your supply. And obviously, on gas, you guys have helped quantify that, so thanks for that. But what about LPG and any other liquids, residual liquids that come out? How has it impacted pricing? How has it impacted throughput and you guys your sell-through? I know in the first quarter, there was some impact in terms of pricing because it was mainly decided by domestic market given the lack of exports. Just curious what's changed, if anything?

Not much has changed, frankly. The LPG is going under those long-term contracts as it always has been. Yes, it's a sort of local market for the condensate. So that pricing hasn't really changed too much in the same way that you would have expected given the increase in Brent over the same period. But not really much change.

We'll have the next question from William.

Well done on the solid quarter. So my question is just on the KRI receivables and the billing. So I see a roughly 66% collection rate. Would you be able to walk through just how that evolves on a monthly basis in Q2, given all the disruption and pressure on KRG as a whole? And I guess the kind of just if you could point to the trajectory as it is now, whether the situation or the kind of liquidity we see from KRG is or from the customers is improving or kind of what trajectory that looks like?

It's a good question, something we are focused on. I mean, I think the collection rate was around 78% off the top of my head from Pearl during the period. But yes, no, it's an evolving story. We have had ups and downs because given the security situation and our production going low, that's had knock-on impacts in their collections from sales to -- of electricity to Federal Iraq, but also domestic electricity. But that Iraqi project is still there. It's very, very important to them and is allowing cash flow to come from the domestic consumers of electricity up to the Kurdistan region and on to ourselves. And now we're building back up to a production rate of around 630. We're hoping that the collection rate will now improve throughout the rest of the year. We have just had some good receipts recently. So it's something we're working on with them, and they are aware that we need to maintain strong collection rates in order to keep investing in the asset in the way that we want to and for the benefit of the local population. But you're right, it's something we have to keep our eyes on very closely.