Good morning and good evening, ladies and gentlemen. This is Ahmed Hazem from EFG Hermes Research speaking, and I'd like to welcome you all today, to, Dana Gas's fourth quarter 2023 results, conference call. With us on the line today is Mr. Richard Hall, CEO of Dana Gas; Mr. Chris Hearne, CFO of Dana Gas; Mr. Mohammed Mubaideen, Head of Investor Relations and Corporate Communications. And without further delay, I'd like to hand over the call to Mohammed. Mohammed, please go ahead.
Thank you, Ahmed. Welcome to the Dana Gas full year 2023 financial results call. Presenting today are our CEO, Richard Hall, and our CFO, Chris Hearne. We are all delighted to welcome Richard as Dana Gas's new CEO. Since his appointment, he has already demonstrated his drive, ambition, and the skills required to take Dana Gas to a new level of success. I trust you will all join us in welcoming Richard. Please note that the presentation for today's call can be found on our website. I would like to draw your attention to our disclaimer on slide four, which we would encourage you to read carefully. After the presentation, there will be time for a Q&A session. I will now hand over the call to our CEO, Richard, to begin.
Thank you, Mohammed, and thank you, everyone, for taking the time to join our call today. First of all, I would like to say how excited I am to have joined Dana Gas. I'm confident that I will be able to leverage my extensive experience in the industry to drive the company's next phase of growth. I'm pleased to report that in a year marked by softening oil and gas demand, that Dana Gas's resilient and low-cost business model has successfully navigated the global economic headwinds. This was accomplished through an increase in the company's production in the Kurdistan Region of Iraq, together with a reduction in operating costs, which helped to partially mitigate the impact of lower realized prices. Credit must be due to our teams in the field, who have worked tirelessly to ensure that our operations continued uninterrupted during 2023.
If you can now turn to slide five, I will run you through the numbers in greater detail. Firstly, for the full year ended 31st December 2023, the company reported a net profit of $160 million. That's versus $182 million in 2022. Amid a decline in the average price of Brent Crude during 2023 to $83 a barrel, compared to $101 a barrel in 2022. Profitability in the 2023 financial year declined due to lower realized prices and increased discounts on local condensate sales in Kurdistan, which was a result of the competitive market created by the 2023 halt in exports.
The impact of these lower realized prices on the company's profitability in 2023 was partially offset, however, by a production increase to record levels in the KRI, coupled with a 7% reduction in operating costs. In terms of collections, Dana Gas has faced challenges of delayed payments from the governments of Egypt and the Kurdistan Region of Iraq, or KRI, as it's also known, throughout this year. We have, though, recently made notable progress in improving our receivables situation in the KRI. A new payment mechanism has been agreed now, with gas payments coming directly from the electricity providers to meet the obligations of the Kurdistan Regional Government, including, importantly, our past receivables. This has ensured uninterrupted supplies of gas to regional power plants and the investment needed to complete the KM250 expansion project.
Pearl Petroleum, which is our 35% joint venture partnership in the KRI, I will now refer to this as Pearl, continues to sell condensate and LPG locally, thereby realizing payments for these products on a regular basis. Amid the rise in receivables and Pearl's prioritization of its capital requirements, it was not possible for Pearl shareholders, including Dana Gas, to receive any income distributions in 2023. Consequently, Dana Gas is not in a position presently to recommend a dividend at the upcoming shareholders meeting. However, recognizing the company's declared profitability in 2023, the company does expect to make the associated dividend distributions in the future, as and when sufficient cash is received. For the avoidance of doubt, Dana Gas remains committed to its declared dividend policy and to reinstating dividend payments as soon as the company's cash receipts permit.
Turning now to operating performance, operation of the group's existing assets continued successfully during 2023. Overall, group production may have declined 2% in 2023, but KRI production increased by 8% as a result of the successful completion of further plant debottlenecking enhancements at the Khor Mor facility in order to meet the demand for natural gas in the KRI. In November 2023, Pearl achieved record production output of 520 million standard cubic feet a day from the Khor Mor facility. Meanwhile, in Egypt, the 16% production decline, resulting from natural field depletion, was outweighed by our gains in KRI, although there was a small overall decline in the group's overall production.
During 2023, Pearl continued to make steady progress on the KM250 expansion project, and it currently expects completion of that KM250 project in the second half of this year. KM250 will further support the generation of electricity in the region by supplying local power stations with affordable and environmentally cleaner fuel. Dana Gas' 2023 collections totaled $238 million. In addition to the existing local sales of LPG in KRI, third-party sales began through Pearl to local buyers in May, providing an alternative source of revenue from the KRG. Unlike other operators in the KRI, operations and production at Khor Mor have continued without interruption due to the fact that all our products are sold locally.
Pertaining to other important matters for the company, Crescent Petroleum continues to pursue enforcement procedures to monetize the first award against the National Iranian Oil Company, that's NIOC. The final hearing in relation to the second arbitration that covers the remaining contract period was scheduled to take place in March of last year, but it will now be rescheduled following postponement due to the resignation of NIOC's external lawyers. Please turn now to slide 7 for a more detailed summary of our KRI operations. In KRI, our production grew by 8% versus the levels in 2022. This was supported by the successful debottlenecking project that added 50 million standard cubic feet per day to our output. As a result, the company reached a record production output of 520 million standard cubic feet a day of gas in the fourth quarter of 2023.
The EPC works on the KM250 gas train expansion is progressing. A preliminary date for completion has now been set within the second half of 2024, which will add another 250 million standard cubic feet a day of production capacity. In the second quarter of 2023, a partial shutdown for maintenance in Khor Mor was successfully carried out without any HSE incidents, but it did impact production during its duration. Meanwhile, drilling of the six KM250 project development wells was successfully executed. Overall, once completed, the KM250 expansion project is estimated to add at least $150 million per year to Dana Gas' revenues and significantly enhance Dana Gas and its Pearl partners' participation in the economic development of the region.
Dana Gas and its Pearl partners remain committed to playing a vital role in supplying gas to power stations in Chemchemal, Bazian, Erbil and Duhok, generating some 2,800 megawatts of electricity. Finally, in the KRI, as we disclosed at the time, a liquid storage tank at the Khor Mor facility was struck by a drone on the evening of the twenty-fifth of January this year. There were no injuries, thankfully, to any of our personnel, and production was briefly suspended to put out the resulting fire. At this point, I would like to acknowledge the exemplary performance and resilience of our operations teams, which were enabled to ensure the resumption of production operations within 24 hours. Turning now to Slide 8, I would now like to give you an overview of our assets and operations in Egypt.
The performance of our Egyptian fields and the El Wastani processing plant continued without disruption during 2023, with an exceptional operational uptime in excess of 99%. In 2023, the company's year-on-year output in Egypt did fall by 16% due to natural field declines. However, this decline is actually lower than the 20%-30% production increase that is typical from good quality Nile Delta reservoirs, and this was the result of our active field management program and optimization of production from the existing well stock. To boost production and reserves, Dana Gas has identified several exploration and development opportunities in its existing onshore acreage and neighboring open acreage. Since these opportunities are marginal under current concession terms, the company is negotiating new terms with EGAS in order to unlock the remaining potential and extend the economic life of our Egyptian assets.
This new agreement, which also includes the awarding of an additional 296 sq km of exploration acreage, was approved by EGAS and is pending approval now by the Egyptian parliament, which is expected before the end of the quarter this year. The agreement includes better fiscal terms that will allow Dana Gas to unlock the remaining potential of its concessions and to extend the life of the assets by 3 years or so. This will include drilling a total of 3 exploration wells within the newly awarded acreage, as well as 8 in-field exploration and development wells during 2024 and 2025. This will allow the company to make meaningful investments in the future and to restart its drilling activities, which will have a positive impact on the company's production in Egypt and will further enhance shareholder value. If you can now turn to slide 9.
This slide provides you with a more detailed snapshot of our production and its breakdown by geography and product. On the left-hand side, you can see 2023 group average throughput was 2% down compared to 2022. You can also see the breakdown of our product details for KRI in Egypt, as described earlier. Turning now to slide 10, which highlights the company's realized prices for our products. The left-hand chart shows the company's realized condensate prices, which represent approximately 13% of the company's total production. Condensate prices averaged $51 per barrel in 2023 versus $79 per barrel in 2022. You'll also see from the chart that the additional discounts to realized condensate prices, which resulted from third-party sales in the KRI in comparison to Brent.
This increased the discounts to 49% in 2023 from 29% in 2022. On the right-hand side, you can see the realized prices of LPG, which averaged $35 per barrel oil equivalent in 2023, compared to $42 per barrel of oil equivalent in 2022. And it's worth noting that LPG comprises 11% of Dana Gas's total production. I'll now hand you over to Chris to talk through the financial numbers in more details.
Thank you, Richard, and good afternoon, everyone. Despite the challenges of 2023, Dana Gas was able to demonstrate resilience throughout the financial year. In particular, the various operational measures taken by management reduced the impact of lower hydrocarbon prices on the business. Please turn to slide 12, where I'll cover the financial results. Net profit for 2023 was $160 million, as compared to a net profit of $182 million in 2022. Profitability for the year declined amid an 18% drop in the average price of Brent during 2023 to $83 per barrel, compared to $101 per barrel in 2022. The decline in profitability was also due to additional discounts on condensate sales in the KRI, where the company began to sell to third-party buyers.
In the fourth quarter of 2023, however, net profit increased by 62% on an absolute basis and 6.2% on a normalized basis. Revenue decreased 20% to $423 million, compared to $529 million in 2022, due to lower realized prices and a drop in production, with a 35% and 17% drop in the company's condensate and LPG realized prices, respectively. If you can now turn to slide 14 and 15, which outline the company's expenditures during the period. During 2023, G&A decreased 8% to $11 million, a level that remains highly competitive versus Dana Gas' peers.
At the same time, OpEx reduced by 7% to $53 million in 2023 from $57 million in 2022, due to the devaluation of the Egyptian pound, lower OpEx in Egypt, and tight cost control. The company's OpEx and G&A costs were reduced below $3 per BOE during 2023 and remain with industry's top quartile. The company's capital expenditure totaled $146 million in 2023 versus $138 million in 2022, and CapEx in Egypt during 2023 stood at $23 million. Moving on to slides 16 and 17, which cover the company's liquidity and collections position. Pearl's cash retention in 2023 has significantly grown from 2022, as Pearl preserves liquidity in order to prioritize ongoing CapEx spend on the KM250 expansion.
Given this additional cash retention, in combination with a reduced rate of collections in 2023, Pearl did not distribute any dividends to its shareholders, including Dana Gas, last year. Therefore, of Dana Gas' cash position of $131 million at the end of 2023, $114 million was held at Pearl Petroleum. The company's proactive approach in taking all measures possible to resolve the payment situation has led to an improvement in expediting payments. The new payment mechanism that has been agreed upon with the KRG will support the investments required for completing the KM250 project and will allow Pearl to reinstate dividend payments to its shareholders, including Dana Gas, in 1Q 2024. It's worth mentioning at this point that Pearl collected $68 million in January of this year.
To support the company's cash flow, in the absence of dividend payments from Pearl since November 2022, and the restriction of the repatriation of US dollars out of Egypt, the company entered into a short-term loan facility of $65 million with a local UAE bank during the first quarter of 2023. As at December 31, the company's total borrowings stood at $252 million, consisting of $108 million currently outstanding from our corporate credit facilities and $144 million of non-recourse project debt at the Pearl level. The company is now taking available measures that will allow it to restructure its corporate debt, improve liquidity, and reduce its costs of funding.
Finally, with regard to collections, Dana Gas' total collections amounted to $238 million in 2023, of which the company's share of Pearl Petroleum's collections in 2023 was $180 million, and its collections in Egypt was $58 million. Trade receivables stood at $48 million in Egypt and $103 million in the KRI as at 31st December 2023. And with that, I'll hand you back to Richard.
Thank you very much, Chris. Allow me now to summarize. As I hope we've made very clear, the outlook for 2024 is indeed positive, especially after the agreements we've undertaken to settle outstanding receivables. Our strategy will focus on delivering the KM250 project in KRI while continuing to diversify our customer base. We shall continue to develop the potential presented by our world-class assets in the KRI, as well as maximizing the value of our Egypt assets. At the same time, we'll explore new gas opportunities regionally, with a focus on high-tech projects that will support our drive to become more sustainable. Our aim, as always, will be to maximize shareholder value and to resume our dividend payments as soon as practicable. Thank you very much. And with that, I will hand you over to Ahmed and Mohammed to start the Q&A.
... Thank you, Richard and Chris. We will now start the Q&A session. I will kindly ask Ahmed to moderate this session. You also have my contact details in case any questions come up following this call. Over to you, Ahmed.
Thanks, Mohammed. Thanks, Richard and Chris. With that, we'll start the Q&A session. You can use the Q&A box to send your questions, or you can raise your hand and ask your questions yourself. We can unmute your mic locally. We have our first question coming from Ahmed Al-Anani . Ahmed, your line is open. Please go ahead. Please unmute locally as well. Thank you.
A question in relation to KM250. From memory, I recall that the cost initially was around $650 million to completion. Can you comment on, you know, given the delays where we are today, the extent of cost overruns and, how that relates to the cash that's trapped at the, at the Pearl level, to the extent there is any restricted cash for potential contingent liabilities coming out from the completion of that project? And then also, if you don't mind, kind of just reminding me of the existing bank debt, that you have. What are the terms and the maturity, amort schedule, anything of the sort? Thank you.
Yeah. Hi, Ahmed. Thank you for the question. In terms of KM250, your memory is actually very, very good and correct. The latest estimate we have is probably around $800 million, and that reflects the extended time of the project, which obviously has been hampered a little bit by circumstances beyond everyone's control. But we are still looking for a completion. We're making steady progress this year, and we'll be updating you towards the second half.
Just briefly to pick up the questions about the bank debt. We have two facilities outstanding. One is a near-term facility that we're anticipating paying off during the rest of this year. The other is a longer-term facility associated with our assets in Egypt, and that is a standard amortization facility that should pay off over the next two to three years.
Ahmed, any follow-up question or that answers it?
Ahmed, if you have any follow-up questions, please unmute your mic locally and ask your follow-ups.
Yeah. Hi. Yeah, no, I just wanted—you know, again, back on KM250. So we, you know, to the extent that there is $150 million of cost overruns, how does that, you know, relate to the cash that's, you know, at the Pearl level? You know, is there any restrictions on that cash due to, you know, stemming from any contingent liabilities relating to this cost overrun? You know, just trying to understand, like, you know, get a sense for timing for release and how the, you know, those cost overruns are gonna get covered.
Yes. No, well, as you've seen in the presentation, Pearl is withholding some cash at the moment. It's doing that for the various reasons, primarily for the CapEx, but also obviously to service some of the debts. We're expecting that to unwind during the course of this year as we complete the KM250. You know, we are obviously still producing our various revenue streams, which funds can be used to kind of complete the development as we move towards completion later this year.
Thank you.
Thank you, Ahmed. So our next question comes from Gus. Gus, please, your line is unmuted. Please unmute locally and ask your question.
Richard, Chris, Mohammed, thanks for this call. I wanted to ask you about the new payment mechanism you structured in KRG. If you can please elaborate on that, how you're selling directly to the power stations. What's new versus the old payment structure, how you used to sell? If you can help us understand that a bit better, that would be helpful. And on a related note, if you could provide a bit more detail on the repayment mechanism as well of the accrued receivables, which is exciting. So just to help us understand those two points would be great. Thank you.
Yeah. Hi, Gus. Good to hear from you. Gus, just to, to give you a little flavor of the repayment mechanism, we're getting paid now, by dint of the fact that the power providers are giving us dollars. They get paid in US dollars, and we receive, now, our, our recompense for the gas in US dollars. There's also an arrangement with the same power producers to, to pay back our receivables. And those receivables, we have, an agreement in place to receive those over the next 24 months in installments.
Got it. Thanks, thanks, Richard. And where is this gas going? Is this all for KRG or is this KRI, or is this also going to, you know, broader Iraq from these power stations?
Yeah, Gus, it's all the gas is going to power plants in the KRG.
Okay, understood. And for KM 250, will that also be used for power in the KRG and be under the same payment mechanism, being sent to the same power stations?
That's, that's certainly the intent, Gus. That's, the agreements we have in place, yes.
Okay, wonderful. That's it for me for now. I'll jump back in the queue. Thank you.
Thanks, Gus. I think we have a few questions in the Q&A box. However, some of them have been answered. I'll just repeat them, and maybe if Richard, Chris, or Mohammed, you want to elaborate a bit further on your past responses. So one of the questions is: Will you expand further on the new KRI payment mechanism with local power producers? Will we see a change to the existing gas paper, gas sales pricing? Will it be in USD or IQD? Is the payment for gas upfront, like IOCs with local oil refiners/traders? Also, on the new schedule for receiver, is that final, or are there still initial discussions or still under discussions? Any details on that would be appreciated.
Thanks, Ahmed. I think Richard and Chris handled it very, very well. So, they talked about the mechanism. They talked about payments. We are paid in US dollars also, as well. So, I think that this is all covered. Maybe we can move to the next question.
Let's move to the next question. So our next question comes from Noor Sharif. Noor, your line is open. Please unmute locally and ask your question.
To you to ask questions. Two questions for me, if I may. My first on the how much of CapEx left for the KM250? And my second question on Egypt, if you can give us more color about the new consolidation taking place, and what should we expect for production in 2024 and 2025, please? Thank you.
Noor, can I ask you to repeat your second question, please?
My second question on Egypt's production, and further details about the consolidation that should take place, and the outlook for 2024 and 2025, please.
Well, just with regard to the CapEx, I mean, we are a long way through the CapEx. We haven't actually given a specific breakdown of how much to go, but the number on the sheet is there, and the majority of that is already spent and will be spent by the end of the year. But as I say, we're not giving a specific number of exactly how much still to go.
Noor, on your second question regarding Egypt, as we've said in the press release there, a production decline for a typical reservoir of this nature would be 20%-30% per year, and we've managed to cut that back to 16% through our well intervention and well management programs. Going forward, we would hope that we'll get the concession agreement signed very soon, and by dint of that, we will invest in more well work and bring production back up. We're going to invest probably the best part of $100 million in doing that.
that should keep production flat?
No, we'd like to see the levels coming back up, a little bit, from what they are. It will never go back up to the peak, but certainly will extend field life by 3-4 years.
Oh, clear. Thank you.
Thanks. We have a question in the Q&A box, from Juman. Basically, he's asking if dividends will be distributed in the first half of 2024, and he's also asking about the Iranian collection issue. The Iranian contract, the NIOC contract or award, sorry.
Thanks for the question. Yeah, in terms of dividends, for 2023, you're right, the profitability of the company was good. However, in terms of cash collections, we will be unlikely to recommend to the shareholders meeting that we pay a dividend so far. However, we are very, very confident that cash collections are now have been restored, and we'll be monitoring the situation throughout 2024.
Could you repeat the question on NIOC? We didn't quite catch that.
Yeah. He was basically asking about the collection of any proceeds from the NIOC arbitration award.
Well, as you know, that's a matter for our sister company, Crescent Petroleum. They are the ones that are pursuing that claim and enforcement. And as at the moment, we have no further information than we've been able to provide in the results.
Thanks, Chris. So we have another question in the Q&A box, on the power producers. If they are owned by the government and sell power to the government? That's one of the questions. And if so, if the government remains the eventual payer, how does this benefit Dana/Pearl in terms of better cash collection?
Yes, thanks for the question. The local power producers are actually independently owned, so they're independently owned businesses. This actually enables us to get paid directly in U.S. dollars.
Thanks, thanks. Thank you. So, just as a reminder for everyone on the call, you can use the raise hand function, or you can send your questions in the Q&A box... I see that Ahmed Laneni has his hand raised. I'm not sure if he has a follow-up. Ahmed, your line is open, please, if you have a follow-up, unmute locally and ask it.
I'm sorry. I should, I should have taken my hand down. Apologies.
So, Afaq just raised his hand. Afaq, please, if you have a question, unmute and ask your question. Hello, you are not audible at the moment.
Yes, Afaq, you can go ahead please.
Uh, okay.
So, Afaq, you're not audible, so we're gonna move. If you have any further questions, please send it in the Q&A box or raise your hand. Okay, at the moment, Mohammed, we do not have any further questions.
Oh, so Gus raised his hand. Do you wanna go, Gus, or?
Gus, please unmute locally and ask your question if you have any questions.
Sure. Sure, thanks. You know, just in respect to KM250, you mentioned that it's gonna contribute an incremental $250 million of revenues to Dana Gas. Can you help us understand how that would look in respect to profitability, net income, or at least cashflow, to put that in perspective for the bottom line?
Gus, let me correct you there. It's 250 million standard cubic feet a day of additional capacity. In terms of revenues, we're looking to probably increase our Dana Gas net revenue by about 35% year-on-year.
Understood. Thanks, Richard. Apologies. Is it fair to say that this incremental gas will be higher margin, given that the existing gas that you're distributing, 300 SCFs of that is going for free to KRG, and then you're getting profitability on the remaining gas and obviously the liquids, but this will all be incremental profitability or a good chunk of it? I mean, the cost base will be lower because you're not distributing for free. A part of it?
Yeah, Gus, you're absolutely right on that. The margin will indeed increase, because we don't have, well, as you say, the amount of free gas becomes a lesser proportion. And then we've got, economies of scale with the plant being operated.
Thank you, Richard. You know, just a broader question on... I know it's not, you know, given your new payment mechanism, it's not impacting you, thankfully anymore, but, just in respect to the overall KRG, and the exports out of, out of the region, have you, do you have any incremental color on that, that situation, timing of the export pipeline? If that's going to resume or if there's, you know, another solution for the oil that's coming out of the ground in, in Kurdistan, just to help the overall balance sheet for the, for the region.
Gus, that's something we can't speculate on. We follow the situation very closely, closely. We liaise with all the authorities, but it's something we can't really speculate on at this time.
Understood. Okay. Thank you.
Okay. So, it appears that we don't have any further questions. With that, I'd hand over the call back to Mohammed, Richard, and Chris, for any closing remarks. Please, go ahead.
Thank you very much, everybody, for joining. As I said, please, contact me directly if you have any follow-up questions or any clarifications. You have my contact, and, thank you for joining us, joining us, today.
Thank you, everyone, for joining the call. You may now disconnect.