Dana Gas wins case against KRG over development of Khor Mor and Chemchemal

Dana Gas said on Tuesday that it has won another ruling in its four-year-old dispute with the Kurdistan Regional Government in Iraq over rights and payments for its main gas assets in the province.

The Sharjah-based gas producer, whose largest shareholder is Crescent Petroleum, said that the London Court of International Arbitration ruled in its favour that the KRG had wrongfully prevented it from developing further the Khor Mor and Chemchemal reservoirs under an agreement struck in 2007.

The Pearl Petroleum consortium, in which Dana Gas is a 35 per cent shareholder and the operator for the Khor Mor and Chemchemal project, has invested US$1.2 billion to develop Khor Mor and build infrastructure to process gas and related liquids, as well as a local power plant, which the company claims has played a major role in the local economy and has allowed significant savings over the diesel-powered electricity that preceded it.

But it says that the KRG dispute over its rights and stalled payments for delivering gas and liquids has meant that no new capital expenditure has gone into developing the project for more than four years, thus depriving it from producing at a much higher rate.

The Pearl consortium has already won a ruling confirming its contractual rights to exclusively develop the assets and actual damages for payment arrears totalling $1.96bn.

In relation to that ruling in late 2015, the court ordered the KRG to pay $100 million within 30 days, although the parties subsequently worked out a payment schedule that resulted in $50m being paid by the end of last year.

In the new ruling, the court ordered the KRG to make an additional payment of just above $121m plus interest, calculated at the London interbank offered rate (Libor), plus 2 per cent compounding, for monies owed on delivery of liquids in the nine months to the end of last March.

Dana Gas says the parties have not yet worked out an arrangement to cover that payment.

The court is now expected to set damages for its latest ruling in the third quarter this year. While the previous ruling was for actual damages for money owed on specified deliveries, the latest claim – for which the Pearl consortium is seeking $17bn – is more in the nature of punitive damages and will require the court to make a judgment about foregone earnings.

Even after damages the Pearl consortium would then have to pursue an arduous process of enforcement to recover the money, although Dana Gas has repeatedly stressed that it wants to be able to reach a negotiated settlement.

Other Pearl consortium members include Crescent Petroleum, also with 35 per cent, the Austrian oil company OMV, with 10 per cent, and the German utility RWE, with 10 per cent.

As of the end of last year, Dana Gas said its arrears owed by the KRG totalled $713m, which included its share of damages awarded so far.

Dana Gas shares closed up 6.8 per cent at 50 fils in Abu Dhabi on Tuesday.

amcauley@thenational.ae

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