KRG agrees $1bn payment to Dana Gas-led consortium to settle dispute

The Kurdistan regional government (KRG) has agreed to immediately pay US1 billion pay to Dana Gas and its partners in the Pearl Consortium, bring to an end a long-running $2.24bn arbitration process.

The consortium, consisting of Dana Gas, its parent Crescent Petroleum, OMV of Austria, Germany RWE and Hungary’s MOL, brought an arbitration against the KRG in October 2013, accusing it of blocking further development on the region’s Khor Mar and Chemchemal fields.

Under the terms of the settlement, the KRG will pay the Pearl Consortium $600m, together with a $400m payment to be allocated towards the consortium’s further investment in the region’s gas fields.

The $1.24bn balance of the amount awarded by the London Court of International Arbitration has been reclassified as outstanding costs, recoverable from future revenues generated.

“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,” said the KRG oil minister, Ashti Hawrami

With the conclusion to the four-year long arbitration, the consortium will begin work to increase production at the Khor Mor field 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.

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KRG in Dana Gas suit

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

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“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.

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.

On August 20, The National reported that Dana Gas had filed an application with the emirate’s Federal First Instance Court to lift an injunction, protecting it against claims related to its $700m Islamic bonds or sukuk.

Dana, which is embroiled in a row with its bondholders on restructuring of the outstanding sukuk, had received the Sharjah court injunction on 13 June, but moved to discharge it in compliance with a London court order, the firm said in a statement to Abu Dhabi Securities Exchange (ADX), where its shares are traded.

The injunction by the Sharia-court in Sharjah restrained the Trustee, the Delegate, the Principal Security Agent and others from taking any legal action against the company until pronouncement of final judgement by the Sharjah court in relation to the sukuk.

None of the respondents appeared before the Sharjah court to contest the injunction granted by the court, according to the Dana statement.

A judge at London's High Court, who upheld the interim injunction blocking bondholders from enforcing claims on the company, ordered Dana to cancel the Sharjah injunction and seek a stay of proceedings there.

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Dana Gas moves to lift court injunction in sukuk case

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Dana wants to restructure the sukuk saying the paper in its current form was unlawful due to the changes in Islamic finance since the bonds were issued four years ago. Dana has proposed to cut profit on the replacement security by more than 50 per cent. It has been trying to engage with the bondholders to find an amicable solution.

The case is being watched closely by Islamic finance professionals and fixed income investors as the decision could influence how the Islamic paper will be structured and priced in the future.

The full hearing on the case will begin in London this month.