Egypt s upstream challenges and win-win solutions, the Dana Gas example Dana Gas Presentation Patrick Allman-Ward Oil Council 2014 Africa Assembly 24-25 June, 2014 Paris, France 1
Presentation Outline Egypt gas market and business environment Challenges to growing gas production Redefining investment framework to exploit potential (accelerate development stranded gas and encourage new (high cost) exploration in Egypt) History of Dana Gas in Egypt, a success story with EGAS Current Challenges and how DGE & EGAS are tackling this together Potential Public-Private initiative to accelerate investments in Egypt 2
Despite a challenging business environment; Egypt gas fundamentals are robust Egypt GDP (USD bln) Egypt Primary Energy Demand (mln toe pa) Gas consumption in Egypt to exceed production for first time since 1995 Onshore Nile Delta steady and critical gas supply source Desert Source: BP Statistical Review 2013, IMF, Morgan Stanley 3
Subsidies, $ bln Gas role in economy remains crucial. Government working towards competitive gas pricing and easing subsidies Egypt Primary Energy Mix Egypt Gas Use By Sector (IEA) Coal, 1% Hydro electric, 4% Other Renewables, 0% Key challenges for EGAS Oil 41% Natural Gas 54% 1. Arrest production decline 2. Accelerate new investments to grow production 3. Outstanding payments to contractors and improve financial health (indebtedness) Egypt Energy Subsidy Egypt Oil & Gas Price 20 18 16 14 12 10 8 6 4 2 0 7.3% of Egypt s 2012-13 GDP Oil price evolution Egyptian gas price? Official Price $ 2.65 4
Efforts to reduce outstanding dues and accelerate investments in the E&P sector 2009-2014: Egypt Outstanding Payment to Contractors $1.5bln paid/settled with contractors at end of 2013 Outstanding payments a major challenge for EGAS and the government 1. Insufficient funds to pay contractors 2. Contractors delay/cancel new projects 3. Govt./Industry trust deficit and reduces dialogue to find creative solution EGAS and EGPC are exploring ways to increase oil and gas investments in Egypt Award of new concessions through licensing round with improved fiscal incentives Exploit overlooked and untapped potential in technically challenged, HPHT Oligocene play Accelerate development of stranded gas (and condensate) resources 5
WI Production, kboepd WI Production, kboepd Accelerate gas developments Explore new commercial framework to encourage investments 1200 Gas Fields under production (Source: Woodmac) 1200 Potential gas development 1 (Source: Woodmac) 1000 1000 800 800 Potential replacement production Onshore (excl Oligocene) 600 600 Offshore/Deepwater 400 400 200 200 0 0 EGAS working with operators to explore commercial ways to accelerate investment and ease payment obligations Collaborative approach between govt. and contractors needed to find solution to boost production and reduce outstanding payments in mutually beneficial way 1. Potential Gas developments under various stages of evaluation 6
Gas exploration in Egypt has remaining potential in both onshore and offshore areas Offshore Oligocene and Mid-Lower Miocene Discoveries with > 90% technical success rate Western Desert Untapped potential in multiple stacked plays (Source: Apache) Onshore Nile Delta Large running room (Source: Dana Gas) Huge Remaining Potential Offshore Egypt (Source: USGS) ca. 1.5 TcF of mean risked resource potential identified across Pliocene, Messinian, Miocene and Oligocene plays In 2010, the USGS estimated that the Nile Delta Basin including offshore areas had Yet to Find (YTF) potential of 223 Tcf (gas) 1,763 Bln bbl (oil) 5.9 Bln Bbl (NGL) 7
EGAS continues to promote license rounds to attract new investments into the oil and gas sector 2012 International bid round 2013 International bid round (Bids due in July 2014) 2012 Bid round Winners Block 1 Petroceltic (75% - operatorship) & Edison (25%) Block 2 Sea Dragon Energy (100%) Block 6 Dana Gas (100%) Block 7 Petroceltic (50% - operatorship) & Edison (50%) Block 9 IEOC (100%) Block 10 BP (100%) Block 13 BP (100%) Block 15 Pura Vida Energy (100%) Blocks offered in the EGAS International Bid Round 2013 Block name Onshore/ Acreage Number of Number of wells in Seismic 2D Seismic 3D (sq km) wells in block data package Offshore (km) (sq km) North El Salhiya Onshore On 1,527 11 5 3,206 326.5 North El Mahala Onshore On 1,028 55 9 319 1,568 El Matariya Onshore On 960 12 12 856 3,328 North ll Fayrouz Offshore Off 2,280 9 5 1,618 1,322 North Port Foud Offshore Off 3,397 0 0 1,163 - Karawan Offshore Off 4,565 1 1 2,335 2,150 North Leil Offshore Off 5,105 1 1 4,510 - North El Dikheila Offshore Off 7,150 3 3 4,949-8
Presentation Outline Egypt gas market and business environment Challenges to growing gas production Redefining investment framework to exploit potential (accelerate development stranded gas and encourage new (high cost) exploration in Egypt) History of Dana Gas in Egypt, a success story with EGAS Current Challenges and how DGE & EGAS are tackling this together Potential Public-Private initiative to accelerate investments in Egypt 9
Forward Looking Statement This presentation contains forward-looking statements which may be identified by their use of words like plans, expects, will, anticipates, believes, intends, projects, estimates or other words of similar meaning. All statements that address expectations or projections about the future, including, but not limited to, statements about the strategy for growth, product development, market position, expenditures, and financial results, are forward looking statements. Forward-looking statements are based on certain assumptions and expectations of future events. The Company, its subsidiaries and its affiliates (the Companies ) referred to in this presentation cannot guarantee that these assumptions and expectations are accurate or will be realised. The actual results, performance or achievements of the Companies, could thus differ materially from those projected in any such forward-looking statements. The Companies assume no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events, or otherwise. 10
Dana Gas: leading gas independent in Egypt and listed on the ADX Dana Gas is a MENASA focused gas independent headquartered in the UAE Dana Gas Business and Core Area of Operation Dana Gas is quoted in the UAE stock exchange (Abu Dhabi Securities Exchange). Bloomberg: DANA:UH Shares outstanding: 6,816 million Market capitalisation: approx. $1.5 billion Enterprise value: $2.2 billion Current Production: 68.8 kboed (2014 Q1) 2P Reserves 2 : 134 mmboe Strong Corporate Governance structure and a unique pan-mena Board of Directors access to business opportunities in the world s largest hydrocarbon region Dana Gas : 6 th Largest Gas producer in Egypt Sixth largest gas operator in Egypt 1.Total interest bearing debt less cash 2.Includes Egypt & UAE reserves only at end of 2013 11
Dana Gas as gas focused MENA independent fully engaged across the region to deliver across the gas value chain Reserve & Resources Dana Gas is operating at the heart of the world s largest hydrocarbon bearing region Production Profile Business Model across the gas value chain Mid Stream and Downstream asset EBGDCo Liquid Extraction plant (LPG) UGTC & SajGas - Gas Transportation and Processing 35% in Crescent Natural Gas Corporation Limited (CNGCL) Gas marketing 12
Dana Gas : Consistent growth and delivery since 2007 Revenue EBITDAX Profit After Tax 13
Egypt: Dana Gas s Nile Delta Operations Acreage: Onshore acreage consisting 13 Development Leases in the prolific Nile Delta region One additional DL (Begonia) is under discussions with the government Production: 39 kboepd ( Q1 2014 Avg) Ongoing/Completed Projects (2014) : EW Capacity De-bottlenecking (200mmscf/d of raw rich gas) completed in March 2014 El Basant Compression Station completion date is July 2014 Salma/Tulip tie-in (Phase 1): (4 wells) completed in Q4/2013 and (Phase 2): additional 2 wells will be completed in 1H 2014 14
2P Reserves (mmboe) DANA GAS: Egypt assets have delivered sustained reserves & production growth Dana Gas whilst growing production has grown reserve base by 175% since Centurion acquisition 250 200 150 100 50 0 67.9 Acquired 2P reserves of Centurion end 2006 140.1 Dana Gas Discoveries (2007-2013) 91.0 Dana Gas Production (2007-2013) 117.0 Dana Gas Reserves (31/12/2013) 15
Block 6 North El Arish Offshore Opportunity Awarded :April 2013 Area : 2980 sq km Governmental ratification received in 2014 Seismic acquisition in 2014/15 1 well commitment in Phase 1 Prospective acreage adjacent to prolific offshore gas producing fields 16
Egypt: Realities of the Operating Environment Issues Facing EGAS Increasing domestic gas shortage Growing demand for enhancing production and addressing the investment logjam Issues Facing Dana Gas Growing receivables due to minimal collections Investments aligned to collections Growing current account deficit and therefore lack of funds to pay operators Resultant decline in investments in the sector leading to delayed/cancelled work programmes Potential growth put on hold Growing concerns from shareholders and Board Also leading to trust deficit Leading to trust deficit 17
Typical Response: Positional Negotiations Dana Gas Please pay us our dues so we can invest in Egypt Trust deficit EGAS Egypt needs fresh investments and more gas EGAS We don t have the money Production Decline Dana Gas Production decline in line with depletion and limited investment No Further Investment 18
Win-Win Approach: Aligning Interests EGAS Willing to Think Out of the Box We Need More Gas This looks very promising but we don t have the $s. As an alternative, how about you retain the Government share of the incremental condensate to pay down the receivables? Dana Gas - Prepared to bet on Egypt We Can Provide More Gas If We Have Transparency and Consistency in Receivables Payments The Win-Win Of Committing Incremental Investment Linked To Payment Mechanism Sounds interesting Lets start talking The Condensate Export Project 19
Dana Gas s new Condensate Export Project in collaboration with EGAS accelerates investments, delivers growth and enables payment of receivables Dana Gas is in the process of finalizing an agreement with the Egyptian government (EGAS/EGPC), which allows it to: Make an additional investment above the current budget in order to execute a committed work program that will increase the Gas, LPG and Condensate production from the Nile Delta Assets in the short and medium term Capex of $ 270 mln over next 2.5 yrs (funded in country) Incremental capex+opex spend is ca. $ 750 mln over the seven year period (2014-2020) Adopt a mechanism for recovery of the outstanding receivables through the direct sale of the incremental volumes of condensate Develops 2P reserves and increases the asset value, allows conversion of 3P to 2P 20
Condensate Export Project Production Profiles NFA profiles clearly communicates consequence of business as usual to EGAS/EGPC CEP Production Profiles: Underlines serious commitment by Dana Gas to EGAS/EGPC for increased production with immediate effect Up to 8,000 bpd of condensate Up to 250 MMscf/d gas Up to 290 tpd of LPG Production increase close to 60 kboe/d by 2016/17... all within 3 years 21
Dana Gas working with EGAS to pursue to value accretive initiatives Gas and Product Infrastructure in Nile Delta Dana Gas in Egypt Current reserve life ~7.6 yrs Potential 25% increase in production still maintains ca. 8 year reserve life Since 2011 Dana Gas has maintained investment discipline in Egypt in line with cash flows being generated in the country Dana Gas has engaged in a dialogue with EGAS to develop a win-win commercial structure that would accelerate investments and deliver mutually beneficial economic returns New investments will accelerate gas and liquids production growth and increase recoverable reserves This public-private initiative explores an innovative commercial structure that helps Egypt meet its market needs and at the same time helps reduce the outstanding payments to Dana Gas New investments further enhance well developed mid-stream infrastructure onshore Nile Delta to shorten development cycle time and deliver urgently needed gas into the market 22
Contact us: Dana Gas PJSC P. O. Box 2011, Sharjah, UAE E-mail : rsingh@danagas.com Direct : +971 6 519 4401 Fax : +971 6 556 6522 23
Back-Up
Condensate Export Project Timeline 25
Condensate Export Project Elements Phase 1: Trucking (2? years) Identified as best option from feasibility study Phase 2: EGPC pipeline (5 + years) EGPC requirement for condensate export El Wastani Plant Port Said existing Suez (export) 26