THE CEO's STATEMENT 

Dr. Patrick Allman-Ward


I am pleased to say that despite the difficult operating environment in a number of the Company's core markets, Dana Gas delivered a robust financial and operational performance in 2014 with continued profitability, an overall reduction in outstanding receivables, increases in production and a continued focus on operational excellence and cost discipline.

We are also proud of our health, safety, security and environmental record for the year and our sustainable development achievements, and this is an area that we are going to focus on in the present year and going forwards.

Egypt remains an important country for the Company with new investments planned to increase production and exploration activity. One of the significant achievements in 2014 was the Gas Production Enhancement Agreement (GPEA) agreement signed with the Egyptian Government in August 2014. Under the GPEA, Dana Gas expects to deliver incremental production in the region of 270 billion cubic feet of natural gas, 9 million barrels of condensate and 450,000 tons of LPG. The revenues generated from the Government's share of the incremental condensate sales will be used to pay-down the outstanding receivables held by the Egyptian Government to normal levels by 2018 at the latest. In the new bidding rounds that took place last year, the Company has been awarded three new exploration blocks in promising areas onshore and offshore the Nile Delta. Block 1 and Block 6 are 100% owned and operated by Dana Gas and Block 3 is 50% owned by Dana Gas and BP as the operator.                                               

For 2015, Dana Gas looks forward to first gas production from the Zora gas field development project in the UAE. Natural gas produced from the field will provide a much needed source of clean energy for the benefit of the Northern Emirates of UAE. The Zora Gas Field, which spans the territorial waters of Sharjah and Ajman, will provide an additional source of gas for local power generation in the region. This is a significant milestone for Dana Gas as this is the first gas development project for Dana Gas in the Gulf Co-operative Council (GCC) countries and also the first offshore operation for the company. In 2014 Dana Gas secured through its wholly owned subsidiary Dana Gas Explorations FZE, a US$ 100 million financial facility for the Zora Field Development Project. This term facility will contribute the debt component of the financing needed to complete the project and bring the Zora gas field on-stream. The financing agreement demonstrates the confidence the region's leading banks and financers have towards both Dana Gas and the Zora project.

Overall, Dana Gas has made solid progress in production levels across its operations. The Company's Net Production averaged 68,900 barrels of oil equivalent per day (boepd) from its interests in Egypt and the Kurdistan Region of Iraq. The production increase of 9% in Egypt was a significant achievement as this new level was reached despite there

being no new wells drilled in 2014 and this was mainly achieved through production optimisation from existing fields.

Despite the difficult operating environment and the ongoing arbitration, Dana Gas and its Consortium partners continue to produce an average of over 71,300 barrels of oil equivalent (boe) per day, including 310 million cubic feet per day of gas that enables affordable electrical power generation in the Kurdistan Region. Dana Gas and its Consortium partners are proud to be the largest oil and gas sector investors and cumulative producers in the Kurdistan Region of Iraq. To date, they have invested over US$ 1.2 billion in the Kurdistan Region and produced approximately 130 million boe of natural gas and petroleum liquids over the past six years, thereby enabling electricity provision and an economic and social transformation for the Kurdistan Region and its people.

The Kurdistan operations at Khor Mor produced at a daily average rate of 51,667 boepd of natural gas with 13,840 barrels of condensate and 498 tons of LPG (Dana Gas share being a daily average of 20,667 boepd of natural gas, 5,536 barrels of condensate and 199 tons of LPG). As a result of the replacement of ageing reagents in the molecular sieves in the plant in October 2014 the LPG production increased by up to around 34%.

The Company continues to prioritise the collection of outstanding receivables and is making every effort possible in this regard. In Egypt, Dana Gas achieved a significant amount of progress with the collection of US$ 163 million (AED 597 million) in 2014 as compared to US$ 134 million (AED 491 million) in 2013, an improvement of US$ 29 million as the Egyptian authorities implemented their long-standing agreement to pay down receivables owed to oil and gas producers. This excludes a total of US$ 47 million comprising the offset of the Block-6 signature bonus of US$ 20 million (AED 73 million) to EGAS and US$ 27 million (AED 99 million) payable to government owned contractors against the amount due to the Company. All of the money received in Egypt will be ring-fenced for committed current and future investments. As of 31 December 2014, trade receivables in Egypt stood at US$ 233 million (AED 854 million) compared to US$ 274million (AED 1 billion) in 2013.

In the KRI, the Company and its partners were permitted to commence direct sale of condensate and LPG to the local market for the first time. As a result, Dana Gas' KRI operations, in which it has a 40% share, collected US$ 34 million (AED 125 million) in 2014, down significantly from US$ 63 million (AED 253 million) in 2013. Included in the collection was US$ 18 million (AED 66 million) received as a guarantee against future lifting of product. As of 31 December 2014, the trade receivable balance stood at US$ 746 million (AED 2.73 billion) compared to US$ 515 million (AED 1.88 billion).

With regards to the convertible Sukuk, Dana Gas received voluntary early conversion notices in the first half of 2014 amounting to about US$ 73 million (AED 267 million), which demonstrates positive investor sentiment towards the Company. Accordingly about 357 million ordinary shares calculated at a conversion price of AED 0.75 (nominal value of AED 1.0) were issued to satisfy the notice. The difference in value between the conversion price and the paid-up value of the shares was accounted for by appropriation from the capital reserves of the Company. These conversions are expected to result in Sukuk profit saving of c. US$ 5 million in 2015. 

Looking forward

In 2014, we have demonstrated a strong track record of project delivery, as well as an excellent health, safety, security and environmental record across our entire asset base in all the areas we operate.

Despite the challenges faced in 2014, Dana Gas continued to deliver strong operating and financial results - a testament to the quality of our assets, both in respect of the geology and the physical footprint of those assets on surface, and most importantly the quality of our staff who operate those assets.

We remain strongly committed to our corporate social responsibility efforts. Dana Gas will continue to be involved in providing support for higher education here in the UAE to help develop the youth in the country. In the Nile Delta in Egypt and the Kurdistan Region of Iraq, we have and will continue to contribute in enhancing healthcare facilities, better educational services and teaching tools. We recognize the importance of providing small and medium-sized enterprise with seed money to support local businesses and provide opportunities for local employment in Egypt.  And in the KRI, we have contributed to provision of social support for orphans who have been the innocent victims from the years of conflict that have characterized the region. We will continue to be involved in enhancing infrastructure and providing potable water supplies, electricity generation and access roads for local communities in which we operate.

Our success is strongly underpinned by the skills, experience and efforts of our employees. I take this opportunity to thank the entire Dana Gas family for their hard work and commitment under difficult circumstances in 2014. We continue to focus our efforts in development of skills and capabilities of the team as we pursue our strategy and goals across the MENASA region.

Finally, I would like to thank our Honorary Chairman, His Highness Sheikh Ahmed Bin Sultan Al-Qasimi, our Chairman Dr. Adel Khalid Al-Sabeeh and all of the members of the Board of Directors who have provided such dedicated and unswerving support to the Management Team in our efforts to serve our Shareholders and further the business interests of the Company.