Cambridge Forecast Group Blog

Please find below a link to our report on Dana Gas,entitled “Initiation of Coverage”

·The Middle-East and North Africa region continues to witness phenomenal growth in natural gas consumption with long run aggregate demand to grow at a CAGR of 4% between 2005-2030. Dana Gas PJSC, Middle East’s first and largest regional private-sector natural gas company is at the forefront of this trend with several large projects in the pipeline across upstream, midstream and downstream segments.

·The group currently operates through several subsidiaries and affiliates in the MENASA (Middle East, North Africa & South Asia) region across the natural gas value chain: from gas exploration and production, through gas processing and transmission, to the distribution, marketing and utilization of gas as feedstock and fuel to the petrochemical, industrial and power sectors.

· During FY2007, which was the maiden year of operating revenues for Dana, gross revenues touched AED1,036 million, with gas sales accounting for ~48% of total revenues and sale of liquids contributing the balance 52%. The Company produced 10.3MMBoe of oil & gas from six development leases with the share of natural gas being ~8.2MMBoe or 79%, followed by condensates 1.2 million barrels (12%), LPG 0.6MMBoe (6%) and oil 0.3 million barrels (3%).

·Dana Gas, operationally, is still in its early phases of development, with several large projects in the pipeline in 2008 and beyond. Most noteworthy ones include, Khor Mor Gas field project in Iraq, LPG plant in Egypt, UAE Gas Project and Sharjah Offshore Gas Development in the UAE, in addition to a massive USD170 million exploration drive in Egypt in FY2008. The company, however, is facing delays in sourcing Iranian gas under the UAE Gas Project, which according to the management is due to infrastructure delays on the Iranian-side. More recently, negotiations relating to UAE Gas Project have picked up pace, leading us to anticipate positive consensus by the end of FY2008 and gas supplies to begin by 1Q2009.

·Excluding any future contributions from the UAE Gas Project (conservative scenario), our DCF model yields a fair value of AED1.82 per share, representing 71% upside over the current market price of AED1.06 per share

·However, assuming the UAE Gas Project moves forward as anticipated and gas supplies begin from FY2009, our DCF model yields a fair value of AED3.18 per share, with 200% upside over current price and 75% upside over our conservative target price of AED1.82 per share. We therefore initiate coverage on the stock with a “STRONG BUY” recommendation.

With Compliments,