Hall: LNG is Expensive, Focus on Indigenous Gas

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00:00So this has been a multi-year project completed now.

00:03How much more capacity can we expect from the project expansion?

00:06Well, good morning, Germanna.

00:08I'm Richard Hall, as you said, CEO of Darnagas.

00:11I've been here in the seat for about two years now,

00:13so I'm very pleased to be here to talk to you.

00:16In terms of capacity boost, as you said,

00:18it's 50% capacity boost in terms of gas alone.

00:22Yeah.

00:23What that also means is we're producing more condensate.

00:26That's about 7,000 barrels a day of condensate gross extra.

00:30460 tons a day of LPG extra,

00:33which is all helping the economy of Kurdistan and Iraq in general.

00:37Yeah, so you're also going to export to or sell within Iraq as well?

00:43At the moment, the gas sales are very much within the Kurdistan region.

00:48Condensate itself, we have an off-taker,

00:50and they sell where they want to sell to.

00:53But we have an off-take agreement,

00:54which allows us then to just sell directly.

00:58And they then take the product to wherever they want to go.

01:00Do you have any plans to export outside of Iraq?

01:04At the moment, no.

01:06But there is always that possibility.

01:08And we'd like to see that possibility come up in the future.

01:11We're always looking at diversification of customer base

01:13and, indeed, of assets, really.

01:16So that's a dollar gas strategy.

01:18The reason I bring that up is, obviously,

01:20there was tension between the federal Kurdistan versus the states,

01:26specifically around the oil pipeline.

01:29Did that have any knock-on effects in terms of your own plans

01:33and your visibility vis-à-vis what you'll be able to do eventually

01:36with your own gas exports?

01:37Yeah, it's a good question.

01:39There's always that tension there.

01:41For us, we're kind of isolated from that.

01:43We weren't really involved in the oil pipeline

01:46because we are a gas provider.

01:48Gas provider alone, we have our own pipeline system,

01:51which is all in the Kurdistan region.

01:54There is the possibility to export at some point,

01:56but that has to be done with the acceptance of all parties.

01:59Yeah.

01:59Do you feel like that situation on the oil pipeline is fully resolved now?

02:04I don't think we would say it was fully resolved.

02:07And, again, it's got limited impact on us.

02:09We're kind of isolated from that.

02:11We're isolated from oil price fluctuations to a large extent

02:14because we have a small gas price,

02:19oil price component within our gas price.

02:21But we're kind of isolated from it.

02:23Okay.

02:23So your operations primarily focus on Kurdistan for the time being.

02:27Are you looking at projects in, perhaps, in Iraq?

02:29I know there were some talks around projects in the southern part of Iraq.

02:33Where are they going?

02:34We're looking in the region in general.

02:36So our ambition as Darna Gas now,

02:38that we've proven ourselves to be a deliverer of complex projects.

02:43Yeah.

02:43Alongside our partner company, Crescent,

02:46we would like to use that capability and leverage on that

02:49to get more opportunities within the region, within the MENA region.

02:52So we're looking in general, not just southern Iraq.

02:54Yeah.

02:55How do you see the demand picture evolving in the region for gas?

03:00Demand for gas is huge.

03:01Why?

03:01Huge, huge, huge.

03:02It's a displacement fuel.

03:04It's a transition fuel, essentially.

03:06So us alone, over the course of our long time in Kurdistan,

03:12we've displaced effectively,

03:14or we've avoided the Kurds using 60 million,

03:17or producing 60 million tons of CO2 alone

03:21by just using gas instead of diesel or heavy fuel oil.

03:25It's the same throughout the region.

03:27And gas is obviously a chief component of power, power generation.

03:34It's a gas as a feedstock for industry,

03:37and it's also an export for many, many countries.

03:40So there's a big gas to that.

03:41Some analysts, a lot smarter than myself, experts in the industry,

03:44have been warning about a potential glut of LNG supplies coming to the market over the next six months or the next 12 months, possibly.

03:53How do you see the possibility of that happening?

03:56For us, it's not really relevant because LNG is expensive.

04:01You know, you're talking like $13 per M equivalent.

04:06Indigenous gas, you can produce for $2 to $3.

04:09So everyone should be producing their indigenous gas as much as they can.

04:12So that isn't likely to impact your future investment plans or your future profits?

04:17Not at all.

04:17So in Egypt, for instance, our gas production there helps the economy

04:24because we're producing internally as opposed to them importing LNG.

04:28And even if there was a glut and the price went down, it's not going to get anywhere near that price.

04:32Okay.

04:33Finally, I had a look at your stock price.

04:34There's been a bit of a run-up in the stock price recently.

04:37What do you point that down to?

04:38I think people are seeing our general capability.

04:42But also, we've got a sustainable dividend policy now, which we brought in this year.

04:46We paid out $105 million in dividend.

04:48Our cash flow projections for next year are very, very strong based on what we're going to do in Kurdistan.

04:54Our ambitions are very clear.

04:56We've got other things in the pipeline.

04:58We're talking about – well, we're not talking.

05:00We're actually bringing a unit into Abu Dhabi soon, which will make graphene from gas.

05:04So, you know, we're very innovative.

05:06We're very active.

05:08We've got two rigs running in Egypt.

05:09We're doing all this work in Kurdistan.

05:12We've got ambitions elsewhere within the region.

05:14So, I think people are seeing there's a good stock story here.

05:18Sustainable dividend, big cash flow.

05:19Okay.

05:19Could we expect any news anytime soon, new news?

05:22I hope so, yes.

05:24All right.

05:24I'll be back on your show, hopefully, if there is.

05:26We'll be back on your show.

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