Dubai: Shares in Dana Gas rallied yesterday after the company posted higher fourth-quarter and yearly profits, largely due to an increase in production and escalating oil prices.

The yield on Dana's $1 billion (Dh3.67 billion) sukuk, which is due to mature in October, also rose to the highest level in two weeks on news that the energy firm had posted a full-year net profit of Dh506 million, up from Dh158 million in 2010.

Dana Gas, which is listed on the Abu Dhabi Securities Exchange (ADX), has seen its stock price drop 41 per cent in the past year amid concerns over the company's ability to meet its debt obligations.

Gross revenue increased 42 per cent to Dh2.53 billion, while net cash generated from operations was Dh357 million. Dana said it collected Dh649 million from its share of receivables in Egypt and Iraqi Kurdistan.

Under pressure

Average production grew 19 per cent last year to 66,200 barrels of oil equivalent a day, according to a statement posted on the ADX. Fourth-quarter net profit was Dh147 million against Dh59 million in the year-ago period, according to Reuters calculations.

"Dana's share price has been under pressure as the management has yet to announce a strategy to address a challenging liquidity position ahead of the October 2012 sukuk maturity," said John Tottie, an oil and gas analyst at HSBC.

However, Tottie said a default is unlikely as sukuk holders are more likely to agree to a restructuring that would enable Dana to monetise its assets rather than see a complex liquidation.

"Dana also has other options, including selling its shares in [Hungarian oil and gas group] MOL or a stake in its operations. It may also benefit from support from Crescent Petroleum, a founding shareholder with a 20 per cent equity stake. We expect guidance on debt management in the first quarter," he added.

Dana's share price gained 2.7 per cent to Dh0.38 at the close, while the rate on Dana's 7.5 per cent sukuk climbed 79 basis points, or 0.79 of a percentage point, to 64.69 per cent at 2.17pm in Dubai, the highest since January 16, according to data compiled by Bloomberg.

Growth

"For Dana Gas, 2011 was a year of successful operational growth against a backdrop of unprecedented regional political turmoil. The consequences of the so-called Arab Spring are presenting the oil and gas industry with considerable challenges in the short term, and Dana Gas is not immune to these," said Hamid Jaafar, Dana Gas chairman.

"However, we enjoy amicable and cooperative relationships with our host governments in the UAE, Egypt and the Kurdistan region of Iraq," he added.

The profits come amid a backdrop of rising oil prices after the European Union imposed its widely-expected embargo on crude exports from Iran, which in turn has reiterated its threat to close the Strait of Hormuz. Brent crude, the benchmark for more than half the world's oil, gained 25 per cent to an average of $109.02 a barrel last quarter from a year earlier.

"The rise in net profits is due to higher production, higher realised oil prices and cost control measures," said Omar Faruqui, a financial analyst at Global Investment House.