Abu Dhabi: Bank of America Merrill Lynch has given a buy rating to regional energy producer Dana Gas at Dh1.18 per share, according to a research report by the firm.

Shares of Dana Gas at 12:15pm yesterday were trading marginally higher at Dh0.85 on a slightly bearish Abu Dhabi Securities Exchange.

"We believe that the market has yet to fully appreciate Dana Gas' significant potential to unlock value from the company's farming out of its Egyptian assets; steady production growth and ability to monetise Kurdistan's giant Khor Mor and Chemchemal gas fields," the report said.

It said the regional push to develop gas projects to free up oil volumes for export also provides Dana Gas with material long-term growth prospects in midstream gas.

"The company's strengthened management has delivered a record 14 discoveries in Egypt over the past three years. We now believe that the exploration/appraisal plan can accelerate. The main exploration upside appears to be in Iraqi Kurdistan. We believe this should pave the way for full development of the Khor Mor field and appraisal of Chemchemal. The presence of MOL and OMV in the partnership raises our confidence in Dana Gas's ability to monetise the assets," said Bank of America Merrill Lynch.

The report noted that delays in the Northern Emirates gas project with the National Iranian Oil Company (NIOC) have dragged on for years. They have ranged from pricing negotiations to infrastructure issues on the Iranian side.

Crescent Petroleum in 2009 turned to the International Chamber of Commerce to arbitrate with NIOC.

"Although there has been some press speculation that the contract has been cancelled, we believe that a resolution will be reached as the UAE is in desperate need of gas while the Iranians cannot continue to flare the gas. In the near term, we expect management to focus on maintaining production while it looks to crystallise the value of the Egyptian assets," the report said.

It added: "A resolution between the Kurdistan Regional Government (KRG) and the Iraqi federal government regarding the pay structure of produced volumes — something that has been in discussion for months — should also allow the company to restart development on the two fields (Khor Mor and Chemchemal) in Kurdistan.

Dana Gas's net profit for the fiscal second quarter was Dh33 million on revenues of Dh428 million.

"Dana Gas is trying to continue in growth mode. We are trying to unlock value in our existing assets in Egypt, Kurdistan and the UAE," the company's Chief Financial Officer James Dewar previously told Gulf News in a telephone interview, shortly after the company announced its second quarter financial results.

Dana Gas said at the time the production increase was 29 per cent, revenue increase was 41 per cent and gross profit increase was 84 per cent compared with the same quarter last year.

"The company's production increased 7 per cent during the second quarter compared with output in the first quarter of 2010," Dewar added. Dana Gas currently has 10 producing fields in Egypt and one producing field in Kurdistan.

"We are working to develop the offshore Sharjah gas field which is expected to come onstream in the first half of 2012," said Dewar.

He said the proven and probable reserves of Dana Gas at the end of 2009 stood at 132 million barrels of oil equivalent.