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Tue 19 May 2009 08:41 PM

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Kurdistan could be 'transforming' for Dana Gas - analysts

Company could be a major player if Kurdish-European gas deal is realised.

Sharjah-based Dana Gas could transform itself from the Gulf region's largest private gas company into a mini-multinational energy player if its plan to pump gas from northern Iraq into European homes comes to pass.Dana, whose shares have risen 15 percent in two days, stands to sell more gas at a higher price with its scheme to kick-start the Nabucco pipeline, providing a big boost to earnings - but the project still faces some hurdles, analysts say.

"If this project was genuinely going to export gas, then we would expect the gas to be sold at higher prices in the European market relative to selling gas domestically in Iraq," said Scott Darling, an analyst at bank Nomura.

The deal makes Dana part of an international network with cross-shareholdings and access to the massive European market, marking a huge boost for Dana's business model.

Dana and Crescent are part of a group that plan to pump gas from Kurdistan via Turkey to Europe in the planned $10 billion Nabucco pipeline that will help lower Europe's reliance on Russian gas.

Partners in the plan, Austria's OMV and Hungary's MOL, will pay $350 million to Dana and its parent company Crescent Petroleum for a 10 percent stake in Pearl Petroleum, a gas project in Kurdistan, the semi-autonomous northern region of Iraq, that is owned 50-50 by Dana and Crescent.

MOL will give 3 percent of its shares each to Crescent and Dana. In return, MOL will also take 10 percent in Pearl.

"Apart from giving the company cash to manage its debt obligations, you have two partners that know the European gas market particularly well," Darling said.

In the wake of the deal and expected increase in gas output in Egypt, Nomura raised its price target for Abu Dhabi-listed Dana Gas to 1.3 dirhams from 0.8 dirham, while Al Mal Capital increased its target to 1.2 dirhams.

"The importance of the deal is that it gave a market value for the Kurdish operations," Bobby Sarkar, an analyst at Al Mal Capital said.

But the deal still faces hurdles.

The Iraqi government on Monday rejected the plan. The Iraqi oil ministry has in the past criticised oil and gas contracts that the Kurdistan government has signed with international oil companies, calling them illegal.

"What remains to be seen is how the Iraqi central government and the parties in the consortium within Dana Gas can remove some of the uncertain aspects of such a sizeable project," Laurent-Patrick Gally, an analyst at Shuaa Capital said. (Reuters)

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