Dana Gas and partners start arbitration case against MOL over Kurdistan settlement

DUBAI, Sept 20 (Reuters) - Dana Gas and its partner Crescent Petroleum have begun arbitration proceedings against Hungary's MOL Group over the settlement agreement reached by Dana and its consortium partners with Iraq's Kurdistan Regional Government (KRG), the UAE company said on Wednesday

Dana Gas and its partners in the Pearl Petroleum consortium settled a dispute last month at the London Court of International Arbitration over payments for gas liquids production.

The KRG agreed to pay $1 billion to the consortium and to reclassify some additional $1.24 billion from debt to outstanding costs that will be recovered by Pearl from future revenues.

Hungary's MOL, which owns a 10 percent stake in Pearl, "sought to link its endorsement of the settlement to a renegotiation of the terms by which it first secured its participation in Pearl back in May 2009," Dana said on Wednesday.

It said that the terms in question concern "the commitment to certain contingent payments," without giving further details.

MOL is unsatisfied with the way Dana Gas, Crescent Petroleum and the Pearl consortium handled the settlement and would have pursued a final litigation and enforcement outcome against KRG instead.

Dana and Crescent Petroleum have started proceedings at the same London arbritration court, the company said, adding that both companies have sold their combined 6 percent stake in MOL.

Dana and Crescent Petroleum own a combined 70 percent stake in the Pearl consortium, while Austria's OMV (IOB: 0MKH.IL - news) , Germany's RWE (IOB: 0FUZ.IL - news) , and MOL each own 10 percent.

The KRG settlement boosted Dana's cash balance and lifted the company's stock on the Abu Dhabi stock exchange by 14 percent.

The cash injection comes as holders of Dana Gas' outstanding $700 million sukuk are disputing in British and UAE courts Dana's claim that the sukuk are no longer sharia-compliant and therefore unlawful and unenforceable.

Last week a creditor committee of the bondholders submitted a sukuk restructuring proposal to the company, which included the request for a $300 million cash paydown which, the creditors said, reflected the company's share of the Kurdish settlement.

Dana refused the proposal and the case is now being disputed in a London High Court. (Reporting by Davide Barbuscia in Dubai and Dmitry Zhdannikov in London, editing by Louise Heavens)