from the region, by the region, for the region - dana gas annual report 2010.pdf · power stations...

Annual Report and Accounts 2010

From the Region, by the Region, for the Region

Our Values• Wesetandapplythehigheststandardsof

conductandaccountability

• Werespectandvalueeveryoneandembraceallkindsofdiversity

• Westrivetodeviseandimplementinnovativewaystoimproveourbusinessandfulfillourcommitments

• Weaimtoprovideasafe,healthyandenvironmentallyfriendlyworkplaceforouremployeesandbusinesspartnersandtominimisetheadverseeffectsofouroperationsoncommunitiesandtheenvironment

Our VisionTobetheleadingprivatesectornaturalgascompanyintheMiddleEast,NorthAfricaandSouthAsia(MENASA)regiongeneratingvalueforourstakeholders

Our Strategy• FocusonsustainablegrowthintheMENASAregion

acrossthenaturalgasvaluechain

• Leveragestrategicrelationshipstomaintaincompetitiveadvantage

• Continuouslyenhanceourtechnicalandcommercialskillstodevelopandoperateassetssafelyandefficiently

ElWastaniPlant,Egypt

Contents

Group Operational Footprint ................................................................................... .8

Group 2010 Highlights ............................................................................................. .10

Group Structure ....................................................................................................... .12

Chairman’s Statement. ...........................................................................................13

Chief Executive’s Operational and Financial Review ........................................ .17

Health, Safety, Security and Environment ............................................................ .27

Risk Management ....................................................................................................31

Corporate Governance ......................................................................................... .35

Our People ............................................................................................................... .49

Corporate Social Responsibility ............................................................................. .53

Auditors’ Report and Financial Statements ......................................................... .57

Glossary

AED UnitedArabEmiratesDirhambpd barrelsperdayboepd barrelsofoilequivalentperdaykboepd thousandbarrelsofoilequivalentperdayMMscfpd Millionsofstandardcubicfeetperday

Bcf BillionsofstandardcubicfeetMMboe MillionsofbarrelsofoilequivalentMMb MillionsofbarrelsTcf Trillionsofcubicfeet

Gasisconvertedtobarrelsofoilequivalentusingaconversionfactorof6000standardcubicfeetperbarrel.

8 DanaGasPJSCAnnualReportandAccounts2010 DanaGasPJSCAnnualReportandAccounts20109

Kurdistan Region IntheKurdistanRegionofIraq,DanaGasholdsa40%interestinPearlPetroleumCompanyLtd.(PPCL)jointlywithCrescentPetroleum(40%),OMV(10%)andMOL(10%).PPCLoperatestheKhorMorFieldwhichduring2010producedgasatagrossrateof150MMscfpdandcondensateatagrossrateof7400bpd,thegasbeingsuppliedtotwopowerstationsintheregion.Constructionofa300MMscfpdgasprocessingplanthasbeencompleted,withLPGproductioncommencinginJanuary2011.

AppraisalworkonKhorMorandChemchemalFieldsisrequiredtodelineatethefieldsandprogressfulldevelopmentplans.

LongertermplansaretoincreaseproductioncapacitytomeetlocalgasrequirementsandforexportregionallyandtoEurope.

Iraq


GroupOperationalFootprintGroup OperationalFootprint


Dana Gas Egypt DanaGasEgyptholdsthreeExplorationConcessionsinEgypt.Itisthe100%operatoroftwoExplorationConcessionsandproducesfromelevenfieldsintheNileDeltaandisa50%jointoperatorofoneExplorationConcessionandproducesfromonefieldinUpperEgypt.During2010,theCompanyproduced77Bcfofgasand2.6MMbofliquids,anaveragerateof42.3kboepd.Thefocusfor2011willbetodevelopanewgasprocessingplanttotheEastoftheNilewhich,inmid-2012,willincreasetotalgasprocessingcapacityintheNileDeltato400MMscfpd.

Gas Liquids Extraction PlantOntheGulfofSuez,DanaGasholdsa26.4%interestinthedevelopmentofaLPGrecoveryplantwhichisduetocomeonstreaminmid-2011.

Egypt

Gas Project TheUAEGasProjecttoprocessandtransport600MMscfpdofimportedgasfromIranawaitscommencementofgasdeliveries.DanaGasownsa35%interestinCrescentNaturalGasCorporationLimited(CNGCL),themarketingorganisation,andowns100%ofUGTCandSajgaswhichrespectivelytransportandprocessthegas.

UGTCowns50%ofajointventurewithEmaratwhichhasdevelopeda48-inchdiametergaspipelineintheUAE,withacapacityof1000MMscfpdtotransportgasinSharjah.

Sharjah Offshore ConcessionIntheUAE,DanaGasisthe100%operatoroftheSharjahOffshoreConcession.During2011,thedevelopmentoftheZoraField,whichstraddlesSharjahandAjmanwaters,willcommencewithproductionscheduledtocommenceinmid/late2012atarateof50to60MMscfpd.

UAE

Offices

10 DanaGasPJSCAnnualReportandAccounts2010 DanaGasPJSCAnnualReportandAccounts20101110 DanaGasPJSCAnnualReportandAccounts2010 DanaGasPJSCAnnualReportandAccounts201011

Group 2010 Highlights

Operational Financial

Production Growth (kboepd)

Production Replacement Ratio

FivenewfieldswerebroughtonstreaminEgypt’sNileDeltacontributingtothe20%increaseinproductioninEgyptanda90%increaseinprovedreservesand15%inprovedplusprobablereserves

6.8millionmanhoursworkedwithzerofatalities.Thereisafocusonhealth,safety,securityandtheenvironmentacrossthegroup

DanaGasgeneratedfourquartersofconsistentprofitsin2010,withminimalexplorationwritedownsandassetvaluereduction,reflectingthestrongbalancesheet

Threeyearsofcontinuedexplorationsuccesswithsixteendiscoveries,andriskedresourcesintheEgyptNileDeltaof1.8trillioncubicfeetofgas

CapitalexpenditureAED740millon,downfromAED924millionin2009asfacilitiesintheKurdistanRegionofIraqwerebroughtintoproduction


Group2010Highlights

EBITDAX trend rising strongly, 2009 being above trend as a result of assets sales

Proved Plus Probable Reserves (MMboe)

Egypt Cash generated from operating activities

Safety ConsistencyExploration Capex

28.9 28.9 34.7

42.3

7.5

13.2

10

20

30

40

50

60

2007 2008 2009 2010

Iraq Egypt

2.0

360% 400%

229%

0%

200%

400%

2007 2008 2009 2010

46 56 47 89 67 94

132 152 86

158

228 253

0

100

200

300

2007 2008 2009 2010

1P

2P

3P

1,036 1,139 1,279

1,785

500

0

1000

1500

2000

2007 2008 2009 2010

478 575

1,440 1,034

0

500

1000

1500

2000

2007 2008 2009 2010

111 120 88

158

0

50

100

150

200

2007 2008 2009 2010

28.9 28.9 34.7

42.3

7.5

13.2

10

20

30

40

50

60

2007 2008 2009 2010

Iraq Egypt

2.0

360% 400%

229%

0%

200%

400%

2007 2008 2009 2010

46 56 47 89 67 94

132 152 86

158

228 253

0

100

200

300

2007 2008 2009 2010

1P

2P

3P

1,036 1,139 1,279

1,785

500

0

1000

1500

2000

2007 2008 2009 2010

478 575

1,440 1,034

0

500

1000

1500

2000

2007 2008 2009 2010

111 120 88

158

0

50

100

150

200

2007 2008 2009 2010

28.9 28.9 34.7

42.3

7.5

13.2

10

20

30

40

50

60

2007 2008 2009 2010

Iraq Egypt

2.0

360% 400%

229%

0%

200%

400%

2007 2008 2009 2010

46 56 47 89 67 94

132 152 86

158

228 253

0

100

200

300

2007 2008 2009 2010

1P

2P

3P

1,036 1,139 1,279

1,785

500

0

1000

1500

2000

2007 2008 2009 2010

478 575

1,440 1,034

0

500

1000

1500

2000

2007 2008 2009 2010

111 120 88

158

0

50

100

150

200

2007 2008 2009 2010

28.9 28.9 34.7

42.3

7.5

13.2

10

20

30

40

50

60

2007 2008 2009 2010

Iraq Egypt

2.0

360% 400%

229%

0%

200%

400%

2007 2008 2009 2010

46 56 47 89 67 94

132 152 86

158

228 253

0

100

200

300

2007 2008 2009 2010

1P

2P

3P

1,036 1,139 1,279

1,785

500

0

1000

1500

2000

2007 2008 2009 2010

478 575

1,440 1,034

0

500

1000

1500

2000

2007 2008 2009 2010

111 120 88

158

0

50

100

150

200

2007 2008 2009 2010

28.9 28.9 34.7

42.3

7.5

13.2

10

20

30

40

50

60

2007 2008 2009 2010

Iraq Egypt

2.0

360% 400%

229%

0%

200%

400%

2007 2008 2009 2010

46 56 47 89 67 94

132 152 86

158

228 253

0

100

200

300

2007 2008 2009 2010

1P

2P

3P

1,036 1,139 1,279

1,785

500

0

1000

1500

2000

2007 2008 2009 2010

478 575

1,440 1,034

0

500

1000

1500

2000

2007 2008 2009 2010

111 120 88

158

0

50

100

150

200

2007 2008 2009 2010

28.9 28.9 34.7

42.3

7.5

13.2

10

20

30

40

50

60

2007 2008 2009 2010

Iraq Egypt

2.0

360% 400%

229%

0%

200%

400%

2007 2008 2009 2010

46 56 47 89 67 94

132 152 86

158

228 253

0

100

200

300

2007 2008 2009 2010

1P

2P

3P

1,036 1,139 1,279

1,785

500

0

1000

1500

2000

2007 2008 2009 2010

478 575

1,440 1,034

0

500

1000

1500

2000

2007 2008 2009 2010

111 120 88

158

0

50

100

150

200

2007 2008 2009 2010

+25%

Revenue (inAEDMillion)

EBITDAX (inAEDMillion)

Profit after Tax (inAEDMillion)

(2P Reserves Basis)

12 DanaGasPJSCAnnualReportandAccounts2010

Chairman’s Statement

Dana GasPJSC

Dana GasEgypt

100%

SajGas

100%

UGTC

100%

CNGCL

35%

PearlPetroleum

40%

Danagaz

66%

GasCities

50%

EBGDCo

40%

Group Structure

Diagram shows a simplified Group Structure


Chairman’sStatement

IampleasedtoreportthatDanaGasachievedcommendableperformanceduring2010,despitechallengingglobaleconomicconditions.TheCompanyreporteda40%increaseinsalesrevenuetoAED1.79billion,a79%increaseingrossprofittoAED781million,andan80%increaseinearningstoAED158million.

Suchstronggrowthreflectstheeconomicfundamentalsdrivingregionalgasdemand,particularlyprogressivesubstitutionawayfromliquidpetroleumproducts,aswellasincreasingdemandforindustryandelectricitygeneration.Morerecentlyandunexpectedly,theunfortunaterecentnucleardisasterinJapanhashighlightedtheimportanceandvalueofgasnotonlyas“thefuelofthe21stCentury”,butasasafeandreliableone,andenvironmentallythecleanestofthefossilfuels.Bearinginmindalltheabovefactors,Iamconfidentthatthelongtermsupply-demandfundamentalswillremainpositiveforoursectorinaworldofrobustenergypricesandgrowingdemandforbothoilandparticularlygas,bothregionallyandinternationally.

TheserealitiesunderpintheoriginalvisionofourfounderstocreateaMENASARegiongas

andrationalisingtheCompany’scostbase.ThemanagementteamisalsoputtinginplaceafinancialstrategytoprotectandenhancetheinterestsofourshareholdersbyensuringthatthetruevalueofDanaGasisreflectedintheCompany’sshareprice.

Veryimportantly,wewouldpointoutthatDanaGashasacomprehensiveriskmanagementframework.YourBoardofDirectorsmaintainsregularoversightofitsfunctionsandworkingthroughtheManagementensuresthatappropriatemitigationstrategiesareinplacetoamelioratetheevolvingriskstoprotecttheinterestsofallourstakeholders.

OperationsIampleasedtoreportthatouroperationsinEgypthaveremainedlargelyunaffectedbytherecenteventsinthecountry,aidedbythefactthatthemajorityofourworkforcecompriseslocalstaffandourexcellentrelationswiththelocalcommunitieswhereweoperate.Ofcourseweremainvigilant,andthesituationremainsunderclosereview.Overthelastyear,ourEgyptoperationhasdeliveredstellarresults;wehaveincreasedourprovedreservesby90%to89MMboe

championinDanaGas,andweremaintruetothatvision.TheCompanycontinuestodevelopandmaintainstrongrelationshipswithourstakeholdersincludinggovernments,partners,andlocalcommunities,aswetakeprideinourregionalidentity,strongpartnershipsandentrepreneurialsolutions-basedapproach.

Weliveinrapidlychangingtimes.Theunprecedentedchangestothepoliticallandscapeemerginginlate2010areripplingthroughtheMENAregioncausingprivate-sectorandpublic-sectororganisationstofaceoperationalandlogisticalchallengeswhilstthefallinsharepricesacrossregionalboursesreflectthebusinessuncertaintiesthatinvestorsandstakeholdersareexperiencingintheseuncertaintimes.

Inthiseconomicandpoliticalclimate,wearecloselyassessingthemarketfundamentals,ourcorporatestrategyandtheanticipatedprofitabilityofourassets.TheManagementofDanaGasiscontinuallyassessingandevolvingstrategiestoenhanceshareholdervaluethroughpursuitofnewopportunitiesforrevenuegenerationwhilefurtherdevelopingourexistingassets

TheserealitiesunderpintheoriginalvisionofourfounderstocreateaMENASARegiongaschampioninDanaGas“


Chairman’sStatement

andprovedplusprobablereserveshaveincreasedby15%to152MMboe.ProductioninEgyptisalsoup20%,andweplantoincreasethisfurther,bymorethan20%during2011,followedbyasimilarincreasein2012whenourthirdgasprocessingplantcomesonstream.

IntheKurdistanRegionofIraqwecontinuetodeliversignificantamountsofgastotworegionalpowerstations,andwiththerecentcompletionofourLPGprocessingplants,wearenowinfulloperationextractingvaluablecondensateandLPGfromtheproducedgas.WecontinuetopressforpaymentforthecondensatethathasbeendeliveredtotheKurdistanRegionalGovernment(KRG),andareactivelyengagedwiththeKRGtoexpeditetheseoverduepaymentswithurgency.

TheUAEGasProjecttoprocessandtransportIraniangascontinuestoawaitthecommencementofgasdeliveriesbytheNationalIranianOilCompany(NIOC)toourassociateCrescentPetroleum.Duringtheyear,DanaGascompletedthecommissioningofitsSajaaGasprocessingfacilitiesafterreceivingcommissioninggas

Hamid JafarChairmanoftheBoard

I am pleased to report that Dana Gas achieved commendable performance during 2010, despite challenging global economic conditions


inJulyfromNIOC.However,sincethattime,therehavebeenleaksdiscoveredinthesuppliers’gastransmissionpipelineandthesetechnicalmattersarecurrentlybeingaddressedbyNIOC.Meanwhile,inordertoprotectitscontractualrights,ourassociateCrescentPetroleumhasinitiatedinternationalarbitrationtoseekalegalrulingonthebinding25yeargassupplycontractwithNIOCandexpectsanenforceabledecisionbytheInternationalTribunalinlessthanayear.

ManagementIwouldfirstliketothankourHonoraryChairman,HisHighnessSheikhAhmedbinSultanAl-Qasimi,forhisencouragementandwiseguidanceduringthepastyear.OurBoardofDirectorshasworkedtirelesslyin2010onyourbehalfandwealllookforwardtocontinuingourtaskinto2011andbeyond.IwouldliketoexpressmygratitudetoallofmycolleaguesontheBoardfortheiruntiringeffortsinguidingmanagementthroughanothersuccessfulyear.Moreover,IwishtorecordmyappreciationfortheexcellentstrategicadviceandglobalinsightprovidedbyouresteemedInternationalAdvisoryBoard.

Ourcapablemanagementteam,ledbyCEOMr.AhmedAlArbeed,andsupportedbyExecutiveDirectorMr.RashedAl-Jarwan,continuestodeliverfullvalueforourassets.OnbehalfoftheBoardofDirectors,IwishtoregisterourthankstotheManagementandallouremployeesfortheirdedicationandhardworkoverthepastyear,whichwaspivotalinachievingtheresultsrealised.

LastbutnotleasttoourShareholders,IwouldliketoexpressmyownaswellastheBoard’sappreciationforthefaithandtrustwhichyouhaveplacedinus.WeremaincommittedtothecontinuingsuccessofDanaGasandarefocusedondeliveringanotherprofitableyearmarkedbyanincreaseinrevenue,productionandreserveswhilstmaintainingourcommitmenttosafetyandtheenvironment,andtoresponsiblyservingtheneedsofthepeopleofthisRegiontowhichwebelong.

Chief Executive’s Review

AlBarakaField,Komombo,Egypt


Chief Executive’sReview

DanaGas’operationalprogressduring2010hascontinueditsenviableoperationaltrackrecord,whichbothreflectsthehighqualityofourhydrocarbonassetsandisalsoatestamenttotheskillsandcommitmentofourprofessionalstaffwhocontinuetodeliverhighperformanceandsolidresultsacrossourbusinessunits.

During2010weincreasedproductionacrosstheGroupby31%to55,500boepdandincreasedourprofitsby80%toAED158million.

InEgypt,wehaveincreasedourprovedreservesby90%to89MMboeandprovedplusprobablereservesby15%to152MMboe.ProductioninEgyptwasraisedby20%to42,300boepd,inlinewithourtargetprojections.Wenowplantoincreaseproductionbymorethan20%during2011,followedbyasimilarincreasein2012whenourthirdgasprocessingplantcomesonstream.

IntheKurdistanRegionofIraqwehaveachievedanimpressive76%increaseinproduction,drivenbyconsistentproductionofgasthroughouttheyear,withcontinuousdeliveriestotwopowerstations.WiththerecentcompletionofourLPG

sheetandtherobustnessofourearnings.During2010,revenuesfromthesaleofhydrocarbonsincreasedtoAED1.79billion,withgrossprofitreachingAED781million,representingyear-on-yearincreasesof40%and79%,respectively.TheseresultsreflecttheCompany’scontinuinggrowthinEgyptandtheKurdistanRegionofIraq.

Business Development and OutlookWhileourportfolioisrobusttosupportourfuturegrowthambitions,wecontinuetoexplorepromisinghydrocarbonopportunitiesandnewcountryentriestoexpandanddiversifyourportfoliowithintheMENASARegion.

During2010,wereviewedanumberofbusinessopportunitiesacrosstheRegion.Whileourprimefocusremainsongrowingourcashflowsandmaximisingshareholdervalue,weplantosteadilybuildourassetbase,albeitprudentlymanagingourpreciousfinancialresourcesinlightofregionalandglobalconditions.

Management and StaffIwouldliketothankallourstaff,ateamofenergetic,committedandcreativeprofessionals,whohaveworkedtirelesslytodeliverthese

Dana Gas’ operational progress during 2010 has continued its enviable operational track record, which both reflects the high quality of our hydrocarbon assets and is also a testament to the skills and commitment of our professional staff who continue to deliver high performance and solid results across our business units.

processingplants,wearenowinfulloperationalmodeextractingvaluablecondensateandLPGfromtheproducedgas,andourneartermfocusinIraqisonachievinghighutilisationatthegasprocessingplants.WecontinuetopressforpaymentforthecondensatethathasbeendeliveredtotheKurdistanRegionalGovernment(KRG),andareactivelyengagedwiththeKRGtoexpeditetheseoverduepaymentswithurgency.

InSharjah,wearemovingaheadwiththedevelopmentoftheZoraField.Aconsolidatedengineeringcontract,coveringconcept,basicanddetailengineeringfortheoffshoreplatform,pipelinetoshoreandtheonshoregasprocessingfacilitieswasawarded.

DanaGascontinuedtodeliverstrongoperationalandfinancialperformanceduring2010,inspiteofchallengeswhichhavecausedsomedelaystoourgasprojectinIraqandalsotheUAEGasProjecttoimportgasfromNationalIranianOilCompany(NIOC).Inthisrespect,Iamparticularlypleasedthatwedeliveredfourquartersofconsistentprofitswithnomaterialexceptionalitemswhichreflectsthestrengthofourbalance

DanaGascontinuedtodeliverstrongoperationalandfinancialperformanceduring2010.Inthisrespect,Iamparticularlypleasedthatwedeliveredfourquartersofconsistentprofitswithnomaterialexceptionalitemswhichreflectsthestrengthofourbalancesheetandtherobustnessofourearnings

“Annual Report and Accounts 2010

ChiefExecutive’sReview

results.AsDanaGas’mostvaluableasset,wewillcontinuetobuildourteamandretainhighcalibreindividualstodeliveronourgoalsandaspirations.

OperationalReview

Egypt

OurteaminEgypthasdeliveredyetanotheryearofoutstandingperformance.Productionduringtheyearincreasedby20%forthesecondyearinarow,averaging42,300boepd,andwithfivenewfieldsbeingbroughtonstream.Theelevenexplorationwellsthatwedrilledduring2010yielded7newdiscoveries,continuingthesuccessfultrendof2009,atributetoourteam’sdeepknowledgeofourassetbaseandtheexpertiseofourexplorationstaff.Asaresult,ourproved“workinginterest”reserves(1P)increasedby90%from46MMboeattheendof2009to89MMboeattheendof2010,andourprovedplusprobable(2P)reservesincreasedby15%from132MMboeto152MMboe,notwithstandingproductionof15.4MMboeduringtheyear.Thisrepresentsa229%ProductionReplacementRatioforour2Preserves–anextremelyimpressiveresultbyindustrystandards.

Ahmed Al ArbeedChiefExecutiveOfficer

20 DanaGasPJSCAnnualReportandAccounts2010 DanaGasPJSCAnnualReportandAccounts20102120 DanaGasPJSCAnnualReportandAccounts2010 DanaGasPJSCAnnualReportandAccounts201021

Production and Development – Nile DeltaDuring2010DanaGasproduced77Bcfofgasplus2.5MMbofpetroleumliquids,atotalof15.3MMboe,fromelevenfieldsinourNileDeltaConcessions.The20%increaseinproductionwasachievedasaresultoffivediscoveries-Sama,Orchid,Sharabas,FaraskurandSouthFaraskur-beingbroughtonstreamduringtheyear.

OurgasprocessingplantatElWastaniintheNileDeltaoperatedthroughouttheyearhandlingproductionfromtheElWastani/ElWastaniEast,Luzi,Dabayaa,ElBasant,Azhar,Orchid,Sharabas,FaraskurandSouthFaraskurfields.ThelatterthreefieldsarealllocatedtotheeastoftheNileandinordertobringthemonstreamaprocessfacilitywasbuilt,withgasandseparatedcondensatebeingpipedundertheNileRiver.BytheendoftheyeartheElWastaniplantwashandling200MMscfpdofrawgaswhilstmaintainingitsexcellentrecordofreliabilityandavailability.OursecondgasprocessingplantatSouthElManzala,whichcantreatdrygasuptoacapacityof60MMscfpd,handledproductionfromtheSondosandSamafields.

Duringtheyear,fivesuccessfulappraisalanddevelopmentwellsweredrilledontheNileDeltafieldsalongsideacontinualprogramofworkingoverproductionwellstoincreaseormaintainproductionrates.In2011wewillincreasethetotalthroughputofourElWastaniplantto240MMscfpd,withenhancementofLPGrecoverytofollowin2012.Weshallworkontyingbackourrecentdiscoveriestothisplant,whiledevelopmentdrillingwillcontinuetooptimiseproductionacrossthedevelopedfields.Inadditiontothisandasadirectresultofourcontinuedexplorationsuccessinthisarea,wewillscaleupproductioncapacitytotheeastoftheNileoverandaboveourplansmadeinearly2010.Anewplant,capableofhandling120MMscfpdofgaswithfullcondensateandLPGrecovery,willbebuiltintheeasternmostportionofouracreagetohandleproductionfromtheSalmaDelta,SalmaDeltaNorth,TulipandSouthAbuElNagafields.Thisnewplantwillcomeonstreamin2012,andcombinedwiththeElWastaniandSouthElManzalaplants,willtakeourtotalgashandlingcapacitytoover400MMscfpd.

Production and Development – Upper EgyptDuring2010,alongwithour50%partnerSeaDragonEnergyLtd,weachievedanaveragegrossproductionrateof628bopdfromtheAlBarakafieldintheKomomboConcession.InMay2010,adevelopmentdrillingcampaigncommencedwith8developmentwellsbeingdrilledand6placedonproduction.Inlate2010,twowellswerehydraulicallyfracturedtoincreasetheirproductivityandinJanuary2011theseweretogetherproducingatcirca300bopd.Thedevelopmentprogramfor2011isaimedatincreasingrecoveryofoilfromthefivediscoveredreservoirsthroughthedrillingoffivedevelopmentwells.During2010,477kmof2Dseismicdatawasacquiredresultinginthegenerationofanewprospectinventory.AcommitmentexplorationwellwasdrilledattheMemphisprospectandwassubsequentlyabandonedasitdidnotencountercommercialhydrocarbonsbutwasnonethelessveryusefulasitgaveimportantinformationonthepetroleumsystemofthearea.

Gas Liquids Extraction Plant, Gulf of SuezInEgypt,wearecontinuingtobuildanLPGextractionplantatRasShukheirontheGulfofSuezthroughDanagaz’shareholdinginEgyptianBahrainGasDevelopmentCompany(“EBGDCo”).Thisplantisexpectedtocomeonstreaminmid2011,afteragrossprojectinvestmentofapproximatelyAED350million,andwillextract130,000tonnesperannumofLPGfromagasstreamof150MMscfpd.DanaGashasanet26.4%stakeinthisjointventure.

Kurdistan Region of IraqIntheKurdistanRegionofIraq,DanaGas’interestsareheldviaa40%shareholdinginPearlPetroleumCompanyLtd(“PPCL”),ourpartnersbeingCrescentPetroleum40%,OMVofAustria10%andMOLofHungary10%.Togetherwithourpartners,weproducegasfromtheKhorMorFieldanddeliverittopowerstationsatErbilandChemchemal,andaswenearcompletionofourgasprocessingplantthisprojectisevolvingfromaconstruction/commissioningphasetoafullyoperationalphase.

During2010gasandcondensatewasproducedthroughouttheyear,withrawgasproduction,nettoDanaGas’40%interest,amountingto22Bcfplus1.1MMbblsofcondensate,givingatotalnetproductionto


ChiefExecutivesReview

ExplorationDuringtheyearourexplorationprogrammefocusedonthetwoNileDeltaConcessions,WestManzalaandWestQantara.Asaresultofoursuccessfulexplorationtrackrecord,wehavebeenawardedanotherfourDevelopmentLeases-twoofwhicharecontiguousandsizeable-bringingthetotalareacoveredbyDevelopmentLeasestoover25%oftheoriginalConcessionsacreage.ThisisparticularlyvaluableastheexplorationrightsofaDevelopmentLeaseareretainedforthewholeofitsterm(20years,withapossible5yearextension).

During2010weenteredintothelastextensiontoourexplorationrightsintheConcessionsandrelinquished25%oftheacreageasrequiredunderourProductionSharingAgreementwiththeEgyptianauthorities.Thisextensionisfortwoyearsandduringthisperiodourexplorationprogramwillfocusondrillingprospectswithintheseareas.AfterfinalrelinquishmentoftheexplorationacreageinJune2012,ourexplorationeffortswillrefocusonthesubstantialremainingprospectportfolionowcontainedintheDevelopmentLeases.

During2010,ourexplorationsuccesswasmainlyintheshallowKafrElSheikhreservoirandtheMessinianAbuMadiandQawasimformations.OfparticularinterestwastheSouthAbuElNagadiscoverywhosehighliquidyieldresultedinhigherrevenuesbasedoninternationalmarketpricesfornaturalgasliquids.Thisdiscovery,combinedwiththeencouragingSalmaDeltaNorthdiscovery,reinforcesourbeliefintheattractivenessofthisacreage,sincewithitsgaswatercontactbeing40metresdeeperthantheadjoiningSalmaDeltafield,itindicatesanewpoolofhydrocarbons.

OurNileDeltaConcessions’explorationportfoliohasbeenreviewedbyGaffneyCline&Associates,independentengineeringconsultants,whohavereportedamostlikelyriskedresourceof1.8trillioncubicfeetofgas.Ourexplorationprogrammein2011willcontinuetotargetmultiplehorizonsacrossouracreageandwillincludewellstotestlargerprospectsinthedeeperSidiSalimformation.

SajGasPlant,UAE


UAE – Sharjah Offshore (Zora Field)InourSharjahWesternOffshoreConcession,wearecompletingtherequisitecontractualarrangementsincludinggassales.Whilsttheprojecthastakenlongerthanexpectedtocompletethenecessarycontractualarrangements,wearenowclosetoprojectconstructionkick-offwithaviewtocommenceproductioninthesecondhalfof2012atananticipatedproductionrateof60MMscfpd.ThefielddevelopmentplanrequiresthedrillingoftwowellsandanoffshorewellheadfacilityconnectedtoagaspipelinetotransportthegasonshoreforprocessingandmarketingwithintheUAE.ThetotaldevelopmentcostofthisfieldisestimatedtobeAED450-550million.

ReservesGaffneyCline&AssociateshavecarriedoutanindependentevaluationofDanaGasEgypt’shydrocarbonreserveswhichhasresultedina15%riseinprovedplusprobablereservesto152MMboe.The2010yearend“workinginterest”reservesfortheCompanyinMMboewereasfollows.

Proved Proved+Probable

Proved+Probable+Possible

ElManzala 17.8 24.4 33.9WestElManzala

47.6 85.8 151.2

WestElQantara

22.9 38.9 62.7

Komombo 0.5 2.6 5.0TOTAL 88.7 151.8 252.9

DanaGasof13,200boepd.Thiswasanincreaseof76%ontheproductionachievedduring2009whenallproductionwasthroughourEarlyProductionFacility(“EPF”).In2010wecommencedproductionthroughthefirstLPGtrainofourgasprocessingplantatKhorMor,andproductionwasprogressivelyincreasedtomeetdemandfromthepowerstations.BoththeEPFandLPGTrain-1ofthegasprocessingplantwerecompletedattheendoftheyear,andwecommencedLPGproductionandliftinginJanuary2011.

Markinganimportantmilestoneinthisproject,wehavenowachievedfullplantcapacityandaredelivering250MMscfpd.ThecommencementofLPGsaleswillsignificantlyboostourrevenues.

TheaboverepresentssuccessfuldeliveryofPhase1ofthisprojectand,whilstourcurrentfocuswillremainoncontinuingproduction,ourlongtermobjectiveremainstofullyexploittheenormouspotentialoftheKhorMorandChemchemalfieldstosupplygastobothdomesticandexportmarkets.OurexperienceofproductionfromtheKhorMorfieldandthewelltestdatathatwehaveobtaineddemonstratesthatthisisahighlyprolific,worldclassgascondensatefield.Withtherecentmajorgasdiscoveriesintheregion,weareconfidentthattheKurdistanRegionofIraqwillbecomeamajorgasproducingprovincecapableofexportinggaswithintheregionandintoEurope.WithourpartnersCrescentPetroleum,OMVofAustriaandMOLHungarianOilandGasCompany,wearewellpositionedtomaximisetheseopportunities.Weareconsciousthatduring2010wedidnotfullyreceivepaymentfromtheKRGfortheproducedpetroleumliquidsdeliveredtotheKRG.Inthelatterpartof2010andearly2011wehavedeliveredcondensateandLPGtoprivatebuyers,underthedirectionoftheKurdistanRegionalGovernment,whichhasensuredthatwereceiverevenueforpartofourproduction.WhilewepresstheKRGforpayment,weareconsciouslycalibratingfurtherinvestment,andafterensuringtimelyandregularpaymentarrangementsweplantoresumefullscaleinvestmentforfulldevelopmentoftheKhorMorandChemchemalfields.

UAE

UAE Gas ProjectOurUAEGasProjecttoprocessandtransportimportedgascontinuestoawaitthecommencementofregulargassuppliesfromNIOC.In2001,alongterminternationallybindinggassupplyagreementwassignedbetweenourpartnerCrescentPetroleumandtheNIOCtoimportgasintotheUAE.Whiletheconstructionandinterconnectionofourfacilitieshavelongbeensuccessfullycompleted,regulargassupplieshaveyettocommence.

InJuly2009,DanaGaswasnotifiedbyCrescentPetroleumthattheyareseekingalegalrulingonthegassupplycontractwithNIOCthroughinternationalarbitration,asperthe25-yearagreementbetweenthem,aprocessthatisstillongoing.ThisfollowsseveralyearsofdelaysingasdeliverybyNIOC,anddemandsforperformancefromcustomersintheUAE.DanaGashasnodirectcontractualrelationshipwithNIOC,itsrolebeingthetransporterandprocessorofgaswithintheUAE,andholdinga35%stakeinthemarketingandsalesoperationsoftheprocessedgasandpetroleumliquids.InJuly2010NIOCintroducedgasintoitscompletedtransmissionnetworkandDanaGas’UGTCpipelineandSajGasprocessingfacilitiesinSharjahforcommissioningpurposes.However,subsequentlyasitpressuredup,NIOCdiscoveredsignificantleaksinitsoffshoregastransmissionsystemwhichitisnowrectifying.Thisrepairwilllikelytakeseveralmoremonthstocomplete,andregrettablyNIOCisnotexpectedtobeinapositiontodelivergasuntiltheendofthisyear.

Joint Venture with EmaratOurwholly-ownedsubsidiaryUGTC,hasimplementeda50:50jointventureprojectwiththeUAEGovernmententityEmarat.ThisjointHamriyahGasPipelineProject,thelargestgastransmissionpipeline(48-inchdiameter)intheUAE,connectstheSharjahgashubatSajaatothefast-growingindustrialareaatHamriyah,andcoversadistanceof32kmwithacapacityofonebillioncubicfeetperday.The48-inchpipelineisnowoperationalforuseby3endusersintheHamriyaharea-SEWA,FEWAandCNGCL-undertermsofa25yearcontract.



KorMorPlant,KurdistanRegionofIraq


whereproductionincreasedfrom34,700boepdto42,300boepdin2010aswebroughtfivenewlydiscoveredfieldstoproduction.Kurdistanoperationscontributed43%totheproductionincrease,whereouraverageproductionin2010stoodat13,200boepd(nettoDanaGas),ascomparedto7,500boepdin2009.

In2010averagerealisedpricesforliquidswitnessedanincreaseof32.5%.ThiscontributedAED167millionoftheincreaseinourgrossrevenues.

Gross ProfitTheGroupreportedarecordgrossprofitofAED781million,anincreaseof79%overthepreviousyear.ThisincreasereflectstheGroup’songoingandgrowingoperationsinEgyptandtheKurdistanRegionofIraqandtheimpactofourcontinuouscostreviewandoptimisationstrategy.

Exploration Write-Offs In2010,inlinewithourexplorationstrategyinEgypt,wedrilledatotalofelevenexplorationwellsofwhichsevenweresuccessful.Thisresultedinanincreaseof15%onProvedandProbable

(2P)“workinginterest”reserves.Theremainingfourwellsbeingdrywerewritten-off.IncomparisontolastyearourexplorationexpenditureofAED436millionwasreducedby89%.

Comprehensive IncomeThetotalcomprehensiveincomefortheyearstoodatAED276millioncomparedtoAED458millionin2009.Thecomprehensiveincomefor2010includestheprofitfortheyearandanunrealisedgainofAED118millionbookedontheGroup’sinvestmentinMOLshares.In2009theunrealisedgainonMOLwasmuchhigheratAED370millionresultinginhighercomprehensiveincome.ThisunrealisedgainisdirectlybookedtoequityinlinewiththeCompany’spublishedaccountingpolicy.

Cash from OperationsIn2010ourcashflowfromoperationsincreasedby25%toAED480millionfromAED385millionin2009.ThisprincipallyreflectshighercashflowfromourEgyptoperationsandimprovedoverallworkingcapitalmanagementpartiallyoffsetbyhighertax.WecommencedtheyearwithacashbalanceofAED781millionandendedthe

FinancialReview

Further Growth and Continued Financial Stability TheGroupreportedstrongfinancialresultsin2010withnetprofitaftertaxincreasingby80%toAED158millionandarobustbalancesheetbyyearend.In2011,wewillcontinuetofundourinvestmentrequirementswithourinternalcashflowsandexternalfinancing.

Key Financial Metrics

Overall Summary 2010wasanexcellentyearfortheGroup,aswereporteda40%increaseinrevenuebackedbyproductiongrowthandhigherhydrocarbonprices.OurGrossProfitincreasedby79%whichdemonstratesourabilitytocontroloperatingcostswithrisingproduction.Netprofitaftertaxfortheyearincreasedby80%toAED158millionfromAED88millionin2009,whichreflectstheimpactofgrowingproductionandhigheroilpricescoupledwithloweroperatingcostsperbarrelofoilequivalent.OurproductioninEgyptincreasedbyover20%comparedto2009,andintheKurdistanRegionofIraqwerampedupourproductionby76%.

DuringtheyearanamountofAED480millionwasgeneratedfromoperatingactivitiesoftheGroup,anincreaseof25%on2009.Thegeneratedcashwasmainlyutilisedforourcapitalexpenditures.

Increasing Production and Higher Commodity PricesTheGroupincreaseditsaverageproductionby31%to55,500boepd,ascomparedto42,200boepdin2009.Ofthisincrease,57%wascontributedbyourEgyptoperations,



2010AEDMillion

2009AEDMillion

%Change

Indicator

SalesRevenue 1,785 1,279 40GrossProfit 781 436 79ProfitAfterTax 158 88 80TotalComprehensiveIncome

276 458 (40)

EBITDAX 1,034 1,440 (28)CashFromOperations 480 385 25

CapitalExpenditure 740 924 (20)



yearwithabalanceofAED583million,adecreaseofAED198million.Ourcashmanagementstrategyhasbeentomanageourcapitalexpenditureswithourinternalcashgeneration,thecash-in-handprincipallybeingusedforfinancecostpayments.Westart2011withrenewedplanstomanageourliquiditywithacombinationoffurtherimprovementininternalcashgenerationandseekingnon-recoursefundingforcapitalprojects.

Capital Investment Capitalinvestmentin2010wasAED740million,whichtranslatesintocumulativecapitalinvestmentsofapproximatelyAED2billionoverthelasttwoyears.InEgypt,theGroupspentapproximatelyAED444millionwhilstintheKurdistanRegionofIraqtheinvestmentspendwasAED216million.

Balance SheetTotalassetsattheyearendstoodatAED11.8billion,anincreaseof4%fromlastyear’stotalassetsofAED11.4billion.ThisincreasewaslargelyduetotheincreaseinthevalueofoursignificantcapitalexpendituresinEgyptandKurdistanRegionofIraq,aswellasourinvestmentinMOLshares.TotalnetassetsatyearendamountedtoAED7.9billion,withthebookvaluepersharebeingAED1.20(2009:AED1.16pershare).

Capital Markets RelationshipDanaGasrecognisestheimportanceofinvestorrelationsandcapitalmarketcommunications,andaddressesthesegloballyfromtheheadquartersinSharjahandfromourLondonoffice.Duringtheyear,membersoftheseniormanagementteam,includingtheCEO,regularlymetwithinvestors,bondholders,analystsandinvestmentbankstodiscussthestrategy,plansandperformanceoftheGroup.Furtherin2010,theCompanyinitiatedtheprocessoforganisinginvestorcallsafterreleaseofeachofourquarterlyandannualearnings,andwillcontinuetodosoin2011.Thisinitiativehasbeenmuchappreciatedbytheinvestorcommunity,andisapartofourcommitmenttowardsinformationdisseminationandtransparency.

Financial Strategy & OutlookLongerterm,wewillcontinuetofocusonvaluecreationforouresteemedShareholdersthroughfocussedinvestmentinourcoreassetsandgrowthfromnewbusinessdevelopmentopportunitiesthatmeetourinvestmentcriteria.

For2011,wewillcontinuetofundourinvestmentrequirementswithinternalcashflowsandappropriateexternalfinancing.Inparticular,wewillfocusonmaintainingarobustbalancesheetandstrongliquidityfortheGroup.OurUS$1billionSukukismaturinginOctober2012,andasaproactivemeasure,weplantoimplementaSukukLiabilityManagementprogramwithregardtothebond.Onourfurthercapitalfundingarrangements,weareworkingwithinternationalfinancialinstitutionstostructureappropriatenon-recoursefinancingforthedevelopmentofourdiscoveriesandprojectssuchastheZoraFielddevelopmentproject..



Health, Safety, Security and Environment


In2010,weachievedafullyearwithZEROfatalitiesoccurringasaresultofouractivities.However,24ofourworkforce(12employees,and12contractors)receivedinjuriesofaseverityofmedicaltreatmentorgreaterduringtheyearasaresultofworkingwithDanaGasintheUAEandEgyptaswellasthePearlactivitysetinKurdistan.

TheTotalRecordableInjuryFrequency(TRIF)was0.71attheendofDecember,anumberweintendtodrivedownin2011.

Process SafetyNosignificantgasreleaseswerereportedfromourfacilitiesin2010.Theintegrityofourassetsismeasuredbyourabilitytoavoidreleasesofgasesandliquidsfromourprocessfacilities.WehaveinitiatedthereportingofametriccalledLossofPrimaryContainment,whichwillfocusattentiononprocessreleases.

Environment Therewasonlyonereportedsignificantreleaseofhydrocarbontotheenvironment,whichoccurredinourSouthernEgyptConcessionwhere302barrelsofproducedwaterwerereleasedtothedesert.Producedwatertreatmentfacilitieshave

beeninstalledtoeliminatearepeatofthisincident.Wearecommittedtothecontinualreductionofourenvironmentalimpact.Spillstoenvironmentandlossofcontainmentincidentswillbereportedinournextannualreport.

HealthOurpolicystatesthatwearecommittedtoan‘improvementinhealth,safetyandenvironmentalperformancewiththegoalofzeroaccidentsandharmtopeopleandminimisingourenvironmentalimpact.’‘Harmtopeople’meanslookingaftertheirsafetyaswellastheirhealth.Thereportingofillnessesaswellasinjurieshasbeenintroducedinour2011corporatereportingrequirements.Wewilllearnfromthisknowledgeandputcontrolsinplacetodrivedowntheriskof‘harmtopeople’.

SecuritySecuritymanagementisintegraltoourHSSEeffortsandreportingofsecurityincidentshasalsobeenintroducedintoourGroupreportingrequirementsin2011.

HSSE Risks identified in 2010In2011,wewillincreaseourfocusonHSSEriskunderstanding,drivingdownourriskprofile.

BusinesssuccessgoeshandinhandwithexcellenceinHSSE,afactrecognisedbyDanaGasandsummedupinastatementmadebyourChiefExecutiveOfficer,Mr.AhmedAlArbeed‘Health, Safety, Security and Environment is our business’.ActionsspeaklouderthanwordsandDanaGashasbeenbusyin2010developingtheGroupHSSEorganisation,HSSEriskregister,aswelltheHSSEPolicyandManagementSystemforthecompany.TheeffortisbeingleadbytheCEO,supportedbytheSeniorLeadershipoftheCompanyandtheGroupHSSEManager,broughtonmid-year2010.

TheGroupHSSEPolicywasapprovedbytheBoardofDirectorsinNovember.OurHSSEPolicyisastatementofcommitment,mostimportantlytoouremployees,whoworkhardeverydaytomakeDanaGasagreatcompany,inadditiontoourshareholders,communitiesandgovernmentswithwhomweworkandourpartnersaswellasthecontractorsandsupplierswhoworkwithus.

TheHSSEPolicyformsthetoplevelofourGroupHSSEManagementSystem,whichiscalledtheOperatingRiskManagementSystemorORMS,acknowledgingthatourunderstanding

andmanagementofriskiskeytoimprovingourHSSEperformance.TheORMSwillsetoutaseriesofHSSERequirementsthatBusinessUnitsshallbeauditedagainstannually.

PerformanceMonthlyGroupHSSEreportingbyBusinessUnitswasinitiatedinAugustof2010.Dataqualityiscontinuouslyimproving,notablythroughtheimplementationofGroupStandardsonHSSEDefinitionsandHSSEReportingand,in2011,throughtheimplementationofaGroup-wideHSSEreportingtool.

Health, Safety, Securityand Environment RiskTheme Control

DevelopingaconsistentsafetycultureacrosstheGroup

TheGroupHSSEPolicy,threeyearHSSEstrategyandOperatingRiskManagementSystemFrameworkhaveallbeendevelopedandapprovedbytheLeadershipTeam.GapassessmentsagainsttheORMSwillbeconductedduring2011.

TheLeadershipTeamwerethefirstattendeesataseriesofsafetycultureworkshopsthatarebeingconductedwithBusinessLeaders.

ConsistencyinassessmentofHSSErisksacrosstheGroup

AnHSSERiskManagementStandardhasbeenissuedwhichprovidesacommonbasisfortheassessmentofrisks.

ProjectHSSEAssurance HSSEauditshavebeenconductedatourUAEGasProjectPlantaswellasattheKhorMorgasprocessingfacilityinKurdistan

Ensuringweidentifyandmanagemajoraccidenthazards

ReducingmajoraccidentriskswashighonthelistofsubjectsaddressedintheabovementionedauditsaswellasbeingafocusaspartoftheongoingZoraProjectEngineeringwork.

LeadingfromtheexperiencegainedonZoraaMajorAccidentHazardManagementStandardwillbedevelopedin2011.

ConsistencyintheHSSEStandardsofContractors Aspartofascopeofworkundertenderin1Q2011forthedevelopmentoffurtherGroupHSSEStandardsaStandardwhichgovernshowDanaGascontractsforHSEcriticalserviceswillbeestablished.

AnHSSEriskreviewwasconductedinearly3Q2010,whichresultedinaworkprogrammetoaddress:

SafetyMetric 2010 Benchmark CommentFatalities 0 Comparedto3in2009

Manhoursworked

6.8mm Contractorsandemployees

Recordableinjurycases

24 OSHAdefinition*

Recordableinjuryfrequency

0.71 0.35 OGP2009

Majorroadaccidents

2 DanaGasdefinition

Kilometersdriven

11mm OSHAdefinition*

Data includes Kurdistan safety incidents, man hours and kilometers* US Occupational Safety and Health Administration


Risk Management

KorMorPlant,KurdistanRegionofIraq



RiskManagement

OverviewDanaGas’abilitytoprotectandgrowshareholdervaluedependsonthesuccessfuldeliveryoftheGroup’sbusinessobjectives.Inturn,thisdependsontheextenttowhichtheGroupiseffectiveinidentifying,assessingandmanagingrisksacrossthebusiness.

DanaGasstronglybelievesthateffectivebusinessriskmanagementisessentialtotheefficientoperationofitsassets,projects,centralfunctionsandtheGroup.DanaGasthereforeaimstofullyadoptbestpracticeinriskmanagementtoprotecttheGroupfrombusinessandHSSErisk,maximiseopportunityandsafeguardshareholdervalue.DanaGasrecognisesthatithasaresponsibilitytomanagerisks,whichinturnwillprotectitsreputation,people,environment,communitiesandtheinterestsofallitsstakeholders.

DanaGasrecognisesthatriskisanintegralandunavoidablecomponentofitsbusinessandischaracterisedbyboththreatandopportunity.Withthis,wewillbetterachieveourcorporateobjectivesandvisionofbecomingtheleadingprivatesectornatural

gascompanyoperatingintheMiddleEast,NorthAfricaandSouthAsia(MENASA)region.

Background and ProcessIn2009,theBoardofDirectorsmandatedthatadetailedbusinessriskmanagementreviewbeundertakenacrosstheGroupwiththekeyobjectivesofdevelopingariskmanagementpolicyandframeworkandidentifyingthekeyrisksfacingtheGroup.Thisriskassessmentreview,togetherwithanewBusinessRiskManagementFrameworkandRiskManagementPolicy,wascompletedinDecember2009andapprovedbytheBoardofDirectorsinJanuary2010.Theframeworkisanintegralpartofgoodmanagementpractice,reflectingtherequirementsoftheUAEandotherinternationalCorporateGovernanceCodesandisamandatoryinternalcontrolacrossDanaGas.

TheBusinessRiskManagementFrameworksupportseffectiveestablishmentofarisk-basedinternalcontrolframeworkthroughconsiderationofstrategic,operational,financialandcompliancerisks.Theframeworkcoversprojects,assets,businessunits,countriesandcorporatefunctions.Theframeworkis

designedtofacilitatethesystematicandcontinuousidentification,analysis,mitigation,monitoringandcommunicationofthoseriskswhichcouldthreatentheGroup’sabilitytodeliveritsobjectives.

Onanannualbasis,riskworkshopsareheldtotakeanaggregatedcorporateviewofthekeyGrouprisksfacingDanaGas.TheserisksandtheproposedmitigationsaresubmittedtotheBoardonaregularbasisandincludedintheAnnualReportandAccounts.

During2011,theriskmanagementpolicyandframeworkwillcontinuetobeembeddedthroughouttheorganisation.

Risk Management OversightTheDanaGasBoardhasoversightoftheGroup’skeyrisksandtheriskmanagementframeworkandreceivesquarterlyreportsonthesignificantrisksfacingthebusiness.

Atthemanagementlevel,anewRiskCommitteehasbeenformedandiscomposedmainlyoftheLeadershipTeam.ThetermsofreferenceoftheRiskCommitteeinclude

oversightandmonitoringofthesignificantrisksfacingthebusinessandreviewoftheproposedmitigationstrategies.TheCommitteeisexpectedtomeetonaquarterlybasisandthekeyoutputswillbemadeavailabletotheBoard.

TheDanaGasLeadershipTeamallocatesaccountabilitybetweenitsmembersforthemanagementofkeyrisksacrosstheGroup.Themanagementofbusinessunitspecificrisksremainsalineresponsibility;however,risksaremonitoredataGrouplevelbytheRiskCommittee,LeadershipTeamandfunctionalheads.

Risk Factors and UncertaintiesThissectionprovidesadescriptionoftheprincipalrisksanduncertaintiesthatcouldhaveamaterialadverseeffectonDanaGas’strategy,performance,resultsorreputation.

TheGroupcontinuestodefineanddevelopprocessesforidentifyingandmanagingtheserisks.SomeoftheriskslistedbelowmaybeoutsidethecontrolofDanaGasandtheGroupmayalsobeaffectedadverselybyotherrisksanduncertaintiesbesidesthoselistedhere.

Managing Risk Responsibly

Monitor, Reviewand Report

ActionPlanning Action

Planning

Report, measures and review results

Continuous Improvement

Assess/PrioritiseRisks

RiskIdentification

StrategicObjectives

StrategicAlignment

Understand and confirm business

objectives

Align to strategy, determine risk

tolerance

Developrisk register

Priorities and Risks

Controlmeasures

Reviewof Controls and Control Effectiveness

RiskManagementStructure


Corporate GovernanceStrategic Anumberofstakeholders,includingshareholders,investors,media,governments,non-governmentalorganisationsandlocalcommunities,havelegitimateinterestsintheGroup’sbusinessandeffectiveengagementiskeytothesuccessofthebusinessandtheGroup’sreputation.

Political ThesuccessofDanaGasdependsinpartuponunderstandingandmanagingthepolitical,economicandmarketconditionsinthemanydiverseeconomiesaroundtheMENASAregioninwhichitdoesbusiness.

Exploration and ProjectsTheGroup’sfuturegasandoilproductionis,toasignificantextent,dependentuponfinding,acquiringanddevelopingnewreservesandthesuccessfulcompletionofdevelopmentprojectswithinbudgetedcosts,timeandtechnicalrequirements.

OperationsTheGroup’sproductionvolumesandrevenuesaredependentonthecontinuedperformanceofitsoperationalassets.Businessactivities

conductedbytheGroupareoftenconductedwithJointVenturepartners;someassetsareundertheday-to-daymanagementofthesepartnersandmaythereforebesubjecttorisksthatareoutsidethecontroloftheGroup.

Health, Safety, Security and Environment Theproduction,transmissionanddistributionofhydrocarbonsandassociatedproductspresentanumberofHSSErisksandtheinherentpotentialforaccidentsorincidents.

FinancialTheGroupisexposedtoliquidityrisk,exchangeraterisk,creditriskandcommoditypricerisk.


Corporate Governance TheDirectorsandtheexecutivemanagementteam

acknowledgetheirresponsibilityfortheGroup’sCorporateGovernanceprocesses.“


CorporateGovernance

Dana Gas: Early Corporate Governance VisionDanaGashassetouttherealisationofbestcorporategovernancepracticesasanessentialfactorinbuildingastrongcommercialnameintheoilandgassector.

ThefirststepinthisregardwastakeninApril2006afewmonthsaftertheincorporationofthecompany.DanaGascommissionedthe

DanaGashasamendeditsArticlesofAssociationin2010tobeinlinewiththerequirementsoftheMinisterialResolution518-2009relatingtoCorporateGovernanceStandards.

ShareholdersTheShareholdersofthecompanyrepresentthepeakofthecorporategovernancepyramid.TheGeneralAssemblyisthesourceofallpowersexercisedbytheothergoverningbodiesofthecompanyasprovidedbytheArticlesofAssociationoftheCompany/CommercialCompaniesLawandtherulesandregulationsissuedbySecuritiesandCommoditiesAuthorityandAbuDhabiStockMarket.

Belowisthelistofthemajorshareholdersasof31December2010:

Dana Gas has set out the realisation of best corporate governance practices as an essential factor in building a strong commercial name in the oil and gas sector.

InternationalFinanceCorporationtoassessacorporategovernancepracticewithinthecompanywiththeviewtoimprovetheefficiencyandeffectivenessoftheBoardofDirectors,tostrengthentheelementsofthecontrollingenvironmentandtoensurethatthedisclosureandtransparencypracticesofthecompanyareconsistentwiththeinternationalstandards.

TheBoardofDirectorsofDanaGasiscommittedtoensuringlongtermvaluegrowthforitsshareholdersandstronglybelievesintheroleofpropercorporategovernanceintherealisationofcontinuedgrowthandindefiningappropriatestrategicobjectivesandthebusinessplansservingsuchgrowth.

DanaGasfullyimplementstheMinisterialResolutionNo.518-2009relatingtoCorporateGovernanceRegulationsandInstitutionalControlStandards.TheBoardofDirectorsandExecutiveManagementimplementandfollow-upcorporategovernancepracticesasameanstodevelopandimprovethestandardsoftransparency,honesty,internalcontrol,andprofessionalconductandtoenhancetheconfidenceofshareholdersandinvestorsandtoservetheinterestofthesociety,employees,partnersandcustomerslocally,regionallyandinternationally.

TheDirectorsandtheexecutivemanagementteamacknowledgetheirresponsibilityfortheGroup’sCorporateGovernanceprocesses.“

Board of DirectorsTheBoardofDirectorsisvestedwithallthepowersforthemanagementoftheaffairsofthecompanyandisresponsibleforapprovingthecompany’sstrategyandbusinessplansandtosuperviseandcontroltheExecutiveManagement.

Functions of the Board of DirectorsThemainresponsibilitiesoftheBoardofDirectorsareasfollows:1.Torealiselongtermvaluefortheshareholders;2.Establishmentofthestrategyandbusinessplan;3.Approvaloftheannualbudgetandtheallocationofresources;4.Defininginvestmentprioritiesandapprovingbusinessopportunities;5.Supervisingaccuracyoffinancialresultsandreportsandeffectivenessofinternalcontrols;6.Establishingaccountabilityprocedureswithappropriatepowers;7.Assessmentoftheexecutivemanagementperformance;and8.Todecideontheappointmentandsuccessionofseniorexecutives

TheChairmanleadstheBoardinensuringitseffectivenessandavailabilityofthenecessaryinformationfordischargingitsfunctions.

Shareholders Percentage

CrescentPetroleum 20.12

BankofSharjah 3.06

KhalidAbdulRahmanSalehAl-Rajhi

2.26

GovernmentofSharjah 2.17

NationalIndustrialGroup 2.16


BoardofDirectors Category JoiningDate ExperienceandQualificationsMr.HamidDhiyaJafar Non-Executive

Non-Independent

Nov.2005 Mr.HamidJafarholdsaBachelorsEngineeringDegreefromCambridgeUniversity(UK)aswellaspost-graduatestudiesinThermodynamics&FluidFlowin1967,followedbyaMastersDegree.

HeistheChairmanoftheBoardofDanaGas.HeisalsoChairmanoftheBoardoftheCrescentPetroleumGroupofCompanies,headquarteredinSharjah,U.A.E.Asidefromhiscorebusinessinoilandgas,hehasavarietyofregionalandinternationalcommercialinterestsincludingcontainershippingterminaloperations,trucking,logistics,privateequity,andrealestate.

HeisalsoamemberoftheBoardofTrusteesandChairmanoftheFinanceCommitteeoftheAmericanUniversityofSharjah(AUS)andhaspromotedimportantprojectsinhighereducationatCambridgeUniversity.

Dr.AdelAl-Sabeeh Non-ExecutiveIndependent

Nov.2005 Dr.Al-SabeehholdsaPhDinMechanicalEngineeringfromNorthCarolinaStateUniversity,Raleigh,NorthCarolina,U.S.A.

HeheldmanyministerialpostsearlierinKuwaitasMinistryofOil,ElectricityandWater,HousingAffairsandHealth.HealsoheldhighesteemedpositionsatKuwaitPetroleumCompanyandNationalIndustriesCompany.

SheikhSultanBinAhmedSultanAl-Qasimi

Non-ExecutiveNon-Independent

Nov.2005 SheikhSultanholdsBachelorofScienceDegreeinBusinessAdministrationfromArkansasStateUniversityinJonesboro,Arkansas,U.S.A.,andaMastersDegreeinComputerInformationSystemsfromUniversityofDetroitMercy,Michigan,U.S.A.

Hehasextensiveexperienceinbusinessdevelopment,tourism,mediaandoilfieldsaswellasincontracting,tradingandrealestate.

Mr.AbdulazizAljomaih Non-ExecutiveIndependent

Nov.2005 Mr.AljomaihholdsaMastersDegreeinPublicAdministrationfromtheUniversityofSouthernCalifornia,USA,andholdsaBachelorofEngineeringDegreewithMajorinArchitecturalEngineeringfromtheKingSaudUniversity,Riyadh,SaudiArabia.

HeistheManagingDirector-InvestmentsofAljomaihGroupofCompaniesandtheChairmanofBritishIslamicInsuranceHoldingsintheUnitedKingdom,andViceChairmanofArcapitaBankinBahrain.HeisalsoaboardmemberofEttihadEtisalatCompanyintheKSA.

Mr.AbdullaAlMajdouie Non-ExecutiveIndependent

April2009 Mr.AlmajdouieholdsBachelorofScienceDegreefromtheCollegeofIndustrialManagement,KingFahadUniversityforPetroleum&Minerals(KFUPM),Dhahranin1986,andMasterofBusinessAdministration(MBA)fromtheCollegeofIndustrialManagement,KFUPM.

HeisthePresidentoftheAlmajdouieGroupsince1986.HechairstheBoardofmanycorporationsbesidesbeingaConsultingMemberofTharawatFoundationinDubai.

Constitution of the Board of Directors TheBoardofDirectorsconsistsof17members.ThemajorityofthemareleadingbusinessmenfromtheGCCcountries,inadditiontoothermemberswithoutstandingexperienceintheoilandgassector.

Mr.AdibAlZamil Non-ExecutiveIndependent

Nov.2005 Mr.AlZamilholdsaBachelorsDegreeinBusinessAdministrationfromPortlandStateUniversity,Oregon,USA.

HeistheManagingDirectorofFinanceandInvestmentsofZamilGroupHoldingCompanyinSaudiArabiaandhasextensiveexperienceintheIndustryandInvestmentareas.

Mr.AhmedAlArbeed Executive Nov.2005 Mr.AlArbeedholdsaBachelorDegreeinPetroleumandNaturalGasEngineeringfromPennsylvaniaStateUniversityinUSA.

HewastheChairmanandManagingDirectorofKuwaitOilCompany(KOC)andKuwaitforeignPetroleumExplorationCompany(KUFPEC).AlsohewastheChairmanandManagingDirectorofOilDevelopmentCompany,asubsidiarytoKuwaitPetroleumCorporation.

Mr.KhaledAlRajhi Non-ExecutiveIndependent

Nov.2005 Mr.KhalidAl-RajhiholdsaBachelor’sDegreeinFinancefromtheKingFahdUniversityforPetroleum&Minerals,SaudiArabia.

HeistheGeneralManagerofAl-RajhiPartners,DammamandAl-RajhiHoldingsinBahrain.HeistheChairmanofProCareHospital,FakhriandRajhiHospitalandAlSalamPrivateSchoolsinSaudiArabia.

ShaikhaHanadiAlThani Non-ExecutiveIndependent

April2009 ShaikhaHanadiholdsanExecutiveMBAfromLondonBusinessSchool,aBachelorsDegreeinEconomicsfromQatarUniversity,andaMastersDegreeinEconomicsfromtheUniversityofLondon.

ShaikhaHanadiistheFounder&ChairpersonofAmwal,CEOofAl-WaabCityRealEstatedevelopmentproject,andDeputyCEOofNasserBinKhaledAlThani&SonsGroup.

ShecontributestotheGlobalWomen’sForum,WomenBusinessandEconomicsFacultyattheUniversityofQatar,ArabBusinessAmbassadorsnetwork,NationalCompetitionCouncilandtheWorldYouthFoundationofachievementinQatar.

Mr.MajidJafar Non-ExecutiveNon-Independent

Nov.2005 Mr.MajidJafarholdsBachelorandMastersDegreesinEngineering(FluidMechanicsandThermodynamics)fromCambridgeUniversity(ChurchillCollege),anMA(withDistinction)inInternationalStudiesandDiplomacyfromtheUniversityofLondon’sSchoolofOriental&AfricanStudies(SOAS),andanMBA(withDistinction)fromHarvardBusinessSchool.

HeistheExecutiveDirectorofCrescentPetroleumGroupinSharjahandistheDirectorofGulftainerLimitedforportsandcontainerberths.PreviouslyheworkedatShellInternationalExplorationandproductionsectorsandgasandpowerinLondonwithintheinternationalgroupofLNG.InadditiontohiscontributionattheRoyalInstituteofinternationalaffairsinLondon.

Mr.NasserAlNowais Non-ExecutiveIndependent

April2009 Mr.Al-NowaisholdsBachelorDegreeinBusiness&PublicAdministrationfromNewYorkUniversity,USA.

HeservedasManagingDirectorofAbuDhabiTradeCentreandChairmanofRotanaHotels,formerUnder-SecretaryofFinanceandDirectoroftheAbuDhabiDevelopmentFund.


Mr.RashadAlZubair Non-ExecutiveIndependent

Nov.2005 Mr.RashadAl-ZubairholdsaBachelorsDegreeinBusinessAdministrationfromtheUniversityofColoradointheU.S.A.

HeisViceChairmanandManagingDirectoroftheleadinginstitutionsofZubairconstruction,tourism,automotive,bankingandfinance,telecommunications,oilandgasintheSultanateofOman.HeisalsotheChairmanoftheOmaniArabBank,Vice-PresidentCMA,VicePresidentinvestmentOmanandOmaniBusinessCouncilVice-President.

Mr.SaidArrata Non-ExecutiveNonIndependent

Feb.2007 Mr.SaidArrataholdsaB.Sc.DegreeinPetroleumEngineering,alongwithseveralpost-graduateaccreditationsatvariousuniversitiesinNorthAmerica,aswellasnumerousoilandgasindustrytechnicalandmanagementcoursediplomas.

HeisthePresidentofSeaDragonEnergyCompanyinCanada.FormerlyhewastheCEOofCenturionEnergyInternationalandservedinseniormanagementpositionsinmajorglobaloilcompaniesinCanadaandaroundtheworld.HewastheExecutiveManagerfortwomajorengineeringcompaniesaswellasoilandgascompaniesinCanada.

Dr.TawfeeqAlmoayed Non-ExecutiveIndependent

Nov.2005 Dr.TawfeeqAlAlmoayedholdsaBachelorsDegreeinElectricalEngineeringwith1stClassHonors,andaPhDinTelecommunicationsfromLondonUniversity.

HeistheChairmanofGulfPetrochemicalIndustries,VicePresidentforMoayedCommercialGroup,ChairmanofDarElMethaqPublishingandVicePresidentoftheBahrainExportandImportCompanyaswellasChairmanoftheSubcommitteeofInformationTechnologyandElectronicCommerce.HealsoobtainedElectronicEngineeringFellowshipfromBritain.

Mr.VaroujanNerguizian Non-ExecutiveIndependent

Nov.2005 Mr.VaroujanNerguizianholdsaBachelorDegreeinEconomicsfromSaintJosephUniversityinLebanonandfromUniversitéLyonLumière,France.

HeistheExecutiveMemberandDirectoroftheBankofSharjah,GeneralManagerofEmiratesandLebanonBankinLebanon.Inadditiontomembershipintheboardsofothercompanies,heistheFounderandPresidentoftheLebaneseFundforeducationandtheFrancophoneschoolinDubai.

Mr.ZiadGaladari Non-ExecutiveIndependent

Nov.2005 Mr.ZiadGaladariholdsaBachelorDegreeinLawfromtheUAEUniversity.

HeistheFounderandChairmanofGaladariandAssociatesLawFirmandlegalconsultingservicesandforGroupGaladariInvestment.AlsoheistheChairmanoftheSupremeCommitteeforDubaiInternationalArabianHorseandEquestrianandJebelAliEquestrianandRaceFederation.

Mr.RashidAlJarwan Executive Jan.2008 Mr.RashidAl-JarwanholdsaBachelorDegreeinPetroleum&NaturalGasEngineeringfromPennsylvaniaStateUniversity,USA.

HeistheExecutiveDirectoratDanaGasinSharjah.HewasformerlyGeneralManagerofDanagasandAdgasCompanyinAbuDhabiandDeputyGeneralManagerofAdcoandAssistantGeneralManagerofZadcoinAbuDhabi.

TheBoardincludes11independentmembers:4non-executivemembersand2executivemembers.MostofthedirectorshaveoccupiedtheirseatsintheBoardsincetheincorporationofthecompanyinNovember2005exceptfor3memberswhowereelectedinApril2009.

TheDirectorsareelectedbytheGeneralAssemblyevery3years.ThecurrentBoardofDirectorswaselectedon22April2009.

ThecurrentmembersoftheBoardare:

DateofElectionDirectors

November2005Mr.HamidDhiyaJafar(Chairman)

November2005Dr.AdelKhalidAl-Sabeeh(DeputyChairman)

November2005SheikhSultanBinAhmedSultanAl-Qasimi

November2005Mr.AbdulazizHamadAljomaih

April2009Mr.AbdullahAliAlmajdouie

November2005Mr.AdibAbdullaAl-Zamil

November2005Mr.AhmadRashidAl-Arbeed

November2005Mr.KhalidAbdulRahmanSalehAl-Rajhi

April2009ShaikhaHanadiNasserBintKhaledAlThani

November2005Mr.MajidHamidJafar

April2009Mr.NasserAl-Nowais

November2005Mr.RashadMohammedAl-Zubair

February2007Mr.SaidArrata

November2005Dr.TawfeeqAbdulrahmanAlmoayed

November2005Mr.VaroujanNerguizian

November2005Mr.ZiadAbdullahIbrahimGaladari

January2008Mr.RashidSaifAl-Jarwan

Board of Directors’ MeetingsAccordingtothecompany’sArticlesofAssociation,theBoardofDirectorsmeetsevery3monthsincompliancewiththeCorporateGovernanceRegulations.TheBoardofDirectorsmetsix(6)timesduringtheyear2010inthefollowingdates:13January,17March,21April,22June,22Septemberand24November.

Membership of Boards of Directors of other companiesDanaGasBoardofDirectorsconsistsofleadingbusinessmenwhoaremembersofleadingcompanies,banksandbusinessinstitutions.

Directors Directorshipinothercompanies

Mr.HamidDhiyaJafar Chairman,CrescentPetroleumGroupofCompaniesChairman,GulftainerLtd.Chairman,ThePearlInitiativeDirector,URUKGroupFounder,UAEChaptersoftheYoungPresidentsOrganisationandtheWorldPresidentsOrganisationMember,InternationalChiefExecutivesOrganisationMemberoftheBoardofTrusteesandChairmanoftheFinanceCommitteeofAmericanUniversityofSharjah

Dr.AdelKhalidAl-Sabeeh ChairmanandManagingDirector,NationalIndustriesCompany(NIC)KuwaitChairman,ProcladGroupInternationalLtd.(subsidiaryofNationalIndustryGroup)Chairman,NICUKChairman,KuwaitOilCompanyChairman,KuwaitPetroleumCorporationDeputyChairman,IkarusPetroleumIndustriesCompany,KuwaitBoardMember,HigherPlanningBoardofKuwaitMember,KuwaitFoundationsforAdvancementScienceKuwait

SheikhSultanBinAhmedSultanAl-Qasimi Chairman,SharjahCommerceandTourismDevelopmentAuthorityDeputyChairman,SharjahPetroleumCouncilChairman,SharjahPipelineCompany(Anabeeb)Chairman,BasmaGroupDeputyChairman,SharjahLPGCo.DeputyChairman,SharjahEquestrian&RacingClubChairman,SharjahMediaCorporation


Mr.AbdulazizHamadAljomaih Chairman,BritishIslamicInsuranceHoldings,UKVice-Chairman,ArcapitaBank,BahrainBoardofDirector,EttihadEtisalatCompany,KSAManagingDirector,InvestmentsofAljomaihGroupofCompaniesManagingDirector,PergolaHolding&itssubsidiaries

Mr.AbdullahAliAlmajdouie Chairman,AlmajdouieGroupChairman,HeavyLiftCo.-BahrainChairman,AlmajdouieDeRijkeLogisticCo.Chairman,RabighPetrochemicalLogisticLLCChairman,MaxxLogistics,DubaiChairman,StarMarinesServices,DubaiBoardMember,ArbahCapitalInvestmentCompanyBoardMember,PrinceMohammedBinFahadUniversityBoardMember,MakhazenCo.AbuDhabiConsultingMember,Tharawat,Dubai

Mr.AdibAbdullaAl-Zamil ManagingDirector,FinanceandInvestmentsofZamilGroupHoldingCompanyDirector,ZamilIndustrialandInvestmentCompany(ZIIC)Director,BankAl-Bilad(SaudiJointStockCompany)Director,GulfGuardDirector,MethanolChemicalCo.Ltd(CHEMANOL)BoardMember,JadwaInvestments

Mr.AhmadRashidAl-Arbeed Ex-ChairmanandManagingDirector,KuwaitOilCompany(KOC)andKuwaitForeignPetroleumExplorationCompany(KUFPEC)Ex-ChairmanandManagementDirector,OilDevelopmentCompany(ODC)Ex-BoardMember,KuwaitPetroleumCorporation

Mr.KhalidAbdulRahmanSalehAl-Rajhi Chairman,Fakri&RajhiHospital,SaudiArabiaBoardMember,EtisalatTelecommunications,SaudiArabiaBoardMemberofSaudiTelecomCompanyBoardMemberofBankAlBiladBoardMemberofWalaaInsuranceCompanyMemberoftheHigherConsul,EasterProvince(GovernmentalSector)Chairman,ProcareHospitals,SaudiArabiaChairman,Al-SalamSchools,SaudiArabiaFormerBoardMemberofSaudiCementCompany

ShaikhaHanadiNasserBintKhaledAlThani

FounderandChairperson,AMWAL,QatarCEO,Al-WaabCityRealEstateDevelopmentProject,QatarDeputyCEO,NasserBinKhaledAlThani&SonsGroup,QatarBoardofTrustee,ArabWomen’sInternationalForumBoardofTrustee,CollegeofBusinessandEconomics,QatarUniversityMember,AdvisoryBoardofTheArabBusinessAngelsNetwork(ABAN)Foundingmember,QatarNationalCompetitivenessCouncilChairperson,INJAZQatarBoardMember,INJAZAL-ARAB

Mr.MajidHamidJafar ExecutiveDirector,CrescentPetroleumGroup,Sharjah,UAEDirector,GulftainerLtd.BoardMember,ArabForumforEnvironmentandDevelopment(AFED)BoardMember,SharjahChamberofCommerceBoardMember,SharjahExpoBoardMember,Iraqi-BritishFriendshipSociety

Mr.NasserAl-Nowais ManagingDirector,AbuDhabiTradeCenterChairman,AswaqManagement&ServicesChairman,RotanaHotelManagementCorpLtd.FormerChairman,AbuDhabiNationalHotelsCompanyFormerUnder-Secretary,UAEMinistryofFinanceFormerChairman,ArabInsuranceGroup

Mr.RashadMohammedAl-Zubair Chairman,ZubairCorporation,SultanateofOmanChairman,OmanArabBankChairman,Lebanon-OmanBusinessCouncilDeputyChairman,OmanInternationalDevelopmentandInvestmentCompanySAOG(OMINVEST),OmanViceChairman,OmanBusinessCouncilFormerDirector,CapitalMarketAuthority

Mr.SaidArrata Chairman,SeaDragonBoardMember,FuelXEnergyBoardMember,DeepWellOilandGasFormerChairman,CenturionEnergyInternational

Board of Directors CommitteesTherearethree(3)boardcommittees:BoardSteeringCommittee,AuditCommitteeandNominationsandRemunerationCommittee.ThecommitteeshavebeenvestedwiththenecessarypowerstodischargetheirfunctionsinaccordancewithMinisterialResolutionNo.518-2009.

The Board Steering CommitteeThemembersoftheBoardSteeringCommitteeare:

TheroleoftheBoardSteeringCommitteeistoassisttheBoardinsupervisionandcontroloftheactivitiesoftheExecutiveManagementofthecompany.AndtotakedecisionsbetweenthemeetingsoftheBoardinrelationtocertainmattersincludingurgentmattersrelatingtocapitalandoperatingexpenditures,andnewbusinessopportunitiesandtomakerecommendationstotheBoardasappropriate.

The Audit CommitteeTheAuditCommitteeconsistsofthefollowingmembers:

MostofthemembersoftheAuditCommitteecomefromafinancialbusinessorbankingbackgroundandareveryfamiliarwithfinancialandauditoperations.

TheroleoftheAuditCommitteeistoassisttheBoardofDirectorsinperformingitsfunctionofsupervisionoverthefinancesofthecompanyandensuringcompliancewithapplicableregulations.ThecommitteeexercisesthefunctionsprescribedbytheMinisterialResolutionNo.518-2009including:1.Reviewingthequarterlyfinancialstatements;2.Supervisingthepreparationandcompilingofthecompany’sfinancialstatements,andtheprocedureforpreparationoffinancialreports;3.Ensuringthesoundnessandcorrectnessofthecompany’sfinancialstatements;4.Reviewofriskmanagementandinternalcontrolprocedures;

MembersoftheCommittee Title

Mr.HamidDhiyaJafar Chair

Dr.AdelKhalidAl-Sabeeh DeputyChair

Dr.TawfeeqAbdulrahmanAlmoayed

Member

Mr.VaroujanNerguizian Member

Mr.SaidArrata Member

Mr.ZiadAbdullahIbrahimGaladari

Member

Mr.AhmedRashidAlArbeed Member

Mr.RashidSaifAl-Jarwan Member


Mr.VaroujanNerguizian Chair-IndependentDirector

SheikhSultanBinAhmedSultanAl-Qasimi

Non-ExecutiveMember

Mr.AbdulazizHamadAljomaih

IndependentDirector

Mr.AbdullahAliAlmajdouie IndependentDirector

Mr.KhalidAbdulRahmanSalehAl-Rajhi

IndependentDirector

Mr.NasserAl-Nowais IndependentDirector

Dr.TawfeeqAbdulrahmanAlmoayed FoundingChairman&ManagingDirector,GulfPetro-ChemicalIndustriesCo.Chairman,A.K.AlmoayedGroupWLLChairman,AlmoayedWilhelmsenLtd.Member,BritishInstitutionofEngineeringandTechnologyFormerFirstDeputyChairman,BahrainTelecommunicationsCo.(BATELCO)andExecutiveCommitteeMember

Mr.VaroujanNerguizian ExecutiveDirectorandGeneralManager,BankofSharjah,UAEChairmanandGeneralManager,EmiratesLebanonBankSAL,LebanonDirector,GrowthgateFoundingMemberandChairman,LebaneseEducationalFundSAandLyceeLibanaisFrancophonePrive,Dubai

Mr.ZiadAbdullahIbrahimGaladari Founder&Chairman,Galadari&AssociatesChairman,GaladariInvestmentsGroupDirector,DubaiWorldTradeCentreDirector,DUTelecommunicationsServicesChairman,DubaiInternationalArabianHorseChampionshipandJebelAliRaceCourseCouncilVice-Chairman,UAEEquestrianandRacingFederation

Mr.RashidSaifAl-Jarwan BoardMember,EmiratesGeneralPetroleumCorporation(EMARAT)BoardMember,OmanInsuranceCompanyEx-BoardMember,NationalPetroleumConstructionCo.Ex-BoardMember,NationalDrillingCo.Ex-BoardMember,FERTIL,AbuDhabiEx-BoardMember,SharjahIndustrialDevelopment


Dealings in the Securities of the CompanyThecompanyhasissuedtheguidelinesingoverningdealingsbydirectorsandemployeesinthesecuritiesofthecompanyorsubsidiariesandsistercompanies.

GuidelinesincludealltherelevantprovisionsintheregulationsandrulesissuedbytheSecuritiesandCommoditiesAuthorityandAbuDhabiStockExchange.Italsodefinestheperiodsduringwhichdirectorsandemployeesarenotallowedorpermittedtodealinthecompany’ssecurities.Noneofthedirectorsoremployeeshasdealtwiththecompany’ssecuritiesduringthebansperiodsdefinedintheSecuritiesandCommoditiesAuthorityResolutionNo.2-2001.

Disclosure and conflict of interestToensurecompliancewiththelegalanddisclosurerequirements,thedirectorsarerequired:1.todisclosedirectorshipsinothercompaniesandtoobtainconsentoftheBoardofDirectorstosuchdirectorships;2.todisclosebusinessandcommercialactivitiesconnecteddirectlyorindirectlywiththebusinessofDanaGas;3.todiscloseanymaterialintereststowhichDanaGasisaparty;4.nottoparticipateinortrytoinfluenceanydecisionwhichmaygiverisetoconflictofinterest;5.nottoofferoracceptanygifts,bribeswhichmayinfluencedecisions;and6.tonotifytheBoardofDirectorsofanyactivitieswithcompetitorsorsuppliersorotherbodiesinpartnershipwithDanaGaswhichmaygiverisetoconflictofinterest.

TheDirectorssubmittothecompanyadisclosuredocumentcoveringtheabovesubjectswhichisupdatedannually.ThecompanyalsodisclosestotheshareholdersallmaterialtransactionswithcompaniesownedorrelatedtotheshareholdersortheBoardofDirectorsortheExecutiveManagementandanydealingsintheCompanySecuritiesbytheDirectorsandseniorexecutives.

Internal Control SystemTheBoardofDirectorsestablishedanInternalControlDepartmentdefinedwithitsfunctionsandpowersandappointedamanagerforthedepartmentwhoreportsdirectlytotheBoardofDirectorsinaccordancewiththefollowing:1.toassessandscrutinisethevariousrisksfacingthecompany;2.topreparearisks’registertobeupdatedquarterlyandannually;3.toprepareanauditplanfortherisksandtheregisterinaccordancewiththedirectionsoftheBoardofDirectorsandtheAuditCommittee;4.toensureavailabilityofresourcestocarryoutauditworkandinternalauditplan;and

5.toimplementtheplanandsubmitaperiodicalreporttotheBoardofDirectorsandtotheAuditCommitteewithitsobservationsandtheactionstakenbytheExecutiveManagementwithrespecttothem.

TheInternalControlDepartmentenjoysindependenceinperformingitsfunctions.ItreportstotheBoardofDirectorswhichacknowledgesitsresponsibilityfortheinternalcontrolsystemanditseffectiveness.

Corporate Social ResponsibilityDanaGasbusinessactivitiesspananumberofcountriesincludingUnitedArabEmirates,Iraq,GCCandotherArabcountries.Fromtheoutset,thecompany’sobjectivehasbeentolayanactiveroleanddevelopmentandsupportoflocalcommunities.DanaGashascurrentlyimplementedanumberofprojectsandprogramsineducation,healthandsocialactivitiesinaccordancewithanannualcorporatesocialresponsibilityplanapprovedbytheBoardofDirectors.

External Auditors FeesTheAnnualGeneralAssemblyappointstheexternalauditorsonanannualbasis.TheAnnualGeneralMeetingheldinApril2010appointedErnst&Youngasexternalauditorsforthecompany’sfinancialaccountsfortheyear2011.Theexternalauditors’feesaredisclosedintheannualfinancialstatements.Thefeesfor2010amountedtoAED350,000.Theexternalauditorsdonotprovideanyotherservicesotherthantheauditoftheaccounts.

General InformationCommunication with ShareholdersDanaGasiskeentomaintainregularcontactswithitsshareholdersthroughperiodicalpressreleasesandmeetingswithgroupsofshareholders.Informationaboutthecompany’sactivitiesanditsfinancialaffairsareavailableatthecompany’swebsitewww.danagas.ae.

TheExecutiveManagementholdsregularmeetingswithinvestors,shareholders,andfinancialanalyststoreviewanddiscussthecompany’sbusinessactivitiesandfinancialposition.

ShareholdersaregivenampleopportunitytoaskquestionstotheBoardandtotheExecutiveManagementduringthemeetingsoftheGeneralAssembly.

Compliance during 2010Thecompanyhasbeenfullycompliantduring2010.

_______________________Mr.HamidJafarChairman 01April2011

5.Recommendationofthefeesofthecompany’sexternalauditors;and6.RecommendationrelatingtotheInternalAuditDepartment’sorganisationplusactivities.

ThecompanyisexaminingtherelationshipandtransactionsbetweenDanaGasandthebankpresidedbytheChairoftheAuditCommitteetoascertainwhetherthesetransactionsfallwithinthedefinitionofIndependentDirectorasdefinedintheMinisterialResolutionNo.518-2009.Thecompany’sLegalAdvisorwillsubmitalegalopiniononthemattertotheAuditCommitteetoenableittomakeappropriaterecommendationstotheBoardofDirectorsinaccordancewiththerequirementsoftheMinisterialResolutionNo.518-2009.

Nominations and Remuneration CommitteeTheNominationsandRemunerationCommitteeiscomposedofthefollowing:

ThemajorityofthemembersoftheCommitteeincludingitsChairareindependentandpossessedofconsiderableknowledgeandexpertiseinCorporateGovernance,RemunerationandSalariesandBenefitspolicies.

TheCommitteeensurestheeffectivenessoftheproceduresandprocessesoftheGeneralAssemblyandtheBoardofDirectorsandassiststheBoardinrelationtotheappointmentandsuccessionofseniorexecutives,appraisalofexecutiveperformance,successionplans,remunerationpoliciesandnominationstotheBoardofDirectorsmembershipasprovidedbytheMinisterialResolutionNo.518-2009.

TheCommitteeexercisesthefollowingfunctions:1.Establishingremuneration,salary,benefitsandincentivespolicies;2.Preparationofhumanresourcespolicies;3.RecommendingcorporategovernancestandardsandguidelinesandsupervisingtheBoardofDirectors’proceduresandperformance;4.Supervisingandreviewingfinancialdisclosurestandards;

5.Reviewingdirectors’remunerationandmakingappropriaterecommendationstotheBoard;6.Reviewandapprovalofsenioremployees’successionplans;7.Ensuringandmaintaininggoodrelationshipswithshareholders,investorsandregulators;and8.ConductingandsupervisingnominationstotheBoardofDirectors.

Directors’ RemunerationsThedirectorsreceiveanannualpaymentinadditiontoanattendancefee.TheNominationsandRemunerationCommitteeproposetheannualdirectors’remunerationandifitisendorsedbytheBoard,itwillbesubmittedtotheGeneralAssemblyforapproval.Director’sremunerationisdisclosedintheannualfinancialstatementsofthecompany.TheExecutiveDirectorsarenotentitledtoanydirectors’remuneration.

Functions delegated by the Board of Directors to the Executive Management1.Managementofthebusinessofthecompanyanditsdaytodayadministrationtoachievecompany’sstrategiesandtoexecutethepoliciesandplanslaiddownbytheBoardofDirectors;2.ToprovidetheBoardofDirectorsthroughaccurateperiodicalreportsaboutthefinancialpositionofthecompany,itsbusiness,actionstakentomanagerisksandinternalcontroloperations;3.ToprovidetheBoardofDirectorswithallinformationanddocumentsrequiredforthemeetingsoftheBoardofDirectorsonatimelybasis;4.Submitstudiesandrecommendationsrelatingtobusinessdevelopmentandinvestmentopportunities;5.Toprovideregulatorybodies(MinistryofEconomy,SecuritiesandCommoditiesAuthority,AbuDhabiStockMarket)withinformation,statementsanddocumentsasrequiredinaccordancewithapplicablelaws,rulesandregulations.

Code of ConductDanaGas’CodeofConductrequiresstrictcompliancewithlaws,regulationsandhumanitarianandethicalvaluesbydirectors,employeesandrelatedparties.

TheCodeofConductensuresduerespecttoallemployeesandstakeholderswithoutdiscrimination.Itprovidesforthedisclosureofconflictofinterestssituations,protectionoftheassetsandinformationofthecompany,thehealth,safetyandsecurityofemployees,thepublicandtheenvironmentandbansofferinganydonationsincashorinkindtopoliticalgroupsorpartiesinthenameofthecompany.


Dr.TawfeeqAbdulrahmanAlmoayed

Chair-IndependentDirector

Mr.MajidHamidJafar Non-ExecutiveMember

ShaikhaHanadiNasserBintKhaledAlThani

IndependentDirector

Mr.SaidArrata Non-ExecutiveMember

Mr.ZiadAbdullahIbrahimGaladari

IndependentDirector

Mr.AdibAbdullahAl-Zamil IndependentDirector

Mr.RashadMohammedAl-Zubair

IndependentDirector


Board Members International Advisory Board


CorporateGovernance

H.H.SheikhAhmedAl-QasimiHonoraryChairman

Mr.HamidJafarChairman

Mr.AhmedAlArbeedChiefExecutiveOfficer

H.H.ShaikhaHanadiAlThaniDirector

Mr.RashadAlZubairDirector

Dr.TawfeeqAlmoayedDirector

Dr.AdelAlSabeehDeputyChairman

Mr.AdibAlZamilDirector

Mr.NasserAlNowaisDirector

Mr.AbdullahAlMajdouieDirector

Mr.AbdulazizHamadAljomaihDirector

Mr.KhalidAlRajhiDirector

Mr.RashidSaifAl-JarwanExecutiveDirector

Mr.VaroujanNerguizianDirector

SheikhSultanAlQasimi

Mr.MajidJafarDirector

Mr.SaidArrataDirector

Mr.ZiadGaladariDirector

International Advisory BoardDanaGashasadoptedtheconceptoftheInternationalAdvisoryBoard(IAB).

Thepurposeofthisboardistoprovidestrategicadvicetotheboardofdirectorsandthemanagement,aswellastoidentifyspecificbusinessopportunitiesandbuildrelationshipsworldwide.

InternationalAdvisoryBoard:(LefttoRight)

Dr.NaderSultanFormerCEOofKuwaitPetroleumCorporationandDirectoroftheOxfordEnergySeminar

Dr.JosephStanislawFormerCEOofCambridgeEnergyResearchAssociates(CERA)

Dr.BurckhardBergmannMemberoftheboardofRussiangascompanyGazprom

SirGrahamHearneChairmanoftheInternationalAdvisoryBoard,formerChairmanofEnterpriseOilPlcoftheUK

LordSimonofHighburyFormerChairmanofBritishPetroleum(BP)

Mr.KaiHietarintaFormerVice-ChairmanofNesteOyofFinland

H.E.NordineAit-LaoussineFormerAlgerianOilMinisterandformerHeadofSonatrach


Our People

SajGasPlant,UAE


Our people are the strength of our business

DanaGasisbecomingincreasinglyrecognisedandrespectedacrosstheregionasacapableandeffectiveoperator.Foracompanyasyoungasours,justfiveyearsold,thisisanotableachievementandisinlargepartduetotheexcellenceofourpeople.Weareproudofourprogressandourabilitytoattractanddeveloptalent.

DanaGasemploysaround350peopleintheMENASAregionwiththemajorityinSharjah,EgyptandtheKurdistanRegionofIraq.Ourdiversifiedworkforceconsistsofmorethantwenty-fourdifferentnationalities.

Ourpeopleareresourcedandremuneratedinlinewithourstrategytoattractandretainthebesttechnical,functionalandbusinesstalentnecessarytounderpinthesuccessfuldeliveryagainstourcorporatetargetsasapprovedbytheBoardofDirectors.WeareconvincedthatthisisthekeyfactorfortheDanaGasGrouptoultimatelyenhanceshareholdervalue.

Resourcing, Attraction and Retention PhilosophiesOursuccessdependsonthetalentandcommitmentofouremployees.Westrive

Internal Consultation, Communication and FeedbackEmployeesareavitalstakeholdergroup.Wevaluetheirfeedbackandexperienceonhowwerunourbusiness.WekeepourpeopleinformedandconsultthemaboutchangesthataffectthemaswellastheGroup.Opennesstowardspeopleandnewideasarekeyelementsthatwenourishandencourage.

DiversityWebelievethatdiversityintheworkplacebringscompetitiveadvantage.Employeesfromdiverseculturesandbackgroundsbringinsightsandaddvaluetoourbusiness.DanaGasiscommittedtoequalopportunitiesandweselectonmeritaloneanddonotcondonediscriminationofanykind.

Training and DevelopmentWebelieveintrainingandcoaching,andencourageemployeestodevelopwithus,bothpersonallyaswellasprofessionally.Whereitisbeneficialtotheemployeeandtheorganisation,weencouragetransfersbetweenbusinessunitsintheGroupwhichinturntransferstechnicalskillsanddevelopstalent.Weofferavarietyoftrainingopportunities,bothinternalandexternal,accordingtoagreedindividualdevelopmentprogrammesto

tocreateaninclusiveworkplacethatseeksmenandwomenfromdifferentcultural/ethnicbackgrounds,competencies,lifestyles,generationsandperspectives.Weprovideappropriatecareerdevelopmentandarestronglycommittedtoourcodeofconduct.ThishashelpedustobuildthediverseandrobustcommunitythatisDanaGastoday.

Weworkhardandarehighlyselective,toensurethatwerecruitthebestpeople.DanaGaswasabletocontinueitssuccessinbuildingcapacityandcapabilityatalllevels,combiningglobalandregionalsearchestoidentifyandattracttalent.ItispartofourevolvingculturetovalueexpertiseinawaythatwillgeneratethenecessarytalentthatwerequireacrosstheGroupnowandforthefuture.

Ourcompensationandremunerationphilosophycontinuestorecogniseandincentiviseperformanceandalignemployeestoshareholders’interests.

TalentandcareerdevelopmentunderpinourGroup’sbusinessstrategyandcontinuetobeoneofourmainpriorities.Wedorecognisethatoursuccessdependsonthesuccessofouremployeesandwethereforeprovideparticularattentiontoindividualtraining.

helpouremployeesdevelopabroadrangeofskills,aswellasthecompetenciesspecifictotheirrole.

Performance Management and Performance EvaluationOpendialogueaboutperformanceanddevelopmentopportunitieshelpstomotivateouremployees.Weencouragelinemanagerstocoachemployeescontinuously.Weunderstandthatpraiseisanimportantmotivatorandwanttocreateateam-spiritwherewerecogniseachievementandsupporteachother.

Aswelookaheadto2011,wecontinueourjourneytowardsdevelopingour“capabilityframework”describingthecapabilitiesandbehavioursneededtodeliverbroaderandmorecomplexservices.MappingsuchaframeworkwillhelpDanaGasidentifytheskills,attributesandqualitiesrequiredtohelpuscontinueresourcing,developingandretainingtalent.

WearealsocontinuingtheimplementationofprocessesandsystemstodevelopandenhanceourinternalcommunicationsacrosstheGroupandencourageanopenandhonestdialogueamongemployees,departments,functionsandoperatingunits.

TalentandcareerdevelopmentunderpinourGroup’sbusinessstrategyandcontinuetobeoneofourmainpriorities.“


OurPeople


Corporate Social Responsibility

SajGasPlant,UAE


Corporate Social Responsibility

ForDanaGas,corporatesocialresponsibility(CSR)isaboutdirectlycontributingtoeconomicandsocialdevelopmentinawaythatsafeguardsnaturalresourcesandtheenvironmentwhilstrespectingtherightsofeachindividual.

Wearefocusedondeliveringsuperiorandsustainablelong-termvaluetoallstakeholders,whilemakingapositivecontributiontothesocietiesinwhichweoperate.

During2010,ourcontributionswereintheUAE,EgyptandtheKurdistanRegionofIraqandwerefocusedontheenvironment,health,schoolsandeducation.

UAE

Educating the Next Generation to Care for our EnvironmentDanaGasisworkingcloselywithBee’ah,apublicprivatecompanyinpartnershipwiththeSharjahCityMunicipality,onacomprehensivebilingual(EnglishArabic)programmetoeducatetheschoolchildrenofSharjahintheimportanceofcaringfortheenvironmentwiththefocusbeingwastemanagementandthethreeR’s:Reduce,

RecycleandRe-use.Theworktakestheformofbothinteractivesessionswithpupilsaswellastheprovisionofdigitaltoolstoteachersenablingustoreachover100,000studentsofgrades1to12residinginSharjah.ThisprogrammewaslaunchedinSeptemberof2010.

Encouraging the Sharing of Knowledge DanaGasisactivelypursuingthesponsorshipofafellowinPetroleumResourcesbetweenCambridgeUniversityandtheAmericanUniversityofSharjahforafive-yearterm.Inadditiontocarryingoutresearchandteachingdutiesateachinstitution,theFellowwillalsoorganiseindustry-focusedworkshopsinSharjah.

Kurdistan Region of Iraq

Providing Local Employment64%ofthecontractedandcasuallabourforceworkingforusintheKurdistanRegionofIraqisfroma30-kmradiusoftheKhorMorgasplant,providingsignificantemploymentopportunities.

Clean Water ProjectAsapartofidentifyinghighimpactneighbourhood

communitygive-backprogrammes,ourprojectteamintheKurdistanRegionofIraqidentifiedthreenearbyvillagesthatfacedtheeverydayproblemofcleanwateravailability.Waterhadtobecollectedfromasourcesomethreehours’walkingdistance,whichwasdonethroughtheextremesofthewintersandsummersandacrossroughterrain.Asapartofgivingbacktocommunity,a10kmpipelinewaslaidfromawaterwell(previouslydrilledbytheprojectteam)tothreevillages.Thiswasfollowedupwithlayingacombinationof1.2kmofsmall-sizepipelinestothetapsofhousesandconnectingoversixlargestoragetanksinthesevillages.Asaresult,thesevillagesnowhaveaccesstoacontinuoussupplyofcleanwater,allowingtheladiesofthevillagestodevotemoretimetofamilycareandensuringthechildrenareattendingeducation.

Ongoing Support to the Local CommunityInadditiontothewaterproject,theKhorMorteamhaveprovidedbooks,furnitureandusedcomputerstothreenearbyschoolsaswellasprovidingcontinuedsupportandminorrepairstoexistinginfrastructuretohelpthecommunityruntheseschoolsefficiently.Theyhavealsohelpedinregularlyrepairinggeneratorsetstoensurevillageshavetheirlightsonthroughallseasons.

DanaGasseeksanactiveroleasanagentofchangeandwishestocontributetothedevelopmentofthecommunitiesinwhichitoperates.“


CorporateSocialResponsibility

Egypt

DanaGasseeksanactiveroleasanagentofchangeandwishestocontributetothedevelopmentofthecommunitiesinwhichitoperatesinEgypt.

Renovation of Sharabas Primary SchoolDanaGasrenovatedtheSharabasPrimarySchool,aschoolofsome730pupilsand40teachers,intheFaraskourDistrictoftheDamiettaGovernate.Thefabricofthebuildingwasupgradedandrepaired,andnewfurnitureandclassroomequipmentprovidedalongwithtrainingfortheteachersintheuseofthenewclassroomtechnologies.Thiscomprehensiveprogrammehasensuredthattheimprovedfacilitiesattheschoolareexploitedtothefull.

Health Units Refurbishment ProjectRenovationworkshavebeencarriedoutattheSanElHagarElBahariaPrimaryHealthCareUnitintheHesanyaDistrictintheSharkiaGovernate.Inadditiontorenovatingtheinfrastructureofthefacility,theequipmentandsystemsusedhavebeenupgraded,andtraininghasbeenprovidedtoensurethatthehighestqualityhealthservicesareprovidedtothecommunity.Additionallythelinkbetweenthehealthunitandthesurroundingcommunityisbeingstrengthenedbyraisingpublicawarenessofhygieneandhealthrelatedissues.


Auditors’ Report and Financial Statements




INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF DANA GAS PJSC

Report on the Financial Statements

WehaveauditedtheaccompanyingfinancialstatementsofDanaGasPJSCanditssubsidiaries(“theGroup”),whichcomprisetheconsolidatedstatementoffinancialpositionasatDecember2010,theconsolidatedincomestatement,consolidatedstatementofcomprehensiveincome,consolidatedstatementofcashflowandconsolidatedstatementofchangesinequityfortheyearthenended,andasummaryofsignificantaccountingpoliciesandotherexplanatoryinformation.

Directors’ Responsibility for the Consolidated Financial StatementsTheDirectorsareresponsibleforthepreparationandfairpresentationofthesefinancialstatementsinaccordancewithInternationalFinancialReportingStandardsandtheapplicableprovisionsofthearticlesofassociationofDanaGasPJSCandtheUAECommercialCompaniesLawof1984(asamended)andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Auditor’s ResponsibilityOurresponsibilityistoexpressanopiniononthesefinancialstatementsbasedonouraudit.WeconductedourauditinaccordancewithInternationalStandardsonAuditing.Thosestandardsrequirethatwecomplywithethicalrequirementsandplanandperformtheaudittoobtainreasonableassurancewhetherthefinancialstatementsarefreefrommaterialmisstatement.

Anauditinvolvesperformingprocedurestoobtainauditevidenceabouttheamountsanddisclosuresinthefinancialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementofthefinancialstatements,whetherduetofraudorerror.Inmakingthoseriskassessments,theauditorconsidersinternalcontrolrelevanttotheentity’spreparationandfairpresentationofthefinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrols.Anauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebymanagement,aswellasevaluatingtheoverallpresentationofthefinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

OpinionInouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheGroupasof31December2010,itsfinancialperformanceanditsconsolidatedcashflowsfortheyearthenendedinaccordancewithInternationalFinancialReportingStandards.

SajGasPlant,UAE


Emphasis of matterWithoutqualifyingouropinionwedrawattentiontonote12totheconsolidatedfinancialstatementswhichdisclosesthatthecontinueddelayincommencementofgassupplieshaspromptedakeysupplieroftheGrouptoinitiatearbitrationproceedingsagainstitsultimatesupplier.Basedontheinformationavailableatthistime,theDirectorsandmanagementareconfidentofapositiveoutcome.

Report on Other Legal and Regulatory Requirements

Wealsoconfirmthat,inouropinion,theconsolidatedfinancialstatementsincludeinallmaterialrespects,theapplicablerequirementsoftheUAECommercialCompaniesLawof1984(asamended)andtheArticlesofAssociationofDanaGasPJSC;properbooksofaccounthavebeenkeptbyDanaGasPJSC,aninventorywasdulycarriedoutandthecontentsofthereportoftheBoardofDirectorsrelatingtotheseconsolidatedfinancialstatementsareconsistentwiththebooksofaccount.Wehaveobtainedalltheinformationandexplanationswhichwerequiredforthepurposeofourauditand,tothebestofourknowledgeandbelief,noviolationsoftheUAECommercialCompaniesLawof1984(asamended)oroftheArticlesofAssociationofDanaGasPJSChaveoccurredduringtheyearwhichwouldhavehadamaterialeffectonthebusinessofDanaGasPJSCoronitsfinancialposition.

SignedbyAliH.Issa(RegistrationNo.488)ForErnst&Young

Sharjah,UnitedArabEmirates23rdFebruary2011

Consolidated Income StatementYearended31December2010

2010 2009

Notes USD mm AED mm USD mm AED mm

Revenue 487 1,785 349 1,279

Royalties (137) (502) (111) (407)

Netrevenue 5 350 1,283 238 872

Costofsales (33) (121) (33) (121)

Depreciationanddepletion 11 (104) (381) (86) (315)

Grossprofit 213 781 119 436

Investmentandfinanceincome 6 8 29 10 37

Otherincome 7 3 11 331 1,213

Provisionforimpairments 8 (5) (18) (116) (425)

Changeinfairvalueofinvestmentproperty 14 (2) (7) (71) (260)

Generalandadministrationexpenses (33) (121) (27) (99)

Financecosts 9 (56) (205) (55) (202)

Explorationexpenditure 11 (13) (48) (119) (436)

PROFIT BEFORE TAX 115 422 72 264

Incometaxexpense (72) (264) (48) (176)

PROFIT FOR THE YEAR 43 158 24 88

Basicanddilutedearningspershare

(USD/AEDpershare) 10 0.006 0.024 0.004 0.013

Consolidated Statement of Comprehensive IncomeYearended31December2010

2010 2009

USD mm AED mm USD mm AED mm

Profit for the year 43 158 24 88

Other comprehensive income:

Gainonavailable-for-salefinancialasset(note13) 32 118 101 370

Other comprehensive income for the year 32 118 101 370

Total comprehensive income for the year 75 276 125 458

The attached notes 1 to 31 form part of these consolidated financial statements


2010 2009


ASSETS

Non-current assets

Property,plantandequipment 11 1,045 3,828 941 3,449

Intangibleassets 12 1,355 4,967 1,379 5,055

Available-for-salefinancialasset 13 315 1,155 283 1,037

Investmentproperty 14 37 136 39 143

2,752 10,086 2,642 9,684

Current assets

Inventories 15 51 187 46 169

Tradeandotherreceivables 16 255 935 199 728

Duefromrelatedparties 1 3 2 7

Financialassetsatfairvaluethroughprofitorloss 17 10 37 9 33

Cashandcashequivalents 18 159 583 213 781

476 1,745 469 1,718

TOTAL ASSETS 3,228 11,831 3,111 11,402

EQUITY

Capital and reserves attributable to equity holders

of the Company

Sharecapital 19 1,801 6,600 1,637 6,000

Statutoryreserve 34 125 30 113

Legalreserve 34 125 30 113

Retainedearnings 112 409 243 882

Otherreserves 20 142 521 107 392

Convertiblebonds-equitycomponent 48 176 48 176

Attributable to shareholders of the Company 2,171 7,956 2,095 7,676

Non-controllinginterest 3 11 4 15

Total equity 2,174 7,967 2,099 7,691

LIABILITIES

Non-current liabilities

Borrowings 21 897 3,288 871 3,193

Provisions 22 17 62 14 51

914 3,350 885 3,244

Current liabilities

Tradepayablesandaccruals 23 140 514 127 467

140 514 127 467

Total liabilities 1,054 3,864 1,012 3,711

TOTAL EQUITY AND LIABILITIES 3,228 11,831 3,111 11,402

Consolidated Statement of Financial PositionAt31December2010

Consolidated Cash Flow Statement

Yearended31December2010

2010 2009


OPERATING ACTIVITIES

Profitbeforetax 115 422 72 264

Adjustmentsfor:

Depreciationanddepletion 11 104 381 86 315

Investmentandfinanceincome 6 (8) (29) (10) (37)

Changeinfairvalueofinvestmentproperty 14 2 7 71 260

Otherincome/expenses - - (331) (1,213)

Financecosts 9 56 205 55 202

Explorationexpenditure 11 13 48 119 436

Provisionforimpairments 8 5 18 116 425

Boardcompensation (2) (7) (2) (7)

285 1,045 176 645

Changesinworkingcapital:

Tradeandotherreceivables (101) (371) (41) (150)

Inventories (5) (18) (1) (4)

Tradepayablesandaccruals 23 85 21 77

Duefromrelatedparties 1 3 (2) (7)

Netcashgeneratedfromoperatingactivities 203 744 153 561

Incometaxpaid (72) (264) (48) (176)

Netcashfromoperatingactivities 131 480 105 385

INVESTING ACTIVITIES

Purchaseofproperty,plantandequipment (136) (498) (151) (556)

Expenditureonintangibles 12 (34) (125) (66) (242)

Proceedsfromsaleofinterestinjointventure 25 - - 177 650

ProceedsfromsaleofinterestinKomombo 25 35 128 - -

Investmentandfinanceincomereceived 7 26 9 32

Others 2 7 - -

Netcashusedininvestingactivities (126) (462) (31) (116)

FINANCING ACTIVITIES

Proceedsfromborrowings 10 37 - -

Repurchaseofownconvertiblebonds - - (10) (37)

Financecostspaid (69) (253) (68) (249)

Netcashusedinfinancingactivities (59) (216) (78) (286)

NET DECREASE IN CASH AND

CASH EQUIVALENTS (54) (198) (4) (17)

Cashandcashequivalentsat

thebeginningoftheyear 213 781 217 798

CASH AND CASH EQUIVALENTS AT THE

END OF THE YEAR 18 159 583 213 781

The attached notes 1 to 31 form part of these consolidated financial statementsThe attached notes 1 to 31 form part of these consolidated financial statements

Director23 February 2011

Director23 February 2011


Consolidated Statement of Changes in EquityAt31December2010

Attributable to shareholders of the Company Attributable to shareholders of the Company

Sharecapital

Statutoryreserves

Legalreserves

Retainedearnings

Otherreserves

Convertible bonds-equity component

Non-controllinginterest

Total

USD AED USD AED USD AED USD AED USD AED USD AED USD AED USD AED

mm mm mm mm mm mm mm mm mm mm mm mm mm mm mm mm

At31December2008 1,637 6,000 28 104 28 104 225 819 4 15 48 176 1 3 1,971 7,221

Profitfortheyear - - - - - - 24 88 - - - - - - 24 88

Othercomprehensiveincome - - - - - - - - 101 370 - - - - 101 370

Totalcomprehensiveincomefor

theyear - - - - - - 24 88 101 370 - - - - 125 458

Boardcompensation - - - - - - (2) (7) - - - - - - (2) (7)

Transfertoreserves - - 2 9 2 9 (4) (18) - - - - - - - -

Sharebasedpayment - - - - - - - - 2 7 - - - - 2 7

Additiontonon-controllinginterest - - - - - - - - - - - - 3 12 3 12

At 31 December 2009 1,637 6,000 30 113 30 113 243 882 107 392 48 176 4 15 2,099 7,691

Profitfortheyear - - - - - - 43 158 - - - - - - 43 158

Othercomprehensiveincome - - - - - - - - 32 118 - - - - 32 118

Totalcomprehensiveincomefor

theyear - - - - - - 43 158 32 118 - - - - 75 276

Boardcompensation - - - - - - (2) (7) - - - - - - (2) (7)

Transfertoreserves - - 4 12 4 12 (8) (24) - - - - - - - -

Sharebasedpayment(note27) - - - - - - - - 3 11 - - - - 3 11

Issueofbonusshare(note19) 164 600 - - - - (164) (600) - - - - - - - -

Losstonon-controllinginterest - - - - - - - - - - - - (1) (4) (1) (4)

At 31 December 2010 1,801 6,600 34 125 34 125 112 409 142 521 48 176 3 11 2,174 7,967

The attached notes 1 to 31 form part of these consolidated financial statementsThe attached notes 1 to 31 form part of these consolidated financial statements

Consolidated Statement of Changes in Equity (continued)At31December2010


Notes to the ConsolidatedFinancial Statements

At31December2010

DanaGasPJSCAnnualReportandAccounts201067


NotestotheConsolidatedFinancialStatements

1 ACTIVITIES

DanaGasPJSC(“DanaGas”orthe“Company”)wasincorporatedintheEmirateofSharjah,UnitedArabEmiratesasaPublicJointStockCompanyon20November2005pursuanttoincorporationdecreenumber429/2005issuedbytheMinistryofEconomy.DanaGassharesarelistedontheAbuDhabiSecuritiesExchange(ADX).

TheCompany,itsSubsidiariesandjointventuresconstitutetheGroup(“theGroup”).TheGroupisengagedinthebusinessofexploration,production,ownership,transportation,processing,distribution,marketingandsaleofnaturalgasandpetroleumrelatedproducts,includingthedevelopmentofgasrelatedprojectsandservices.

TheCompany’sregisteredheadofficeisP.O.Box2011,Sharjah,UnitedArabEmirateswithofficesinAl-Khobar,Bahrain,Cairo,KurdistanRegionofIraqandLondon.

PrincipalsubsidiariesandjointlycontrolledentitiesoftheGroupat31December2010andthegrouppercentageofordinarysharecapitalorjointventureinterestaresetoutbelow:

Subsidiaries % Countryofincorporation Principalactivities

DanaGasLNGVentures 100 BritishVirginIsland OilandGasexploration&production

DanaGasEgypt(previouslyCenturion) 100 Barbados OilandGasexploration&production

SajaaGasPrivateLimitedCompany(“SajGas”) 100 EmirateofSharjah,UAE GasSweetening

UnitedGasTransmissionsCompanyLimited(“UGTC”)

100 EmirateofSharjah,UAE GasTransmission

Danagaz(Bahrain)WLL 66 Bahrain GasProcessing

JointVentures % Countryofoperations Principalactivities

PearlPetroleumCompanyLimited(“PearlPetroleum”)

40 KurdistanRegionofIraq OilandGasexploration&production

UGTC/Emarat 50 EmirateofSharjah GasTransmission

CNGCL 35 EmirateofSharjah GasMarketing

EBGDCO 26.4 Egypt GasProcessing

GASCITIESLtd 50 MENASA GasCities

2 SIGNIFICANTACCOUNTINGPOLICIES

Basisofpreparation

Theconsolidatedfinancialstatementshavebeenpreparedonahistoricalcostbasis,exceptforinvestmentproperties,available-for-salefinancialassetsandfinancialassetsatfairvaluethroughprofitorlossaccountthathavebeenmeasuredatfairvalue.TheconsolidatedfinancialstatementsarepresentedinUnitedStatesDollars(USD),whichistheGroup’sfunctionalcurrency,andallthevaluesareroundedtothenearestmillionexceptwhereotherwiseindicated.TheUnitedArabEmiratesDirhams(AED)amountshavebeenpresentedsolelyfortheconveniencetoreadersoftheconsolidatedfinancialstatements.AEDamountshavebeentranslatedattherateofAED3.6655toUSD1.

Statementofcompliance

TheconsolidatedfinancialstatementsoftheGrouphavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS)asissuedbytheInternationalAccountingStandardsBoard(IASB).

Theaccountingpoliciesadoptedareconsistentwiththoseofthepreviousfinancialyear,exceptforthefollowingnewandamendedIFRSandIFRICinterpretationseffectiveasof1January2010:

• IFRS2Share-basedPayment:GroupCash-settledShare-basedPaymentTransactionseffective1January2010• IFRS3BusinessCombinations(Revised)andIAS27ConsolidatedandSeparateFinancialStatements(Amended)

effective1July2009,includingconsequentialamendmentstoIFRS2,IFRS5,IFRS7,IAS7,IAS21,IAS28,IAS31andIAS39

• IAS39FinancialInstruments:RecognitionandMeasurement–EligibleHedgeItemseffective1July2009• IFRIC17DistributionsofNon-cashAssetstoOwnerseffective1July2009

Theadoptionofthestandardsorinterpretationsisdescribedbelow:

IFRS 2 Share-based Payment (Revised)

TheIASBissuedanamendmenttoIFRS2thatclarifiedthescopeandtheaccountingforgroupcash-settledshare-basedpaymenttransactions.TheGroupadoptedthisamendmentasof1January2010.ItdidnothaveanimpactonthefinancialpositionorperformanceoftheGroup.

IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended)

IFRS3(Revised)introducessignificantchangesintheaccountingforbusinesscombinationsoccurringafterbecomingeffective.Changesaffectthevaluationofnon-controllinginterest,theaccountingfortransactioncosts,theinitialrecognitionandsubsequentmeasurementofacontingentconsiderationandbusinesscombinationsachievedinstages.Thesechangeswillimpacttheamountofgoodwillrecognisedandthereportedresultsintheperiodthatanacquisitionoccursandfuturereportedresults.

IAS27(Amended)requiresthatachangeintheownershipinterestofasubsidiary(withoutlossofcontrol)isaccountedforasatransactionwithownersintheircapacityasowners.Therefore,suchtransactionswillnolongergiverisetogoodwill,norwillitgiverisetoagainorloss.Furthermore,theamendedstandardchangestheaccountingforlossesincurredbythesubsidiaryaswellasthelossofcontrolofasubsidiary.ThechangesbyIFRS3(Revised)andIAS27(Amended)affectacquisitionsorlossofcontrolofsubsidiariesandtransactionswithnon-controllinginterestsafter1January2010.TheaboveamendmenthadnoimpactontheGroup’sfinancialstatements.

IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items

Theamendmentclarifiesthatanentityispermittedtodesignateaportionofthefairvaluechangesorcashflowvariabilityofafinancialinstrumentasahedgeitem.Thisalsocoversthedesignationofinflationasahedgedriskorportioninparticularsituations.TheamendmenthasnoimpactonthefinancialpositionorperformanceoftheGroup.

IFRIC 17 Distribution of Non-cash Assets to Owners

Thisinterpretationprovidesguidanceonaccountingforarrangementswherebyanentitydistributesnon-cashassetstoshareholderseitherasadistributionofreservesorasdividends.TheinterpretationhasnoaffectoneitherthefinancialpositionnorperformanceoftheGroup.



At31December2010




2 SIGNIFICANTACCOUNTINGPOLICIES(continued)

Consolidation

(a)SubsidiariesSubsidiariesareallentities(includingspecialpurposeentities)overwhichtheGrouphasthepowertogovernthefinancialandoperatingpoliciesgenerallyaccompanyingashareholdingofmorethanonehalfofthevotingrights.TheexistenceandeffectofpotentialvotingrightsthatarecurrentlyexercisableorconvertibleareconsideredwhenassessingwhethertheGroupcontrolsanotherentity.SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheGroup.Theyarede-consolidatedfromthedatethatcontrolceases.

ThepurchasemethodofaccountingisusedtoaccountfortheacquisitionofsubsidiariesbytheGroup.Thecostofanacquisitionismeasuredasthefairvalueoftheassetsgiven,equityinstrumentsissuedandliabilitiesincurredorassumedatthedateofexchange,pluscostsdirectlyattributabletotheacquisition.Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate,irrespectiveoftheextentofanyminorityinterest.TheexcessofthecostofacquisitionoverthefairvalueoftheGroup’sshareoftheidentifiablenetassetsacquiredisrecordedasgoodwill.Ifthecostofacquisitionislessthanthefairvalueofthenetassetsofthesubsidiaryacquired,thedifferenceisrecogniseddirectlyintheincomestatement.

Inter-companytransactions,balancesandunrealisedgainsontransactionsbetweenGroupcompaniesareeliminated.Unrealisedlossesarealsoeliminated.AccountingpoliciesofsubsidiarieshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.

(b)Transactionsandnon-controllingInterestsNoncontrollinginterestsrepresenttheportionofprofitorlossandnetassetsnotheldbyGroupandarepresentedseparatelyintheConsolidatedIncomeStatementandwithinequityinConsolidatedStatementofFinancialPosition,separatelyfromParents’sequity.TheGroupappliesapolicyoftreatingtransactionswithnon-controllinginterestsastransactionswithpartiesexternaltotheGroup.Disposalstonon-controllinginterestsresultingainsandlossesfortheGroupandarerecordedintheincomestatement.Purchasesfromnon-controllinginterestsresultingoodwill,beingthedifferencebetweenanyconsiderationpaidandtherelevantshareacquiredofthecarryingvalueofnetassetsofthesubsidiary.

(c)JointventuresTheGroup’sinterestsinjointlycontrolledentitiesareaccountedforbyproportionateconsolidation.TheGroupcombinesitsshareofthejointventures’individualincomeandexpenses,assetsandliabilitiesandcashflowsonaline-by-linebasiswithsimilaritemsintheGroup’sfinancialstatements.TheGrouprecognisestheportionofgainsorlossesonthesaleofassetsbytheGrouptothejointventurethatisattributabletotheotherventures.TheGroupdoesnotrecogniseitsshareofprofitsorlossesfromthejointventurethatresultfromtheGroup’spurchaseofassetsfromthejointventureuntilitre-sellstheassetstoanindependentparty.However,alossonthetransactionisrecognisedimmediatelyifthelossprovidesevidenceofareductioninthenetrealisablevalueofcurrentassets,oranimpairmentloss.

(d)AssociatesAssociatesareallentitiesoverwhichtheGrouphassignificantinfluencebutnotcontrol,generallyaccompanyingashareholdingbetween20%and50%ofthevotingrights.Investmentsinassociatesareaccountedforusingtheequitymethodandareinitiallyrecognisedatcost.

TheGroup’sshareofitsassociates’post-acquisitionprofitsorlossesisrecognisedintheincomestatement,anditsshareofpost-acquisitionmovementsinreservesisrecognisedinreserves.Thecumulativepost-acquisitionmovementsareadjustedagainstthecarryingamountoftheinvestment.WhentheGroup’sshareoflossesinanassociateequalsorexceedsitsinterestintheassociate,includinganyotherunsecuredreceivables,theGroupdoesnotrecognisefurtherlosses,unlessithasincurredobligationsormadepaymentsonbehalfoftheassociate.UnrealisedgainsontransactionsbetweentheGroupanditsassociatesareeliminatedtotheextentoftheGroup’sinterestintheassociates.Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceofanimpairmentoftheassettransferred.AccountingpoliciesofassociateshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.Dilutiongainsandlossesarisingininvestmentsinassociatesarerecognisedintheincomestatement.

SegmentreportingOperatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-maker.Thechiefoperatingdecision-maker,whoisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedastheChiefExecutiveOfficerwhomakesstrategicdecisions.


Foreigncurrencytranslation

(a)FunctionalandpresentationcurrencyItemsincludedinthefinancialstatementsofeachofthegroup’sentitiesaremeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(‘thefunctionalcurrency’).TheconsolidatedfinancialstatementsarepresentedinUSDwhichisCompany’sfunctionalcurrencywhereAEDispresentedasthegroup’spresentationcurrency.

(b)TransactionsandbalancesForeigncurrencytransactionsaretranslatedintothefunctionalcurrencyusingtheexchangeratesprevailingatthedatesofthetransactionsorvaluationwhereitemsarere-measured.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyear-endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesarerecognisedintheincomestatement,exceptwhendeferredinequityasqualifyingcashflowhedgesandqualifyingnetinvestmenthedges.

Changesinthefairvalueofmonetarysecuritiesdenominatedinforeigncurrencyclassifiedasavailable-for-saleareanalysedbetweentranslationdifferencesresultingfromchangesintheamortisedcostofthesecurityandotherchangesinthecarryingamountofthesecurity.Translationdifferencesrelatedtochangesinamortisedcostarerecognisedinprofitorloss,andotherchangesincarryingamountarerecognisedinequity.

Translationdifferencesonnon-monetaryfinancialassetsandliabilitiessuchasequitiesheldatfairvaluethroughprofitorlossarerecognisedinconsolidatedincomestatementaspartofthefairvaluegainorloss.Translationdifferencesonnon-monetaryfinancialassetssuchasequitiesclassifiedasavailable-for-saleareincludedintheavailable-for-salereserveinequity.

(c)GroupcompaniesEachentityintheGroupdeterminesitsownfunctionalcurrencyanditemsincludedinthefinancialstatementsofeachentityaremeasuredusingthatfunctionalcurrency.

ThestatementoffinancialpositionofsubsidiariesandjointventureswithfunctionalcurrenciesotherthanUSDollarsaretranslatedusingtheclosingratemethod,wherebyassetsandliabilitiesaretranslatedattheratesofexchangerulingatthestatementoffinancialpositiondate.Theincomestatementsofsuchsubsidiariesandjointventuresaretranslatedataverageexchangeratesfortheyear(unlessthisaverageisnotareasonableapproximationofthecumulativeeffectoftheratesprevailingonthetransactiondates,inwhichcaseincomeandexpensesaretranslatedattherateonthedatesofthetransactions).Anygoodwillarisingontheacquisitionofsuchoperationandanyfairvalueadjustmentstothecarryingamountsofassetsandliabilitiesarisingontheacquisitionaretreatedasassetsandliabilitiesoftheoperationandtranslatedattheclosingrate.Exchangedifferencesarisingontheretranslationofnetassetsaretakendirectlytoequity.Onthedisposalofsuchentities,accumulatedexchangedifferencesarerecognisedintheconsolidatedincomestatementasacomponentofthegainorlossondisposal.

Property,plantandequipment

Property,plantandequipmentisstatedatcostnetofaccumulateddepreciationand/oraccumulatedimpairmentlosses,ifany.Landisnotdepreciated.

Depreciationiscomputedonastraightlinebasisovertheestimatedusefullivesoftheassetsasfollows:

Oilandgasproperties unit-of-productionBuildings 25yearsGasplant 15-25yearsPipelines&relatedfacilities 25years

Otherassets:Computers 3yearsFurnitureandfixtures 3years–5yearsVehicles 3years–5yearsLeaseholdimprovements overtheexpectedperiodoflease



At31December2010





Property,plantandequipment(continued)

Thecarryingvaluesofproperty,plantandequipmentarereviewedforimpairmentwheneventsorchangesincircumstancesindicatethecarryingvaluemaynotberecoverable.Ifanysuchindicationsexistandwherethecarryingvaluesexceedtheestimatedrecoverableamount,theassetsarewrittendowntotheirrecoverableamountbeingthehigheroftheirfairvaluelesscoststosellandtheirvalueinuse.

Theassets’residualvaluesandusefullivesarereviewedateachfinancialyearend,andadjustedprospectivelyifappropriate.

Expenditureincurredtoreplaceacomponentofanitemofproperty,plantandequipmentthatisaccountedforseparatelyiscapitalisedandthecarryingamountofthecomponentthatisreplacediswrittenoff.Othersubsequentexpenditureiscapitalisedonlywhenitincreasesfutureeconomicbenefitsoftherelateditemofproperty,plantandequipment.Allotherexpenditureisrecognisedintheincomestatementastheexpenseisincurred.

Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Gainsandlossesondisposalsaredeterminedbycomparingtheproceedswiththecarryingamountandarerecognisedwithin‘Other(cost)/income’intheincomestatement.

Capitalwork-in-progressisstatedatcost.Oncommissioning,capitalwork-in-progressistransferredtoproperty,plantandequipmentanddepreciatedordepletedinaccordancewithGrouppolicies.

Oilandgasassets

Oilandnaturalgasexplorationandevaluationexpendituresareaccountedforusingthe‘successfulefforts’methodofaccounting.Geologicalandgeophysicalexplorationcostsarechargedagainstincomeasincurred.Costsdirectlyassociatedwithanexplorationwellarecapitalisedasanintangibleassetuntilthedrillingofthewelliscompleteandtheresultshavebeenevaluated.Ifhydrocarbonsarenotfound,theexplorationexpenditureiswrittenoffasadryhole.Ifhydrocarbonsarefoundand,subjecttofurtherappraisalactivitywhichmayincludethedrillingoffurtherwells(explorationorexploratory-typestratigraphictestwells),arelikelytobecapableofcommercialdevelopment,thecostscontinuetobecarriedasanasset.Allsuchcarriedcostsaresubjecttoatechnical,commercialandmanagementreviewatleastonceayeartoconfirmthecontinuedintenttodeveloporotherwiseextractvaluefromthediscovery.Whenthisisnolongerthecase,thecostsarewrittenoff.Whenprovedreservesofoilandnaturalgasaredeterminedanddevelopmentissanctioned,capitalisationismadewithinproperty,plantandequipmentorintangibleassetsaccordingtothenatureoftheexpenditure.

(a)DepletionOilandgaspropertiesaredepletedusingtheunit-of-productionmethod.Unit-of-productionratesarebasedonprovedreserves,whichareoil,gasandothermineralreservesestimatedtoberecoveredfromexistingfacilitiesusingcurrentoperatingmethods.

(b)Impairment–explorationandevaluationassetsExplorationandevaluationassetsaretestedforimpairmentwhenreclassifiedtodevelopmenttangibleorintangibleassets,orwheneverfactsandcircumstancesindicateimpairment.Animpairmentlossisrecognisedfortheamountbywhichtheexplorationandevaluationassets’carryingamountexceedstheirrecoverableamount.Therecoverableamountisthehigheroftheexplorationandevaluationassets’fairvaluelesscosttosellandtheirvalueinuse.Forthepurposeofassessingimpairment,theexplorationandevaluationassetssubjecttotestingaregroupedwithexistingcash-generatingunitsofproductionfieldsthatarelocatedinthesamegeographicalregion.

Intangibleassets

Intangibleassetsacquiredaspartofabusinesscombinationrelatingtooilandgaspropertiesarerecognisedseparatelyfromgoodwilliftheassetisseparableorarisesfromcontractualorlegalrightsanditsfairvaluecanbemeasuredreliably.

Followinginitialrecognition,intangibleassetsarecarriedatcostlessanyaccumulatedamortisationandanyaccumulatedimpairmentlosses.Internallygeneratedintangibleassets,excludingcapitaliseddevelopmentcosts,arenotcapitalisedandexpenditureisreflectedintheincomestatement.


Intangibleassets(continued)

Theusefullivesofintangibleassetsareassessedtobeeitherfiniteorindefinite.Intangibleassetswithfinitelivesareamortisedovertheusefuleconomiclifeandassessedforimpairmentwheneverthereisanindicationthattheintangibleassetmaybeimpaired.Theamortisationperiodandtheamortisationmethodforanintangibleassetwithafiniteusefullifearereviewedatleastateachfinancialyear-end.Changesintheexpectedusefullifeortheexpectedpatternofconsumptionoffutureeconomicbenefitsembodiedintheassetareaccountedforbychangingtheamortisationperiodormethod,asappropriate,andtreatedasachangeinaccountingestimate.

Intangibleassetswithindefiniteusefullivesarenotamortisedbuttestedforimpairmentannuallyeitherindividuallyoratthecash-generatingunitlevel.Whendevelopmentinrespectoftheoilandgaspropertiesisinternallyapproved,therelatedamountistransferredfromintangibleassetstoproperty,plantandequipmentanddepletedinaccordancewiththeGroup’spolicy.Ifnofutureactivityisplanned,theremainingbalanceiswrittenoff.

Goodwill

Goodwillrepresentstheexcessofthecostofanacquisitionoverthefairvalueofthegroup’sshareofthenetidentifiableassetsoftheacquiredsubsidiaryatthedateofacquisition.Goodwillonacquisitionsofsubsidiariesisincludedin‘intangibleassets’.Goodwillistestedannuallyforimpairmentandcarriedatcostlessaccumulatedimpairmentlosses.Impairmentlossesongoodwillarenotreversed.Gainsandlossesonthedisposalofanentityincludethecarryingamountofgoodwillrelatingtotheentitysold.

Assetdecommissioningobligation

Whererequiredunderexistingproductionsharingcontracts,theGrouprecordstheestimatedcostsoffutureabandonmentandsiterestorationofoilandgasproperties,whichareaddedtothecarryingvalueoftheoilandgasproperties.Theabandonmentandsiterestorationcostsinitiallyrecordedaredepletedusingtheunit-of-productionmethodbasedonprovedoilandgasreserves.Subsequentrevisionstoabandonmentandsiterestorationcostsareconsideredasachangeinestimatesandareaccountedforonaprospectivebasis.

Impairmentofnon-financialassets

TheGroupassessesateachreportingdatewhetherthereisanindicationthatanassetmaybeimpaired.Ifanysuchindicationexists,orwhenannualimpairmenttestingforanassetisrequired,theGroupmakesanestimateoftheasset’srecoverableamount.Anasset’srecoverableamountisthehigherofanasset’sorcash-generatingunit’sfairvaluelesscoststosellanditsvalueinuseandisdeterminedforanindividualasset,unlesstheassetdoesnotgeneratecashinflowsthatarelargelyindependentofthosefromotherassetsorgroupsofassets.Wherethecarryingvalueofanassetexceedsitsrecoverableamount,theassetisconsideredimpairedandiswrittendowntoitsrecoverableamount.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassumptionsofthetimevalueofmoneyandtherisksspecifictotheasset.

Forassetsexcludinggoodwill,anassessmentismadeateachreportingdateastowhetherthereisanyindicationthatpreviouslyrecognisedimpairmentlossesmaynolongerexistormayhavedecreased.Ifsuchindicationexists,theGroupmakesanestimateofrecoverableamount.Apreviouslyrecognisedimpairmentlossisreversedonlyiftherehasbeenachangeintheestimatesusedtodeterminetheasset’srecoverableamountsincethelastimpairmentlosswasrecognised.Ifthatisthecasethecarryingamountoftheassetisincreasedtoitsrecoverableamount.Thatincreasedamountcannotexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciation,hadnoimpairmentlossbeenrecognisedfortheassetinprioryears.Impairmentlossesrecognisedinrelationtogoodwillarenotreversedforsubsequentincreasesinitsrecoverableamount.



At31December2010





Impairmentoffinancialassets

Anassessmentismadeateachstatementoffinancialpositiondatetodeterminewhetherthereisobjectiveevidencethataspecificfinancialassetmaybeimpaired.Ifsuchevidenceexists,anyimpairmentlossisrecognisedintheincomestatement.Impairmentisdeterminedasfollows:

(a) Forassetscarriedatfairvalue,impairmentisthedifferencebetweencostandfairvalue; (b) Forassetscarriedatcost,impairmentisthedifferencebetweencostandthepresentvalueoffuture cashflowsdiscountedatthecurrentmarketrateofreturnforasimilarfinancialasset; (c) Forassetscarriedatamortisedcost,impairmentisthedifferencebetweencarryingamountandthe presentvalueoffuturecashflowsdiscountedattheoriginaleffectiveinterestrate.

Financialassets

TheGroupclassifiesitsfinancialassetsinthefollowingcategories:atfairvaluethroughprofitorloss,loansandreceivablesandavailable-for-sale.Theclassificationdependsonthepurposeforwhichthefinancialassetswereacquired.Managementdeterminestheclassificationofitsfinancialassetsatinitialrecognition.

(a)FinancialassetsatfairvaluethroughprofitorlossFinancialassetsatfairvaluethroughprofitorlossarefinancialassetsheldfortrading.Afinancialassetisclassifiedinthiscategoryifacquiredprincipallyforthepurposeofsellingintheshort-term.Derivativesarealsocategorisedasheldfortradingunlesstheyaredesignatedashedges.Assetsinthiscategoryareclassifiedascurrentassets.

(b)LoansandreceivablesLoansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.Theyareincludedincurrentassets,exceptformaturitiesgreaterthan12monthsafterthestatementoffinancialpositiondate.Theseareclassifiedasnon-currentassets.TheGroup’sloansandreceivablescomprise‘tradeandotherreceivables’.

(c)Available-for-salefinancialassetsAvailable-for-sale(AFS)financialassetsarenon-derivativesthatareeitherdesignatedinthiscategoryornotclassifiedinanyoftheothercategories.Theyareincludedinnon-currentassetsunlessmanagementintendstodisposeoftheinvestmentwithin12monthsofthestatementoffinancialpositiondate.Afterinitialmeasurement,AFSinvestmentsaresubsequentlymeasuredatfairvaluewithunrealisedgainsorlossesrecognisedas“Othercomprehensiveincome”intheAFSreserveuntiltheinvestmentisderecognised.AtthattimecumulativegainisrecognisedinotherincomeandcumulativelossisrecognisedasFinancecostsandremovedfromAFSreserve.

Regularpurchasesandsalesoffinancialassetsarerecognisedonthetrade-date–thedateonwhichtheGroupcommitstopurchaseorselltheasset.Investmentsareinitiallyrecognisedatfairvalueplustransactioncostsforallfinancialassetsnotcarriedatfairvaluethroughprofitorloss.Financialassetscarriedatfairvaluethroughprofitorlossisinitiallyrecognisedatfairvalueandtransactioncostsareexpensedintheincomestatement.Financialassetsarederecognisedwhentherightstoreceivecashflowsfromtheinvestmentshaveexpiredorhavebeentransferredandthegrouphastransferredsubstantiallyallrisksandrewardsofownership.Financialassetsatfairvaluethroughprofitorlossaresubsequentlycarriedatfairvalue.

Gainorlossesarisingfromchangesinthefairvalueofthe‘financialassetsatfairvaluethroughprofitorloss’categoryarepresentedintheincomestatementwithin‘investmentandfinanceincome’intheperiodinwhichtheyarise.Dividendsincomefromfinancialassetsatfairvaluethroughprofitorlossisrecognisedintheincomestatementaspartofotherincomewhenthegroup’srighttoreceivepaymentisestablished.

Thefairvalueofquotedinvestmentsisbasedoncurrentbidprices.Ifthemarketforafinancialassetisnotactive(andforunlistedsecurities),thegroupestablishesfairvaluebyusingvaluationtechniques.Theseincludestheuseofrecentarm’slengthtransactions,referenttootherinstrumentsthataresubstantiallythesame,discountedcashflowanalysis,andoptionpricingmodelsmakingmaximumuseofmarketinputsandrelyingaslittleaspossibleonentity-specificinputs.


Investmentproperties

Investmentpropertiesareinitiallymeasuredatcost,includingtransactionscosts.Subsequentexpenditureisaddedtothecarryingvalueofinvestmentpropertieswhenitisprobablethatfutureeconomicbenefits,inexcessoftheoriginallyassessedstandardofperformance,willflowtotheGroup.Anyexpenditurethatresultsinthemaintenanceofpropertytoanacceptablestandardorspecificationistreatedasrepairsandmaintenanceexpensesandischargedtotheconsolidatedincomestatementintheperiodinwhichitisaccrued.

Subsequentlyinvestmentpropertiesarestatedatfairvalue,whichreflectsmarketconditionsatthereportingdate.Anygainsorlossarisingfromchangesinfairvaluesofinvestmentpropertiesareincludedintheincomestatement.

Inventories

Inventoriesarestatedatthelowerofcostandnetrealisablevalue.Costcomprisespurchaseprice,costofproduction,transportationandotherdirectlyallocableexpenses.Costsofsparesandconsumablesaredeterminedonaweightedaveragebasis.Netrealisablevalueisbasedonestimatedsellingpricelessanyfurthercostsexpectedtobeincurredoncompletionanddisposal.

Tradeandotherreceivables

Accountsreceivablearestatedatoriginalinvoiceamountlessaprovisionforanyuncollectibleamounts.Anestimatefordoubtfulaccountsismadewhencollectionofthefullamountisnolongerprobable.Baddebtsarewrittenoffwhenthereisnopossibilityofrecovery.

Cashandcashequivalents

Cashandcashequivalentsincludecashinhand,depositsheldatcallwithbanks,othershort-termhighlyliquidinvestmentswithoriginalmaturitiesofthreemonthsorless,andbankoverdrafts.Bankoverdraftsareshownwithinborrowingsincurrentliabilitiesonthestatementoffinancialposition.

Tradepayableandaccruals

Liabilitiesarerecognisedforamountstobepaidinthefutureforgoodsorservicesreceived,whetherbilledbythesupplierornot.

Provisions

GeneralProvisionsarerecognisedwhentheGrouphasanpresentobligation(legalorconstructive)arisingfromapastevent,andthecoststosettletheobligationarebothprobableandabletobereliablymeasured.

Decommissioning liabilityDecommissioningcostsareprovidedatthepresentvalueofexpectedcoststosettletheobligationusingestimatedcashflowsandarerecognisedaspartofthatparticularasset.Thecashflowsarediscountedatacurrentpretaxratethatreflectstherisksspecifictothedecommissioningliability.Theunwindingofthediscountisexpensedasincurredandrecognisedintheincomestatementasafinancecost.Theestimatedfuturecostsofdecommissioningarereviewedannuallyandadjustedasappropriate.Changesintheestimatedfuturecostsorinthediscountrateappliedareaddedtoordeductedfromthecostoftheasset.

Employees’ end of service benefitsTheGroupprovidesendofservicebenefitstoitsemployees.Theentitlementtothesebenefitsisbasedupontheemployees’finalsalaryandlengthofservice,subjecttothecompletionofaminimumserviceperiod.Theexpectedcostsofthesebenefitsareaccruedovertheperiodofemployment.

WithrespecttoitsUAEnationalemployees,theGroupmakescontributionstoapensionfundestablishedbytheGeneralPensionandSocialSecurityAuthoritycalculatedasapercentageoftheemployees’salaries.TheGroup’sobligationsarelimitedtothesecontributions,whichareexpensedwhendue.



At31December2010





IncomeTaxes

InEgypt,thegovernmentreceivesproductioninlieuofincometax.TheGrouprecordsthisproductionasacurrentincometaxexpense.

Borrowingcosts

Borrowingcostsdirectlyattributabletotheacquisition,constructionorproductionofanassetthatnecessarilytakessubstantialperiodoftimetogetreadyforitsintendeduseorsalearecapitalisedaspartofthecostofrespectiveassetsuntilsuchtimeastheassetsaresubstantiallyreadyfortheirintendeduse.Allotherborrowingcostsarerecognisedasfinancecostintheincomestatementintheperiodinwhichtheyareincurred.

Leases

Financeleases,whichtransfertotheGroupsubstantiallyalltherisksandbenefitsincidentaltoownershipoftheleaseditem,arecapitalisedattheinceptionoftheleaseatthefairvalueoftheleasedassetor,iflower,atthepresentvalueoftheminimumleasepayments.Leasepaymentsareapportionedbetweenthefinancechargesandreductionoftheleaseliabilitysoastoachieveaconstantrateofprofitontheremainingbalanceoftheliability.Financechargesarechargeddirectlyagainstincome.Capitalisedleasedassetsaredepreciatedovertheshorteroftheestimatedusefullifeoftheassetortheleaseterm.

Leaseswherethelessorretainssubstantiallyalltherisksandbenefitsofownershipoftheassetareclassifiedasoperatingleases.Operatingleasepaymentsarerecognisedasanexpenseintheconsolidatedincomestatementonastraight-linebasisovertheleaseterm.

Profit-bearingloansandborrowings

Allprofit-bearingloansandborrowingsareinitiallyrecognisedatthefairvalueoftheconsiderationreceivednetofissuecostsdirectlyattributabletotheborrowing.Theeffectiveprofitrateistheratethatexactlydiscountsestimatedfuturecashpaymentsthroughtheexpectedlifeofthefinancialinstrument.

Afterinitialrecognition,profit-bearingloansandborrowingsaresubsequentlymeasuredatamortisedcostusingtheeffectiveprofitratemethod.Amortisedcostiscalculatedbytakingintoaccountanyissuecosts,andanydiscountorpremiumonsettlement.

Convertiblebonds

Convertiblebondsthatcanbeconvertedintosharecapitalattheoptionoftheholder,wherethenumberofsharesisfixedbasedonthereferencepricesetinninemonthstimefromthedateofissue,areaccountedforascompoundfinancialinstruments.Theequitycomponentoftheconvertiblebondsiscalculatedastheexcessofissueproceedsoverthepresentvalueofthefutureinterestandprincipalpayments,discountedatthemarketrateofinterestapplicabletosimilarliabilitiesthatdonothaveaconversionoption.

Sharebasedpaymenttransactions

Certainemployees(includingseniorexecutives)oftheGroupreceiveremunerationintheformofshare-basedpaymenttransactions,wherebyemployeesrenderservicesasconsiderationforeitherequityinstruments(“equitysettledtransactions”)orrestrictedshares.

Equity-settled transactionThecostofequity-settledtransactionswithemployeesismeasuredbyreferencetothefairvalueatthedateonwhichtheyaregranted.Thefairvalueisdeterminedbyanexternalvaluerusinganappropriatepricingmodel.Thecostofequity-settledtransactionsisrecognised,togetherwithacorrespondingincreaseinequity,overtheperiodinwhichtheperformanceand/orserviceconditionsarefulfilled,endingonthedateonwhichtherelevantemployeesbecomefullyentitledtotheaward(‘thevestingdate’).Thecumulativeexpenserecognisedforequity-settledtransactionsateachreportingdateuntilthevestingdatereflectstheextenttowhichthevestingperiodhasexpiredandtheGroup’sbestestimateofthenumberofequityinstrumentsthatwillultimatelyvest.Theincomestatementchargeorcreditforaperiodrepresentsthemovementincumulativeexpenserecognisedasatthebeginningandendofthatperiod.


Sharebasedpaymenttransactions(continued)

Equity-settled transaction (continued)

Wherethetermsofanequity-settledawardaremodified,theminimumexpenserecognisedistheexpenseifthetermshadnotbeenmodified.Anadditionalexpenseisrecognisedforanymodification,whichincreasesthetotalfairvalueofthesharebasedpaymentarrangement,orisotherwisebeneficialtotheemployeeasmeasuredatthedateofmodification.

Restricted sharesService-basedrestrictedsharesaregrantedatnocosttokeyemployeesandgenerallyvestonethirdeachyearoverathreeyearperiodfromthedateofgrant.RestrictedsharesvestinaccordancewiththetermsandconditionsestablishedbytheBoardofDirectorsandarebasedoncontinuedservice.Thefairvalueofservice-basedrestrictedsharesisdeterminedbasedonthenumbersofsharesgrantedandtheclosingpriceoftheCompany’scommonstockonthedateofgrant.Thecostisbeingamortizedonastraightlinemethod,basedonthevestingperiod.

Revenuerecognition

RevenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheGroupandtherevenuecanbereliablymeasured.Netrevenueismeasuredatthefairvalueoftheconsiderationreceived,excludingroyalties,discounts,rebates,andothersalestaxesorduties.Thefollowingspecificrecognitioncriteriamustalsobemetbeforerevenueisrecognised:

Revenue from sale of hydrocarbonsRevenuefromsaleofhydrocarbonsisrecognisedwhenthesignificantrisksandrewardsofownershiparetransferredtothebuyerandtheamountofrevenueandthecostsofthetransactioncanbemeasuredreliably.

Finance incomeRevenuefromsurplusfundsinvestedwithfinancialinstitutionsisrecognisedastherevenueaccrues.

Fair valuesThefairvalueofprofit-bearingitemsisestimatedbasedondiscountedcashflowsusingprofitratesforitemswithsimilartermsandriskcharacteristics.

3 SIGNIFICANTACCOUNTINGJUDGMENTSANDESTIMATES

EstimationuncertaintyThekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthestatementoffinancialpositiondate,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow:

• Impairmentofgoodwill:TheGroupdetermineswhethergoodwillisimpairedonanannualbasis.Thisrequiresanestimationofthevalueinuseofthecash-generatingunitstowhichthegoodwillisallocated.EstimatingthevalueinuserequirestheGrouptomakeanestimateoftheexpectedfuturecashflowsfromeachcash-generatingunitandalsotodetermineasuitablediscountrateinordertocalculatethepresentvalueofthosecashflows.Thecarryingamountofgoodwillat31December2010wasUSD308million(2009:USD308million).

• Recoverablevalueofintangibleoilandgasassets:TheGroupdeterminesateachstatementoffinancialpositiondatewhetherthereisanyevidenceofimpairmentinthecarryingvalueofitsintangibleoilandgasassets.Thisrequiresmanagementtoestimatetherecoverablevalueofitsintangibleoilandgasassetsbyreferencetoquotedmarketvalues,similararmslengthtransactionsinvolvingtheseassetsetc.Thecarryingamountofintangiblesassetsat31December2010wasUSD183million(2009:USD205million).

• TheGroupcarriesitsinvestmentpropertiesatfairvalue,withchangesinfairvaluesbeingrecognisedintheconsolidatedincomestatement.TheGroupengagedafirmofqualifiedindependentpropertyconsultanttodeterminefairvaluereflectingmarketconditionsasat31December2010.



At31December2010




4 SEGMENTALINFORMATION

ManagementhasdeterminedtheoperatingsegmentsbasedonthereportsreviewedbytheChiefExecutiveOfficer(CEO)thatareusedtomakestrategicdecisions.TheCEOconsidersthebusinessfromageographicperspectivewhichisdividedintofourgeographicalunits.


United Arab Egypt Kurdistan Rest of the Total

Emirates Region World

of Iraq

USD mm USD mm USD mm USD mm USD mm

Revenue

Externalsalesnetofroyalties 4 264 82 - 350

Total revenue net of royalties 4 264 82 - 350

GrossProfit 3 134 76 - 213

Investmentandfinanceincome 8

OtherIncome 3

ProvisionforImpairment (5)

Changeinfairvalueof

investmentproperty (2)

Generalandadministrationexpenses (33)

Financecosts (56)

Explorationcostwrite-off (13)

Profitbeforeincometax 115

Incometaxexpense (72)

PROFIT FOR THE YEAR 43

Segmentassetsat31December2010 1,646 1,082 500 - 3,228

Segmentliabilitiesat31December2010 917 114 23 - 1,054

Other segment information

Capitalexpenditures:

Intangibleassets - 34 - - 34

Property,plantandequipment 12 97 59 - 168

Total 12 131 59 - 202

Depreciation,depletion&amortization (1) (100) (3) - (104)

Provisionforimpairment (4) (1) - - (5)

Changeinfairvalueofinvestmentproperty (2) - - - (2)

Explorationcostswrittenoff - (13) - - (13)

4 SEGMENTALINFORMATION(continued)


United Arab Egypt Kurdistan Rest of the Total

Emirates Region World

of Iraq

USD mm USD mm USD mm USD mm USD mm

Revenue

Externalsalesnetofroyalties 4 192 42 - 238

Totalrevenuenetofroyalties 4 192 42 - 238

GrossProfit 3 79 37 - 119

Investmentandfinanceincome 10

Otherincome 331

ProvisionforImpairment (116)

Changeinfairvalueof

investmentproperty (71)

Generalandadministrativeexpenses (27)

Financecosts (55)

Explorationcostwrite-off (119)

Profitbeforeincometax 72

Incometaxexpense (48)

PROFIT FOR THE YEAR 24

Segmentassetsat31December2009 1,697 1,045 369 - 3,111

Segmentliabilitiesat31December2009 905 77 30 - 1,012

Other segment information

Capitalexpenditures:

Intangibleassets 1 53 - 12 66

Property,plantandequipment 12 79 95 - 186

Total 13 132 95 12 252

Depreciation,depletion&amortization (1) (85) - - (86)

Provisionforimpairment - (39) - (77) (116)

Changeinfairvalueofinvestmentproperty (71) - - - (71)

Explorationcostswrittenoff - (107) - (12) (119)



At31December2010




5 NETREVENUE

2010 2009

USD mm USD mm

Grosssales 483 345

Less:Royalties (137) (111)

Netsales 346 234

Tarifffee 4 4

Netrevenue 350 238

6 INVESTMENTANDFINANCEINCOME

2010 2009

USD mm USD mm

Profitsharefrombankdeposits 7 9

Fairvaluegainonfinancialassetsatfairvaluethroughprofitorloss(note17) 1 1

8 10

7 OTHERINCOME

2010 2009

USD mm USD mm

GainonsaleofinterestinPearlPetroleum(note25) - 292

GainonsaleofinterestinKomombo(note25) - 35

Others 3 4

3 3318 PROVISIONFORIMPAIRMENTS

2010 2009

USD mm USD mm

ProvisionforImpairmentof:

-oil&gasassets(note12) 5 84

-inventory(note15) - 13

-doubtfuldebts(note16) - 19

5 1169 FINANCECOSTS

2010 2009

USD mm USD mm

Financecostonconvertiblebonds(note21) 85 83

Financecostcapitalised (29) (28)

56 55

10 EARNINGSPERSHARE

(a)Basicearningspershareiscalculatedbydividingnetprofitfortheperiodattributabletoequityholdersoftheparentbytheweightedaveragenumberofordinarysharesoutstandingduringtheperiod.

2010 2009

Earnings:

NetProfitfortheperiod-USDmm 43 24

Shares:

WeightedaveragenumberofsharesoutstandingforcalculatingbasicEPS-million 6,600 6,600

EPS (Basic) – USD: 0.006 0.004

(b)Dilutedearningspershareiscalculatedbyadjustingtheweightedaveragenumberofordinarysharesoutstandingtoassumeconversionofalldilutivepotentialordinaryshares.TheCompanyhasthreecategoriesofdilutivepotentialordinaryshares:convertiblesukuk,shareoptionsandrestrictedshares.Theconvertiblesukukisassumedtohavebeenconvertedintoordinarysharesandthenetprofitisadjustedtoeliminatethefinancecosteffect.Fortheshareoptions,acalculationisdonetodeterminethenumberofsharesthatcouldhavebeenacquiredatfairvalue(determinedastheaverageannualmarketsharepriceoftheCompany’sshares)basedonthemonetaryvalueofthesubscriptionrightsattachedtooutstandingshareoptions.Thenumberofsharescalculatedasaboveiscomparedwiththenumberofsharesthatwouldhavebeenissuedassumingtheexerciseoftheshareoptions.

2010 2009

Earnings:

NetProfitfortheperiod-USDmm 43 24

Financecostonconvertiblesukuk 75 75

118 99

Shares:

WeightedaveragenumberofsharesoutstandingforcalculatingbasicEPS-million 6,600 6,600

Adjustmentsfor:

AssumedconversionofconvertibleSukuk(million)* 1,908 1,908

Shareoptions/Restrictedshares(million)** 7 -

Weightedaveragenumberofordinarysharesfordilutedearningspershare(million) 8,515 8,508

Note:RestrictedshareshadadilutiveeffectontheEPSoftheGroup,howeverasthedilutionisinsignificantitisnotdisclosedseparately.

*AsdisclosedinNote21,on7July2008,theconversionratefortheconvertiblesukukwasdeterminedandhasbeenfixedat17,343.3sharesforeveryUSD10,000SukukCertificate.TheshareholdersintheAnnualGeneralMeetingon21April2010approvedtheissuanceof10%bonusshares,duetowhichtheconversionexchangeratiowasresetfrom17,343.3sharesto19,076.6sharesforeveryUSD10,000SukukCertificate.Asat31December2010theconversionhadananti-dilutiveeffectontheEPSoftheCompany.

**Asat31December2010allthestockoptionsissuedtoemployeeswereoutofmoney,hencenoshareshavebeenassumedforcalculatingdilutedearningspershare.Duringtheyearkeymanagementemployeeswereawardedwithrestrictedshareswhichwillbevestedoveraperiodof3years.Theserestrictedshareshavebeentakenintoaccountinthecalculationofdilutedearningspershare.



At31December2010




11 PROPERTY,PLANTANDEQUIPMENT

Freehold Building Oil & gas Plant & Other Pipeline & Capital Total

land properties Equip- assets related work-in-

ment facilities progress

USD mm USD mm USD mm USD mm USD mm USD mm USD mm USD mm

Cost:

At1January2010 13 1 494 93 16 25 529 1,171

Additions - - 74 3 2 - 89 168

TransferfromIntangibleassets - - 53 - - - - 53

(note12)

TransferfromCapital - - - - - 54 (54) -

work-in-progress.

Dryholecostswritten-off - - (13) - - - - (13)

At 31 December 2010 13 1 608 96 18 79 564 1,379

Depreciation/Depletion:

At1January2010 - - 206 16 6 2 - 230

Depreciation/depletioncharge

fortheyear - - 93 6 1 4 - 104

At31December2010 - - 299 22 7 6 - 334

Net carrying amount:

At 31 December 2010 13 1 309 74 11 73 564 1,045

CapitalWorkinProgresscomprises:

USD mm

SajGasPlantandfacilities 126

UGTCPipeline&Relatedfacilities 91

KurdistanRegionofIraqProject 309

DanaGasEgypt 15

EBGDCO 14

Others 9

564

11 PROPERTY,PLANTANDEQUIPMENT(continued)

Freehold Building Oil & gas Plant & Other Pipeline & Capital Total

land properties Equip- assets related work-in-

ment facilities progress

USD mm USD mm USD mm USD mm USD mm USD mm USD mm USD mm

Cost:

At1January2009 13 1 349 80 14 25 479 961

Additions - - 57 13 2 - 114 186

TransferfromIntangibleassets - - 207 - - - - 207

(note12)

DisposalofInterestinJoint - - - - - - (64) (64)

Venture(note25)

Dryholecostswritten-off - - (119) - - - - (119)

At31December2009 13 1 494 93 16 25 529 1,171

Depreciation/Depletion:

At1January2009 - - 129 12 2 1 - 144

Depreciation/depletioncharge

fortheyear - - 77 4 4 1 - 86

At31December2009 - - 206 16 6 2 - 230

Netcarryingamount:

At31December2009 13 1 288 77 10 23 529 941

CapitalWorkinProgresscomprises:

USD mm

SajGasPlantandfacilities 120

UGTCPipeline&Relatedfacilities 89

KurdistanRegionofIraqProject 306

Others 14

529



At31December2010




12 INTANGIBLEASSETS

Oil & gasinterests

Purchase,transmission,

sweetening& sale rights

Gasprocessing

rights

Developmentcost

Goodwill Total

USD mm USD mm USD mm USD mm USD mm USD mm

Costat1January2010 289 857 7 2 308 1,463

Less:Provisionforimpairment (84) - - - - (84)

(note8)

At1January 205 857 7 2 308 1,379

Additions 34 - - - - 34

TransfertoProperty,Plant (53) - - - - (53)

andEquipment.

Provisionforimpairment(note8) (3) - - (2) - (5)

At 31 December 2010 183 857 7 - 308 1,355

At31December2009 205 857 7 2 308 1,379

(a)OilandGasInterestsOilandgasinterestsofUSD183millionrelatestoDanaGasEgyptwhichistheUpstream(ExplorationandProduction)DivisionoftheDanaGasGroup.DanaGasEgypthasanumberofconcessionsanddevelopmentleasesinEgyptwhicharedescribedbelowinmoredetail:

• ElWastaniDevelopmentLease–Thisdevelopmentleaseisheldwitha100%workinginterestandrepresentsapproximately34%ofcurrentproductioninEgypt.ElWastaniproductionincludesbothgasandassociatedgasliquids.Thisleasehas13,017acresoflandincludedwithintheirboundariesandislocatedintheNileDeltaofEgypt.

• SouthElManzalaDevelopmentLeases–Thesedevelopmentleasesareheldwitha100%workinginterestandarenotcurrentlyproducing.Thesedevelopmentleaseshave16,055acresoflandincludedwithintheirboundariesandarelocatedintheNileDeltaofEgypt.

• WestElManzalaExplorationConcession–DanaGasEgyptholdsa100%workinginterestinthisConcession,whichincludes476,216acresofexplorationland.TheexpirydateoftheExplorationConcessionandthetotalrelinquishmentofthenon-productivelandis30June2012.Currentdrillingprogramsandseismicinterpretationarebeingcarriedouttoexploretheacreage.ThisconcessionislocatedintheNileDeltaofEgypt.Todate,ninedevelopmentleaseshavebeencreatedfromthisexplorationconcessionafteraddingtherecentlygrantedWestManzalaArea1andproduceapproximately58%ofEgyptcurrentvolumesandproducebothnaturalgasandassociatedliquids.TheCompanyhasappliedforatenthdevelopmentleasetocovertherecentlydiscoveredSouthAbuElNagafield.

• WestElQantaraExplorationConcession–DanaGasEgyptholdsa100%workinginterestinthisConcession,whichincludes319,618acresofexplorationland.TheexpirydateoftheExplorationConcessionandthetotalrelinquishmentofthenon-productivelandis30June2012.Currentdrillingprogramsandseismicinterpretationarebeingcarriedouttoexploretheacreage.ThisconcessionislocatedintheNileDeltaofEgyptandtwodevelopmentleaseshavebeengrantedtodate.Onlyoneisproducingyet(Sama)andcontributestoapproximately7%ofEgyptcurrentvolumes.

• KomOmboExplorationConcession–DanaGasEgyptholdsa50%workinginterestinthisConcession,whichincludes5,654,727acresofexplorationlandwiththebalanceof50%interestheldbySeaDragonEnergyLimited(“SeaDragon”).Todateonedevelopmentleasehasbeencreatedfromthisexplorationconcessionandproducesapproximately1%ofEgyptcurrentvolumesandproducesonlyoil.

12 INTANGIBLEASSETS(continued)

(a)OilandGasInterests(continued)InadditiontotheaboveDanaGashasthefollowinginterestswhichwereacquiredaspartofCenturionacquisition:

Block4SaoTome/Nigeria–a9.5%workinginterestintheexplorationblock.TheblockislocatedoffshoreintheNigeria/SaoTomeJointDevelopmentZone.Theblockhas15,876acres(netshare)oflandinitsboundaries.

TunisiaExplorationLease–explorationrightsinrelationtouptoa50percentworkinginterestindeeperprospectivehorizonsthatunderlieupperproducinghorizons.Thedeeperprospectsrightswhichhavebeenretainedpotentiallycontainsignificantgasandpetroleumliquidresources.ThisisbasedonthepresenceofalargeneighboringstructureinvolvingtheTriassicreservoir,whichisoneofthemainproducinghorizonsinAlgeriaandTunisia.

Managementhascarriedoutareviewofeachoftheoilandgasinterestsin2010andbelievesthatnochangeinimpairmentprovisionofUSD84millionpertainingtoJDZBlock-4,TunisiaandKomomboisrequired.

(b)Purchase,transmission,sweeteningandsalerightsIntangibleassetsincludeUSD857millionwhichrepresentthefairvalueoftherightsforthepurchase,transmission,sweeteningandsaleofgasandrelatedproductsacquiredbytheCompanythroughitsshareholdingsinSajGas,UGTCandCNGCL.Thefairvalueoftherightsacquiredin2005wasdeterminedbyreferencetovaluationexercisesundertakenbyprofessionallyqualifiedindependentthirdpartiesbasedontheexpectedfuturecashflowsarisingfromtheunderlyingcontractualrelationships.Theintangibleassetswillbeamortisedover25yearsfromthedateofcommencementofcommercialactivityinaccordancewiththetermsofthecontractstowhichtheyrelate.Commercialactivityhasnotyetcommenced.Theultimatesupplierofgas,NIOC,hasafteradelayofover4yearscompletedtheinstallationofallthemaincomponentsoftherequiredupstreamfacilitiesinIran.CrescentPetroleum,whichhasthegassupplycontractwithNIOC,announcedthatithastakenNIOCtointernationalarbitrationpursuanttoitscontract,inresponsetodemandsforperformancebycustomersintheUAEgiventhefouryearsofdelaysindeliveryofthecontractualquantitiesofnaturalgasbyNIOC.Basedontheinformationavailableatthistime,theDirectorsandmanagementareconfidentofapositiveoutcome.

InaccordancewithIAS36requirementrelatingtointangibleassetsnotyetavailableforuse,managementhadundertakenanimpairmentreviewoftheintangibleassetsasat31December2010.Managementunderstandsthatprogresshasbeenmadeontheconstructionoftherequiredfacilitiesbytheultimategassupplierandhasreviewedthevariousinputsintotheoriginalvaluationmodel.Managementbelievesthattheinputsintotheoriginalvaluationmodelhavenotsignificantlychanged.

Key assumptions used in value in use calculations

Thecalculationofvalueinusefortheabovecashgeneratingunitismostsensitivetothefollowingassumptions:• Financialreturns;• Discountrates:• Oilprices;and• Reservevolumesandproductionprofiles;

Financial returns:estimatesarebasedontheunitachievingreturnsonexistinginvestments(comprisingboththosethatarecurrentlycashflowingandthosewhichareinexplorationanddevelopmentstageandwhichmaythereforebeconsumingcash)atleastinlinewithcurrentforecastincomeandcostbudgetsduringtheplanningperiod;

Discount rates –Discountratesreflectmanagement’sestimateoftherisksspecifictotheaboveunit.Thisisthebenchmarkusedbymanagementtoassessoperatingperformanceandtoevaluatefutureinvestmentproposals.

Oil prices:managementhasusedanoilpriceassumptionbasedontheforwardcurveprevailingattheendof2010fortheimpairmenttestingofitsindividualoil&gasinvestments.

Reserve volumes and production profiles:managementhasuseditsinternallydevelopedeconomicmodelsofreservesandproductionasabasisofcalculatingvalueinuse.



At31December2010




12 INTANGIBLEASSETS(continued)

(b)Purchase,transmission,sweeteningandsalerights(continued)

Sensitivity to changes in assumptionsWithregardtotheassessmentofvalueinuseoftheabovecashgeneratingunit,managementbelievesthatnoreasonablepossiblechangeinanyoftheabovekeyassumptionswouldcausethecarryingvalueoftheunittomateriallyexceeditsrecoverableamountaftergivingdueconsiderationtothemacro-economicoutlookfortheoil&gasindustry.

(c)GoodwillGoodwillofUSD308millionrelatestotheacquisitionofDanaGasEgypt(previouslyknownasCenturion)inJanuary2007whichenabledDanaGastoacquiretheupstreambusinessqualificationandthereforetherightstodevelopthegasfieldsintheKurdistanregionofIraq.Therecoverableamountoftheabovecashgeneratingunithasbeendeterminedbasedonvalueinusecalculationusingcashflowprojectionsapprovedbyseniormanagementuptoa20yearperiodortheeconomiclimitoftheproducingfield.Thepre-taxdiscountrateappliedtocashflowprojectionsis10%(2009:10%).Cashflowsaregeneratedusingforecastedproduction,capitalandoperatingcostdataovertheexpectedlifeofeachaccumulation.

13 AVAILABLE-FOR-SALEFINANCIALASSET

2010 2009

USD mm USD mm

At1January 283 -

Additions - 182

Changeinfairvalue 32 101

At31December 315 283

TheGroupholds3,161,116ordinarysharesinMOL(note25)receivedasconsiderationforthedisposalofaninterestinPearlPetroleumin2009.ThesesharesarelistedontheBudapestStockExchangeandhavebeenfairvaluedwithreferencetopublishedpricequotationat31December2010.

14 INVESTMENTPROPERTY

Themovementininvestmentpropertyduringtheperiodisasfollows:

2010 2009

USD mm USD mm

Balanceat1January 39 110

Changeinfairvalue (2) (71)

Balanceat31December 37 39

InvestmentpropertyconsistsofindustriallandownedbySajGas,asubsidiary,intheSajaaareaoftheEmirateofSharjah,UnitedArabEmirates.TheGroupconsidersaportionoflandtobesurplustotheiroperationalrequirementsandwillbeusedforearningrentalsorheldforcapitalappreciation.

Investmentpropertiesarestatedatfairvaluewhichhasbeendeterminedbasedonavaluationperformedbyanindependentfirmofqualifiedpropertyconsultants,withreferencetocomparablemarkettransactions.ThisvaluationreflectsthedeclineinpropertyvaluesgenerallyandhasthereforeresultedinadecreaseinthefairvaluebyUSD2million(31December2009:decreaseofUSD71million)whichwaschargedtotheconsolidatedincomestatement.

15 INVENTORIES

2010 2009

USD mm USD mm

Sparesandconsumables 64 59

Less:Provisionforimpairmentofinventory(note8) (13) (13)

51 46

16 TRADEANDOTHERRECEIVABLES

2010 2009

USD mm USD mm

Tradereceivables 218 135

Prepaidexpenses 1 1

Otherreceivables 45 82

Less:Provisionforimpairmentofotherreceivables(note8) (9) (19)

255 199

Tradereceivablesarenon-interestbearingandaregenerallyon30-60daysterms.

Asat31December,theageinganalysisoftradereceivablesisasfollows:

Neither Past due but not impaired

past due

nor <30 30-60 60-90 90-120 >120

Total impaired days days days days days

USD mm USD mm USD mm USD mm USD mm USD mm USD mm

2010 218 69 17 7 9 13 103

2009 135 48 12 12 11 11 41

17 FINANCIALASSETSATFAIRVALUETHROUGHPROFITORLOSS

2010 2009

USD mm USD mm

Balanceat1January 9 8

Changeinfairvalue 1 1

Balanceat31December 10 9



At31December2010




18 CASHANDCASHEQUIVALENTS

2010 2009

USD mm USD mm

Cashatbankandonhand

-LocalBankswithinUAE 17 20

-ForeignBanksoutsideUAE 9 8

Shorttermdeposits

LocalBankswithinUAE 133 182

Cashintransit - 3

159 213

Cashatbankearnsprofitatfloatingratesbasedondailybankdepositrates.Short-termdepositsaremadeforvaryingperiodsofbetweenoneweekandthreemonths,dependingontheimmediatecashrequirementsoftheGroup,andearnsprofitattherespectiveshort-termdepositrates.Thefairvalueofcashandshort-termdepositsisUSD159million(2009:USD213million).Theeffectiveprofitrateearnedonshorttermdepositsrangedbetween2.5%to6.1%(2009:between2.5%and6.1%)perannum.Asat31December2010,94%ofcashandcashequivalentswereheldwithUAEbanks.

19 SHARECAPITAL

2010 2009

USD mm USD mm

Authorised:

8,394,000,000commonsharesofAED1each(USD0.2728each)

Issued and fully paid up:

6,600,000,000commonsharesofAED1each(USD0.2728each) 1,801 1,637

AttheAnnualGeneralMeetingheldon21April2010,theshareholdersapproveda10%bonusissueamountingtoUSD164million(AED600million).ConsequentlytheCompany’spaidupsharecapitalhasincreasedtoAED6.6billioncomprisingof6.6billionsharesofAED1each(2009:6billionsharesofAED1each).

20 OTHERRESERVES

Share Fair value

option reserve Total

USD mm USD mm USD mm

At 1 January 2009 4 - 4

Valueofemployeeservices(note27) 2 - 2

Changeinfairvalueofavailable-for-salefinancialassets(note13) - 101 101

At 31 December 2009 6 101 107

Valueofemployeeservices(note27) 3 - 3

Changeinfairvalueofavailable-for-salefinancialassets(note13) - 32 32

At 31 December 2010 9 133 142

21 BORROWINGS

2010 2009

USD mm USD mm

Convertiblebonds 887 871

Bankborrowings 10 -

At31December 897 871

a)Convertiblebonds

InOctober2007,theGroupissuedconvertiblebondsintheformofTrustCertificates/Sukuk-al-Mudarabah(“theSukuk”)foratotalvalueofUSD1billion.TheSukuk,whichisstructuredtoconformtotheprinciplesofIslamicShariah,wasapprovedbytheCompany’sshareholdersatanExtraordinaryGeneralMeetingheldinJuly2007.TheSukukmaturesin2012andhasafixedprofitrateof7.5%tobepaidquarterly.Thereferencesharepriceforconversion,basedonthetermsandconditionsoftheSukukissue,wasdeterminedon7July2008.Theexchangeratiohasbeensetat17,343.4sharesforeveryUSD10,000Sukukcertificate(i.e.aneffectiveconversionpriceofAED2.118pershare).EachTrustCertificatemayberedeemedattheoptionoftheholderatanytimeafter7July2008tothematuritydate.Itmaybeconvertedintoshares,orattheoptionofDanaGas,intotheequivalentsumofmoneybasedontheprevailingsharepriceatconversion.DanaGasmayalsovoluntarilyredeemtheTrustCertificatesundercertainconditions.In2008,DanaGasrepurchasedconvertiblesukukwithanominalvalueofUSD80million.AttheAnnualGeneralMeetingheldon21April2010,theshareholdersapproveda10%bonusissueandconsequentlyconversionratioforSukukwasincreasedfrom17,343.3sharesto19,076.7sharesforeveryUSD10,000Sukukcertificate.

TheSukukissecuredbywayofapledgeoverthesharesofDanaGasLNGVenturesLtd.,SajGasandUGTCinaccordancewiththeprinciplesofIslamicShariah.

Thefairvalueoftheliabilitycomponent,includedinnon-currentliabilities,wascalculatedusingamarketinterestrateforanequivalentnon-convertiblebond.Theresidualamount,representingthevalueoftheequityconversionoption,isincludedinshareholders’equity.

Theconvertiblebondrecognisedinthestatementoffinancialpositioniscalculatedasfollows:

2010 2009

USD mm USD mm

Liabilitycomponentasat1January 871 856

Financecost(note9) 85 83

Profitpaid (58) (57)

898 882

Currentportionofprofitclassifiedundertradeandotherpayable(note23) (11) (11)

Liabilitycomponentat31December 887 871

(b)Bankborrowings

On22April2010,EBGDCO(JointVentureCompany)enteredintoafacilityagreementwithCommercialInternationalBank(Egypt)S.A.E.“CIB”forthefinancingof70%(USD66.5Million)oftheinvestmentcostofthecompany’sprojectcomprisingestablishmentofGasLiquidsextractionplantatRasShukeir.Thefacilitymaturesin12yearsandcarriesvariablerateofLIBOR+Marginduringtherepaymentperiod.ThefirstdrawdownforthesaidfacilitywasmadeinJune2010andDanagazW.L.L’sshareofthedrawdownisapproxUSD10Millionasat31December2010.

AscontinuingsecurityfortheperformanceandfullpaymentofliabilitiesundertheFacilityAgreement,DanagazW.L.L.haspledgeditsentireshareinsharecapitalofEBGDCOinfavourofCIB.

DanaGasPJSChasgivenanundertaking“nottodispose”ofitsequitystakeinDanagazWLLexcepttoaqualifiedinvestorapprovedbyCIB,Egyptandnotcreateanylien/pledgeofitsequitystakeinDanagazWLL.Thisfacilityisnon-recoursetoDanaGasPJSC.



At31December2010




22 PROVISIONS

2010 2009

USD mm USD mm

Assetdecommissioningobligation 15 12

Employee’sendofservicebenefits 2 2

17 14

23 TRADEPAYABLESANDACCRUALS

2010 2009

USD mm USD mm

Tradepayables 67 63

Accruedexpensesandotherpayables 62 53

Profitaccruedonconvertiblebonds(note21) 11 11

140 127

24 INTERESTINJOINTVENTURE

(a)KurdistanRegionofIraqProjectInApril2007,theGroupenteredintoagreementswiththeKurdishRegionalGovernmentofIraqforthedevelopmentofitssubstantialgasresourcesontheKhorMorandChemchemalgasfileds.Sincethen,thefocushasbeenondeveloping,processingandtransportingnaturalgasonafast-trackbasis,fromtheKhorMorfieldincludingprocessingandtheextractionofLPGandcondensate,providenaturalgassuppliestofueldomesticelectricpowergenerationplantsnearthemajorurbancentersofErbilandSuleymania.Furtherdevelopmentofthegasreservesareplannedtosupplynaturalgasasfeedstockandenergyforlocalindustries.

Witheffectfrom5February2009DanaGasandCrescentassignedtheirbenefitsandobligationsundertheAuthorisationtoPearlPetroleumasadvisedintheNoticeofAssignmentandUndertakingtotheKRGdated5February2009,whichwasacknowledgedasreceivedbytheKurdistanRegionMinisterofNaturalResourcesonbehalfoftheKRG.Accordingly,alltheassetsandliabilitiesoftheJointVentureasat4February2009weretransferredatcosttoPearlPetroleum.

On15May2009,DanaGasandCrescentsignedaShareSaleAgreementwithOMVandMOLwhereinanequityinterestof5%eachwassoldbyDanaGasandCrescenttoOMVandMOLrespectively.Consequently,thenewshareholdinginterestinPearlPetroleumisasfollows:40%toDanaGas,40%toCrescent,10%toOMVand10%toMOL.

PearlPetroleumanditsshareholderssince18May2009areengagedinanongoingdialoguewiththeMinistryofNaturalResourcesoftheKRGastotheinterpretationoftheagreements(“theAuthorisation”).

PearlPetroleumanditsshareholdershaveassessedthelegalpositionwithadvicefromtheirlegaladvisersandarefullyconfidentofPearlPetroleum’srightsundertheAuthorisationinaccordancewithapplicablelaw.PearlPetroleumandtheshareholders’judgment,basedonsuchassessmentandtheprogressofthecontinuingdialoguewiththeKRG,isthatthesediscussionsshouldresultinsatisfactoryoutcomewhichshouldnothaveamaterialadverseimpactonthestateofthePearlPetroleumorthecarryingvaluesofitsassets.

24 INTERESTINJOINTVENTURE(continued)

(a)KurdistanRegionofIraqProject(continued)

ThefollowingamountsrepresenttheGroup’s40%shareoftheassetsandliabilitiesofthejointventure:

2010 2009

USD mm USD mm

Assets:

Long-termassets 363 306

Currentassets 137 63

Total Assets 500 369

Liabilities:

Long-termliabilities - -

Currentliabilities 23 31

Total Liabilities 23 31

Net Assets 477 338

Income 82 42

OperatingCost (6) (5)

Gross Profit 76 37

(b)UGTC/EmaratJointVenture

TheGrouphasa50%interestinUGTC/EmaratunincorporatedJointVenturewhichhasdevelopedthelargestgaspipelineintheUAE(48inchdiameter)withadesigncapacityof1000MMscfpd,totransportgasinSharjahfromSajaatoHamriyah.ThefollowingamountsrepresenttheGroup’s50%shareoftheassetsandliabilitiesofthejointventure:

2010 2009

USD mm USD mm

Assets:


Currentassets 8 5

Total Assets 31 29

Liabilities:

Long-termliabilities - -

Currentliabilities - -

Total Liabilities - -

Net Assets 31 29

Income 4 4

Operatingcost (2) (2)

Profit 2 2



At31December2010




24 INTERESTINJOINTVENTURE(continued)

(c)EBGDCO:TheGroup’ssubsidiaryDanagazWLLhasa40%equityinterestinJointVentureCompanyEBGDCOtobuild,ownandoperateaGasliquidsextractionplantinEgyptinpartnershipwithEgyptianNaturalGasCompany(EGAS)andArabPetroleumInvestmentsCorporation(APICORP).ThefollowingamountsrepresenttheGroup’ssubsidiaryinterestintheassetsandliabilitiesofthejointventure:

2010 2009

USD mm USD mm

Assets:


Currentassets 6 6

Total Assets 20 10

Liabilities:

Long-termliabilities 10 -

Currentliabilities 1 -

Total Liabilities 11 -

Net Assets 9 10

25 DISPOSALOFINTERESTS

(a)DisposalofInterestinPearlPetroleumCompanyLimitedOn15May2009,DanaGasandCrescentsignedaShareSaleAgreementwithOMVandMOLwhereinanequityinterestof5%eachwassoldbyDanaGasandCrescenttoOMVandMOLrespectively.Consequently,thenewshareholdinginterestinPearlPetroleumisasfollows:40%toDanaGas,40%toCrescent,10%toOMVand10%toMOL.

TheassetsandliabilitiestransferredbyDanaGasasaresultofthedisposalandtherelatedconsideration,recordedin“OtherIncome”,ispresentedbelow:

USD mm

Non-currentassets 64

Othercurrentassets 6

Currentliabilities (7)

Total carrying amount of net assets disposed 63

Costsondisposal 4

67

Less: Total consideration 359

Profit on sale of interest 292

Ofthetotalconsideration,USD177millionwasreceivedincashandUSD182millionintheformofsharesinMOL(note13)

(b)KomomboConcessionFarmoutInDecember2009,DanaGasEgyptenteredintoasettlementagreementwithKIOECforreassignmentoftheir50%interestintheKomomboConcessioninSouthernEgypttoDanaGasEgypt.Followingcompletionofthissettlementagreement,DanaGasEgyptfarmedoutthe50%interestintheKomomboConcessiontoSeaDragonon31December2009.DanaGasEgyptandSeaDragonarejointoperatorsofthisconcession.TheGrouprecordedanetgainofUSD35million.

26 CONTINGENCIESANDCOMMITMENTS

(a)DanaGasEgyptDanaGasEgypthastwodrillingrigsundercontractandintheeventthatDanaGasEgyptdoesnotproceedwithplanneddrillingwiththeserigs,itwouldbeobligatedtopaytherigoperatorsavariableratebasedondaysnotutlisedunderthecontracts.Theremainingcommitmentat31December2010wasUSD4.4million.

InMarch2006,DanaGasEgyptenteredintoanagreementwithCTIPOilandGasLimited(“CTIP”)toacquirea25%percentworkinginterestintheWestElManzalaandWestElQantaraConcessions.Followingtheclosingofthisacquisition,theCompanyhelda100%participatinginterestineachoftheseConcessions.AsagreedunderthetermsoftheacquisitionagreementDanaGasEgypthaspaidUSD13millionasaresultofthefirstGovernmentapprovedplanofDevelopmentintheWestElManzalaConcession.Inaddition,DanaGasEgypthasagreedtopayadditionalpaymentsthatcouldtotaluptoafurtherUSD12.5millionasandwhendiscoveryvolumesequalorinexcessof1TcfofProvedReserves.DanaGasEgypthasalsograntedathreepercentnetprofitsinteresttoCTIPonfutureprofitfromtheConcessions.

(b)Nigeria/SaoTomeIn2006,CenturionsignedaProductionSharingContract(“PSC”)andformalgrantingbytheJointDevelopmentAuthorityofits10percent(gross)equityinterest,9.5percent(net)inBlock-4oftheNigeria/SaoTome.ThiswaslaterassignedtoDanaGasPJSCin2009.DanaGasandanotherpartnerhavewithdrawnfromtheConcessioninaccordancewiththerelevantagreements(PSC/JOA)duetooperator’sdecisiontodrillathirdwellwithoutapproval.Theoperatorhasdisputedthisposition.

(c)PearlPetroleumCompanyLimitedDanaGashasincurredoverUSD350millioninexpendituretodateandcommitments,notyetaccrued,amounttoapproximatelyUSD1million(40%share)forthedevelopmentprojectintheKurdistanRegionofIraq.

(d)EBGDCOEBGDCO,throughitsbanker,CIB,hasissuedaletterofcredittoasupplier.AgainstthisLCanamountofUSD14million(DGShareUSD4million)isoutstandingason31December2010.

27 SHAREBASEDPAYMENT

Shareoptions/RestrictedsharesaregrantedtoExecutivedirectorsandtoselectedemployees.FollowingaretheplanswhichareoperatedbytheCompany:

PioneerGrant–ShareOptionPlan

ThePioneerGrantisaone-timeoptiongrantaimedtorecognizethepioneeringspiritofthefoundingmembersofthemanagementteamofDanaGasPJSC.Optionsintheplanvestuponcompletionofadefinedserviceperiod.PursuanttotheshareholderapprovalandresolutionoftheBoardofDirectorsin2008therulesofthePioneerGrantwereamendedtoallowtheexerciseofexistingshareoptionstobesatisfiedbytheuseofshares.Subsequently,alloptionsgrantedin2007(4,275,000shareswithanaverageexercisepriceofAED1.00)wereconvertedfromcash-settledtoequity-settledshareoptions.Inaddition,optionsover1,650,000shareswithanaverageexercisepriceofAED1.00wereawardedtoindividualswhodidnotreceiveashareoptiongrantin2007.TheaveragefairvalueoftheseoptionsisAED0.90peroption.

KeyEmployeeLongTermIncentivePlan(“LTIP”)–ShareOptionPlan

TheLTIPseekstoalignemployeeandshareholderinterestsandrewardCompanyandemployeeperformanceoveranextendedperiodthroughthepaymentofcashbonusescalculatedbyreferencetothemarketpriceofoneshareascomparedtoitsexercisepricedeterminedatthetimeofgrant.Optionsintheplanvestuponcompletionofadefinedserviceperiod.Pursuanttotheshareholder’sapprovalandresolutionoftheBoardofDirectorsin2008therulesoftheLTIPwereamendedtoallowtheexerciseofexistingandnewshareoptionstobesatisfiedbytheuseofshares.Subsequently,alloptionsgrantedin2007wereconvertedfromcash-settledtoequity-settledshareoptions.

Theweightedaveragefairvalueofoptionsgrantedin2009wasdeterminedusingtheBlack-Scholesvaluationmodel-AED0.62peroption(2008:AED1.09).ThesignificantinputsintothemodelwereaveragesharepriceofAED1.1(2008:AED2.04),expectedoptionlifeof8yearsandanannualrisk-freeinterestrateof3.37%(2008:4.62%).Thevolatilitymeasuredatthestandarddeviationofcontinuouslycompoundedsharereturnswasbasedonstatisticalanalysisofdailysharepricesoverthelast3½years.



At31December2010




27 SHAREBASEDPAYMENT(continued)

RestrictedShares

TheGrouphasmaderestrictedshareawardstokeyemployeesduringthecurrentyear.Awardsunderthisplanaregenerallysubjecttovestingovertime,contingentuponcontinuedemploymentandtorestrictiononsale,transferorassignmentuntiltheendofaspecifiedperiod,generallyoveronetothreeyearsfromdateofgrant.Allawardmaybecancelledifemploymentisterminatedbeforetheendoftherelevantrestrictionperiod.TheGroupdeterminesfairvalueofrestrictedsharesunitbasedonthenumbersofunitgrantedandthegrantdatefairvalue.

Thechargerecognisedinincomestatementundersharebasedpaymentplansisshowninthefollowingtable:

2010 2009

USD mm USD mm

Expensearisingfromshare-basedpaymenttransactions 3 2

3 2

28 RELATEDPARTYTRANSACTIONS

Relatedpartiesrepresentjointventures,majorshareholders,directorsandkeymanagementpersonneloftheCompany,andentitiescontrolled,jointlycontrolledorsignificantlyinfluencedbysuchparties.

Transactionswithrelatedpartiesincludedintheincomestatementareasfollows:

2010 2009

Revenues Fees for Revenues Fees for

management management

services services

USD mm USD mm USD mm USD mm

Jointventures 1 - 1 -

Majorshareholders - - - 1

1 - 1 1

TheremunerationtotheBoardofDirectorshasbeendisclosedinthestatementofchangesinequity.

Compensationofkeymanagementpersonnel

Theremunerationofmembersofkeymanagementduringtheyearwasasfollows:

2010 2009

USD mm USDmm

Short-termbenefits 7 8

Stockoptions 2 2

9 10

29 FINANCIALRISKMANAGEMENTOBJECTIVESANDPOLICIES

Financialriskfactors

TheGroup’sprincipalfinancialliabilitiescompriseconvertiblebonds,decommissioningobligations,tradepayablesandotherpayables.ThemainpurposeofthesefinancialliabilitiesistoraisefinancefortheGroup’soperations.TheGrouphasvariousfinancialassetssuchastradereceivablesandcashandshort-termdeposits,whicharisedirectlyfromitsoperations.

ThemainrisksarisingfromtheGroup’sfinancialinstrumentsareforeigncurrencyrisk,interestraterisk,pricerisk,creditriskandliquidityrisk.TheBoardofDirectorsreviewandagreepoliciesformanagingeachoftheseriskswhicharesummarisedbelow.

(a)ForeigncurrencyriskTheGroupisonlyexposedtoforeigncurrencyrisks,inrelationtoavailableforsalefinancialassetswhicharedenominatedinHungarianForint(HUF),assignificantportionoftheGroup’sasset,liabilities,revenuesandexpensesareUSDdenominated.

At31December2010,iftheHUFhadstrengthened/weakenedby10%againsttheUSDwithallothervariablesheldconstant,totalcomprehensiveincomefortheyearwouldhavebeenUSD32millionhigher/lower,asaresultofforeignexchangegains/lossesontranslationofHUFdenominatedavailable-for-salefinancialassets.

(b)InterestrateriskTheGrouphasminimalexposuretointerestrateriskonbankdepositsandlongtermborrowingswhichareobtainedatvariableratesbyoneoftheGroup’ssubsidiarytofinanceitsproject.ItsConvertiblebondscarryfixedprofitrateandhenceisnotexposedtointerestraterisk.

(c)PriceRiskTheGroupisexposedtoequitysecuritiespriceriskbecauseofinvestmentsheldbytheGroupandclassifiedasavailable-for-sale.TheGroup’sinvestmentinequityofotherentitiesthatarepubliclytradedislistedonBudapestStockexchange.At31December2010,iftheequitypricehadincreased/decreasedby10%withallothervariablesheldconstanttheGroup’scomprehensiveincomefortheyearwouldhavebeenUSD32millionhigher/lower.TheGroupisalsoexposedtocommoditypricerisk(crudeoilprice),howeverthishasbeenpartiallymitigatedduetofixedpricingagreementinEgyptforsaleofnaturalgaswhichconstituteapproximately44%oftheGroupsrevenue.At31December2010,iftheaveragepriceofcrudeoilhadincreased/decreasedby10%withallothervariableheldconstanttheGroup’scomprehensiveincomefortheyearwouldhavebeenUSD17millionhigher/lower.

(d)CreditriskCreditriskistheriskthatthecounterpartywillnotmeetitsobligationsunderafinancialinstrumentorcustomercontract,leadingtoafinancialloss.TheGroupisexposedtocreditriskfromtradereceivablesanddepositswithbanksandfinancialinstitutions.

Trade receivablesThemajorityoftheGrouptradereceivablesarisefromitsoperationsinEgyptandKurdistanRegionofIraq.Therequirementforimpairmentisanalysedateachreportingdateonanindividualbasisformajorcustomers.Thecalculationisbasedonactuallyincurredhistoricaldataandthestatusofthecustomer.AsmajorityoftheGroup’stradereceivablearefromGovernmentrelatedentitiesnoimpairmentwasnecessitatedatthispoint.Themaximumexposuretocreditriskatthereportingdateisthecarryingamountasillustratedinnote16.

Cash depositsCreditriskfrombalanceswithbanksandfinancialinstitutionsismanagedbyGroup’sTreasuryinaccordancewiththeGrouppolicy.InvestmentofsurplusfundsismadeonlywithcounterpartiesapprovedbytheGroup’sBoardofDirectors.TheGroup’smaximumexposuretocreditriskforthecomponentsofthestatementoffinancialpositionat31December2010and2009isthecarryingamountasillustratedinnote18.

(e)LiquidityriskTheGroup’sobjectiveistomaintainabalancebetweencontinuityoffundingandflexibilitythroughtheuseofconvertiblebonds,tradepayablesandotherpayables.ThetablebelowsummarisesthematurityprofileoftheGroup’sfinancialliabilitiesat31Decemberbasedoncontractualundiscountedpayments:



At31December2010




29 FINANCIALRISKMANAGEMENTOBJECTIVESANDPOLICIES(continued)

Financialriskfactors(continued)

(e)Liquidityrisk(continued)

Year ended 31 December 2010 On Less than 3 to 12 1 to 5 >5 years Total

demand 3 months months years


Convertiblebonds - 6 63 978 - 1,047

Tradeandotherpayables - 140 - - - 140

Provisions - - - 8 21 29

- 146 63 986 21 1,216

Year ended 31 December 2009 On Less than 3 to 12 1 to 5 >5 years Total

demand 3 months months years


Convertiblebonds - 6 63 1,041 - 1,110

Tradeandotherpayables - 127 - - - 127

Provisions - - - 8 19 27

- 133 63 1,049 19 1,264Capitalriskmanagement

TheprimaryobjectiveoftheGroup’scapitalmanagementistoensurethatitmaintainshealthycapitalratiosinordertosupportitsbusinessandmaximiseshareholdervalue.

TheGroupmanagesitscapitalstructureandmakesadjustmentstoitinlightofchangesinbusinessconditions.Nochangesweremadeintheobjectives,policiesorprocessesduringtheyearended31December2010andtheperiodended31December2009.Capitalcomprisessharecapital,retainedearnings,otherreservesandequitycomponentofconvertiblebonds,andismeasuredatUSD2,103millionasat31December2010(2009:USD2,035million).

30 FAIRVALUEESTIMATION

SetoutbelowisacomparisonbycategoryofcarryingamountsandfairvaluesofalloftheGroup’sfinancialinstrumentsthatarecarriedinthefinancialstatements:

Carrying Fair Carrying Fair

amount value amount value

2010 2010 2009 2009


Financial assets

Cashandshorttermdeposits 159 159 213 213

Financial liabilities

BankBorrowings 897 897 871 871

30 FAIRVALUEESTIMATION(continued)

Thefairvalueofbankborrowingsistheamortisedcostdeterminedasthepresentvalueofdiscountedfuturecashflowsusingtheeffectiveinterestrate.TheGroupconsidersthatthecarryingamountsoftradeandotherreceivables,tradeandotherpayables,othercurrentandnon-currentfinancialassetsandliabilitiesalsoapproximatetheirfairvalues.

Effective1January2009,theGroupadoptedtheamendmenttoIFRS7forfinancialinstrumentsthataremeasuredinthestatementoffinancialpositionatfairvalue.Thisrequiresdisclosureoffairvaluemeasurementsbylevelofthefollowingfairvaluemeasurementhierarchy:

• Quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities(Level1)• InputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(that

is,asprices)orindirectly(thatis,derivedfromprices)(Level2)• Inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(thatisunobservableinputs)(Level3).

ThefollowingtablepresentstheGroup’sassetsthataremeasuredatfairvalueon31December2010:

Level 1 Level 2 Level 3 Total


Assets

Availableforsalefinancialasset

-Equitysecurities 315 - - 315

Financialassetsatfairvaluethroughprofitorloss - 10 - 10

Total 315 10 - 325

ThefollowingtablepresentstheGroup’sassetsthataremeasuredatfairvalueon31December2009:

Level 1 Level 2 Level 3 Total


Assets

Availableforsalefinancialasset

-Equitysecurities 283 - - 283

Financialassetsatfairvaluethroughprofitorloss - 9 - 9

Total 283 9 - 292

Thefairvalueoffinancialinstrumentstradedinactivemarketsisbasedonquotedmarketpricesatthestatementoffinancialpositiondate.Amarketisregardedasactiveifquotedpricesarereadilyandregularlyavailablefromanexchange,dealer,broker,industrygroup,pricingservice,orregulatoryagency,andthosepricesrepresentactualandregularlyoccurringmarkettransactionsonanarm’slengthbasis.Thequotedmarketpriceusedforfinancialassetsheldbythegroupisthecurrentbidprice.Theseinstrumentsareincludedinlevel1andcomprisesofBSEequityinvestmentsclassifiedasavailable-for-sale.

Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarketisdeterminedusingvaluationtechniques.Thesevaluationtechniquesmaximisetheuseofobservablemarketdatawhereitisavailableandrelyaslittleaspossibleonentityspecificestimates.Ifallsignificantinputsrequiredtofairvalueaninstrumentareobservable,theinstrumentisincludedinlevel2.



At31December2010




31 FINANCIALINSTRUMENTSBYCATEGORY

Loans &receivables

Assets atfair value

throughprofit

and loss

Available-for-sale

Total


31 December 2010

Assets as per statement of financial position

Available-for-salefinancialassets - - 315 315

Tradeandotherreceivablesexcluding 254 - - 254

pre-payments

Financialassetsatfairvaluethrough - 10 - 10

profitorloss

Cashandcashequivalents 159 - - 159

Total 413 10 315 738

Liabilities at fair value through the

profit and loss

Derivatives used for hedging

Other financial

liabilities at amortised

cost

Total


31 December 2010

Liabilities as per statement of financial position

Borrowings - - 897 897

Provisions - - 17 17

Tradeandotherpayableexcluding

statutoryliabilities 140 - - 140

Total 140 - 914 1,054

31 FINANCIALINSTRUMENTSBYCATEGORY(continued)

Loans &receivables

Assets atfair value

throughprofit

and loss

Available-for-sale

Total


31 December 2009

Assets as per statement of financial position

Available-for-salefinancialassets - - 283 283

Tradeandotherreceivablesexcluding 198 - - 198

pre-payments

Financialassetsatfairvaluethrough - 9 - 9

profitorloss

Cashandcashequivalents 213 - - 213

Total 411 9 283 703

Liabilities at fair value through the

profit and loss

Derivatives used for hedging

Other financial

liabilities at amortised

cost

Total


31 December 2009

Liabilities as per statement of financial position

Borrowings - - 871 871

Provisions - - 14 14

Tradeandotherpayableexcluding

statutoryliabilities 127 - - 127

Total 127 - 885 1,012

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