DNO reports Third Quarter 2021 Results

DNO ASA, the Norwegian oil and gas operator, today reported third quarter revenues of USD 253 million, a 38 percent quarter-on-quarter increase driven by higher North Sea sales and strengthening commodity prices.

The Company's operating profit climbed seven percent to USD 65 million, weighed down by non-cash net impairments of USD 40 million primarily related to revised Ula area cost and production profiles in the North Sea.

Cash flow from operating activities totaled USD 163 million in the third quarter. Net debt was reduced by USD 36 million to USD 360 million, the lowest level since 2018.

"Like much of the rest of our resilient industry, we are recovering rapidly from the early ravaging of the oil and gas markets by the runaway pandemic," said DNO's Executive Chairman Bijan Mossavar-Rahmani. "We are back delivering value to our host countries, shareholders and other partners in an efficient and responsible manner," he added.

Gross operated production at the Company's flagship Tawke license in Kurdistan averaged 105,200 barrels of oil per day (bopd) in the third quarter, of which the Peshkabir field contributed 59,900 bopd and the Tawke field 45,300 bopd. Of the total, 78,900 bopd were net to DNO. In the North Sea, net production averaged 13,100 barrels of oil equivalent per day (boepd), bringing the Company's total third quarter net production to 92,000 boepd.

DNO's USD 110 million Peshkabir-Tawke gas project, which was commissioned in mid-2020, has injected eight billion cubic feet of otherwise flared gas through the end of the third quarter, capturing 480,000 tonnes of CO2 equivalent. In September, the Company initiated a USD 25 million second phase of the gas capture project to reinject and retain gas in the Tawke reservoir and avoid flaring. Having already eliminated routine venting of methane in operations in 2019, DNO recently launched a leak detection and repair initiative to measure, monitor and mitigate fugitive methane emissions.

Elsewhere in Kurdistan, commerciality was declared on the DNO-operated Baeshiqa license and plans submitted for a fast-track development.

DNO's active North Sea exploration program notched up a success in the third quarter with appraisal drilling on the 2020 Bergknapp discovery (DNO 30 percent) resulting in a 35 percent upgrade of DNO's recoverable resource estimate. Also during the quarter, DNO made an oil discovery on the Gomez prospect (DNO 65 percent and operator). Due to uncertainty of producibility, no estimate of recoverable volumes has been established pending further analysis. Another third quarter 2021 appraisal well, Black Vulture (DNO 32 percent), was dry. Following the end of the quarter, the Mugnetind exploration well (DNO 30 percent) encountered limited hydrocarbons and is unlikely to be commercial.

The Brasse development (DNO 50 percent and operator) is on track for a 2022 project sanction with DNO recently entering into a strategic framework agreement with Technip FMC covering subsea deliveries (SURF and SPS).

During the third quarter, the Company completed the placement of USD 400 million of new five-year senior unsecured bonds with at a coupon rate of 7.875 percent, lowering DNO's average interest rate on its debt while extending the maturity profile.

A videoconference call with executive management will follow today at 15:00 (CET). Please visit www.dno.no to access the call.

(Source: DNO)

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DNO Completes $400m Bond Placement

DNO ASA, the Norwegian oil and gas operator, has completed the private placement of USD 400 million of new five-year senior unsecured bonds with a coupon rate of 7.875 percent.

The placement met strong investor demand across international markets and was significantly oversubscribed, leading the Company to upsize the new bond issue from USD 300 million to USD 400 million.

Settlement is expected on or about 9 September 2021, subject to customary conditions precedent, and an application will be made for listing of the new bonds on the Oslo Stock Exchange.

Net proceeds will be used towards refinancing of the DNO02 bonds (ISIN: NO0010823347) and general corporate purposes. In connection with the placement, the Company has agreed to buy back USD 154 million in nominal value of the DNO02 bonds with a call notice for the remaining DNO02 bonds and other details to be announced upon settlement of the new bond.

Pareto Securities AS acted as Global Coordinator and Joint Lead Manager together with Danske Bank and SEB as Joint Lead Managers.

(Source: DNO)

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KRG Approves DNO Purchase of Exxon Stake in Baeshiqa

By John Lee.

DNO ASA, the Norwegian oil and gas operator, today announced that the Kurdistan Regional Government has approved the Company's acquisition of ExxonMobil's remaining 32 percent interest in the Baeshiqa license, doubling DNO's stake.

In parallel, commerciality has been declared on the license with plans submitted for fast-track development including early production from previously drilled but suspended wells.

DNO has already demonstrated proof of concept of producing these wells through temporary test facilities, having trucked some 15,000 barrels of 40 degree API and 22 degree API oil for export in 2019 and 2020 from the Baeshiqa-2 and Zartik-1 discovery wells.

Following the transaction, the joint venture comprises DNO as operator with a 64 percent (80 percent paying) interest, the Turkish Energy Company (TEC) with a 16 percent (20 percent paying) interest and the Kurdistan Regional Government with a 20 percent carried interest.

Bijan Mossavar-Rahmani, DNO's Executive Chairman, said:

"This acquisition and plans for fast-track development underscore our belief in the potential of the Baeshiqa license and more broadly our long-term commitment to Kurdistan.

"Once we get the green light from the authorities to proceed, first production will be a matter of months rather than years."

DNO's 3,204 meters discovery well, Baeshiqa-2, tested hydrocarbons to surface from multiple stacked Jurassic and Triassic zones. Two zones flowed naturally at rates averaging over 3,000 barrels of oil per day (bopd) of light gravity oil each and another averaged over 1,000 bopd also of light gravity oil. DNO drilled Zartik-1, the second discovery well, 16 kilometers to the southeast of Baeshiqa-2, to a depth of 3,021 meters. This well tested hydrocarbons to surface from several Jurassic zones, with one zone flowing naturally at rates averaging 2,000 bopd of medium gravity oil.

DNO acquired its first 32 percent interest and assumed operatorship of the Baeshiqa license from ExxonMobil in 2018. As consideration for both acquisitions DNO has covered ExxonMobil's share of exploration costs since January 2019 and the seller will receive payment of USD 15 million.

In addition to the 327-square kilometer Baeshiqa license, DNO operates the Tawke license containing the Tawke and Peshkabir fields in Kurdistan. Combined production from these fields averaged 110,300 bopd in the second quarter of 2021.

(Source: DNO)

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KRG Bureaucracy Delays DNO Investment

DNO ASA, the Norwegian oil and gas operator, has reported operating profit of USD 61 million in the quarter ending 30 June 2021, its second consecutive profitable quarter since the onset of the COVID pandemic. Revenues totaled USD 184 million, up USD 14 million from the previous quarter, as higher oil and gas prices more than compensated for lower North Sea volumes sold.

Gross operated production at the Company's flagship Tawke license in Kurdistan averaged 110,300 barrels of oil per day (bopd) in the second quarter, of which the Peshkabir field contributed 63,000 bopd and the Tawke field 47,300 bopd. Of the total, 82,700 bopd were net to DNO's interest during the quarter.

DNO's North Sea net production dropped to 9,900 barrels of oil equivalent per day (boepd) in the second quarter, primarily due to planned summer maintenance shutdowns at Marulk and Alve and infill drilling at Ula and Tambar. The Company expects the North Sea contribution to average 13,000 boepd for the year.

In the wake of an ongoing reorganization of Kurdistan's Ministry of Natural Resources, the Company has experienced extended delays to the final approval of its 2021 Tawke field work program and budget as well as to the approvals necessary to fast track early production from the Baeshiqa license. The delays are expected to defer USD 50 million in 2021 DNO net spending in Kurdistan which could have generated up to 15,000 bopd gross production across DNO's three operated fields (Tawke, Peshkabir and Baeshiqa) going into 2022.

With no new wells coming on production at the Tawke field in more than a year, the natural production decline has been partially offset by pressure support from reinjection of over 20 million cubic feet of gas per day from the Peshkabir field in addition to workovers and interventions of existing wells.

"We are eager to invest and produce more oil in Kurdistan," said DNO's executive chairman Bijan Mossavar-Rahmani. "In nearly two decades of operations in Kurdistan, DNO has confronted and overcome multiple challenges and we are well positioned to continue to do so," he added.

In the North Sea, DNO maintains an active drilling program in 2021, including two appraisal wells on previous discoveries and three exploration wells, the first of which has been drilled leading to a discovery. In addition, the Company plans 10 development wells this year.

Recently, the DNO-operated Brasse project selected the Equinor-operated Oseberg facilities as the preferred development host. With total field reserves of 35 million boe and a relatively modest topside construction scope on Oseberg, Brasse has robust project economics based on a 2022 project sanction target.

With an operational cash flow of USD 160 million, an increase of 135 percent from the first quarter, the Company reduced its bond debt to USD 700 million through a USD 100 million partial bond redemption. DNO exited the quarter with a net interest-bearing debt of USD 396 million, the lowest level since yearend 2018.

DNO received USD 159 million in the second quarter from Kurdistan, up from USD 75 million in the first quarter of 2021. Additional payments this week bring the total 2021 receipts from Kurdistan to USD 290 million year-to-date. The arrears built up as a result of Kurdistan's withholding of payment of certain invoices to DNO in 2019 and 2020 total USD 214 million, excluding any interest.

(Source: DNO)

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KRG amends Oil Payment Terms; Share Prices Fall

By John Lee.

Shares in oil companies operating in Iraqi Kurdistan have been hit by a change in payment terms imposed by the Kurdistan Regional Government (KRG).

Genel Energy, Gulf Keystone Petroleum (GKP) and DNO this morning reported to the markets that they have received letters from the KRG proposing an amendment to payment terms due to the ongoing challenges in Iraq with the COVID-19 pandemic, starting with the March 2021 production invoice.

They said that since the dated Brent price has remained consistently well above $50 per barrel, the monthly repayment of outstanding arrears will now be calculated as 20 percent (compared to 50 percent previously) of the difference between the average monthly dated Brent price and $50 per barrel.

The KRG added that payment terms will be 60 days after the submission of invoices, and that the KRG will re-evaluate this payment model should markets see substantial volatility.

The oil companies have not agreed to these terms, and are seeking discussions with the KRG.

Shares in Genel Energy were down more than 12 percent before recovering slightly, while Gulf Keystone Petroleum (GKP) fell more than 6 percent before recovering slightly. The Oslo Stock Exchange, on which DNO is traded, is closed for the Ascension Day holiday.

(Sources: GKP, Genel Energy, DNO)

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DNO Returns to Profitability, Ups Tawke Production Guidance

DNO ASA, the Norwegian oil and gas operator, today reported operating profit of USD 66 million in the first quarter of 2021, following four quarters of losses triggered by market perturbations from the global Covid pandemic. The turnaround was driven by solid production, cost optimization, higher oil prices and regularization of payments from Kurdistan.

The Company stepped up spend early in the year with drilling of new wells and workovers of existing ones in its flagship Tawke license to sustain gross operated production from the Tawke and Peshkabir fields at 112,000 barrels of oil per day (bopd) in the first quarter, up from 110,000 bopd in the previous quarter. Net production attributable to the Company's interest across the portfolio, including from DNO's North Sea oil and gas assets, stood just shy of 100,000 barrels of oil equivalent per day (boepd).

In another positive development during the quarter, Kurdistan initiated principal payments towards Tawke license 2019 and 2020 withheld entitlement and override amounts, reducing the outstanding balance due DNO from USD 259 million to USD 239 million. If oil prices and license production remain around current levels through 2021, some two-thirds of the remaining arrears will be recovered by the end of the year.

"DNO, like our peers, is positioned for strong cash flow in 2021 with the firming up of oil demand and prices," said DNO's Executive Chairman Bijan Mossavar-Rahmani. "Barring another pandemic derailing of global economic activity, we will repair our balance sheet, regroup in person and then fly like a bat out of hell in pursuit of opportunity," he added.

DNO exited the first quarter with a cash balance of USD 477 million and as a first step towards shoring up its balance sheet, the Company yesterday announced it would retire USD 100 million in bond debt on 1 June 2021 by exercising a call option on the USD 400 million DNO02 bond.

The Company has budgeted full year operational spend of USD 700 million, including 12 Tawke license wells of which nine in Tawke and three in Peshkabir. Gross operated Tawke license full-year 2021 production guidance has accordingly been increased to 110,000 bopd. DNO operates and has a 75 percent stake in the Tawke license, with partner Genel Energy plc holding the balance.

DNO will participate in an active drilling program in the North Sea with five exploration and eight development wells during the balance of 2021.

(Source: DNO)

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Iraq may Buy Exxon stake in West Qurna 1

By John Lee.

Press reports quote Iraq's oil minister as saying that Iraq could buy ExxonMobil's 32.7-percent stake in the West Qurna 1 oil field.

Ihssan Abdul-Jabbar Ismail told a news conference on Monday that the government might purchase the stake via the state-owned Basra Oil Company (BOC).

BOC previously took over the Majnoon field from Shell and Petronas at the end of June 2018.

It had previously been rumoured (see here and here) that China would take over Exxon's holding in West Qurna 1.

Earlier this year, ExxonMobil sold its share in the Baeshiqa license in the Kurdistan region of Iraq to DNO.

(Sources: Reuters, Bloomberg)

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DNO announces Ramp-Up of Oil Production in Iraq

DNO ASA, the Norwegian oil and gas operator, today reported receipt of USD 54.0 million net to the Company from the Kurdistan Regional Government (KRG), of which USD 35.2 million represents DNO's entitlement share of February 2021 crude oil deliveries to the export market from the Tawke license in Kurdistan.

Of the balance, USD 4.6 million is an override payment equivalent to three percent of gross February 2021 Tawke license revenues under the August 2017 receivables settlement agreement and USD 14.2 million is a payment towards the Company's arrears relating to withheld payment of Tawke license 2019 and 2020 entitlement and override invoices.

Following receipt of the latest arrears payment, the outstanding balance has dropped from USD 259.0 million at the end of 2020 to USD 238.6 million.

DNO operates and has a 75 percent stake in the Tawke license, which contains the Tawke and Peshkabir fields, with partner Genel Energy plc holding the balance.

With resumption of payments, the partners have stepped up drilling of new wells at Peshkabir and workovers of existing wells at Tawke in 2021, raising gross operated license production from an average of 110,300 barrels of oil per day (bopd) in 2020 to 110,900 bopd in January, 112,000 bopd in February, 113,100 bopd in March and 115,500 bopd month-to-date in April.

(Source: DNO)

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DNO Adds New Oil Reserves

DNO ASA, the Norwegian oil and gas operator, has announced it replaced 87 percent of 2020 production through additions to its proven (1P) reserves notwithstanding reduced activity in the wake of low oil prices.

In the Kurdistan region of Iraq, the Company replaced 111 percent of last year's production through additions to 1P reserves.

Yearend 2020 Company Working Interest (CWI) 1P reserves totaled 201 million barrels of oil equivalent (MMboe) compared to 206 MMboe at yearend 2019, after adjusting for 35 MMboe of production and 30 MMboe of upward technical revisions.

DNO exited the year with 332 MMboe of CWI proven and probable (2P) reserves and 507 MMboe of CWI proven, probable and possible (3P) reserves. DNO's CWI contingent (2C) resources stood at 152 MMboe.

At yearend 2020, DNO's 1P reserves life stood at 5.8 years, its 2P reserves life at 9.6 years and its 3P reserves life at 14.6 years; all were up slightly from 2019 levels.

On a gross basis, yearend 1P reserves at the Tawke license in Kurdistan containing the Tawke and Peshkabir fields climbed to 234 million barrels of oil (MMbbls) from 228 MMbbls a year earlier. Tawke license 2P reserves stood at 394 MMbbls at yearend 2020 (400 MMbbls in 2019) and 3P reserves at 605 MMbbls (641 MMbbls in 2019).

Across its North Sea portfolio at yearend 2020, on a CWI basis, DNO's 1P reserves stood at 41 MMboe, 2P reserves at 64 MMboe and 3P reserves at 96 MMboe. The Company's North Sea 2C resources totaled 120 MMboe.

At yearend 2020 and on a gross basis, at the Baeshiqa license in Kurdistan containing two large structures with multiple independent stacked target reservoirs, 2C resources stood at 43 MMbbls, following successful drilling and testing of the exploration Baeshiqa-2 and Zartik-1 wells. No reserves were recorded at the Baeshiqa license at yearend 2020 pending conclusion of the ongoing appraisal activities to determine commerciality.

"All things considered, from a reserves replacement perspective DNO had a stellar year in 2020 notwithstanding the sharp cuts in our spend and the challenges of keeping operations going in the face of Covid restrictions in movement of our people, contractors and supplies," said Bijan Mossavar-Rahmani, DNO's Executive Chairman.

International petroleum consultants DeGolyer and MacNaughton (D&M) carried out an independent assessment of the Tawke and Baeshiqa licenses in Kurdistan. Gaffney, Cline & Associates (GCA) carried out an independent assessment of DNO's licenses in Norway and the United Kingdom.

(Source: DNO)

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