Page 17 - Euroil Week 19 2020

EurOil PROJECTS & COMPANIES EurOil
Norway’s DNO targets 35% capex cut
NORWAY
DNO produces most of its oil in Iraqi Kurdistan.
DNO, the Norwegian oil and gas operator, today reported that it had identified and implemented 2020 budget cuts of $350mn, or 35%, across all spend categories as the company moved early and quickly to protect its personnel and opera- tions and preserve its cash position in response to the devastating impact of the coronavirus (COVID-19) pandemic. The company exited the first quarter of 2020 with a cash balance of $543mn, up from $486mn at the end of 2019.
In releasing its interim first-quarter results, DNO reported revenues of $206mn, largely driven by lower oil prices and a net loss of $40mn on the back of impairments of its North Sea assets, again driven by lower oil prices. Notwith- standing the turmoil in the oil industry, DNO delivered strong operational metrics, with pro- duction split 80:20 between the Kurdistan region of Iraq and the North Sea.
DNO’s company working interest (CWI) production averaged 99,857 barrels of oil equiv- alent per day (boepd) in the quarter, of which Kurdistan contributed 81,221 boepd and the North Sea 18,636 boepd. Gross production at the DNO-operated Tawke and Peshkabir fields in Kurdistan averaged 61,493 barrels per day and 53,714 bpd respectively as DNO hit the brakes on spending. After completing five development wells in the licence during the quarter, DNO released four drilling rigs in Kurdistan but con- tinues to utilise the company-operated workover rig to service production wells, some of which have been shut in given current oil prices and payment delays. A drilling rig has been cold- stacked at each field and can quickly be mobi- lised if conditions warrant.
The company has had recent successes with the drill bit. In the North Sea, the Bergknapp exploration well (DNO 30%) discovered hydro- carbons in multiple formations of poor to good reservoir quality, with recoverable resources ranging 26-97mn barrels of oil equivalent (boe); the near-field discovery is Norway’s largest to date in 2020, and has a high probability of commerciality.
In Kurdistan, the company has reported a discovery in its operated Baeshiqa-2 explora- tion well after flowing variable rates of light oil and sour gas to surface from three Triassic-aged reservoirs. Evaluation of test results will deter- mine the next steps towards further appraisal and assessment of commerciality. Additionally, a third well on the licence will spud mid-month, with its primary target a shallower Jurassic
formation on a separate structure (Zartik). Meanwhile, the Peshkabir-to-Tawke gas capture, transport and reinjection project to effectively end CO2 emissions at Peshkabir (and therefore in DNO’s Kurdistan operations) and boost oil recovery at Tawke is completed and
undergoing commissioning.
To achieve budget reductions, DNO has
deferred most discretionary drilling and capital projects across the portfolio and continues to identify and capture cost savings. In the United Kingdom, no drilling is planned and the balance of the Schooner and Ketch decommissioning programme has been suspended and deferred to 2021/2022. The company has renegotiated ser- vice contracts for savings and extended payment terms where it operates, and is in continuous dis- cussions with partners in the North Sea to reduce operating and other costs and defer non-critical projects where it does not operate. DNO’s 2020 North Sea drilling campaign has been scaled back and wells deferred, but firm plans remain in place for wells in five licences over the bal- ance of the year, including two exploration, one appraisal, two infill and two development/geo- pilot wells.
To further strengthen its cash position, the company has also drawn S115mn from its reserve-based lending facility to fund North Sea operations and has suspended its dividend programme.
Last month, DNO received $90mn for Kurdistan oil exports, not included in the end of first quarter cash balances. Entitlement and override payments for November 2019 to February 2020 ($233mn in total) remain out- standing, which the Kurdistan Regional Gov- ernment (KRG) has proposed to defer, together with override payments commencing March 2020, given the deterioration of its own fiscal position with the collapse in oil prices. DNO is following up to agree acceptable terms for such deferment and also timing of payments of the sums in arrears.
“One of the first to hit the brakes, DNO is positioned to be one of the first to press down on the accelerator with signs of sustained market recovery, notably through short-cycle drilling in Kurdistan,” said Bijan Mossavar-Rahmani, DNO’s executive chairman. “Lifting costs below $5 per barrel in Kurdistan give DNO [a] com- petitive advantage when oil prices are weak and strong cash flow when oil prices recover,” he added. ™
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