DNO returns to profit after regular oil payments from KRG resume

DNO, the Norwegian oil and gas operator controlled by RAK Petroleum, on Wednesday reported its first quarterly profit since mid-2014 and reiterated its intention to increase investment to boost output.

The company’s executives also said they are looking to use some of the improved cashflow to acquire new assets, which they hinted might include growth in the Kurdish region in Iraq.

“We now believe we have weathered the crisis and are back in the business of growing the company,” Bijan Mossavar-Rahmani, the executive chairman of both DNO and RAK Petroleum, told investors at a presentation in Oslo.

Revenue in the first three months of the year was just under US$50 million, up from $26m in the same period last year, and DNO reported earnings before interest, tax, depreciation and amortization (Ebitda) of almost $24m, compared with losses of more than $34m for last year’s first quarter.

The improved results were driven by much lower per-barrel costs as well as the resumption of regular payments by the Kurdistan Regional Government (KRG) in Iraq, where almost all of DNO’s production is based.

Output from the Tawke field in the Kurdish region averaged 91,700 barrels of oil per day in the first quarter, down from last year’s first-quarter average of about 106,000 bpd, with a prolonged outage in the pipeline that carries most of the output for export via the Turkish port of Ceyhan responsible for the decrease.

But DNO said that output rose to nearly 119,000 bpd last month and new investment this year will increase output to 135,000 bpd.

“We jump-started investments at Tawke once Kurdistan provided regularity and predictability of payments,” said Mr Mossavar-Rahmani.

“We have our foot back on the accelerator in Kurdistan and sometimes it feels like we are driving a Ferrari...but also with very powerful brakes,” he added, referring to the fact that expansion will be contingent on the KRG continuing to make good on promises to pay down the billions of dollars in arrears it built up with its three main foreign operators as security conditions and government finances deteriorated.

Since payments began again in September last year, DNO has received a net $128m, of which $48m came in the first quarter this year. Since the start of the year, the KRG has been paying the amount owed contractually plus 5 per cent towards arrears, which was less than in previous months but has been welcomed by companies as a more stable and predictable payment regime.

Mr Mossavar-Rahmani added: “There are a lot of challenges in Kurdistan, security challenges first and foremost, as well as political. But we try to be part of the solution,” by increasing investment and oil export capability, and thus direct revenues for the KRG, whose Peshmerga fighting force has borne the brunt of the push against the Islamist terrorists occupying the region to its west.”

DNO has said it will make $100m capital investment this year, which will go further than previous investment because of industry cost deflation – its lifting costs, for example, fell to $2.80 per barrel in the first quarter versus $6 for last year’s quarter, the company reported.

Last year, DNO invested just $51m in Kurdish region, down from $297m the year before.

With the improved cashflow, DNO also is “actively looking for new assets to grow the business,” said Haakon Sandborg, the company’s chief financial officer. Mr Mossavar-Rahmani added that management is looking mainly “at our footprint area” for assets to acquire.

DNO has fared better financially than the other two main operators in the region.

The shares of Gulf Keystone, which operates the Shaikan oilfield, hit a new low last month as it had to renegotiate interest payments to bondholders to gain till the end of this month to find additional funds.

Genel Energy, which is a shareholder in Tawke and operator of the Taq Taq oilfield, has been in talks with potential partners to help it fund future investment, including TEC of Turkey.

DNO shares have nearly doubled since their low of near 4.60 Norwegian kroner in January to 9.30 kroner at the end of last month, but they were down 0.59 kroner to 8.20 kroner in early trading in Oslo on Wednesday.

amcauley@thenational.ae

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