DNO, a Norway-based oil and gas operator controlled by RAK Petroleum, reported sharply lower revenue last year, but a narrower loss and record volume from its principal assets in the Kurdistan Region of Iraq.
The company also said that despite the financial loss, it would increase its investment in the Kurdish region after the Kurdish Regional Government (KRG) recently moved to normalise payments to oil operators, despite lower oil prices and the costs of dealing with war and the refugee crisis.
It said revenue last year fell by 59 per cent to US$187 million, though its operating loss of $174m was a 28 per cent improvement on the $243m loss the previous year as it cuts more than $50m in costs.
Production increased by 23 per cent at an average of 144,200 barrels of oil equivalent per day last year, most of which came from the Tawke field it operates, DNO reported. It owns 55 per cent of the field.
The company said that after consistent payments from the KRG since August, as well as a recent announcement that payments dating from January would be at originally contractual rates plus some towards arrears, it will make investments in Tawke to reverse natural field decline. DNO says that as a result, it expects to boost output by at least 10 per cent by the middle of this year and more thereafter.
“DNO’s foot is coming off the brake and pressing on the accelerator,” said Bijan Mossavar-Rahmani, the executive chairman of both DNO and RAK Petroleum. “The export payment arrangement just put in place provides regularity, predictability and transparency, thereby laying the foundation for stepped up investments in Kurdistan.”
Mr Mossavar-Rahmani also noted DNO’s balance sheet strength, with the company ending last year with a cash balance of $238m, up from $114m a year earlier, after raising equity, and selling down RAK’s stake to about 40 per cent, and refinancing its bond finance.
DNO now says it will make $100m capital investments this year, adding that the cost deflation in the industry means it “will allow us to do more with less”. Last year, capital spending plummeted to $51m from $297m the year before.
The company said that the average price it received for oil from Tawke last month, based on world benchmark North Sea Brent minus a quality differential and pipeline tariff charges, was $18 per barrel. The first payment under the new KRG scheme for January was $21.45m, which will be shared with partner Genel Energy – $3.46m of which was towards arrears.
“It is fair to point out that payments under the new system are lower than the previous payments because oil prices have fallen so much, but I wonder if the KRG would revert to the old system when oil prices rise?” asked Teodor Sveen Nilsen, an analyst at Swedbank.
Mr Mossavar-Rahmani said he thinks the new system will be sustained. “Now there is an understanding that if the payments aren’t regular and predictable then investment stops and production and revenue go down. This is the beginning of a process and we are pleased that at least it is a start.”
He said that DNO and the KRG have discussed alternatives to cash payments to pay down arrears, noting that the KRG has shares in a large number of oil and gas properties in the region and might negotiate transferring some of those as payment.
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