Earnings call transcript: DNO Q2 2025 sees strong revenue growth amid challenges

DNO ASA, with a market capitalization of $39.2 billion, reported its Q2 2025 earnings, revealing a significant increase in revenue to $258 million, up from $188 million in the previous quarter. Despite the revenue growth, the company posted a net loss of $7 million. The earnings call highlighted strategic developments, including the acquisition of Sval Energy and operational updates in the North Sea and Kurdistan. According to InvestingPro, the company maintains a healthy balance sheet with a conservative debt-to-equity ratio of 0.18.

Key Takeaways

• Revenue surged to $258 million, driven by strong performance in the North Sea.
• The company completed a strategic acquisition of Sval Energy.
• Production in Kurdistan resumed post-drone attack, with plans to ramp up further.
• DNO is targeting increased production to 100,000 barrels per day.
• The company is exploring flexible financing options between $300-500 million.

Company Performance

DNO’s performance in Q2 2025 showed a robust increase in revenue, primarily from its North Sea operations which contributed $204 million. This marks a substantial rise from Q1, indicating a positive trend in the company’s core operations. The acquisition of Sval Energy has been noted as transformational, enhancing DNO’s operational capacity and strategic positioning. Despite these gains, the company reported a net loss of $7 million, highlighting ongoing challenges. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, one of 1,400+ detailed company analyses.

Financial Highlights

• Revenue: $258 million, up from $188 million in Q1.
• Operating Profit: $86 million, a 200% increase from the previous quarter.
• Net Loss: $7 million.
• Cash Flow from Operations: $135 million, increased from $100 million in Q1.

Outlook & Guidance

Looking forward, DNO is optimistic about its North Sea operations, with expectations to increase production to 80,000-85,000 barrels of oil equivalent per day in the second half of the year. The company is also planning to resume its drilling program in Kurdistan and is exploring the reopening of an export pipeline through Turkey. Additionally, DNO is focusing on optimizing its capital structure and refinancing its debt. The company’s strong financial position is reflected in its current ratio of 1.8 and EBITDA of $6.1 billion. InvestingPro data shows the company trades at a P/E ratio of 14.96, suggesting reasonable valuation metrics relative to peers.

Executive Commentary

• "We would be thrilled and excited to participate in a reopening of the pipeline through Turkey," said Bijan Mossavaramani, Executive Chairman, indicating the company’s strategic interest in expanding its export capabilities.
• "We are now confident enough in our revenue stream to begin to invest and raise production," Mossavaramani added, reflecting the company’s growth ambitions.
• Chris Spencer, Managing Director, emphasized, "The transformational impact of Sval can’t be overstated," highlighting the strategic importance of the recent acquisition.

Risks and Challenges

• Political instability in Kurdistan poses ongoing operational risks.
• Market volatility could impact oil and gas prices, affecting profitability.
• The integration of Sval Energy may present unforeseen challenges.
• Financing strategies need careful management to avoid over-leverage.
• Global economic conditions could influence demand for oil and gas.

DNO’s Q2 2025 earnings call provided a comprehensive overview of its financial performance and strategic direction, with a focus on growth and operational resilience. The company is poised to leverage its recent acquisition and operational advancements to enhance its market position, despite the challenges it faces.

Full transcript - DNO ASA (DNO) Q2 2025:

Justin Levos, Communication Manager, DNO: Good morning, and welcome to DNO’s Second Quarter twenty twenty five Earnings Call. My name is Justin Levos, and I am the Communication Manager here at DNO. Present with me in Oslo on this beautiful day in August are Executive Chairman, Bijan Mossavaramani Managing Director, Chris Spencer and CFO, Hakum Sandburg. At first, Bijan will give an introduction. It will be followed by a presentation of the results, which will be given by Dan.

The presentation, we will open for questions in a Q and A session. And as always, shareholders first, but analysts are also welcome to ask questions. Please press questions will be dealt with afterwards. So during the presentation, the microphones of the participants will be muted. If you want to ask a question in the Q and A session, please click on the virtual hand on top of your screen.

When you are selected, you will be notified on your screen that you are allowed to unmute, after which you must remember to unmute yourself. With that, let’s get started. I will hand over to Peter.

Bijan Mossavaramani, Executive Chairman, DNO: Good morning. Thank you, Youssef, for that introduction. Before we start with the presentation of the operations, operational results, financial results for our second quarter. I just wanted to say a few words, first of of welcome and to say that, we have had, of course, for those of you who have had a chance to see the release, or the reports this morning, We’ve had a very, very exciting, second quarter, at DNO, on the back, importantly of the, acquisition of, Small Energy and the bringing together of our assets and of our teams. We’ve had, now, tremendous results in terms of, of revenues, in terms of operating profit, in terms of, production, in terms of reserves.

And it’s really truly been a transformational, for the company, and we are, all very, very excited. Those of us, who’ve been in DNO longer and, with the new, colleagues that, have have joined us from from Sval. It’s a terrific combination of assets and of people, of mindset, of of strategic redirection of the company, importantly, with a a a even stronger emphasis on on the share distribution of dividends to to our shareholders. Those dividends announced today have been now the quarterly dividends have been increased by 20%. And I think that’s a, a reflection of the confidence we have, in the company, in our results, and our results moving forward and the growth path of the, DNO, the growth trajectory that, that, we are on.

Post the quarter, we, of course, had a, a a an an unfortunate drone attack, on our fields in Kurdistan. And these are not just limited to the fields, but, other fields. It’s, we were all, very lucky, very blessed that no one was injured and that there are no casualties. But, of course, there were, there were damages to, to our our facilities and our operations, and that’s a setback. It’ll take us some time to recover in full, Although, we have started to, the Tawke Field, as we have previously reported, is now back on production.

The damages there were limited to a, one of our storage tanks or storage tanks at our other field, the sister field, Peshkabir. There was damage to facilities, service facilities, and importantly, to two of our coalescers, which deal with water treatment and removal from our of our crude stream. I was I’ve had an opportunity to visit our facilities, our fields in Kurdistan, and meet with our our our teams there. We decided to, on a on a test basis, open up the number of the wells and see the condition of the pipeline and how the wells would react and how the facilities could be could be on a at least on a test basis, briefed to allow us to start moving oil from from the Peshkabir Field to our terminal and loading facilities for sales to the local market that we’ve been doing as well. The ramp up has been impressive, although we’ve been very cautious in terms of which wells to open and how rapidly to open them to make sure we don’t we don’t trip up during this test period.

But we are we have already wrapped up to about 35,000 barrels a day from from the Peshkiri field, which combined with 25,000 barrels a day from the Tawke Field puts us at the time of our release, we’re at 55,000 barrels a day. This morning, we were at 60,000 barrels a day. Again, I I I caution that this is on a test basis. Permanent repairs will take time. And, of course, we have we have a difficult security situation, and we will keep a very close eye on that.

And as the if if there are additional security threats, it we will, of course, revisit our our our operations. But for now, again, the the good news is that there are no casualties, no injuries, and also that we are recovering begin to recover from the the the the shutdown of the fields and and back producing. We’ll also talk a bit more about what what plans we have to resume investments in in these fields to try to get production up. We haven’t drilled any wells in the last several years. We’ve maintained production at about 80,000 miles a day through through tweaks, through workovers, but, drilled no wells.

And, we we are now confident enough in our revenue stream, currently from the local sales, to begin to invest, to raise production, not just to pre drone attack levels, but to the the levels we have before the shutdown of the Iraq, Turkey pipeline. So with that, a quick introduction, I’ll ask Chris to start the the presentation and the and the the slides.

Chris Spencer, Managing Director, DNO: Thank you, Vijayan, and good morning from Oslo. So Vijayan has touched on the key points of the quarter, and it’s, as you said, it’s a very exciting quarter with the completion of the transformational acquisition of Swarth Energy. And therefore, this is the first quarter where you start to see the impact of the acquisition on our results. There’s only one month of the quarter included, as we say here. But as you’ll see throughout the presentation, that makes a big difference.

And at the top line, it’s a huge jump in revenue, 37% up quarter on quarter, and that’s despite us being in the summer shutdown season in the North Sea. The operating profit level also a huge jump of 200% to 86,000,000. That’s on the back of increased production across the portfolio, And that was obviously flowing through into those revenue and operating profit figures. Also during the quarter, we continued the refinancing of the balance sheet on the back of the acquisition. We discussed that both in the presentation that we did when we announced the deal and in the last quarters that we are trying to put in as effective a financing package as we can.

And we’ve made great progress during q just before the last quarterly results when we when we came out with d o six, our our 600,000,000 regular bond. During q two, we put in place this the 400,000,000 hybrid bond, which is in which is new for us and a relatively new product in the bond market. It is treated as equity on the balance sheet, and it is covenant free essentially and gives us a lot of flexibility in the balance sheet. Since the end and then since the end of the quarter in July, we are very pleased to agree a gas stop offtake and financing facility arrangement, which provides $500,000,000 of liquidity at interest rates well below what we’ve achieved in the past. Operationally, in the North Sea, the highlight was yes, another discovery in in the in the Vidcine prospect, which is very close to our Fenya producing field.

Very nice discovery there. Could be easy tieback, and it’s clearly commercial. And then, happily, on the back of the transaction and view going forward, Once again, our Board of Directors have felt that we’re in a position to increase the dividend. That is as last time we increased overall assessment of the sustainability of that type of dividend level. And as you know, we are putting our shareholders prioritizing our shareholders.

And so we’re very pleased to be able to share the success of this transaction by increasing the dividend. Next slide, please. So we move to first, Kurdistan side of the business. And as we mentioned in the quarter on quarter, had a little bit lower production on a gross basis. A lot of that was due to some disruptions in the local market.

But, of course, quarter has kind of been put in the shadow by the events that Bijan touched on where we, for the first time in our twenty three years operating in Kurdistan, were hit by by drone strikes, that was really a warshed moment for us, unfortunately, in the region. Thankfully, no individuals were injured, but we did sustain some quite serious damage to processing equipment, particularly the Peshkabir side. So we’re working and the teams are back to work now. Of course, it took us a bit of time to assess that it was actually safe even to go back to work. And it’s unknown to us who launched these attacks.

So it’s very difficult to put your finger on why we were targeted, which leaves one with a with a lingering security concern. Nevertheless, we’re back to work. We’ve made changes to our operational procedures. We’ve put in place passive protection measures and our people are happy to go back to work. And we’re now back on stream as Bijan outlined in his introductory remarks.

We see this as a test basis both with respect to the security situation, but also the pots and pans and the hardware, which obviously we’ve tested before restarting, but they never quite know until we operate in hot mode as we call with oil and gas running through it, what what damage may have been hidden from these attacks and the pressure waves that go through the system, the equipment on on the back of such an event. We we’re turning to the final point. We’ve now been in the local sales environment for two years or so. That has been working very well. We’ve maintained strict capital discipline and the team has done a remarkable job keeping gross production up at around the 80,000 barrel a day mark.

If these conditions continue, we are now planning to get back to drilling And we hope that we can ramp up production with a target of getting back to the pre shutdown levels. Next slide, please. Moving on to the North Sea business and I guess we’ll be repeating this over and over in the presentation that, again, the impact of soil can’t really be overstated. Here’s the production chart that shows the difference of our DNA portfolio we had in the North Sea or we had in the North Sea before and after S’well. Now that is of course, everyone quickly puts that in the past and starts with the future, and the future is also bright.

So the red wedge where we’re bringing in contingent resources into reserves has already started. That’s the point of the comment about the Maria Revit or revitalization project that came on in May. We’ve got an interesting second half coming up with new projects coming in the Norna area. And then we have six ongoing developments that are expected to come on stream in the next four years, which will help us keep this 80 odd thousand barrel a day of net production to DNO in the North Sea. Then we’re working on the next wave, which is the event affiliated series of discoveries here, which we hope can get to push extension in the next year or two or sorry.

During the next twenty five and twenty six, as I said in the slides. And then we have our our rank of our own operating discoveries we’re working on. So really opportunity rich in our North Sea portfolio, and we are going to have to make tough decisions and high grade our portfolio. We’re happy position to be able to make voice both in terms of our exploration opportunities, but also probably the projects we section in order to pick the best ones moving forward. Next slide, please.

Coming back to exploration, another lovely success with the that I’ve already mentioned puts us a hit rate of three out of four this year. And but still, I guess, the standout is our operated discovery in q one where we not only drilled the discovery well, but drilled a near horizontal sidetrack to appraise the discovery at the same time, putting us rapidly putting us immediately into a position to work on serious development plans and that is ongoing now. Looking ahead, I am very excited about the page well. I have my fingers and toes crossed on that one. That I think the rig is moving into position today whether if the weather’s calm there.

We should be spudding that well next week. So looking forward to that one. Next, please. So as we roll it up our sleeves on the integration of our two businesses in the North Sea, we thought it’d be useful to set out the key priorities that are guiding us as we put the new business together. We’ve got tremendous growth initiatives.

At the same time, we want to make sure that as we go along, we’re generating sufficient cash flow both to service the debt that we have, but also to maintain the dividends out to our shareholders. And obviously, we believe that that will provide us with sustainable ability to service the dividend increase that we have announced today. We’ve had tremendous success with the exploration drill bit. We’ve talked about that several quarters that our focus now is to reduce the time from discovery to investment decision and first oil on the NCS. Happily, we have there are other companies in the industry that are like minded, and I think we’ll see the whole industry working on this, and we intend to be a leading player in that new approach to developing discoveries.

We’ve got a lot of high grading to do with the combined portfolio. That’s gonna be a key focus for next month. And that’s going to be combined with working on additional growth both through Drillbit and bolt on acquisitions. We’ve talked a lot in the past about the financing cost synergies, also the operational synergies of the Swire Energy acquisition, and those are clearly a key focus as we put the organization together. And last but not least, we need to combine the two companies, the legal entities of Swirl and DNO.

That’s a requirement in Norway, but it’s also key step in realizing the tax synergies that we can get by combining the strong positive cash flow from the swap portfolio with the investment that are being made in from a DNO portfolio. Thank you. Next slide. Okay. That’s, my segment.

Over to Hakan to take you through the financials.

Hakan Sandburg, CFO, DNO: Yes. Thanks, Chris, and thanks again to all of you on the call for attending our quarterly presentation today. I will now do a brief review of our Q2 and year to date financial results. But let me also first start by commenting on the strong progress we have made so far this year. As you have seen and as we have discussed, this well energy acquisition clearly transforms our operations and financial outlook through much higher North Sea production, and that will lead to a very substantial increase in our future revenues and cash flow generation.

But to close this acquisition, we have also put our substantial cash balances to good use to pay for the shares in Svald, and we have successfully refinanced most of the debt in both Svaldino and Svald through a series of capital markets transactions all done this year. The outcome of these transactions is a much transformed capital structure in DNO with a long term maturity profile and with access to new and diversified funding sources. And while we have moved to a net debt position, it should be noted that our leverage is still fairly modest compared to many peer companies. So again, we are very pleased with these significant achievements and the repositioning and strengthening of D and O in many respects. Okay.

Let’s now focus on the key Q2 P and L results, where we show revenues of $258,000,000 That’s up from $188,000,000 in Q1. This revenue increase was mainly driven by the inclusion of Sval in our accounts for one month only for the month of June, with some offset actual offset from both lower oil and gas volumes and prices in Q2 for the other North Sea assets. The Q2 revenues were split between $2.00 $4,000,000 for the North Sea and $54,000,000 from Kurdistan. On the cost side, our lifting costs and DD and A increased in Q2 with the inclusion of Svalve, but expense exploration was reduced with no dry wells in this quarter, thereby showing a significant increase in operating profit to $86,000,000 in the second quarter. We have an increase in net finance expense in the quarter from higher debt, but tax expense is also high, mainly due to changes in the deferred tax.

On this basis, we end up with a net loss of $7,000,000 in Q2. Next one, please. And we move to cash flow. And with higher revenues, we show a substantial increase in EBITDA in the second quarter, that leads to a strong increase in our cash flow from operations to $135,000,000 up from $100,000,000 in Q1. This is also net of $24,000,000 in negative working capital changes in Q2.

Otherwise, we had a North Sea tax payment of $114,000,000 for the acquired 12 assets in Q2, and we will see an increase in NCS tax payments now going forward due to the strong earnings from the combined North Sea portfolio. Net investments were high in Q2 at $294,000,000 mainly driven by the four fifty million dollars in cash consideration paid for the shares in Svald, less $259,000,000 of cash held in this company at the acquisition date. Other investments include the $96,000,000 for North Sea development projects. As you can see for finance, we had a net outflow of $412,000,000 in the second quarter as we repaid SEK 1,050,000,000.00 in bond debt, RBL and prepayment financing. This was partly offset by the new hybrid bond at SEK 400,000,000 and a bank bridge facility at SEK 300,000,000.

Further, we also paid our quarterly dividend at $30,000,000 in Q2. So primarily due to the high investments at $294,000,000 and the significant net debt repayments on a cash basis at SEK $350,000,000. Our cash balances were reduced by SEK $685,000,000 to SEK $788,000,000 at the end of the quarter. When you look at this movement in cash balances, it should be noted that we had a very high cash position at the end of Q1 that came after we completed the $600,000,000 DNO06 bond in March. And the proceeds from this bond have, as planned, been used to cover debt repayments and investments in Q2.

We move to the next slide. And as I discussed already, our balance sheet and capital structure has been substantially changed in Q2 through the Svelte acquisition and the financing transactions. And for this reason, we thought we could do more detailed explanation this time of our changes in the capital structure. And we look at this table and start at the asset side. The acquisition leads to a materially higher property, plant and equipment value at $2,700,000,000 That’s up from $1,200,000,000 in Q1.

Goodwill, as you can see, increases significantly to 1,400,000,000.0 Most of this is technical goodwill at close to $1,100,000,000 That comes from the requirement to recognize deferred tax liability on the difference between the assigned fair value and the tax base of assets acquired in the acquisition. On the other side of the balance sheet, equity increased to $1,400,000 in the quarter through the $400,000,000 hybrid bond as this bond is accounted for as equity due to its unique features. Under interest bearing liabilities, we redeemed the $350,000,000 remaining balance under the short dated DNO four bond in Q2. And this was, as mentioned, with proceeds from the new DNO six bond that we completed in Q1. For our bank debt, for RBL debt, we had $80,000,000 outstanding at the DNO RBL at the end of Q1.

And we assumed $522,000,000 of RBL debt from Sval in Q2. Further, we repaid all of this RBL debt and canceled the facilities with an amount of $6.00 $2,000,000 in combined RBL debt at the end of the quarter. So that’s all now repaid. Further, we assumed $446,000,000 in prepayments or offtake based financing from Svali in Q2 and reduced this by $98,000,000 to $348,000,000 at the end of the quarter. And finally, we added that $300,000,000 in the bank bridge loan.

And all in, interest bearing debt increased by SEK $219,000,000 to SEK 1,600,000,000.0 at the end of the second quarter, as you can see in the table. When we move to deferred tax liability, the increase sorry, go back again. In Q2 is, as mentioned, primarily due to the difference between the fair value and the tax base of the acquired assets. The income taxes payable at $420,000,000 mainly include the NCS taxes due for the Sval portfolio for 2025 and also tax provisions for prior Sval transactions that are covered by tax indemnities. And the other liabilities at SEK 1,800,000,000.0 consists mainly of long term asset removal obligations and also short term trade and other payables.

And you will see that detailed in our quarterly report. In summary, we have had a very busy and successful first half of this year, and we have carried out many of the steps in our extensive financing plan for the Swell acquisition. And naturally, following these significant acquisitions, we moved to a net debt position at the end of Q2 at a level of $860,000,000 But importantly, using a pro form a first half twenty twenty five EBITDA ex on an annualized basis, our net debt to EBITDA ex leverage ratio is still quite moderate at 0.5x, thereby maintaining modest net debt level that I mentioned, but also relative to earnings in the large D and O group. Further in July, as Chris mentioned, we announced the completion of the DNO North Sea gas offtake agreement with the related 500,000,000 financing facility at very attractive terms. This facility will be used to refinance existing D and O debt and also to lower our cost of capital and will be an important part of our future debt financing.

I could mention also that in addition, we have already repaid $150,000,000 of the $300,000,000 bridge loan in Q3, and we will continue to reduce debt levels and optimize our capital structure going forward. Fine. And on that good note, I will now hand back to Chris to complete our presentation today.

Chris Spencer, Managing Director, DNO: Thank you, Holkham. And it’s great listening to you actually because it takes us back through all of those transactions. And as you say, it’s very we’re very pleased with the way we sit today and the the the extent to which we’ve implemented the plan for financing this transaction. Still some optimization to go, as you say, and an important step of that was to make the first $150,000,000 repayment of the bridge loan, which, of course, is a bridge loan. It’s to bridge during our financing project.

And we hope to see the next steps on that by the time we’re sitting here in three months’ time. I mentioned, I repeat the point on the bridge loan because, of course, that’s also in the board’s mind when they decide to increase the dividend. We are, as always, conscious of our need to service debt as well as provide an attractive return to our shareholders. But the shareholders are our priority. And since we have the cash flow to manage the debt that we have, the board was happy to increase the dividend by some 20%.

And we now have a very nice track record of shareholder returns building up that we can proudly show in these presentations. And although there’s been a bit of fluctuation due to exchange rate in the last five quarters, you’ll see that we’ve had a nice increase over the last couple of years in the dividend level also. Next slide, please, because the final point made on on on on the slide I’ve just moved on from was around streamlining and trimming expenditures. This is a good illustration. Once again, the transformational impact of Swell hits on every metric, operational spend.

And this is where we will be generating synergies going forward ’26 and beyond. Of course, we start off as every company, we have the revenue we generate from our assets. We have to pay OpEx to get that revenue. And at the corporate level, we have to pay interest and so forth on our debt. After that, we have our choices to make between the expects reinvestment in the business, expects in CapEx and dividends.

And that is the optimization process that we’re working on as we integrate the Svelte portfolio. Then to close the presentation, a quick outlook. Obviously, the biggest thing in the next quarter is going to be that Svalve will be integrated for the whole quarter. So that’s going to make a huge difference to all metrics. Operationally, we’re looking we’re expecting to have a better second half in the North Sea than even we had in the pro form a first half as we bring on these new developments.

We’re guiding 80,000 to 85,000 BOE per day through H2. We talked in some detail in Kurdistan. As we say, we’re on a resume near normal operations at both the fields now, and we hope that we’ll be able to maintain that, but that depends on how the equipment performs and how the security situation develops. And lastly, which I’ve already mentioned, but we’re taking the last couple of steps of the plan that we have in place for financing this whole transaction. And the aim of this will be to reduce the cost of debt that we have going forward.

That concludes our presentation. And do we hand back to you for Q and A, Jose?

Justin Levos, Communication Manager, DNO: Thank you, Chris, and thank you, Hakim, for the presentation. And at this stage, I think we are ready to start the q and a. So please raise your hands. I’ll put this exciting new illustration on on the screen. So to set the tone oh, let’s see.

Who’s gonna be first? No question raised so far, but I’ll give you a couple of, more minutes. There are a lot of attendees. More than 200 people listening in today, which I believe is a new record. Maybe we explained everything to your full satisfaction.

So I have Yeah. Okay. Then, well, there seems to be two people coming in. I hear their very last moment. So I’ll have, Satya.

Maybe you can introduce yourself. You are unmuted.

Satya, Retail Investor: Yeah. Thank you, everyone. I think it’s a great presentation, and, you guys are performing, very great. Myself is Satya. I’m from, retail investor in Oslo.

And, I’m very good fan of how the company is performing. Quick question for me to the the export pipeline opening possibilities, coming quarters? That’s my question. Thank you very much.

Bijan Mossavaramani, Executive Chairman, DNO: Let me respond to that. Yes. There’s been a lot in the, press about the ongoing discussions between the, international oil companies, the government of of Iraq, and the government of the Kurdistan region. And as for those of you who follow these, you you’ll you’ll note that the those discussions have, have intensified and that, there’s there’s been some agreements, broad agreements on what a reopening would look like. Those discussions have not been concluded.

But so far as DNO is concerned, our position is is clear, and it’s been stated many times. We would be, thrilled and excited to participate in a, reopening of the pipeline through Turkey and access to global markets. But we’ve also said that, there are conditions that we have. One is that there’d be certainty of payments, to us under any new arrangements. They have these issues are not new, some ten years or so ago.

Much the same dynamics were at play. We participated in, in exports, and, we were not, paid, in full, by the, the exporting entity, at the time, which was the state’s oil marketing organization in Baghdad, but also the the Kurdistan regional government was part of those arrangements. But due to a lack of of of of firm arrangements at that time, DNO and the other many of the other intangible companies were were not paid, there are still significant sums outstanding from that period. We’ve also had that during the COVID period, we were delivering oil to the Kurdistan regional government for all road sale. And because of the different the economic difficulties at the time, we were asked to agree to defer payments or or or receipts on our part, payments to us.

And we did so, and there are still significant outstanding receivables that, we’ve fully expect, to be paid. And the government at the time and repeatedly since then have said that these, arrears will be will be covered. So we’re looking to have firm arrangements in place where there is certainty of payment to us for our contributions to the pipeline. Our production in Kurdistan historically has been and will soon be the highest among the international companies. I believe among the international companies, we represent 40% of the production in the Kurdistan region.

So we are key to the full export of Kurdistan produced oil. We would be, again, thrilled to be part of that, but we don’t want to repeat, the situation in which, we deliver the oil but aren’t paid, correctly according to our contracts in in a timely fashion and in full. So that is a requirement on our part. Another requirement is that we revisit the issue of of the arrears, the the payments that were not made to us in the first period that I’m referring to were in the order of $300,000,000. And our payments our arrears from the COVID period are a a similar sum.

There have been other arrears during the ISIS crisis. Those were paid to us by the Kurdistan Regional Government at the time in full, and we were always confident that we would be paid. And we’re still confident that we will be paid. The these areas will be addressed. In the meantime, we have been, as Chris also referenced, successful in in working with the the local Kurdistan traders and moving their crude at a discount to international prices, but prices that still allow us to cover our operating costs and and with additional free cash to DNO and to the contractor and with our partners like, you know, and energy.

And based on the the successful implementation of those local sale arrangements, we are, prepared to, to increase our our our spend on drilling of wells. As I mentioned, I was in Kurdistan several days ago. I met with our subsurface and operating teams, and I’ve asked them to dust off our our drilling program and to identify where we would drill and how much we we hope to recover. And my hope and my expectation working with our very, very strong team is to is to get us to restart drilling and get us back up to the pre pipeline closing levels several years ago of a 100,000 barrels a day from the Peshkabir and the the Tawke fields. And to do so, again, on the back of local sales, if we if the pipeline reopens and we participate in it, we expect that our revenue stream based on our production sharing contract, which ultimately is the is the only fiscal framework for our sales, whether we we sell the local market or the export market, we would expect with the opening of the pipeline for our revenue stream to be significantly higher.

And and the back of that, we would hope to do even more in our, in our in our fields and our license and, in Kurdistan. So we’re hopeful all these export discussions will come to a quick fruition, but, they must be done in a manner that respects our contracts, activity of our contracts, our contract terms, and addresses the arrears that need to be addressed to to satisfy our requirements to participate in the export of of our oil through the through the pipeline under the arrangements that have been discussed and appear to be close to being finalized but have not yet been finalized. But we hope they will be finalized. We hope that they will that that the structure will be such that our are very, very legitimate and clear the promise we met and that we part of that that program as well.

Justin Levos, Communication Manager, DNO: Okay. And if there are no further questions, then I think we just wrap up for the last question coming in here from Mehmet Dera. Please introduce yourself. You are unmuted.

Mehmet Thera, Analyst, Deutsche Bank: Hey, guys. Can you hear me well?

Justin Levos, Communication Manager, DNO: Yes.

Mehmet Thera, Analyst, Deutsche Bank: Great. Hey, this is Mehmet Thera from Deutsche Bank. Just a few questions. First, on the export, which you have just recently mentioned on the production levels of 100 kilo barrel. If you were to increase the current levels to 100, what kind of additional investments would you need here?

And then the second question on this one, given that you are just at the moment ramping up production in the Kurdistan region of Iraq. And I guess you are doing some repairs at the Peshkabir Field. Do you expect any disruptions production disruptions in the coming quarters?

Bijan Mossavaramani, Executive Chairman, DNO: On your other question, do you you’re asking me if I expect any more drone attacks? I hope not.

Mehmet Thera, Analyst, Deutsche Bank: No. No. No. Not not drone attacks. Don’t get me wrong.

Sorry. Any any because of the repairs, are you expecting any, disruptions in the field production?

Bijan Mossavaramani, Executive Chairman, DNO: I don’t know. We we we are, we are still examining what repairs need to be done. We know what facilities have been damaged. There may be other, parts of the system that have been damaged that we have not yet identified as, Chris mentioned. So that’s why we described this as a test production period, certainly at Peshkabir, and we’ll see how well we can sustain production at this higher level, which is still not the full level that that that the Peshkabir field can produce at.

So we’re we’re we’re we’re proceeding cautiously. I mentioned that we have hope we don’t have any more drone or any other attacks or surprises of this nature, but we we are we are in a better position now to protect our our staff. We have fewer people in the field. We’ve erected some some concrete barriers and some some in house security protocols to protect our people. That’s that’s a number one priority.

And as we look at repairs and that drilling, we will keep security very much in in in in mind. The repairs that talk either replacement or repairs to our coalescers, which are the principal equipment that we’ve identified as having a damage, is very visible. That will take quite some time to locate coalescers and then bring them and install them. That’ll take some time. We’ve done workarounds around the coalescers using other temporary fixes that we felt were were safe.

We focused on opening up wells that have lower water cuts to reduce that problem. And I think at this level of the current level, about 35,000 barrels a day of Peshkabir, we can sustain that unless, again, we see other surprises. So we can, I think, sustain that, but the repairs will not be done in a matter of days or weeks or even a month or two? But in the meantime, we we are doing things the the DNO way. It’s finding fixes that are safe, environmentally sustainable, but but create the opportunity to move oil to market.

And I mentioned the DNO way. When my predecessors at DNO came into Kurdistan twenty years ago, there was very, very little infrastructure, oil infrastructure in Kurdistan. There’s no diesel to run the facilities, all the fields. DNO purchased a a small used refinery and brought it down and installed it at Otaki Field where it still sits today and it still provides diesel to in support of our operations. They they they brought in their own diesel making facilities, and so they would they found ways to, to develop a target field and produce quickly and in, and effectively by, by, doing, what what others would call, unconventional things, but it made it happen, and we’re we’re not doing that again here.

But we are we’re following the work on the ground very closely. How long we can sustain this these levels? I think we we can sustain these levels, and, hopefully, we can we can move them up. But we are watching the skies. We have Skywalk drone watchers, and we have we have put in into place, again, protocols to be able to, like, get early warning.

And so that if the hopefully, the the the in the event of non drone strikes, we can never, like, keep going. That’s we’re we’re very security conscious, and I’m confident that we’ll we’ll be able to maintain these production levels and hopefully increase them. And also at Tawke because the Tawke field has has performed well, declined and and the natural declined in in the field production has been stopped over the last several years, notwithstanding the drilling of no wells because we’ve been reinjecting the Peshkabir gas into Tawke. The Peshkabir field went down. We had no gas to inject to Tawke.

And the the but but now we we are moving gas to Taqui, and, hopefully, the Taqui production will will be boosted a bit. On the issue of what sort of spend we we are looking at, Some of these statistics are are known. We have three kinds of wells in the talking license. We have the Jetty Bear shallow wells, which are still producing. Those wells cost under a million dollars up a pop and are drilled quickly because, again, the Geneva formation is is quite, shallow.

And, on on the rig, we have a Sindhi rig that we use for workovers, and the deeper wells will be used to drill at least a couple of, Geneva wells that’ll contribute, hopefully, few million thousand miles a day for production. Our Tawke development wells cost around $5,000,000 a pop. At the Peshkabir, the cost is twice that, but the Peshkabir wells are expected to produce more than the Tawke wells. So we’re we’re we have a number of targeted, drilling sites that we prepared years ago, and we’re dusting those off and, deciding in the current production situation and the current, security situation, which wells we want to drill when. There are rigs available in Kurdistan.

There’s a rig that’s been stacked on on on Tawke. And so we can move rapidly in the DNO way to to put these wells down and add to production, I think, pretty, quickly. And, again, our teams are terrific. They’re dedicated, and they’re all raring to go as all of us are to get to get, to get, wells drilled and production up and our revenue stream up.

Mehmet Thera, Analyst, Deutsche Bank: Okay. Can I just ask one last question? On your last comments in the in the presentation, you’re saying that you’re working to establish similar arrangements with regards to the, to the financing for the North Sea oil production. Can you give us some color what kind of arrangements those would be? Is it something like, again, like an offtake agreement, RBL facility, a bond?

And maybe some color about the size of it.

Chris Spencer, Managing Director, DNO: Please, Chris. Thank you. Yes. All all all we are considering all of the above, mate. Thanks for the question.

We’re now in a situation where we we have time. We’ve we’ve got the deal done, and we’ve been very pleasantly surprised by the strong interest from trading companies to secure both gas and oil streams. And they are being very creative and of making various offers of financing packages together with to secure the rights to marketing of the oil or gas without us having to take a haircut on the prices of those products. So it’s been, so far, a very interesting and positive journey for us. So how that will look, we will come back to, I think, next quarter.

But whether it’s debt or more refinancing, whether it’s sort of 300,000,500 million dollars that’s the sort of scope we’re looking at. And then we should be able to reduce some of the higher cost debt that we have on the balance sheet.

Mehmet Thera, Analyst, Deutsche Bank: Have you mentioned 300 to 500?

Chris Spencer, Managing Director, DNO: I think that’s the order that we’re looking at. But let’s say we’ve been surprised. We we were were very pleased with the deal we’ve done on gas side. I think when we were going into that, I would I wouldn’t have thought we would get 500,000,000. And the other beauty of that facility is it’s it’s, you know, trying to think the right word, on demand or not, but if we can use it or not use it, it’s there.

There’s no holding cost to it. And if we obviously reduce the amount of financing on it, then the interest rate comes down. The interest rate in itself is very attractive. So it’s a lovely source of capital. My point is it’s very, very flexible.

So in good times, we can let it run down and still provide the company with liquidity buffer going forward. Great.

Justin Levos, Communication Manager, DNO: We’re actually fast approaching the one hour mark, so I think it’s time to wrap it up. And thanks all for participating, and see you around the next quarter. Bye. Thank you. Thank you.

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