Earnings call transcript: DNO’s Q1 2025 results show strong North Sea growth

DNO ASA, with a market capitalization of $37.3 billion, reported its Q1 2025 earnings, highlighting a notable increase in revenues and operational improvements. The company achieved revenues of $188 million, a significant rise from the previous quarter, driven primarily by its North Sea operations. Despite a net loss of $4 million, the company maintained a robust cash flow and announced strategic plans to expand its production capacity. The stock, currently trading at $13.27, appears undervalued according to InvestingPro analysis, which considers multiple valuation metrics and growth potential. The stock’s performance remained stable, with no significant changes reported in the immediate aftermath of the earnings release.

Key Takeaways

• DNO’s Q1 revenues increased by $11 million from the previous quarter.
• North Sea operations contributed $130 million to total revenues.
• The company completed a successful $600 million bond placement.
• Strategic focus on expanding North Sea production following Sval Energy acquisition.
• Maintained strong cash balance of nearly $1.5 billion.

Company Performance

DNO’s Q1 2025 performance showcased a strong emphasis on its North Sea operations, which have become the company’s primary focus for growth. Revenues from the North Sea reached $130 million, significantly outpacing the $58 million generated from its Kurdistan operations. With trailing twelve-month revenues of $47.8 billion and an EBITDA of $6 billion, the company demonstrates substantial operational scale. The company’s strategic shift towards the North Sea is underscored by its recent acquisition of Sval Energy, which is expected to quadruple its production in the region. InvestingPro data reveals a healthy financial position with a strong current ratio of 1.85 and an impressive Altman Z-Score of 8.44, indicating minimal financial distress risk.

Financial Highlights

• Revenue: $188 million, up from $177 million in Q4.
• Operating profit: Significant improvement from Q4.
• Net loss: $4 million, indicating ongoing financial challenges.
• Cash flow: Increased to $100 million from $82 million in Q4.
• Cash balance: Close to $1.5 billion at the end of the quarter.

Outlook & Guidance

DNO is targeting a production increase to 100,000 barrels per day, focusing on accelerating the development of its North Sea discoveries. The acquisition of Sval Energy is expected to bolster the company’s position as a top 10 producer in Norway. Additionally, DNO is exploring financing options to support the acquisition and potential expansions in Kurdistan and Southern Iraq.

Executive Commentary

• "We want to grow more in the North Sea and use the size and scale to do larger transactions," said Executive Chairman Bijan Mostavaramani, emphasizing the strategic focus on the North Sea.
• "We will quadruple our North Sea production," stated Managing Director Chris Spencer, highlighting the expected impact of the Sval Energy acquisition.
• "Net debt to EBITDA will be 0.7x," noted CFO Hakon Ensambo, reflecting the company’s strong financial positioning.

Risks and Challenges

• Geopolitical uncertainties in Kurdistan may impact export opportunities.
• Fluctuating oil prices could affect revenue stability.
• Integration risks associated with the Sval Energy acquisition.
• Potential regulatory changes in the Norwegian market.
• Market competition in the North Sea region.

DNO’s Q1 2025 earnings call reflected a strategic pivot towards the North Sea, with significant investments and operational advancements. The company’s financial performance, while showing areas for improvement, underscores its commitment to expanding its production capabilities and market presence. Trading at a P/E ratio of 13.45, the stock offers value potential, and investors can find comprehensive analysis in the detailed Pro Research Report available on InvestingPro. The next earnings announcement is scheduled for July 30, 2025, where management will provide updates on strategic initiatives and financial targets.

Full transcript - DNO ASA (DNO) Q1 2025:

Justin Levos, Communication Manager, DNO: Good morning, Jan, and welcome to DNO’s first 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 May are Executive Chairman, Bijan Mostavaramani Managing Director, Chris Spencer and CFO, Polk Ensambo. At first, Bijan will give an introduction.

It will be followed by a presentation of the results, which will be given by Chris and Hakon. After the presentation, we will open for questions in the customary Q and A session. Since this call is for investors and analysts, primarily press questions will be dealt with afterwards. During the presentation, the microphones of 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 unmute yourself. With that, let’s get started. I will hand over to Bijan.

Bijan Mostavaramani, Executive Chairman, DNO: Yorstad, thank you. Yorstad mentioned, who the call is primarily for. I should just add to that. It’s primarily for, our shareholders and our bondholders and the analysts and the the press come alongside those important stakeholders in in in DNO. I I seem to be blocking the DNO logo, so I’ll duck my head.

That’s what, stands behind me as, I welcome everyone to our, February earnings report and discussion with, with, management, my colleagues, as I mentioned, Chris, our manager and Hawken, our, our CFO. And, of course, we’ll then open the the floor for the call to to any questions that you’d like to pose to us. Just a few words of introduction before we go into the, the results presentation, which some of you may have already had a chance to look at. I know the analysts and also have before this, the meeting. I’d like to, again, emphasize that the first quarter has been a very exciting, in fact, a a a very important quarter for us, transformative in many important respects.

First and foremost, with the announcement of our acquisition of Swal Energy, which we previously announced, and now we’re in the final, stages of the, of the activities that, will, permit us to proceed with the closing, which is expected to occur in mid June, so not too far, from now. We’ve already said that the obvious that our main advantages to DNO from this transaction. It’s of course, it increases our size and scale considerably. As a result of the transaction, our production, our output in the Norwegian Continental Shelf will purple as at the time as of the completion of the transaction. That’s significant.

We roll it together with the small assets, the DNO assets, will total output averaging just over 80,000 barrels of oil equivalent a day, and that now puts the the combined companies in the top 10 producers of oil and gas in Norway. That’s a very, us, a very significant milestone and the one that we hope to to continue improving on as we bring our discoveries on stream, hopefully, a more rapid click, but also as we perhaps do additional, acquisitions, whether they’re smaller bolt on acquisitions in the North Sea to improve our our our our our portfolio and our positioning, but also through perhaps through larger, acquisitions that might be, become available to us. So, we are, we hope and we expect on a on an upward, slope in terms of acquisitions and additions of, through developments, in terms of North Sea producers. There has been other, again, advantages to us. We expect having a larger North Sea production portfolio with with with the reduce and improve the the terms of of financing for the DNO, so to reduce our cost of capital.

And there are different reasons why we expect that to be, like, the case, importantly, because Norway is considered more safe and more secure and more, creditworthy than, our other leg, would be an important production in Kurdistan. But so there are these strategic advantages to us. We will be able to access some of the, some of the hubs that have been more difficult for us to tap into where a small it has been a joint venture partner in the blocks that have have flown through these through these hubs, and that’ll help us again accelerate the development of our our impressive, list of, of discoveries. As those of you who follow us know, DNO has been over the last several years, one of the most successful, explorers in the, offshore Norway. I think in one year, we probably became in the number one in terms of the the the cumulative size of the of the discoveries that we’ve made.

So we’ve been very successful, and we hope to continue that that trend as well. Importantly, also, with the with the merger position, but I think of or it’s a merger of the, of DNO and, Small, we will acquire a, a crack and very impressive group of small employees. The number is is is is small due to some rightsizing done recently. But the group, I had a chance to meet with them yesterday in Stavanger, and it’s a very impressive group. And importantly, they are coming from a high-tech group and ownership, they have a private equity mindset and private equity culture that’s been, importantly created and nurtured by the senior high-tech individuals, John Knight and, also, Einar, and to to to whom both our friends and to whom we we owe owe a lot of gratitude for for creating and nurturing a private equity investors first mindset at.

And the DNO’s been moving in that direction more and more. And as you can see in the, in the, for example, our dividend policy, which over the last several years, we’ve, we’ve created and then maintained and do so for the, for this quarter, and it’s it’s part of our announcement. And, hopefully, we will even move, more in that direction as well. We’ve also announced, today in our, in our annual general meeting notification that we are adding two, new board members. At least we’re we’re nominating them for shareholder votes in June at our meeting on June 5 here in Oslo.

One of them has been on the board of Svald and very knowledgeable about Svald, the organization, presentation of the of the of the Norwegian oil sector, and knows the worked with the management team and the rest of the team at at Small. So that’ll be, I think, an important addition to our to our board. And the the second is an individual who’s very has been the has a board industry background and a very active partner, in fact, in a major US private equity firm. So he will also bring a private equity background and a private equity mindset that hopefully will will will help place our our Us pivot even faster towards that, that, culture. Maybe, at the we I think we’ve said in the press release today that our are driven by the need and the expectation that we will move faster, cheaper, and better in terms of bringing discoveries to market.

Norway, that process is is is is very slow by international standards. And some of the the discoveries that we have have these been in the, say, the Gulf Of America or some of the Gulf Of Mexico. These would have been on on development less than a year. In Norway, it takes three, four, five, six years sometimes to get there. We wanna move that faster, and and I think other companies of our size and scale be very supportive.

But, hopefully, even the largest of the companies here in Norway would would be motivated and more inclined and and join with us in trying to accelerate the development of the many discoveries in Norway that are that are sitting, waiting to to to be monetized. I think that’s very important. This this moving faster, better, cheaper, of course, has served us well in Kurdistan, where we remain happy for the past twenty years or so, the most important in terms of volume and production, company operating in in in Kurdistan, and we’ve done it the the the DNO way. Norwegians this is before my time at DNO. The Norwegians, my predecessors going into Kurdistan were able to to to bring a lot of innovative, creative, and quite fast techniques and mindset to putting oil on production, and we’ve continued that.

Another highlight of this quarter, which I’d like to also touch on, and I know Chris will in his, his remarks, from the presentation and his own thoughts, we’ve been, we surprised everyone how well we’ve been able to maintain and even inch up our production in Kurdistan without significant investments. We have not drilled a new oil in Kurdistan in at least a couple years, but we’ve been able to maintain production at the current levels from the reservoirs that typically have a natural decline of of 15 to 20% a year. We arrested that decline. In fact, we’re about to inch it up a bit through creative workovers in the existing wells, and we got pumps and then then then managing production from the wells that has allowed us to keep our production at 80,000 barrels a day a little bit higher now from where it should have been, in fact, a significant lower figure. So we’d, again, like to bring that to what you continue to pivot DNO and industry towards that kind of Norwegian Viking go get it done mindset.

And, hopefully, that we will see results from that in the coming quarters. But the second quarter, of course, will have a very different look and feel because of the addition of the small assets following our our merger and the the nature and character of of our of our presentation and our financial presentation, operational presentation will change, and that’ll be very exciting. So I look forward to seeing many of you at the at the second quarter presentation. I think we’re gonna have more calling again because prior to this call, the the callers are largely interested in in Kurdistan because that was the the the core and most important part of our entity in our business with the the combination of small and big of our operations in the North Sea. I expect we will have an appeal to a larger group of investors, so I expect our hopefully, all our investors, current investors, will still be with us, but I expect to see other investors, who will, who will find Dino an attractive opportunity for them because of our North Sea presence.

So with those, comments, and welcome to the, to our presentation. And I, look forward to responding together with my colleagues to any questions that you have about, about, the quarter and in the future. So thank you, Chris. Thank you again, and

Chris Spencer, Managing Director, DNO: good afternoon to all of you joining this conference from me. So let’s dive straight into the slides following that, helpful introduction from, Vijay. And as we often do sorry. Just maybe I’ll go back to the picture. We start with a wonderful feature from the DNO world.

This time after last quarter, I think we ventured into the North Sea. Here we are back in our heartland of Kurdistan and one of the operators there who’s taking good care of the production, and we’ll be talking more about that as Bijan has already mentioned. So let’s get into the slides, Yusdan. Thank you. And the highlights, you can read for yourselves.

I think we’ve announced this as a strong another strong quarter for DNO. I think operationally, it was an excellent quarter. As you can see, we have increased production across the board. We’ve added two more discoveries to an incredible track record now in the North Sea. We have maintained that 80,000 barrel plus of gross production that Bijan mentioned.

And we have done all that safely. We had no recordable incidents or any type in our operated activities despite drilling operated well in the North Sea and high level of well intervention activity in Kyrgyzstan. But for me, although the big news item, of course, from the quarter was the hugely important acquisition. I think it’s really important our investors that you see we continue to deliver operational excellence. And with a great team that we’ll be working within once Swell and D and O come together in the North Sea, I have no doubt we will continue with that level of performance.

Of course, apart from the transaction, which I’ll talk about a bit more in the next slide, immediately

Bijan Mostavaramani, Executive Chairman, DNO: on the

Chris Spencer, Managing Director, DNO: back of that, we were able to take step one of what we’re calling optimizing our balance sheet on the back of that transaction, returning to our happy hunting ground of the bond market. We I hope there’s many bond investors listening in today because we’ve had a great corporation twenty four years now in the bond market. And we certainly see that as a win win, and we’re very gratified by the support for our latest and probably greatest bond that we’ve issued so far. Last but not least, as we always say, ranking just a little bit higher than our bondholders are our shareholders. And we’re very pleased to say that the Board of Directors have once again approved the same level of dividend, which has given us the 1.25 per share on an annualized basis.

If we go to the next slide then, please. We’re obviously all very excited to be that we’re still naturally on track to close the SPAD acquisition, And it’s coming up very fast. So we’re really looking forward to that. A number of these figures have been mentioned by Bijan, but it’s worth repeating because we will quadruple our North Sea production. And having just reentered the North Sea in what’s 2017, we are now gonna hit 80,000 barrels a day some eight years later, which has been quite a journey.

We will put us in the top 10 producers in Norway and interestingly positions us, we think, even better for further growth. The combination of our set of discoveries and the upside opportunities within a number of the producing assets that Swell have give us a great pipeline of projects and infill opportunities to maintain this 80,000 barrels a day in the medium term. And of course, we will keep aiming to deliver these exploration discoveries and incremental M and A to build even further on the position that we are getting. The other point we’ve been making, and Bijan touched on the important financial synergies in terms of potential cost improvement in cost of capital and the tax synergies that are well known to followers of the Norwegian continental shelf between having development heavy portfolio and a production heavily portfolio. The other point that we’ve been drawing investors attention to is the, what I call, the operational synergies.

As we said on the Bond Roadshow, we feel that the portfolios fit each other like a hand in a glove. And what we’re alluding to there is that a number of our a number of swells positions are in the infrastructure that our discoveries need to tie back to. And so we believe and we see from other situations that that gives you much greater insight, and we expect that to enable us to accelerate development of our discovery portfolio. So looking forward to driving that forward in the next year or two.

Bijan Mostavaramani, Executive Chairman, DNO: Thanks, Hugh.

Chris Spencer, Managing Director, DNO: Coming back to the DNO portfolio, we are really pleased to during the corner to during the quarter, excuse me, to announce yet another discovery. This time, an operator discovery, second operator discovery we’ve announced within six months. And this is has the delightful name of which is meatball to those of you who don’t speak Norwegian. So the creativity of our explorationists knows no end. But what I’d like to draw everyone attention to here, we often talk about trying to move faster and better.

And the example here is the way we’ve immediately appraised the discovery. So we had a traditional vertical exploration well to minimize the financial exposure prior to to showing you have a discovery. And we immediately sidetracked that in order to appraise the structure. And that was an extended reach near horizontal wellbore. And so within that one campaign, we have compressed what is traditionally, I would say, an eighteen month, perhaps two year timeline into one well.

So we’re very pleased with that. And now we are putting a team in place that we hope will drive this opportunity forward to development in a timely fashion. That brings us to the next slide where we’re putting up our revised drill program for the year. And most of this is known to the market, but in the same feed, might bring your attention to the page well there. This is the follow-up to Othello.

And I was just looking ahead of this call. I I see that we announced the Othello discovery on the December 2, and we are back there on the next well to to that’s not appraisal of the same structure. It’s a nearby structure, which we which we see as appraisal slash exploration. It’s not certainly not frontier exploration. It’s a follow-up to Othello so we’re very optimistic about it, and we’re back there within nine months of announcing discovery again.

Very rapid movement taking

Hakon Ensambo, CFO, DNO: trying to

Chris Spencer, Managing Director, DNO: build on success where we are operator. And, of course, we can’t do that without the support of our our partners, and in particular, Aker BP, who are the second biggest interest holder in that license have been extremely supportive. Thank you. Going to start, I know I talked a lot about this in the q four presentation back in February, and the team continued to do a wonderful job that Bijan has also described. We’ve been we got the gross production up to 82,000.

We are able to maintain that’s been that’s been there for in terms of production capacity for a good six months or so, and we’re still running at that type of level. The time as in, I think it q three, we had a bit of a dip below that. It’s more due to little small upheaval within the local sales market rather than any production issues. Guess going back six months now, but that was, as as you may recall, related to the elections in in Kurdistan where even truck drivers want to vote. So we had a little bit of upset at that time.

We’ve seen a bit of upset with with Rabadan and Eid and so forth during this quarter, and the production capacity remains. A lot of this was covered in Bijan’s words, but I would just like to take this opportunity to thank our team for delivering another quarter of fantastic performance. I think the other aspect worth mentioning, which is not covered on the slide, is again the impact of our gas injection project. That’s been running for some four or five years now. Four years, I guess.

We started up just as COVID was coming to an end. And of course, it’s saved a lot of gas from being wasted through our flares, but we really see the impact on the Tawke field and that’s been very helpful. That combined with this very active well intervention program has been a key to the production performance that we’ve seen from PSC. And it results in a very nice cash flow from Turkey license. Of course, still we are not able to get our crude to international markets directly.

That has to go through the hands of refiners and traders. So we don’t get the full value that we would hope to from those barrels and we hope that that will return. Next slide. Let’s go to the financials. So again, just to conclude with what I’ve been saying.

For me, an excellent quarter operationally. And we will have a very different business from me sitting here presenting next time. We’re looking forward to joining forces with the Svelte team and continuing to deliver its operational excellence in order to give return to our shareholders. And the financial consequences of all that will now be set out by Hakan.

Hakon Ensambo, CFO, DNO: Yes. Thanks, Chris. And again, hello to all of you on the call. I’ll now do a brief review of our Q1 financial results. We’ll start with these key P and L figures, and you can see that our revenues are up by $11,000,000 in the quarter to a level of $188,000,000 And this time, the increase was mainly driven by higher oil and gas prices in both business units.

The Q1 revenues were split between Kurdistan with $58,000,000 and North Sea with accounting for $130,000,000 If you look at the operating profit in the middle here, you will see that there’s a significant improvement from Q4. And here, it should be noted that in addition to the revenue increase, we have no impairments in the first quarter, while we had significant impairments of $104,000,000 in Q4, mainly from the Baeshiqa license adjustment in Kyrgyzstan. We have a stable cost of goods sold in Q1, but we had some higher expense exploration mainly due to about $12,000,000 dry well cost on the ratio well in the NCS. Going further on the slide to the right, you will see a net loss of $4,000,000 in Q1. That follows primarily from higher tax expense in the first quarter that came from changes in deferred taxes.

We’ll move on. We have cash flow. We show higher cash flow in Q1 at $100,000,000 up from $82,000,000 in Q4. And there, we also include a contribution of $5,000,000 in positive working capital change in the first quarter. Otherwise, no Norway or Norwegian tax payments in Q1.

But of course, looking ahead towards the end of this year, we expect to be in a tax paying position following the acquisition of Swag Energy. You see that our net investments increased to $109,000,000 in Q1. That was primarily for CapEx in the North Sea on development projects, but also continued investment in exploration with $39,000,000 in exploration expenditures in the North Sea. Net cash from our West Africa operations in Cote D’Ivoire came in at net $5,000,000 in the quarter, and that was in line with our expectations. As has been mentioned for our financing activities, we successfully placed a new $600,000,000 bond in March, a week after we announced the small acquisition.

We were pleased to see that the new bond, now named DNO06, was met with strong demand from investors, and we secured a competitive coupon in this placement. In addition, we made drawdowns of $30,000,000 on our bank RBL facility in this quarter. Again, under our quarterly dividend program, we paid a dividend of $27,000,000 to our shareholders in February. And including some other items, we thereby had net cash inflow from financing of SEK $583,000,000. On this basis, our cash balances increased to close to $1,500,000,000 at the quarter end.

Of course, I think that looks pretty good, I would say, quite a record for us in DNO. Next. But of course, a key reason for raising the new bond was to refinance the short dated DNO four bond, and we did so by holding this bond in early April in an amount of $350,000,000 So the high Q1 cash balances have thereby been subsequently reduced by the call amount. I should note that following the repayment of the DNO four bond, our credit strength is now further enhanced by having a long maturity profile on our bond debt with the first bond maturity coming only in 2029 and the second maturity is in 02/1930 to provide a good long horizon on our maturities now. Otherwise, with the high cash balances and with net cash of $43,000,000 at the end of the Q1 of Q1, We are again maintaining a very solid balance sheet and a robust financial strength.

We are clearly using this strength now to finalize the acquisition of Swal Energy. And as you heard today, the acquisition will transform our operations and also our financial outlook through much higher North Sea production and revenues. This will lead to a very substantial increase in our annual cash flow and our debt service capacity. As such, given the substantial size of the acquisition, we will have a higher leverage following completion. But it should be noted that on a net debt basis, leverage will be fairly modest compared to many peer companies.

So fine, in summary, these are certainly exciting times for us as we deliver on our goal and strategy of rebalancing the company through a much stronger position in the North Sea now. That really takes us to the end of the slide presentation. I think we’re now at the stage where we hand over to Joosten to lead the Q and A session again.

Justin Levos, Communication Manager, DNO: Yes. Thank you, Chris, Bijan, and welcome. And, yeah, let’s get started with the Q and A session. The first question comes from Tom Erik Kristensen. And just unmute you.

Hello, Nick. And here we go. Tom Erik, you will have to remember to unmute yourself as well. You’re muted, Kristan.

Tom Erik Kristensen, Analyst: Thanks for taking my question. Can you hear me now?

Bijan Mostavaramani, Executive Chairman, DNO: Yes.

Tom Erik Kristensen, Analyst: First one for you, Bijan. How pleased are you with the portfolio overall in DNO after the Sval acquisition? Is this kind of balanced now and you will shift a bit focus from growing the North Sea to maybe more maintaining it and further lifting dividends? Or is this still kind of a growth focus on that part of the business? And secondly, does the increased materiality of Norway now imply that you’re more open in Kurdistan to do strategic combinations there?

Or do you expect to kind of stay with the same kind of structure there going forward as well? Thank you.

Bijan Mostavaramani, Executive Chairman, DNO: Thank you for that question. You always ask interesting questions at these sessions. The answer to your question, I guess, is yes in the sense that we’re very pleased with the with the combination with the small assets, and and I’m pleased also that this the the the small team is also very pleased with the combination with with the DNOs. So I think both sides are are quite pleased that both sides now will become one side in in next month. We wanna grow more in the in the North Sea and use, again, a size of scale that we can or to do larger transactions and are are looking at opportunities where we where we not only get good aspects, but we have gained again strategic value from the combination.

And when you see strategic value, you you put a price on it. That’ll allow us to be more competitive in in making our offers, perhaps another buyer would not meet or have those strategic advantages. And so I think that puts us in a in a better position. In fact, with the small assets, I think the price of the transaction was was not just fair and firm, but I think it was rich because we would we would we we we knew those strategic interest and strategic value, and we were prepared to to put that into our into our offer price. So we wanna do more in or see getting up to 80,000 plus is is is good.

Better yet if we get up to, you know, hundred thousand barrels a day and and then some. So we’re in a growth mode in the the North Sea. Clearly, we’re able to do it now with the as a result of the competition for the for the reasons why my colleagues mentioned both operational but also financial. In Kurdistan, we’d like to do more, not necessarily by acquiring, one of the, other companies. But for those of you who follow DNO for a long time will remember that there appears long periods of time when we’re producing at a hundred thousand miles a day and more than that.

We’ve reduced our our our spend, which we described, both Chris and myself, is because of the closure of the of the pipeline, which meant that the wellhead price dropped significantly for us. And there are still arrears where the money’s owed to us by the Kurdistan government for volumes of of oil that were picked up during COVID, but but not paid on time and not paid, since that’ll resolve itself. There are as those of you who follow this business and many who don’t follow Kurdistan directly, you still hear about it because this is big international news. The, the closure of the pipeline, the, discussions between, Erbil, the capital of Kurdistan and Baghdad, the capital of, of Iraq, that involve also the US government’s very involved in those discussions and pushing hard for the pipeline to reopen. Once that takes place, the matter of arrears and the certainty of payments will also be addressed and resolved.

That’ll allow us to spend more in Kurdistan. The best place for us to spend is in our own fields, Tawke and and Peshkabir. And with the more with the greater spending, I expect our production will will will increase importantly. So that’s our ambition for for for to resolve these issues than to start investing much more as we’ve done in the past and have had very good results on those investments. On the question of price, this is also pretty well known that the price we we received in the third quarter has been about $35 a barrel.

And other operators are maybe a bit higher, a bit lower depending on the on their the quality of their other crude. And this is a time these these discounts at a time when Brent was was was was quite strong. So when Brent was at 70 or or higher, our $35 figure looked meager. But as the the Brent has come down, our prices are holding up. They they have they have not dropped dollar per dollar.

So there’s been a time when Brent at 60 makes our 30 you mid thirties number look quite quite good, especially because now we are receiving a prepayment for our production. We’re paid ahead of delivery once the payments are in our banks, international, our international accounts, then we deliver the the oil to the buyers. And that by itself, that’s certainly a payment. And prepayment is worth, I don’t know, pick a number, $8 a barrel, $10 a barrel. So that that then makes the the the bigger a lot more comfortable in a in a difficult market environment.

Chris has done some of the math, and it seems that our under the current pricing of 35 or maybe that’s our our partners are on 35. So those are the less size, a little more. Our, our our barrels return on our barrels are the same in Kurdistan as they are in Norway. Norway has a a very tough, tank switching, tough in in in some respects, but supportive in other respects because of the, the explorer. The government still cuts you out a a check, not to the full amount, but for 78% of the of the of the cost.

Norway is a is is has a tough tax regime, but our barrels, whether they’re in Kurdistan or in Norway, are were different to those, and that’s a that’s a good position to be in, notwithstanding all of the the the turmoil in the market and the the the lower prices starting out. We can spend more money in Kurdistan. We can get more production from our own assets. We’re also and we’re often asked, do you have a third leg? What are your thoughts?

We’ve always said yes. That three legged stool is much more sturdy and stable than a two legged stool. We have, of course, a presence in West Africa. We’ve looked at opportunities to do more in West Africa, but we haven’t acted almost because we’ve been so focused on on on stepping up our our North Sea assets and production, which we’ve now been very busy doing this year and with with small. And, also, we’ve been spending a lot of management time and time dealing with the situation in Kurdistan and trying to help, alongside other international outcomes in Kurdistan, move the the the the system, into a reopening of the pipeline and, have the, resumption of of payments certainty for our deliveries into that pipeline and for resolution of the arrears issue without without which we, DNO, have said we will not be prepared to put anyone in the pipeline.

And I think the, the other companies have a similar sentiment, which is expressed through this, company, grouping called Apicure, that represents many of the international or companies active in that person. So their voice is our voice, and I think our voice is their voice. Those have been very, very clearly Right. In terms of the third leg, I mean, the best place for us to to spend money is Norway. We have all these discoveries, some of the dozen discoveries or so that are sitting there waiting their turn, and that’s not acceptable.

And this is a reflection of the slow pace at which things happen in Norway in the running house industry for many, many reasons. But but the slowness of speed and the other issues that we we we face in trying to have a more Anglo Saxon culture in the industry in Norway. And that this is a struggle. It explains why all the major international oil companies, many of them have left left Norway. And they’re happy to pick up Norwegian barrels and Norwegian gas.

We’re finding that enthusiasm that we’ve been approached by by trading companies, by banks, and, of course, by by large oil companies is is is is great, but that enthusiasm isn’t matched by their interest and and and spending time and money and management time operating in in Norway because of these difficulties. And we hope to to push ahead, accelerate the the the monetization of our of our assets. And we have a huge inventory here already discovered in the in the indoor Norway that we want to bring into the market. So that’ll be an area of great focus and a great opportunity for

Hakon Ensambo, CFO, DNO: DNO. Right.

Chris Spencer, Managing Director, DNO: Can I

Tom Erik Kristensen, Analyst: have just a short follow-up question on your statements there, Bijan? Do you actually see potential slowdown, I think it’s likely that after all of this turmoil, you could actually come strengthen out of it in Kurdistan with if SOMO is paying you, you have a second largest crude seller in the world, probably more reliable than Kurdistan has been historically, for instance, on payments that the situation actually will be better than before the shutdown? Or is that too optimistic or too naive to think at this stage?

Bijan Mostavaramani, Executive Chairman, DNO: I hope and expect that when the pipeline is restarted, when that takes place, either in the coming year, be much less, but in the coming year or not because next year, the old contract that governs the, the, the use of these lines by, by Iraq will will expire. At that point, the some of the geopolitical issues, will, go away and that we will come to market. So I’m optimistic. I was optimistic very early on when I took this position that all the questions in these sessions was, what are you gonna do when the the Iraqi government cancels the production sharing contracts?

Hakon Ensambo, CFO, DNO: And

Bijan Mostavaramani, Executive Chairman, DNO: you’re left with technical services agreements that that pay you, I don’t know, a dollar or less to do this a barrel of oil. Said, I don’t think that’s gonna happen. I think the production sharing contracts will be will survive, and they have. And in the past year, as you’ve those of you who follow this have seen this, Iraqi courts have ruled that the contract signed in Kurdistan by the Kurdistan government with the international companies are in fact valid. So that’s the problem’s gone away, and I think there’ll be a different, different regime in terms of the use of the pipeline.

And now that The US is removing sanctions on Syria, perhaps, some of the old Syrian pipelines of the Mediterranean, which weren’t in use, some of them may be in the sort of disrepair, will be will be repaired, and, and oil can flow in that direction. And if, negotiations with Iran succeed, I expect some of the sanctions on Iran will be there’ll be another direction in which, the oil can move. Perhaps the issues between Erbil and Baghdad are resolved. The oil can flow south into the Persian Gulf, as well. So I see opportunities both, without these, geopolitical fixes, but I also see this geopolitical fixes happening very rapidly.

And that that will be an opportunity. We’re also interested in doing business in in, in Iraq in the South. Kurdistan has been very, very good to us. There’s a lot more to be found than producing Kurdistan. But the the mother load is they say.

The big oil and gas reserves are Southern Kurdistan. And we’ve been successful in the North. We know the culture. We know the geoboltics. We know the, the reservoirs.

We know the challenges. And I think we’re very well placed, to also go south and explore and develop opportunities there. So all very, very exciting.

Justin Levos, Communication Manager, DNO: Good. Now Thanks a Eric. Eric Bolton has been waiting for a while, credit analyst, I believe. Please go ahead.

Eric Bolton, Credit Analyst: Yeah. Thanks. Can you hear me?

Justin Levos, Communication Manager, DNO: Yes.

Eric Bolton, Credit Analyst: Great. Congrats on another good quarter and successfully raising the bond. Two quick questions there on the Zoro Capital side. You have a very large cash balance now and you still drew down on the RBL. Is that something specific?

Or was it more just to maintain the sort of facility limit? And also, could you please shed some light on the RBL discussions with the small banks and how that’s going? The oil prices dropped quite a bit since you acquired or announced the acquisition. Has that impacted the amount the Arbola banks are willing to commit to?

Hakon Ensambo, CFO, DNO: Yeah. I I can, I can address that and, and see, I guess, some help from others if I need? I think, Eric, that we sort of drew down on the RBL now, basically because we had, you know, discussions that we run the treasury in our North Sea business on a sort of a ring fenced basis in Dino. And there was a temporary need to fill up on the drawdown on the facility. We have paid down some of it after subsequent to the quarter.

So it sort of will ebb and flow a bit. No specific reason other than running this in a good manner between the treasury at DNO also and the same group for our subsidiary in the North Sea business. For the discussions with the RBL banks, we have had very good discussions, very strong interest. We have seen three banks that were on both the DNO RBL that we haven’t been having for ourselves, but also the same banks have been in the Swal RBL. So these are the three banks we are talking to as lead banks on a potential new RBL.

It’s also our fourth large bank that has been on the small side that is involved. So we have four major leading E and P banks now as our lead banks on the RBL discussion. So we don’t think that the sort of the drop that we saw in oil prices has affected the capacity of these banks to provide the RBL amounts that we have been discussing. But that’s not the no, no, we’re not affected by that at all. So RBL financing is one of the options we are exploring for the refinancing of the debt in Svalb when we take over and complete the acquisition.

But there are also other possibilities. We see very strong interest from, for instance, major oil companies that want to discuss with us on offtake agreements. Same thing goes for large trading houses around the world that see that we will have a very strong output to both oil and gas. In fact, we will have about an even split between oil and gas with our new portfolio in the North Sea. So you have some large entities wanting to do gas trading and some are more interested in the crude side.

Though there’s several potential off takers that are so keen to get these agreements on the volumes in place and that they offer very competitive financing. So this is also something we are exploring as a very good option. So I think it’s clear that we are coming into new possibilities for financing now with the acquisition that we wanted to be sure we are picking the ones that are most effective, flexible, providing certainty of funds and also the lowest possible cost of capital. So it’s not exactly determined as of yet which way we are going on the preferred options, but this is something that, believe me, we are working hard on at the moment. We also have the bond market where we have been successful for many years as one other possibility.

So we are assessing all these various options as we move ahead towards completion of the acquisition. I can describe the the situation and our ongoing discussions and and options very, very well.

Bijan Mostavaramani, Executive Chairman, DNO: But I’d just like to add that, a year or two ago, the RBL facility was the obvious one for the companies. The first we go to, and we get better terms from the banks through the RBL mechanism than we would, otherwise. That seems to have changed now. The the terms are being offered by trading companies and by oil companies for financing are better than RBL terms. They’re faster.

The RBL side is slow to move. And I think there’s a reluctancy that the large banks do, to, go beyond the old woke, mindset that, we shouldn’t invest with, we shouldn’t talk to, we shouldn’t, loan to, we shouldn’t take the money out, oil and gas companies. That changed dramatically in The United States, both with respect to funders and with respect to, individual and, large investors. But in Europe, that’s that’s culture, that mindset that we wanna steer away from the oil and gas and fossil fuel industries has made it slower. The the the movement of the RBL lenders, they’ve been moving more more slowly, offering terms that are that are not not attractive relative to the alternatives.

It’s one of the one of the arrows in our quiver, of course, but, my sense is that, it may not be the one that that will, fire first. And I’ve got the same response from other oil and gas companies that the RVL market is, less attractive for them, but too many bells and whistles make it, their first priority or even any priority in terms of funding of the owning Us business where, again, the those who are the the traders or the users of the oil have stepped up and are offering very, very attractive terms and conditions to producers, and we’re going to take advantage of that. And the markets the bond market’s always been good to, to us. We’ve always been good to the bond market, and the the the bond the Nordic bond market will remain an important part of our financial package. It’s it’s quick.

It’s priced right. And we have enthusiastic support from the from the mark bond market and all of the bond raises that we’ve done. And this is something a business that’s Hawken, who is now the the the and has been for some time, the end of member who’s been longest of the company. I’m the oldest, and he’s been most present here. And he’s developed this bond business for and been a great protector of the the the our relationship with our bond investors.

So, again, thank you, talking to her Thank you. Doing so well Yeah. Beginning long before I joined the like, my company. So that’s another road option that is to be available to us.

Justin Levos, Communication Manager, DNO: As we are fast approaching the one hour mark, I hope we can, hold on keep the last couple of questions short and sweet. There are two more people wanting to ask questions. And the first one is Antonio Segura, I believe, from the credit side. Please, unmute yourself.

Bijan Mostavaramani, Executive Chairman, DNO: Let me just say one thing before you do. You you say we’re gonna ask a short question, but the short question demands a long answer. And the answer’s a lot because we want to explain. It’s not because we don’t we want this the time to run out, so you don’t you you have time to ask the technical questions, which in the past were always about Kurdistan. When will pipeline open?

Hey, question. Can you hear me? Answer’s respond. That’s short too.

Justin Levos, Communication Manager, DNO: Hello. Can you hear me?

Bijan Mostavaramani, Executive Chairman, DNO: Yes. We can.

Justin Levos, Communication Manager, DNO: So I’m gonna make it, like, a very short and sweet. So my only question is, what’s the impact of your new acquisition in on your net debt to EBITDA ratio? Like, what is the pro pro form a leverage ratio for DNO post acquisition?

Hakon Ensambo, CFO, DNO: Yes. We have run some good presentations on that in our bond roadshow that we did in March and run various metrics. You’re touching on one of the metrics that show that we will be moderately levered after the acquisition. So net debt to EBITDA ex on a pro form a twenty twenty four number will be 0.7x. And we have some slides that we compare D and O on that level to several other companies in our peer group, including investment grade companies.

And as I said in my presentation today, we are going to be moderately leveraged ranking compared to some several of the other companies that we get compared to. So the answer is 0.7x the combined Swell and D and O per four month twenty twenty four basis.

Bijan Mostavaramani, Executive Chairman, DNO: Thank you.

Justin Levos, Communication Manager, DNO: Okay. So the last question seems to come from Sorry

Hakon Ensambo, CFO, DNO: to be done. That was too short, I

Bijan Mostavaramani, Executive Chairman, DNO: was mentioning.

Justin Levos, Communication Manager, DNO: Good. Yeah. There’s there’s one one person raising their hand here, and that’s Nick Coleman. So, please go ahead.

Nick Coleman, Journalist, Platts: Thank you for taking taking my question. I’m a journalist with Platts. You’ll be aware that there’s an election coming up in Norway in September, and there seems to be some sentiment in the air, an idea that the results could be more positive for the oil and gas industry. I wonder if you have any observations on opportunities that might arise as a result of such a political move. And a bit more specifically, there seems to be discussion of holding numbered licensing rounds every two years.

And I wonder specifically if that’s something that you are looking at that it would kinda maybe create opportunities to explore outside the the currently available areas, which I think are pretty extensive already, to be honest, as a result of the APA rounds. But, your thoughts, I’d I’d I’d be interested. Thank you.

Chris Spencer, Managing Director, DNO: I can have a go at that one. So we would be we we look back at the old numbered rounds and see that participation in those rounds historically actually have tapered off. And I think that’s largely as you point to the fact that the APA round areas really are now the lion’s share not only of the North Sea and Norwegian Sea, but, of course, this year, the ministry hugely expanded the area in the Barents Sea that is covered by APA. So whilst it would be welcome that the number of rounds returned, I I don’t think that will make a a major shift to, to the business in, many of the companies in Norway. I suspect it’s in Norway’s interest because, that is the more frontier areas, and the country needs to be getting those areas tested whilst there’s a good healthy production to provide the support for such frontier exploration.

But that’s a longer term view for the country. That and that’s entirely up to them. So I don’t think there’ll be any major short term change. The the API system has clearly been a backbone of noise success. One of if you can have can you have one back one of the backbones?

One of the important factors of knowing success for the last twenty years is the has been the API. Of course, the the all of the major discoveries that have happened in that time or almost all have been a bridge that have gone through that API system. And the government has been rightly building upon that. And for us, that was a key element of of coming back to Norway Seven Or Eight Years ago because you can access a reach without having to put hundreds of millions of dollars down nonrefundable. Okay.

Bijan Mostavaramani, Executive Chairman, DNO: Do you have, some thoughts on that? I have some thoughts on that.

Hakon Ensambo, CFO, DNO: Go ahead.

Bijan Mostavaramani, Executive Chairman, DNO: With respect to the, the elections, in in Norway, the the more interesting election for us is the one in the Baghdad. Am I my fault? Because that could affect the the tone and tenor of the discussions between Erbil and Baghdad. So we’re watching that with some interest because that’ll have an impact, the reopening of the pipeline and the role of the international companies work that south in With respect to the election results in Norway, the the government here has been very supportive of DNO and our reentry and growing away in the Norwegian continental shelf. DNO, some of you may know, is Norway’s oldest oil and gas company and the first to go public.

So it’s a it’s a it’s a it’s a it’s a well known company here, and there’s been support for its return to Norway and this not just from the government, but also from investors and some of the analysts as well. Having said that, that we’ve been we’ve been active on the on the APA rounds. We’ve received we’ve been a lot of the two or three or four or five large recipients of APA licenses, and we acted on them. We’ve had important discoveries. So I think that’s been it’s been the we’ve been supportive, and we’ve given back in terms of acting quickly and getting these discoveries made, and we wanna get optimization advanced.

So we will look to work on the government. The current government has said that they wanna see more of these discoveries coming on faster. So they’re the we’re we’re, I think, very closely aligned on that, and any future government, I think, will have the same interest. But what we wanna do is get even more government support to act, on, on on this. We need to get into the host more rapidly, and we need more government support, not just in terms of the, the org the the how to deal with the the industry overall and industry practices, but But, we could also use, greater tax incentives to go in and develop, these smaller discoveries, which are still important, but they just happen to be smaller.

The fact that they’re smaller doesn’t really doesn’t matter as much for DNO because we’ve taken larger interests. We’ve larger interests and smaller discoveries. By smaller, I mean, thirty, forty, 50 million barrels are still significant. But the but the developments are costly currently, and the government provides more support to us through the tax structures and so on. So the entire industry, but certainly for the the pursuit and development of these smaller medium medium discoveries, we’ll get a lot more production in Norway in the coming years, and that by the reverse, the what’s gonna be a a a obvious decline in production by the larger companies today and but, therefore, by the whole industry, which will start, I think, currently, you know, probably as these discoveries, and because the the the small acquisition is one of the fastest growing companies, in Norway.

And developments are are going to be, I think, expected to be, ahead of, many of our peer companies, and that’s an exciting place to be, and we want to get there. Well so with that, thank you very much. Again, I I I I take my time responding to these questions, but I hope at least it’s been helpful to you and that my colleagues can stop kicking me under Kidding. I’m kidding.

I’m kidding. I’m I’m I’m kidding. You.

Justin Levos, Communication Manager, DNO: With those words from the chairman, we’ll conclude this call and see you again soon. Thank you for participating.

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