Norway's DNO Axes Capex
Norwegian oil and gas operator DNO has cut its 2020 spending plan by 35%, it said on May 7, or around $350mn, in response to the "devastating" effect of the Covid-19 pandemic.
The company posted a $39.4mn net loss in the first quarter, versus a $51mn profit a year earlier, on the back of impairments. Its revenues were stable, however, coming in at $206mn in the three-month period, even though production fell 7% to 99,860 boe/d. Core earnings (Ebitda) were also 27% higher at $135mn.
DNO also bolstered its cash position to $543mn at the end of March, up from $486mn three months earlier.
Around 80% of DNO's production comes from Iraqi Kurdistan, with the rest being lifted in the Norwegian and UK waters of the North Sea.
Despite the bump in core earnings, DNO said it had cut or deferred most discretionary drilling and capital projects, had renegotiated service contracts for savings and extended payment terms. It has also cut overheads, including staff, in all its locations.
No more drilling will take place off the UK this year, and the decommissioning of the Ketch and Schooner assets has been deferred until 2021-2022, it said. The company will take part in drilling five wells in Norway and has drawn $115mn from its lending facility to pay for this work.
The company has also suspended its dividend programme.
"One of the first to hit the brakes, DNO is positioned to be one of the first to press down on the accelerator with signs of sustained market recovery, notably through short-cycle drilling in Kurdistan," chairman Bijan Mossavar-Rahmani said. "Lifting costs below $5/b in Kurdistan give DNO a competitive advantage when oil prices are weak and strong cash flow when oil prices recover."
Despite the cuts, DNO's exploration campaign in Kurdistan remains unaffected. The company said separately that together with partner ExxonMobil it would continue exploring for oil and gas at the Baeshiqa licence in Iraqi Kurdistan. The pair have finished testing and appraising the Baeshiqa-2 exploration well and plan to spud another well, Zartik-1, at a separate prospect at the licence on May 15.
"Evaluation of the test results will determine the next steps towards further appraisal and assessment of commerciality," DNO said.
Site construction at Zartik-1 was completed in late April on time and below budget, it said.
DNO reported in November that the Baeshiqa-2 reservoir had flowed between 900 and 3,500 b/d of oil and 8.5mn ft/d³-15.0mn ft³/d of sour gas during initial tests. The company operates the Baeshiqa licence with a 32% stake, while ExxonMobil has 32%, Turkish Energy has 16% and the Kurdistan Regional Government has 20%.
DNO noted that it had received $90mn for Kurdistan oil exports that was not included in its end of March cash balance. It is still waiting on entitlement and override payments for November 2019 through February 2020 totalling $233mn. The Kurdistan government wants to defer these payments, given its weak financial position following the oil price crash.