DNO ASA, the Norwegian oil and gas operator, today announced a 30 percent or USD 300 million reduction in its 2020 budget to shore up its balance sheet in the face of unprecedented market convulsions and plunging oil prices triggered by the coronavirus pandemic.
Steps have already been taken to suspend most discretionary drilling and capital projects across the Company's portfolio and to focus instead on key projects in its core operating area in the Kurdistan region of Iraq.
The Company has also initiated staff reductions, cancelled the first half 2020 dividend, discussed modalities for cost reductions with its suppliers and contractors and frozen new ventures.
"We demonstrated our resilience and nimbleness during the regional geopolitical pandemonium triggered by ISIS some five years ago and can ramp up operations quickly once the coronavirus is put back in the bottle," said Bijan Mossavar-Rahmani, DNO's Executive Chairman.
Meanwhile, among the Company's priorities is completion of testing of the Baeshiqa-2 exploration well in Kurdistan starting late March. The Company previously reported that the well flowed light oil and sour gas to surface and that testing of remaining reservoirs would resume following a well workover program, now completed, to assess commerciality.
DNO also remains committed to complete its USD 100 million Peshkabir-to-Tawke gas capture, transport and reinjection project in Kurdistan to reduce CO2 emissions at the Peshkabir field and boost oil recovery at the Tawke field. Gas reinjection will commence in early April.
But the Company's exploration, appraisal and development drilling campaign, historically the most active among the international oil companies in Kurdistan, has been scaled back, as both DNO and contractor staff movements and rotations have been impacted by border closings, quarantines and other coronavirus travel restrictions.
By the end of March, the number of active drilling rigs deployed by DNO in Kurdistan will drop to two (including one workover rig) from six (two workover rigs) at the beginning of the year. Production at the Tawke and Peshkabir fields has already started to slide to below 115,000 barrels of oil per day.
DNO's ability to maintain its level of spending has also been strained by interruptions and delays to monthly payments for its oil exports from Kurdistan; the last payment received in January covered September 2019 exports.
"We have every confidence that payments will be forthcoming from Kurdistan, as they always have, but timing and regularity will drive our ability, and that of other companies, to plan and execute investments necessary to grow, even maintain, oil production," Mr. Mossavar-Rahmani said.
The Company will suspend guidance, including on production, until it has more visibility on the course of the pandemic and the direct and indirect impact on DNO's operations and financial position.
The Board of Directors, in light of oil market turmoil and uncertainty, has decided not to make use of the authorization granted at the 2019 Annual General Meeting to pay dividends for first half 2020 but remains committed to the program and at the next shareholder meeting will request authorization to resume dividend distributions once circumstances permit.
The Company today also released its 2019 Annual Report and Accounts and 2019 Annual Statement of Reserves and Resources.
DNO had a record year in 2019 with annual revenues of USD 971 million, up 17 percent from year earlier levels, Company Working Interest (CWI) production up 28 percent year-on-year to a record 104,800 barrels of oil equivalent per day (boepd) and the largest drilling program in the Company's 48-year history. Notwithstanding strong underlying performance, 2019 results were impacted by non-recurring items as well as lower oil prices and increased exploration expenses resulting in operating profit of USD 76 million.
Yearend 2019 CWI proven and probable (2P) reserves stood at 345 million barrels of oil equivalent (MMboe) down from 376 MMboe at yearend 2018 after adjusting for production during the year and technical revisions, offset partly by reserves added through the acquisition of Faroe Petroleum plc in 2019. Proven (1P) reserves stood at 206 MMboe and proven, probable and possible (3P) reserves at 540 MMboe.
On a gross basis, at the Tawke license in the Kurdistan region of Iraq containing the Tawke and Peshkabir fields, yearend 2019 2P reserves stood at 400 million barrels (MMbls) (502 MMbbls in 2018), of which 1P reserves represented 228 MMbbls. Gross 3P reserves stood at 641 MMbbls.
Broken down by field, Tawke field gross 2P reserves at the Tawke field stood at 284 MMbbls (376 MMbbls in 2018) after adjusting for 2019 production of 25 MMbbls and a downward technical revision of 67 MMbbls; of the total remaining 2P reserves, gross 1P reserves represented 176 MMbbls. Gross 3P reserves at yearend 2019 stood at 421 MMbbls. At the Peshkabir field, gross 2P reserves stood at 116 MMbbls at yearend 2019 (126 MMbbls in 2018) of which gross 1P reserves represented 51 MMbbls. Gross 3P reserves stood at 220 MMbbls.
Across its North Sea portfolio at yearend 2019 (87 licenses in Norway and 12 in the United Kingdom), on a CWI basis, DNO's 2P reserves stood at 70 MMboe (1P reserves of 49 MMboe, 3P reserves of 102 MMboe and 2C resources of 149 MMboe).
The 2019 Annual Report and Accounts, the 2019 Country-by-Country Report and the 2019 Annual Statement of Reserves and Resources are attached and also available on the Company's website www.dno.no.