DNO ASA, the Norwegian oil and gas operator, has reported that it had identified and implemented 2020 budget cuts of USD 350 million or 35 percent across all spend categories as the Company moved early and quickly to protect its personnel and operations and preserve its cash position in response to the the devastating impact of the coronavirus pandemic.
The Company exited the first quarter of 2020 with a cash balance of USD 543 million, up from USD 486 million at yearend 2019.
In releasing its interim first quarter results, DNO reported revenues of USD 206 million largely driven by lower oil prices and a net loss of USD 40 million on the back of impairments of its North Sea assets, again driven by lower oil prices. Notwithstanding the turmoil in the oil industry, DNO delivered strong operational metrics with production split 80:20 between the Kurdistan region of Iraq and the North Sea.
DNO's Company Working Interest (CWI) production averaged 99,857 barrels of oil equivalent per day (boepd) in the quarter, of which Kurdistan contributed 81,221 barrels of oil per day (bopd) and the North Sea 18,636 boepd. Gross production at the DNO-operated Tawke and Peshkabir fields averaged 61,493 barrels and 53,714 bopd, respectively, as DNO hit the brakes on spending.
After completing five development wells in the license during the quarter, DNO released four drilling rigs in Kurdistan but continues to utilize the Company-operated workover rig to service production wells, some of which have been shut in given current oil prices and payment delays. A drilling rig has been cold stacked at each field and can quickly be mobilized if conditions warrant.
The Company has had recent successes with the drill bit. In the North Sea, the Bergknapp exploration well (DNO 30 percent) discovered hydrocarbons in multiple formations of poor to good reservoir quality with recoverable resources ranging 26-97 million barrels of oil equivalent (MMboe); the near-field discovery is Norway's largest to date in 2020 and with high probability of commerciality.
In Kurdistan, the Company has reported a discovery in its operated Baeshiqa-2 exploration well after flowing variable rates of light oil and sour gas to surface from three Triassic aged reservoirs. Evaluation of test results will determine next steps towards further appraisal and assessment of commerciality. Additionally, a third well on the license will spud mid-month, with its primary target a shallower Jurassic formation on a separate structure (Zartik).
Meanwhile, the Peshkabir-to-Tawke gas capture, transport and reinjection project to effectively end CO2 emissions at Peshkabir (and therefore in DNO's Kurdistan operations) and boost oil recovery at Tawke is completed and undergoing commissioning.
To achieve budget reductions, DNO has deferred most discretionary drilling and capital projects across the portfolio and continues to identify and capture cost savings. In the United Kingdom, no drilling is planned and the balance of the Schooner and Ketch decommissioning program has been suspended and deferred to 2021/2022. The Company has renegotiated service contracts for savings and extended payment terms where it operates, and is in continuous discussions with partners in the North Sea to reduce operating and other costs and defer non-critical projects where it does not operate. DNO's 2020 North Sea drilling campaign has been scaled back and wells deferred, but firm plans remain in place for wells in five licenses over the balance of the year, including two exploration, one appraisal, two infill and two development/geopilot wells.
To further strengthen its cash position, the Company has also drawn USD 115 million from its reserve-based lending facility to fund North Sea operations and has suspended its dividend program.
Last month, DNO received USD 90 million for Kurdistan oil exports, not included in the end of first quarter cash balances. Entitlement and override payments for November 2019 through February 2020 (total USD 233 million) remain outstanding, which the Kurdistan Regional Government has proposed to defer together with override payments commencing March 2020, given the deterioration of its own fiscal position with the collapse in oil prices. DNO is following up to agree acceptable terms for such deferment and also timing of payments of the sums in arrears.
Bijan Mossavar-Rahmani (pictured), DNO's Executive Chairman, said:
"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.
"Lifting costs below USD 5 per barrel in Kurdistan give DNO competitive advantage when oil prices are weak and strong cash flow when oil prices recover."