Dno ASA

OSE:DNO

Earnings Call Transcript 2019-Q1

[Bijan Mossavar-Rahmani]

Good morning. Welcome to DNO ASA's First Quarter 2019 Interim Results Presentation. My name is Bijan Mossavar-Rahmani. I am the Executive Chairman of DNO. And I'm joined here this morning by Haakon Sandborg, who is our Chief Financial Officer, to initiate the quarterly presentation portion of our meeting this morning. That'll be followed by a Capital Markets Day presentation involving other colleagues from the company. The Capital Markets presentation is the first in at least 10 years that we are holding. But we thought it was timely and importantly in respect of the recent DNO move into -- return to the North Sea. And in our presentations we'll refer to North Sea not specifically as the North Sea itself but the North Sea, the Greater North Sea region. Norway, U.K. and the Danish, the Dutch sector, but we use the term North Sea in the larger generic sense.I will start with a corporate overview and operational highlights as we always do at these presentations. I'm very pleased to say that DNO has now transformed into a more balanced company. We continue to generate significant cash flow from all our ultra-low-cost short-cycle highly prolific fields in Kurdistan but now with a strong second like in the North Sea.Following recent transactions, our company proven and probable or 2P reserves have climbed to 465 million barrels of oil equivalent, of which now around 20% is located in the North Sea. So a transformational step in terms of our reserves position. But this transformation also is reflected in the other metrics, operating metrics and financial metrics. In 2019 our current North Sea assets are expected to contribute around 20% of DNO's production, 30% of our revenues and 20% of our operational cash flow. Planned capital expenditures in 2019 of around $375 million include $225 million in Kurdistan and $150 million in the North Sea. This is the CapEx portion of our spending for 2019.We continue to pride ourselves as a nimble fast-track operator but one with a strong balance sheet and a reputation for bold strategy execution and also resilience. And resilience is very important in the oil and gas business that is subject to so much uncertainty and movements up and down in oil prices and other political and economic -- global political and economic and regional political and security uncertainties as well. So our resilience has paid off over the changing cycles that impact the company.Moving on to the operational highlights for the first quarter. Our company working interest production averaged just under 108,000 barrels of oil equivalent per day. This is up some 36% from around 79,000 barrels of oil equivalent per day in the first quarter a year earlier, first quarter of 2018. Of our CWI production in this past quarter some 89,400 barrels of oil per day were produced in Kurdistan and 18,200 barrels of oil equivalent a day in the North Sea.Our operated production in Kurdistan, where we operate all of our assets, averaged just under 127,000 barrels of oil per day, up from just under 110,000 barrels of oil per day in the first quarter of 2018. In terms of other operational highlights, the Oda field in Norway came onstream in mid-March of this year. It was below budget and ahead of schedule. And the field production is expected to reach 30,000 barrels of oil equivalent per day. That is a net company working interest to DNO of 4,500 barrels of oil equivalent per day by the end of 2019.In terms of our first quarter financial highlights, and Haakon will go into these numbers in much more detail as will our other colleagues during the Capital Markets Day presentation on the operational side. But just to summarize the financial highlights as well for 2019 in the first quarter, our revenues were $204 million, up from $142 million in the first quarter of 2018. So again a significant movement. And Haakon is right with our financial highlights.We exited the quarter, the first quarter, with cash balances of around $254 million, plus another nearly $110 million in treasury shares and other marketable securities that we hold at the company. In March of this year we also distributed our second dividend payments of NOK 0.20 per share to our shareholders.We had made first distribution of dividends in the fall of 2018. This was the second dividend distribution that had been planned and forecast. And as we've indicated in the past, we hope now to have a steady and predictable and regular distribution of dividends to our shareholders moving forward. Another highlight of Q1 2019, I guess this is post the end of the quarter. We received $46 million payment from Equinor, reflecting the settlement of a previously announced asset swap between the 2 companies. And this reflects the -- a truing up to reflect the 1 January 2019 effective date of the transaction and its completion at the end of April.In terms of our operations. We continue to drive Kurdistan's oil sector ramp up. The security and financial and oil sector conditions in Kurdistan have normalized. And Kurdistan remains one of the most exciting offshore -- onshore oil provinces anywhere in the world. And I'm pleased that DNO continues to be the leading international operator in Kurdistan measured in terms of active rigs, the number of wells drilled, production and also oil reserves.We are soon to mobilize a fifth drilling rig in Kurdistan to support the largest drilling campaign in Kurdistan's history but also in DNO's history which will include up to 20 DNO-operated exploration, appraisal and production wells in Kurdistan this year. Production from our flagship Tawke field is averaging around 73,000 barrels a day. That number moves up and down. There are a number of workover and other activities that we have ongoing so that the number moves a bit. But this is reflective again of the average current production from Tawke and pretty much in line with our expectation and with our previous discussion of the field's performance.At the second field in the license, the Tawke license, the Peshkabir field, our production is currently running around 54,000 barrels a day, again as expected. So no surprises at these 2 fields. We have active drilling programs on both the Tawke field as a mature field and there's natural field decline. So like a treadmill we have to keep drilling to stand still in terms of production in Tawke. And we have a very active drilling program at Tawke this year. But we also continue to drill additional step-outs and other appraisal and production and development wells at the Peshkabir field as well. And by colleagues will talk about that in much more detail later on this morning. The guidance we provided on Kurdistan is that we expect to exit the year 2019 around the level that we came into the year. So something on the order of 125,000 barrels a day of total production. Between these 2 fields the numbers could be a bit higher or lower. I expect it'll be maybe a bit higher depending on the performance and results from the very active drilling programs that we have underway. But I think that gives some guidance in terms of our best thinking and understanding at this point.Peshkabir continues to be a very exciting addition to our Kurdistan portfolio. It's made up for some of the declines, earlier declines and the Tawke production. But just to give you some metric in terms of the performance of Peshkabir, the field has generated around $1 billion or 4x the spend to date on the field, of which around USD 300 million has been net to DNO.To put that field also in perspective, the cumulative production at Peshkabir to date has been around 20 million barrels. And that represents around 15% of the current proven and probable estimate of the field reserves. And as that number moves, I believe it was up. The reserve numbers, again, this is a -- helps put in perspective where we are at Peshkabir and how much further we have to go in terms of Peshkabir's reserves in terms of future production. So we're very pleased with Peshkabir performance.At our third license or third block in Kurdistan, the Baeshiqa license. As we reported previously, had drilled a shallow well and had started to test that, and fits and starts we had slow going because of torrential rainfalls in that part of Kurdistan. And so the weather related issues. The area also in a new zone in terms of oil company operations. And there've been some delays as we've managed to get equipment in and out and operations launched with contract of some of the area.But we also have been drilling back-to-back a second deeper well, the Baeshiqa 2 well. And as we've drilled the second well, we've been doing some testing on the way down to see what the zones look like. And so we've been moving test equipment back and forth between the 2 wells. And both the drilling and the testing programs are ongoing. And again, my colleagues will go into more detail with respect to what is going on, on the Baeshiqa license with respect to these 2 wells and our forward plans for these wells as well as a third well that we plan to spud and commence drilling at Baeshiqa at the end of this year.With respect to our Norway strategy. Again, it's been a very fast track growth strategy for Norway. We have completed now the acquisition in the quarter of the Faroe Petroleum plc and also the integration of the people and the assets. That activity is well on track and underway.Faroe, the acquisition brings to the DNO portfolio around 18,000 barrels of oil equivalent per day, less than the 2 years after DNO announced an entry into Norway and the North Sea. So this has been executed again on a fast track basis. We're pleased with that.But we've also emphasized that the Faroe acquisition and other things we are looking at in the North Sea and in Norway represent not a pivot for DNO away from Kurdistan. We remain very much a Kurdistan company and want to grow our business in Kurdistan. But it should be seen as a pivot towards Norway and the North Sea. So we have now 2 important legs to the company in terms of assets, in terms of focus and in terms of growth opportunities.We have also in a short span of time leapfrogged or jumped to a position among the 5 top companies with respect to licenses held in Norway. We now have 90 licenses in Norway, of which 22 are operated.DNO with a greater financial capacity now intends to take larger stakes in permits in the North Sea and to ramp up activity on some of the operational projects that have been part of the Faroe portfolio. So we plan to do more, with more in the North Sea on those assets and continue to build on those assets and the teams to increase our footprint in Norway and in the North Sea.The move into the North Sea for us is transformational for the company in other respects. For example, there'll be new financing opportunities available to the company as -- on the back of the North Sea assets, whether these are with respect to reserve-based lending opportunities or borrowing opportunities or additional move into the -- into our credit markets, bond markets, which we've announced we are, early this week that we have engaged with advisors to meet with potential investors on the credit side. And we expect that the company's weighted average cost of borrowing will go down as a result of its move into the OECD region and generally and the North Sea and Norway specifically.So there are knock-on effects, benefits to us from this transformational change in the company's portfolio and its growth ambitions.We have indicated before and we repeat again that we have a target of reaching 50,000 barrels of oil equivalent per day in the North Sea. We've said this is on our home turf. In fact this is in our home surf because this is all offshore targets. And of course given long lead times with respect to offshore operations and notwithstanding the fact that we have an exciting program of exploration in the North Sea, an important contribution to this will be through the acquisition of existing development and production assets. So we are out hunting for new opportunities for asset acquisitions.Other things we're doing in 2019, to just give a quick preview, at $70 per barrel Brent prices we expect based on our current production volumes that we will exceed $1 billion in revenues this year. And with the North Sea contributing around 30% of that. Again, as I started the presentation, I indicated that the North Sea portfolio adds again between 20% and 30% depending on what metric you're using. So that's an indication of how that fits into the overall portfolio right now with respect to the current North Sea assets that are in the company's portfolio.I also indicated that we have a very active drilling program. We expect to drill around 36 wells this year. 25 of them are development and infill wells, and another 11 in exploration and appraisal wells across the portfolio. And I indicated also this is the largest drilling program in the company's now 48-year history.We project capital expenditures this year on both the capital expenditures and exploration expenditures of around $440 million, of which $250 million will be in Kurdistan in our legacy portfolio and $190 million in the North Sea.Haakon will go into these numbers in a bit more detail. These numbers look a little different than numbers we've previously discussed, in part because of the Norwegian exploration tax refund effect. But Haakon will discuss a bit more and amplify on these numbers and their composition.And also I end by saying that we remain active acquirers of opportunities. And not just the North Sea but we're looking at opportunities in Kurdistan as well. So we will remain active in the market and look forward to sharing that information with you as we mature our opportunities. Thank you.

[Haakon Sandborg, Chief Financial Officer]

Thank you, Bijan. And good morning, everyone. As you've heard today, we are now in DNO going through transformational change. This is through our M&A-led growth in Norway and U.K. But it's important to say that we at the same time enjoy still the strong financial results from our long-term successful strategy in Kurdistan and also the long-term commitment to our operations in that region. And we are of course very pleased with the accretive strategic investment of -- I was trying to say pleased with the strategic investment of Faroe Petroleum. I think we're now well on our way to build a strong Norway, U.K. platform for the company. And as such there are now a lot of significant new positive developments through our financial results and outlook that I will be reviewing throughout this presentation.There is quite a lot to discuss this time but I'm going to start with our key figures, quarterly figures. And you may see it looks a bit high on the last fourth quarter, but that was due to a one-off effect from a change in revenue recognition that we did in that quarter. And if you take out that accounting effect from Q4, the Q4 revenues came in at $86 million.Now for Q1, revenues increased by $18 million from Q4 to a level of $204 million. This is as we add new North Sea operations revenues by $35 million for the quarter. But there was a reduction from Kurdistan revenue of $17 million. And that was due to a lower oil price in the quarter but offset by higher production and export volumes.It should be noted here I think that we effective from the 1st of January this year, like many others seen the industry, have decided to change to the sales method for revenue recognition. And this means that we will now be recognizing revenue on the basis of volumes lifted and sold during each period. A bit more technical. Further changes in the over and underlift balances that we previously were valued at net realizable value or market value will now be valued at production cost. And that includes depreciation. And this will be centered as an adjustment to cost of goods sold. So it's kind of a big change that we are making here now with the rest of the industry. It doesn't have a real material effect on our ongoing deliveries from Kurdistan, but it's expected to have an impact on the revenues from the North Sea business unit.But important for this quarter is that application of the sales method means that we recognized an underlift position of $23 million in Q1 for the North Sea operations and that you can say thereby reduced our revenues for this quarter compared to the previous method that we used. This underlift will be realized and booked as revenues at the market value when the barrels are lifted in the coming quarters. So it's sort of a delay factor. But it's an effect to follow now for our North Sea business with this over and underlift developments and how they will affect our revenues.And other important revenues would be the fact that the revenues reported this time for Q1 for the North Sea based on the former Faroe Petroleum asset portfolio before its asset swap with Equinor. So this swap closed on April 30 with an effective date of January 1 this year. And we -- as you have seen, we've now received significant project contract settlement payment from Equinor for this period. So I'll come back to that over the next few slides.Coming back, we're discussing revenue at length here now, but coming back to the other key figures. The netback cash flow that we like to focus on is reduced by $35 million. Sorry, it's reduced by a $35 million increase in our cost, in our cost of goods sold and other cost. I'll discuss those costs a bit later. But we also have a tax effect on the netback, reported netback, because last quarter in Q4 we received a tax refund of $33 million from Norway. That was included in the netback. But the exploration tax refunds in Norway are paid up at the end of each year and there is no net or is no, sorry, tax refund effect for the netback in Q1. So that's a big difference. We have the tax income in Q4, but we don't have it in the netback for Q1.So if you look at it between the higher revenues that we have reported offset by higher costs and the tax income effect, our Q1 netback cash flow thereby dropped by $53 million to a bit less what -- by a big number, $50 million or so to $102 million. Think I must have the wrong number here. But net of the Q4 accounting effect, our operating profit also dropped by $14 million net of the Q1 revenues. And that was because the high revenues were offset by higher cost.We'd like to show this profit and loss statement in some detail for each quarterly presentation. So we can discuss the cost items a bit more here. Again, if you -- I like to then exclude the one-off revenue effect from Q4. As I said, the revenues are up, up by 10% from the last quarter. And that's because of the new North Sea revenues. Again, the revenues recorded here are for the asset base before the asset swap with Equinor. And the post-swap revenues from January 1 this year are significantly higher as you will see in the coming quarters. And that's reflected in the swap settlement in Q2.Otherwise the cost of goods sold are up by $10 million in Q1 from Q4. This is mainly due to that we include now new lifting costs from our new Norwegian or North Sea business of $22 million. But this is partly offset by $7 million in lower depreciation, DD&A for this quarter. That's a change in depreciation method, that's the reason for that.We have also for the first time now added movements in overlift and underlift and tariffs to our cost of goods sold. So there is a bit of change in the accounting method for that cost items.You see here a big change in expense exploration coming mostly from 2 exploration wells that we expensed in the quarter. And there is also of course the addition of the ongoing exploration in our new North Sea business.Our admin expenses are also up by $2 million to $15 million. And this is, again we have added the new North Sea cost, but there is also several one-off items for this quarter that relates to the Faroe acquisition. So this will be normalized in the coming quarters on the admin. And because of these elements I've been discussing, the operating profit dropped then to a level of $37.9 million.We have the tax income effect from the refunds in Norway. And that's then a positive tax income of $35 million. And with that tax add-on for income we have a net income ending at $51.1 million. So I've seen some commentary this morning about being a bit below the analyst expectations for the quarter. But I think in my view the Q1 P&L results are still pretty good, quite decent. After taking into account that Kurdistan revenues dropped in this quarter. That's because the oil prices were recovering again from the big drop in Q4 last year.And in addition, as I said couple of times, the asset swap with Equinor is not reflected in the Q1 North Sea revenues. We had the underlift effect on the revenues because of the new sales method that we are applying. And there were several one-off expenses. So I think these would be the main explanations that would explain the differences between the actual presented results and what the analysts had expected.As we have noted in previous presentations, we use what we call operational spend as a useful metric in our view. That shows the activity levels of the company with CapEx, exploration and lifting cost. And for 2019 we plan a substantial increase in operational spend, to a level of $680 million. And that show net of the Norwegian tax refunds on exploration.The split is kind of funny, but it's split in equal shares between Kurdistan and the North Sea business. And the increase from last year is due to the planned high drilling and development activity in Kurdistan and also the growth in our North Sea operations. I'll come back to the planned CapEx of $375 million and around $65 million in net exploration on the next slide. But it's important to kind of look at the lifting cost and the developments there. We expect that Kurdistan will remain or will maintain low and stable lifting costs as we've done for many years, at a level of about $90 million of lifting cost for Kurdistan this year. That's an estimated per barrel cost of $2.80 per barrel, which is very low in this industry.With the new North Sea production we will add around $150 million of lifting cost this year. And the average per barrel cost for that production is I think $22.50 per barrel if I'm mistaken. So of course a big difference, but we can go back and see, look at the margins as we develop this business.To, as I said, comment a bit more on the details here. Our North Sea business unit will have high activity this year. It will be significant activity with development, but also within exploration. And in rough terms, about half of the planned North Sea CapEx of $150 million will go into the development of the Ula and Fenja fields. And the rest of this expenditure will be spread across several producing fields.For the North Sea exploration expenditures of $175 million, the post expense is estimated to $40 million. And that's what we show here. But at $175 million is a big program for this year. But it's of course reduced by the refunds. This exploration spend. We'll come back to that. But it will be for drilling of several exploration and appraisal wells and also for normal seismic licensing rounds and other exploration items.The Kurdistan CapEx of $225 million spent again on new production wells, development activities. And we have this very important gas reinjection project from taking gas from our Peshkabir field to inject at the Tawke field. That will take care of both the flaring at Peshkabir at the moment from the production there with the gas at Peshkabir, but also we think to see hopefully a significant uptick in our production at Tawke when we inject this gas into Tawke wells.We have mentioned that already, but we have exploration in Kurdistan at Baeshiqa license. And we plan around $25 million of exploration expenditure on that exciting program. We like to remind you that this operational spend is supported by very quick cost recovery at the Kurdistan level at the main production sharing contract, where you have the ability to recover your cost very quickly. And again supported by the Norwegian tax refund on exploration.Now we turn to cash flow. And of course the first quarter is kind of dominated by the acquisition of Faroe Petroleum in terms of our investments. The Q1 operational cash flow came in at $58.1 million. That was down from the higher level in Q4. That was mainly due to the lower profit before tax coming into or ending Q1. Important to note also that we had $45 million of call it negative working capital changes that came mostly from the acquired North Sea operations. Included in the $45 million negative or sort of cash drain on working capital where about $23 million of one-offs from payment of various liabilities related to the Faroe acquisition on the Faroe side. They were accrued for in Q4, but paid in Q1. So it's sort of a cash flow effect and a negative impact on our working capital that we saw for this one-off, so $23 million. But also there was significant reduction of license payables in Norway. That accounts for this $45 million of working capital change.To discuss a bit about the investments of $526 million. We spent $429 million in Q1 alone on the Faroe acquisition. And that is net of the cash in the company. So now I think it's split then between what we paid $583 million and the cash in the company of $154 million. So we had $93 million of other investments in the quarter, that's including $39 million of CapEx for Tawke and Baeshiqa -- sorry, Tawke and Peshkabir. And we also had $51 million of CapEx across several Norwegian licenses. Some of the Norwegian CapEx that we show here have been reimbursed as part of the Equinor's and settlement of the swap agreement. We have -- in finance we have dividend of $25 million paid in Q1, that's included. And for the total we show a net reduction in cash of $475 million. And we end the quarter with a cash of $254 million.So as I mentioned, the settlement of the swap brings in a payment of $46 million now in Q2 and we will then account for that in this quarter. And that will increase the cash flow for the second quarter compared to the first quarter.Very important, going forward with the new assets we have acquired through the asset swap that we have now completed we expect a significant increase in our North Sea revenues now going forward for the next 3 quarters of this year. And that will also have a positive effect on the cash flow. But as we have said before, backed by also by our strong Kurdistan cash flow, we expect that our operational cash flow this year will fully cover all the cost and CapEx. And we expect significant free cash flow on top of that. So we remain in a pretty unique situation of growing the company with substantial increase in investment and covering all that from our operational cash flow. This is the strength of the company on the finances side.Here is our what we call our capital structure. Obviously our balance sheet has been transformed and changed quite a lot through the Faroe acquisition. We see increased asset values. We have a technical goodwill. There are increased liabilities and other effects. And we show by the way the purchase price allocation, the PPA so-called in our Q1 reports that you can follow how we have accounted for the acquisition. With the increased or the increased asset value, if you want, the balance sheet has grown and we have a reduction in our equity ratio to 44%.Naturally, when we have spent a big part of our cash, we have an increase in our net interest bearing debt to $432 million at the end of Q1. But I think it's important to recognize that with increasing revenues and the strong cash flow and we also have a strength from our holding of financial investments and a very robust equity ratio. This net interest bearing debt is still a very low leverage level. And I can safely say that as before we maintain a solid balance sheet.We like to sort of point out that we for many years have followed a long-term conservative financial strategy. We have maintained substantial cash balances and in fact very low net interest bearing debt. And under this strategy we have been a frequent issuer with a proven track record in the bond markets. And we currently have $200 million of bond debt that, in DNO bonds that are maturing next year. And also last year we raised $400 million in new bonds that are maturing in 2023.Through the Faroe acquisition we have now also debt at the Faroe Petroleum plc level, the company we have acquired, with a bond loan of $86 million. That is maturing in 2023.We also acquired a reserve-based lending facility now of $245 million. That's currently undrawn if you want, expect for letters of credit that are issued under the RBL.The facility is provided by a group of 7 supported banks in the bank group. And for us it's good to have access to the bank market, bank credit market, and thereby to its attractive debt pricing that we now will be using increasingly compared to the previous years.I think Bijan mentioned that, but you may have seen our release from this week that we are holding fixed income investor meetings as we call it, meaning in plain language we are meeting with investors to discuss a possible new bond loan for DNO. And if we find the terms attractive and want to proceed, the new bond loan would be aimed at securing funding for general corporate purposes for growth opportunities but also for possible refinancing or buyback of the maturities that we have next year, the $200 million, and possibly also the Faroe bond loan.We will have discussions on those points when we have the investor meetings over this weekend and next week.So I think we're in good shape to keep up this conservative financial strategy going forward. It is certainly supported by the derisking of our asset base, our asset portfolio. And also as before by our strong cash flow.So I think in summary that's the end of the first quarter results presentation. I think we have time for some questions. And then after that we will break for a short break and then we'll continue later with the rest of the program for today. So thank you.

[Bijan Mossavar-Rahmani]

Just a quick explanation of the photograph here. This is Kurdistan. You're standing on top of the Peshkabir field, looking down into the Nineveh plains. You can see in the middle between those ridges a top of a rig. So this is a view of Peshkabir field and what's beyond the dramatic photograph.If there are question, Haakon and I can address. Would you do that for a number of the questions. Please, Teodor.

[Teodor Sveen Nilsen]

Teodor Nilsen, SpareBank 1 Markets. Thank you for the update, that was useful. Bijan, you mentioned that you already had identified several opportunities in the Faroe portfolio for production ramp up and increased activity. Is it possible to be a little bit more specific which fields are you talking about, potentially which wells or which areas are you talking about?

[Bijan Mossavar-Rahmani]

I think we should address that in the Capital Markets Day presentation where we go into significant detail both in terms of the portfolio in Kurdistan and the portfolio in the North Sea. And I think some of your questions will be answered in the slide presentations. And if you follow on, I would then defer that discussion to the second part of our program today.

[Teodor Sveen Nilsen]

Sure, no problem. One more, which is maybe more on the general note. And that's around your CapEx which will increase substantially in 2019, of course mainly because of the Faroe acquisition. But at the same time if you just look at the year-over-year production, maybe it's expected to be flattish. So long-term, how should we think about the production development, organic production development in the company since you're increasing investments that much?

[Bijan Mossavar-Rahmani]

Well, I think in terms of organic growth, of course this comes back to the North Sea assets, where we expect [indiscernible] development some of these assets. There'll be additional contribution from the existing, again, portfolio in Kurdistan. As I indicated, with respect to the Tawke license, our expectation is to and hope is to maintain production at the existing levels as long as we can from the Tawke and Peshkabir fields.The other license we have is Baeshiqa. Baeshiqa, whether and how much contribution there is going to be from in terms of production is still to be seen as we continue to drill and understand the reservoirs. So on that I don't have any comment. But again, that's part of the presentation. Later you'll get bit more insight into those assets as well.So the large increases in production or the rapid climb in productions are in the North Sea. As I indicated, we'll have [indiscernible] from the organic investment opportunities but from acquisitions. So how that balance will look we'll see. You can be assured that we move fast. We'll try to squeeze out as much as we can from the existing portfolio, add to it.But certainly, given the size of the investments you should also expect that we plan that those investments will result in additional discoveries and additions to reserves, additions to production, additions to cash flow as we continue to grow the company and to do so successfully. I know I've given a generic response. That's the best I can do right now because in terms of specific examples, you'll hear later this morning. But DNO again is a work in progress. We've evolved quite a bit over the last 4, 5 years. Part of that has been our resilience, the nature of our assets. When a lot of our peers got into trouble by overspending in the world of $100 oil prices several years ago. As prices came down we were impacted as well, but not as deeply. And that's mainly because of the quality of our -- and cost of our assets in Kurdistan.And having survived and thrived in the period, the decline from $100 oil prices to $50 and $60 and now $70, we expect that given again our cost structure, our rapid recovery of our expenditures, that we're well-positioned to write up prices. And even if prices stay flat we're quite comfortable given the, our cost structure but also the volume of productions we have.So it's hard for us to plan longer-term, because at least with respect to our onshore assets we've said many times we -- it's like driving a fast car, we hit the accelerator, we hit the brake as we need to. We wouldn't have that luxury for principally in the offshore business where you have long lead times, you plan and you commit to investments in a 4-, 5-, 6-year period and hope to recover them 5 years after production starts. Then you're locked in. We're not as locked in. We will be partially in terms of our offshore operations. For our onshore operations we're not. And our numbers will change and we'll do a lot of this fast-changing in CapEx and other investments which we've done, but that gives us flexibility to move on opportunities and to retreat and then to attack as opportunities become available and strategies need to change.Haakon, do you have something to add to that?

[Haakon Sandborg, Chief Financial Officer]

No, I think that's a very good answer. I know [indiscernible] if you can move on to the next question. There are some questions around Baeshiqa, I think you touched on it. I mean from the web we have some questions coming in. Can we give some estimates of timing and results and all that? But I guess that's kind of hard to say more than what you have said.

[Bijan Mossavar-Rahmani]

When Haakon said that's a good answer he didn't mean that's a good answer, he meant that's reflective of -- that's an accurate reflection of our position and our strategies. Happens to be a good answer too.

[Haakon Sandborg, Chief Financial Officer]

But for Baeshiqa, anything more you can add to that?

[Bijan Mossavar-Rahmani]

Sorry?

[Haakon Sandborg, Chief Financial Officer]

Anything more you can add to Baeshiqa?

[Bijan Mossavar-Rahmani]

Well, I think later on with the presentations of other colleagues. I've explained again the timing of Baeshiqa, why it's been sort of back and forth. And we hope to have more sooner. But I think I've explained what the challenges are in terms of our ability to understand ourselves and then to report to the market where that project is going.

[Anders Torgrim Holte, Equity Research Analyst]

Yes. Anders Holte, Kepler Cheuvreux. Just a quick question on your cash flow for 2019. Although it came in at little bit below expectations on Q1, you're stating that it will rise materially onwards and into Q4. So Bijan, just wondering where do you place your own cash flow neutrality point on oil price when you take into account your full investment program after tax and the $50 million of dividends for this year?

[Bijan Mossavar-Rahmani]

I'll turn to Haakon for a good answer to that question.

[Haakon Sandborg, Chief Financial Officer]

First quarter is a bit unusual with the facts I try to discuss at some length here. So don't take that as a sort of a reflection what you're going to see for the rest of the year. This is going to be then I think improving strongly over the remaining quarters of this year which is why I'm saying we're going to be able to cover all the cost and CapEx from our cash flow. We expect at least to maintain stable production in Kurdistan. That means at least 125,000 barrels per day. If you use a $70 oil price assumption for that and run those numbers, that's a pretty big revenue by self itself, our share. And we will have the new Norwegian cash flow coming in. So we are very comfortable in meeting all this cost on CapEx from that cash flow. Exactly how the Norwegian production is going to play out, we expect at least 18,000 per day for this year. And there will be new production coming in in the coming years. So all-in-all, with the way this production sharing contract works in Kurdistan, with the quick cost recovery and the Norwegian exploration refund, this is not as scary as it might look on a gross number. This is something we can easily manage through the licenses that we have and the tax regimes that we operate under. So I'm not sure if I'm addressing the exact question, but these are the some of the things we really feel are driving our business in a very good way. This is why we feel we can come back to the capital markets and refinance and get even better terms on our debt and stretch maturities longer now if we are successful and achieve the new bond loan we are looking at.

[Anders Torgrim Holte, Equity Research Analyst]

So the cash flow increase you are pointing towards for the rest of year, that's coming from the increased cost oil in Kurdistan.

[Haakon Sandborg, Chief Financial Officer]

It's cost oil. And then the Norwegian cash flow coming in that reflect, yes. So lower prices than $70 in the first quarter. This is the assumption of $70 per barrel. If you get up to $70 and stay -- we are $70 now and then stay with that, then this cash flow will improve.

[Anders Torgrim Holte, Equity Research Analyst]

Got it. And just on your $1 billion of revenues at $70, we realize that's an approximation, but like are we -- because if you do the numbers in terms of barrels produced throughout the year, it's a big difference if its $1.2 billion or $1 billion, so I -- like where you are in terms of territory in realized revenues at $70 for this year, is it $1 billion square or are we slightly above it?

[Haakon Sandborg, Chief Financial Officer]

I have to go back and look at those numbers. We gave $1 billion. This is sort of a catchy number. And I think we will be a bit above it, yes.

[Unknown Analyst]

[Indiscernible] no, I'm going to be nice. That was largely my question. But I was -- just take a little stage further if I may. You've got cash of $260 million. You've got an undrawn RBL which I assume is pretty cheap. And then the Faroe bond is currently your cheapest bond. So why would you do another bond now rather than just repay the one that's due in 2020. You seem to have combined with what you just said about this year's cash flow, you seem to have enough cash to cover your near-term liabilities unless you're expecting quite a low bond coupon.

[Haakon Sandborg, Chief Financial Officer]

I look to [indiscernible] to give, to secure that. But yes we are expecting, given where we are now, to get better pricing on our, if you do a new bond loan than what we did last year. Last year was a big improvement on the previous bond. So we are going in the right direction from a company perspective. We have been out early in the past to refinance maturities. You don't want to wait too long. We have the 2020 coming up for DNO with $200 million. I think now is a good time in the bond market. The way it looks now is very strong demand for E&P credits in high yield bonds. So is a good time to look at that loan for ourselves for maturity refinancing. The Faroe bond loan is something we acquired through the acquisition of course, has a maturity of 2023, has a good pricing. It sits in the middle of the capital structure. That's a bit unusual, that's one thing. We usually have the capital markets debt at the parent level, at DNO ASA. But you're right, we don't have to do it. We could keep it. But if there is interest in rolling into our possible new bond loan for DNO from the Faroe side, Faroe bondholders, they would then get the opportunity to be in a longer-term bigger facility. I think that would be the opportunity for people to switch into that new possible DNO bond loan.But in real terms, we would like to have a back-up. We have the RBL available for North Sea business. If we are successful in pursuing some of the opportunities we are looking at to acquire, we could use the RBL to roll that into the borrowing base and to use the bank market for that financing. So it's sort of a backup for that as well. But we don't need to do it, but it's good to get that maturity for next year addressed sometime this year.

[Bijan Mossavar-Rahmani]

I'd like to say something again with respect to our move to the North Sea. We were expecting -- some of the reasons we did, the Faroe transaction, and even before the Faroe transaction the move into the North Sea in 2017 with the Origo transaction. It makes sense as Norway's oldest oil and gas company with a large Norwegian presence in terms of people and in terms of shareholding, we have I think 16,000 Norwegian shareholders, our history, our team, it made sense to be in Norway. We've always felt that in Kurdistan the company is very well-positioned. We have a competitive advantage in Kurdistan. We have a comparative advantage relative to others. And we've taken – we've made maximum use of that advantage to get to the place that we are. We believe we have a similar advantage in Norway as a Norwegian company. And we've been welcomed back by our shareholders, by the market. We've received in the last license round, the APA license round between the Faroe and the DNO applications. We have the second largest number of applications accepted and permits awarded second only to Equinor. So in a sense we're welcome back into this market and it makes sense for us to be here.There are opportunities in Norway to explore, to discover, to produce, to make money. But also as I mentioned, this has been part of a transformation as a Kurdistan-only company or larger Kurdistan company. The market has discounted the value of our business of Kurdistan had our reserves of production not been, had they been in an OECD country our market cap would be multiples of what it is today. We think that discount is too deep and not warranted. We've repeatedly over time proven that Kurdistan is a very, very good place to be.I remember when Al Stanton and I first came across each other, he was skeptical or at least very good questions about the business. He said, "Well, how do I know these production sharing contracts that DNO has will be honored? Everyone, we think it's going to be tactical services contracts. And what are you going to do then?" And I think we addressed that. Then his questions was, "Well, what about this oil? It will never get exported. How are you going to export the oil? How do you get paid?" And I think we had conversations with Al and then we explained and he understood and then became a bit more I think sympathetic or empathetic and supportive of our position.Then there are other issues as well. "They've stopped paying you. When are they going to pay you? And how do you make sure you can get paid? And how much of the prior payments are you going to recover?" And we recovered those too. So in our view when I had expressed this to Al and to others into the market, though I was always very confident and comfortable with the investment and I'm very heavily personally invested into the business and to the company and through RAK Petroleum of which I'm also a Chairman, of which I own about 40% of DNO shares. So I've always been comfortable. The market hasn't been. So how do you make the market comfortable and in a sense how do you de-risk these barrels. And the move into Norway has done that, as a result of the Faroe acquisition and part reflective of the move into, strong move into the North Sea and part in terms of the pricing of the acquisition and the opportunistic move into the acquisition which is possible, Al, because we had all this cash sitting on our books. That had to be a cash-only deal because it turned out to be a hostile takeover. We had to have the cash on hand and we did.And so we want to make sure that as opportunities become available we are in a similar position where we have the ability to move and to move rapidly. But the rerating of DNO share price, and it's been rerated now, we still track the Brent, but we track the Brent now from a higher share price. We still think there's more room to go on rerating. But that was made possible because of the move to the North Sea which in a sense was derisking of the Kurdistan barrels. We'll never see the margins we have in Kurdistan in the North Sea. Kurdistan is a unique place. DNO's finding and development cost per barrel, DNO's lifting costs are -- we lead all other companies I think in the world in terms of how low our costs are and how strong our margins are. And we'll never replicate that, I don't think, anywhere else, including the North Sea unless if it's, the skies open up and the sun shines all year in Norway and the world changes.But in a sense our barrels in Kurdistan have been derisked as a result of our move into Norway. I explained that our cost of capital is going to go down. When we go to the credit markets, if we have only one source of revenue, credit markets are a bit more nervous. Well, how do we make sure that you can pay the coupons and so on. But if you have a second leg or a third leg and if that leg is an area that is considered secure in terms of payments then the cost of capital comes down. As that comes down that has a knock-on effect in terms of our equity values and the strengths of the company.So you have to consider all of these. That the move to Norway and the North Sea has been tactical, has been strategic, has been opportunistic, but it makes the whole a lot more valuable and a lot more strong and a lot more robust. And that's, Anders, your question is always, is in the back of our minds that we're achieving several things. And there are to be some trade-offs at one end or the other, but overall the package becomes stronger and the market has shown that and our share price reflects that now. And as you move forward I think the opportunity is available to us, it can be captured more fully, more robustly and at less cost as a result of this strategic repositioning of the company.We've also announced what's next and what other country into -- well, the North Sea again includes the U.K., so there are opportunities still in the U.K. The U.K. -- while Norway was extremely strong and a sellers' market for assets, the U.K. was more of a buyers' market for assets. That's been changing a bit. But there are opportunities in the U.K. and more opportunities in Norway. And we're looking at them and we are trying to position the balance sheet and ourselves to take advantage when those opportunities become available. And we want to be able to move fast to capture them.So with that I think we can -- it's just past 11. We can take a break. I think we have refreshments just outside. And we will come back in 10 to 15 minutes or so to resume with the Capital Markets Day presentations. Thank you very much for your attention.