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Earnings Call Transcript 2021-Q1

[Operator]

Okay. Good morning, everyone. Welcome to DNO's first quarter earnings call. My name is Geilston Lagos and I'm the Communications Manager of DNO. And I'll share some practical information. [Operator Instructions] We will start with a brief presentation of the first quarter 2021 results by Executive Chairman, Bijan Mossavar-Rahmani; and CFO, Haakon Sandborg. After which, we will follow-up and open up for questions. Managing Director, Bjorn Dale; Deputy Managing Director, Chris Spencer; and Exploration Director, Nicholas Whiteley are also present on the call and available to provide answers. [Operator Instructions]And with that, I leave the stage to the Executive Chairman.

[Bijan Mossavar-Rahmani]

Good afternoon, everyone. Welcome to the first quarter interim results presentation. I wish we could have done this in person, but obviously, pandemic circumstances and travel limitations have once again made that not possible, but fingers crossed, hopefully, our next presentation can be made in person in Oslo with everyone present. But we are all here who join you for our regular presentations for the quarterly results. And we will go through the presentation, and then there'll be an opportunity, of course, to answer questions and to go into issues of interest to you in more detail. We've also done in our Zooming and Teams calls in the last 13 or 14 months that we're familiar with how this works. I don't know about the rest of you, but I'm pretty zoomed out. But still, we will try to do the best we can under these difficult circumstances.Hopefully, most of you would have had a chance to look at the presentation slides by now, but just in case some of you have not had the opportunity to do so, we will go through the slides pretty quickly. And as we usually do, I will start with the operations side, and Haakon will go into the financial details with the second part of our presentation. We'll do it a bit more quickly than we do when we do this in person and hopefully give everyone enough time to who has a question or comment to do so.As you've seen from our release, our press release and the slides, our results are not unlike the results of most of the other oil companies who've reported so far this quarter. In terms of the impact of higher oil prices on their results and on our results, that has been a key driver of the first quarter and, of course, in a positive way. Perhaps DNO has some differences in terms of looking ahead in the next several quarters of this year than perhaps is the case of some of the other companies. And probably the most important difference is that as those of you who follow us know we have a significant unpaid arrears or invoices from Kurdistan. Kurdistan stopped making certain payments through much of last year because of the impact of low oil prices on their economy and the difficulties that were being faced in Kurdistan and everywhere really arising from the pandemic.Those payments are now being made, and there's a catch-up in terms of monthly payments of the arrears based on a simple formula. But one that is generating an additional payment to us monthly on the order of $20 million or so, depending on production levels and oil prices. So we will have, in addition to our regular revenue stream that all companies have. I believe what are, to us, significant payments towards arrears, which started at about $260 million. So there will be an accelerator in terms of revenues coming to DNO this year that perhaps other companies might not have other than, of course, the other Kurdistan players, our peers in Kurdistan itself.The other perhaps important difference with DNO, and it's the difference that we've always had is that because so much of our operations and those which we control are onshore in Kurdistan, we've always said we have an ability to hit the brakes if circumstances require it and then step on the accelerator again, and you'll see this -- you've seen this in the past, and you'll continue to see this. So we have the flexibility to adjust to pandemic circumstances if any circumstances flare-up significantly an impact of global oil demand or if pandemic, the circumstances improve and our ability to get people in and out of Kurdistan and the contractors and supplies improves, we may be able to do a bit better than we've have been able to do under the circumstances.I know there have been questions raised by many of you as to why when we give guidance about production, it's not really formal guidance, but it's to give a sense as to our thinking. That these numbers change. And in the last several months, we have been performing in terms of production incurred from Kurdistan at higher levels than we have had the result we would and that's also indicative of our ability to hit the accelerator, hit the brakes pretty quickly.It becomes a bit of a jerky ride. But it does allow us to be responsive to market circumstances more generally to circumstances of our own activities in Kurdistan now with higher oil prices, of course, we will do better than we would have at lower oil prices. And as prices were trending down or going down rapidly in the starting of the spring of last year, we -- our production, obviously, was impacted by circumstances beyond our control. So you'll see some of that, and that's just a feature of the onshore quick reaction operations that we have in Kurdistan. So we ask you to bear with us.We try to provide as much insight and information is available at any time to us. But these numbers will move around. Not hugely, maybe a 5% to 10% margin. But it's a feature of our business and of our operations, and we can go into a bit more detail during the question-and-answer period on that as well.So with those introductory words, I'll ask to please put the first slide on. We've, of course, as I indicated, like many other companies, return to profitability. You can clearly see that in 2020, our business was hurt. We had operating losses in each of the quarters last year. And -- but now we've now made a recovery in 2021. And again, on the circumstances in the outside world and largely driven by the pandemic, change that. There's going to be a turnaround again, but I would be surprised, hopefully, the worst of the pandemic is behind us. And the global economy in countries that learned to deal with it without allowing as much disruption. So that's good news.As we entered into the first quarter, we stepped up our activities, expecting that with the recovery of the arrears and the rising oil prices, we would have the financial strength to once again invest more heavily in our activities in Kurdistan. So we got a head start. And that has worked out well. We've started doing workovers at the -- our flagship Tawke field, we've been drilling wells at Peshkabir and raising our production. And we've now reached a point where in terms of net production to DNO, we're at the -- around the 100,000 barrel a day oil equivalent level that's significant for a company of our size. And that puts us in production terms, certainly within the super independent category if one can call it that. This, of course, also includes the contribution from our North Sea business unit as well.Our cash position reflected the additional revenues that have been coming in through the quarter, and we ended up with a significant cash position, just shy of $480 million. That's roughly what it was at the end of the last year. But of course, we'd spent money along the way. So we -- our cash position held up well, and that relates to the release we had yesterday about a bond -- a partial bond buyback, which Haakon will discuss.Next slide, please. We have a pretty active program planned in Kurdistan. In 2021, we have a 12 Tawke wells in the Tawke license, meaning both the Tawke field and the Peshkabir field, 12 wells planned or budgeted. If we can do more, we will do more, but this is what's currently been budgeted and sanctioned. That's pretty active program. And will allow us to certainly to hold production at rates higher than we would have had otherwise because these fields do have natural declines. So we have to continue to -- at Tawke to invest, to maintain production, and there are opportunities at Peshkabir to continue to grow production from that field, which we have been successfully doing over the last several years. Our operational spend level is about $700 million for the year, which will support these programs, both in the North Sea and in Kurdistan. And again, I would like to underscore that in the North Sea, too, we have an active program of exploration and development wells during the balance of this year.Next slide, please. In terms of our operational highlights, our gross Tawke license production averaged 112,000 barrels of oil per day in the quarter. This was a bit higher than it was in the last quarter of 2020 not by much, but it does show that the -- directionally, the trend has been up of that 84,000 barrels a day, was net to DNO's interest.The North Sea assets contributed another just over 15,000 barrels of oil equivalents per day. And that equivalency reference, of course, reflects the fact that we have both oil and gas production in the North Sea, all of which again brought us to 99,200 barrels of oil equivalents per day in the first quarter, just shy of the 100,000 barrel of oil equivalent per day level that I just referred to.The Tawke license outperformed the expectations that we had previously during the quarter and notwithstanding the fact that our drilling activity was quite limited following the onset of the pandemic. And we drilled no Tawke field wells last year, just some maintenance work and some workovers, which have stepped up now in the first quarter, in which we will continue in -- through the rest of the year, together with additional development wells.We have a Peshkabir-to-Tawke gas capture reinjection project that allows us at Peshkabir field, where we do have gas production to significantly reduce flaring. We started this project probably 3 years ago, long before the great discussion about climate change and gas emissions. We did this because we thought, first, it was the right thing to do. Second, it was reducing flaring and moving the gas to Tawke and both on the short to medium term, increasing Tawke oil production using this to create more reservoir pressure to get more of the oil out which we've been doing at Tawke. And that's one of the reasons Tawke field has done better. But also by injecting the gas into Tawke and recycling some of the gases produced at Tawke now with the oil, Tawke itself has very, very little gas production. But by doing that, we're also saving the gas for Kurdistan for the future, and that's the right thing to do.So we've been doing what's some of these things because we thought that they were the right things to do, and we were early to do them, and we will continue to do them because they're the right things to do operationally and in terms of proper corporate citizenship in the places in which we operate. We do have almost 100 licenses across our portfolio that's significant. Many of them are early stage study licenses or exploration licenses. But it does mean that we keep our subservice team very busy and are constantly on the lookout for opportunities. And again, with the greatest focus being Kurdistan and then Norway.Next slide, please. In terms of the financial highlights, and I won't go too much into this. Our revenues in the quarter were $170 million in total, not much down from the fourth quarter, but within those numbers, there's a bit going on with respect to our underlift position in the North Sea. And again, Haakon can touch on that. So I already referenced our operating profit during the quarter. And I've also referenced the payment plan in Kurdistan that is working down our arrears and we expect that if oil prices stay at about where they are and if our production stays about where it is, we will very quickly recover those arrears, the principal amount of those arrears and perhaps 2/3 of it in 2021. But that's all based on assumptions about oil prices, which we are not in control of.But those of you interested, you can do your own math and plugging into your own oil price forecast to see what the payment levels will look like. But even with somewhat lower oil prices for the rest of the year, clearly, we are getting paid and that payment -- those payments are coming in and are significant. At these levels and even somewhat below these world oil price levels.We're now down that in terms of payments already received to $240 million dollars, but again, I expect that those numbers will continue -- that number $239 million said number will continue to go down at a fairly visible rates. And in part because of the resumption of payments and higher oil prices and the comfortable cash position, we thought it was prudent to start thinking about what to do with the extra money coming in. Of course, there are multiple uses of cash in our business. One is to do more at the operational level.One is to return funds to our shareholders, either through share buybacks or dividends, which we were doing until we were interrupted by the -- that was interrupted by the pandemic. And again, that's something many other oil companies faced as well. But clearly, we are committed to resuming return of cash in one form or the other to our shareholders once circumstances allow us to do so. But in the meantime, we thought we would focus on the bond side and announced that we would do a retire $100 million in our DNO02 bond effective on the 1st of June of this year.Next slide, please. This just, again, goes a little bit more detail on our Kurdistan operations and shows the location of the fields. Those who follow us are familiar with this slide or slides like this, and I won't repeat some of these bullet points, I have already referenced them. Perhaps the one that I haven't referenced already is the second bullet which shows a split between the Peshkabir field and the Tawke field within that license. And you'll see that Peshkabir is now producing younger field. It's producing more than Tawke is. But together, again, the numbers are on the order of 110,000 barrels a day. Peshkabir has outperformed our earliest expectations. We brought that field on production very quickly. But the performance of the field has exceeded the early expectations, but we always thought that Peshkabir would grow with time in terms of reserves and in terms of production, and it's proven to do that exactly.Turning to the North Sea. The next slide. Again, I referenced the net production from the North Sea. We've been participating in a -- at least 2 what we believe are very likely to be commercial discoveries. So we're starting to see a return on our -- of our drilling activities in the North Sea. We're pleased with that and we're going to continue that. We have, again, much as the several other companies of that in the North Sea shifted our focus a bit more to exploration in more mature areas near existing infrastructure so that we can bring production where there are discoveries on stream more quickly than has historically been the case in Norway with some of the discoveries that have been in more frontier areas. And then that's probably a more suitable strategy for a company of our size. We made that -- we've shifted in that direction.And importantly, we also are now taking larger participating interests in projects so that where there are discoveries, we will have a more meaningful participation. We have a couple of exciting wells that are scheduled to be drilled this year. And those are -- is one of them could be -- is a high impact well at its potential. The so-called Edinburgh Field that straddles the Norway, U.K. border. We're quite excited about that. But we also have another well we're excited about. So that's what we expect to drill this year, the Gomez well in Norway. So all in all, an active drilling program for the year with 5 exploration wells and 8 development wells, all of these over the balance of the year during the next 3 quarters. Well, I see that covers my slides.Haakon, if I can now turn to you please to cover the financials.

[Haakon Sandborg, Chief Financial Officer]

Good. Thank you, Bijan, and hello, everyone, and I'd like to thank you again for joining this earnings call. I would think it's something I could confirm that we are certainly pleased with a strong both operational and financial results that we have achieved in the first quarter. So I think we're off to a very good start of the year. And there are, as always, some accounting items that go both up and down and that we need to go through and understand. So I'll get into those as we go along.I'll start with these key figures. And as Bijan mentioned, we have fairly stable revenues in the first quarter from Q4. And this is where we see that we have increased revenues from stronger oil prices, but these have been offset by reported revenue reduction from lower lifted volumes in the quarter in our North Sea business. And as such, the higher oil prices increased revenues by $48 million in the quarter. But the lower cargo liftings in the North Sea reduced revenues by $52 million compared to Q4 last year. So those are the most important revenue changes in Q1.Just to kind of mention that, but under the sales method that we use, we only recognize North Sea revenues when we have lifted volumes in the quarter. So that means that the underlift will be reversed later on the higher liftings in the coming quarters with a positive effect on reported revenues later on in subsequent quarters.We show here are netback. This is an after-tax cash flow before working capital changes that we think is pretty useful to look at. The netback was pretty high in Q4. We had significant tax refunds in Norway in the last quarter, in the fourth quarter. So we had lower tax refunds now in Q1, but even so the netback is solid at $135 million.The lower North Sea liftings increased our underlift in Q1 and thereby reduced the cost of goods sold, I'll show you on the next slide. So this had a positive effect on our operating profit in the quarter. The costs for the underlift or related to the underlift will be then added in future quarters when the liftings take place.I've been asked about that from analysts this morning, but we also see a significant change in our DD&A, or depreciation from the Tawke license this year. This is where we had a stable 2P net entitlement reserves at year-end 2020. And we also worked on our future investments that are required to produce out the 2P reserves. And we see now that we have reduced the estimated future investments that also lead to lower DD&A charges per barrel produced from this license. And these positive developments thereby reduced DD&A in Q1 and also contribute to the increase in operating profit. From an operating loss in Q4 over $14 million to now an operating profit of $66 million. So a good improvement on that one.Next, please. A lot of detail on this one, but you see the Q1 numbers to the left on this slide, you see the fairly stable revenues that I have mentioned. Production costs, we see that they are low and stable in Q1. But the cost of goods sold are then significantly reduced by the increase or the movement in underlift. And also the much lower DD&A that you see now in Q1.Going further on the P&L. For the other costs, there are no expense exploration wells and there are no impairments. So those factors also contribute to the increased operating profit in this quarter.I won't go into a lot of detail, but net finance was at $19.8 million as you can see in the first quarter. That was down from Q4. By February, we had $24.3 million. This is -- there are a lot of factors here. But one thing to mention is that we have a positive NPV effect on the discounting on our KRG receivables with an amount of $7.5 million. And there are FX movements and others that contribute to the reduction in finance costs.Tax income, $5 million in Q1. That looks very good compared to tax expense of $21.9 million in Q4, mostly around technical and deferred tax items that we took into tax expense in Q4. But on this basis, after all these factors, we now have a net profit of $51.5 million, that's in Q1 from a loss of $60.4 million in Q4.Next, please. Yes, as Bijan already mentioned, we maintain our guidance of an operational spend at $700 million in 2021. This is unchanged from our Q4 presentation in February. So we went through and explained that in some detail in the last quarterly presentation, but just to mention a few items. We have a significant step-up in CapEx this year to $270 million. That CapEx estimate is split about 50-50 between Kurdistan and the North Sea. The Kurdistan CapEx focused on drilling out several production wells, aimed at sustaining our high production from the Tawke PSC, and there are also significant facility developments across our portfolio in Kurdistan.North Sea CapEx, mostly for drilling of infill production wells and also, we have exploration expenditures with several exploration wells with some major exciting prospects this year. Working on 2 decommissioning projects, projects that's also adding to operational spend. And on the OpEx, we aim for some reduction to a level of $210 million this year. We had a fairly low operational spend in Q1. But as you can see here on this slide, we are stepping up expenditures in the coming 3 quarters. And we think we will get to that projected level by year-end on the operational spend.Okay. Next. On the cash flow, we had a solid operational cash flow in Q1 at $68 million, as you can see in this graph. And this is despite negative working capital adjustments of $53 million. This working capital change was mainly due to an increase in KRG receivables. That came from a delay in receiving the third monthly payment from the KRG in Q1.Now we have since received this third monthly payment of $54 million in April. And frankly, from my side, adding this payment would give a better view on our strong cash flow generation in Q1. We also received $15 million of Norwegian tax refunds in Q1, and we expect $147 million of such refunds for the coming 3 quarters. We also expect some tax refunds in the U.K. on our decommissioning work at an amount of $16 million that will come in Q3. So we thereby expect substantial tax refunds for this year, totaling $178 million.Looking at this graph, going further, we have investing activities at $63 million. That's been mainly for CapEx on the Tawke license this time. We also have drilling on the Tambar field in Norway, and we have capitalized exploration on the successful Røver Nord well in Norway.Finance this time is mainly for interest expense. And strangely enough, we don't see that very often, but our cash balances are unchanged from year-end to the end of the first quarter at the level of $477 million. This is before we add the KRG payment that we received a bit late in April. And as Bijan also discussed, and very importantly, and we had that in our earnings release this morning. We now have a good outlook for a strong cash flow this year. We based this on our current guided production on the high levels and also on the current oil prices. And as you know have heard, we also expect accelerated recovery of a major part of our receivables from the KRG in 2021.And on the next one, here we look at our balance sheet. Our capital structure is largely unchanged in the first quarter. We have some increase in book equity from the profit in Q1, and that gives us an increase in our equity ratio to 32%. And as we now see that we have a solid cash position and a strong cash flow generation, we think this is a good time to reduce our interest-bearing debt and to further strengthen our financial position. And by that, we would pave the way and build further on what we need to support further growth in the company.So these are some of the reasons that we had when we yesterday exercised the call option on our DNO02 bond to retire $100 million in bond debt effective June 1. And as you may recall, and as I would like to say, we also reduced bond debt by $160 million last year. So I think this is getting pretty good on this part.I think we'll stop here and then we will arrange for Q&A and discussion of what we have presented today to -- for our Q1 releases. Thank you.

[Operator]

The first question will come from Anders Holte in Kepler Cheuvreux.

[Anders Torgrim Holte, Equity Research Analyst]

Yes. Can you hear me?

[Bijan Mossavar-Rahmani]

Yes.

[Anders Torgrim Holte, Equity Research Analyst]

Very good. A question for you, Haakon. It's more directly to your comments about the DD&A charge per barrel, which is now coming down. I'm just curious to know if that's related to what is booked reserves and developed? Or is that how you lowered the CapEx that you see needed to produce the undeveloped but still booked 2 key reserves on Tawke?

[Haakon Sandborg, Chief Financial Officer]

I can confirm on the last part of your question, it's really reduced future investments, as I briefly mentioned. And we have looked at our drilling schedules, and we have a new generation, as we call it, fifth generational wells coming into our plans for Kurdistan. The Kurdistan team has done a very good job. But looking at how can we optimize and how can we reduce expenditures for our drilling program and our cost of producing out the substantial reserves that we have remaining. So a lot of that is in that reduced DD&A. They reduce the future investments.As to the first part of the question, I think we're fairly stable. I sort of summarize for myself, both the developed and undeveloped in part we're doing it both now. Yes. So we have both the developed and developed 2P net entitlement that we had a good replacement of those from production last year. We replaced and even had a small increase on the 2P net entitlement level. So that also has a positive effect of reducing our DD&A compared to previous year's owners.

[Anders Torgrim Holte, Equity Research Analyst]

Yes. Is there -- I know this is a long shot, but I have to ask. Is there any chance you could give some sort of guidance on what investment levels you actually see to take out the entire resource all of Tawke?

[Haakon Sandborg, Chief Financial Officer]

Yes. We -- yes, that's a good question. And we had that figured out a couple of quarters back. I can get back to you. What we did when we looked at that last time, we came up with an estimate per barrel of production of oil produced to get the -- to produce out the remaining reserve barrels. I don't recall exactly what that was, but it was a fairly low level of CapEx per barrel. But -- so I can't give you the absolute numbers. But I will get back to you after this call on -- let me see how -- yes, well, I'll get back to you, Anders, on that. But we have no lifting cost on a variable basis. We have low fixed cost, et cetera. So overall, our cost levels in Kurdistan are really low. So -- but I can get back to you on details.

[Operator]

The next question comes from Nikolas Stefanou in Renaissance Capital.

[Nikolas Stefanou, Research Analyst]

It's Nick from RENA Cap. And I have 3 to ask if I may. And the first one is for Bijan. There's been some developments in the -- in Kurdistan a few weeks ago, the KRG and the federal government have finally agreed on the budget. So I was wondering, in your view, how this changes the margins, the geopolitical risk profile of the region? And also maybe the risk of having future arrears going forward in the future? That's the first question.And second question is on the dividend. And I did notice on the press release yesterday for the AGM that the Board proposed to have a maximum of NOK 0.2 for 2021, which I understand, but also for 2022. And if that number, it leads to something like 2% dividend yield. And given that you pay something like 5% to 7% dividend yield. I was wondering, I mean you're considering any like top-ups, the mechanism behind that or maybe buybacks? Because I mean, it's -- I guess, like the dividend is quite a key part for Kurdistan E&Ps.And finally, on the Turkey declines, I think it was mentioned somewhere in the press release that the gas injection is mitigated those declines quite materially. Can you give us some idea of what kind of declines we're looking at Turkey now versus what they were before?

[Bijan Mossavar-Rahmani]

Nikolas, thank you. Let me start first with the question of Baghdad and Erbil. I'm sure you know, a budget was silently passed for Iraq several weeks ago, and that's included certain payments to Kurdistan in exchange, where Kurdistan delivering certain volumes of oil or the value of those volumes to Iraq, plus certain other income from customs and the duties and other activities. The -- and the net effect of that at the time based on oil prices that are in the budget was, I believe, something on the order of a net $100 million additional money going to Kurdistan after, again, netting out the other parts of this. And my information, of course, is based out on anything that has not been reported about the budget in those discussions.As I understand it, no payments have yet come to Erbil. And part of that, I understand, again, from public reports, has to do with a -- perhaps some discussion and some lack of agreements on whether the payments should start when they start or whether the payments should start as of the 1st of January. But whatever sort of political and financial and economic discussions are ongoing, Kurdistan's revenues now are much higher than they were when those discussions started. At current production levels of Kurdistan and current oil prices, I believe Kurdistan's monthly oil revenues are running in the order of $600 million, $700 million a month, which is a significant number, and one can do the math because the production numbers are well known.So the pressure is off in some respects in Kurdistan as a result of higher oil prices and how that changes the calculus of that agreement. I don't know, but I know the pressure is of it, but the pressure is also off in Iraq. There's more money in Iraq to meet its budgetary obligations, including to Kurdistan. How that will work its way out, obviously, I don't know, I'm not sure anyone fully knows at least beyond the small circle in the country.We don't think that's going to impact Kurdistan's ability to make payments to us, which they've been doing. And we don't see that as a risk in the way that it was and turned out to be when oil prices were $20 a barrel just over a year ago. So that's something we obviously watch with interest. But there's been no signal to us that any payments to us on the arrears or on our basis, are somehow linked to the resolution of this budget matter in its current state and at current prices. So it's -- I don't see that as a threat and building up arrears again.Obviously, I can't see the future, and there have been now 2 occasions, at least 2 or maybe 3 occasions, we incurred responsibility to pay the companies and meet its own basic needs have been problematic, and payments have stopped to us or significantly reduced. But each of those times, we felt that when circumstances allowed, Kurdistan will make payments to us. And they've -- that's proven to be true. So these delays are temporary. There's still a digital matter to us because we are so -- Kurdistan revenues is so important to DNO. So it doesn't matter to us. But if we can weather these payment delays, which are we understand what causes them that Kurdistan will pay. And sometimes, they will, in fact, top it off as was the case when we did the last settlement. So that's not high on our list of risks at this point.Kurdistan also understands that the more money that is paid to the oil companies, it's not just oil companies contractual right to receive this money. But that the companies will reinvest the money in Kurdistan, most of the Kurdistan players are Kurdistan focused and largely Kurdistan focused, we're probably the only one that has meaningful assets and production outside of Kurdistan. So it's in Kurdistan's interest to pay the companies. So the companies will invest money, their own money, produce the oil and 2/3 of it, 3 quarters of it that revenue goes to Kurdistan. There isn't a better place for Kurdistan to put its money than investments in its oil and gas sector by the companies.On the question of dividends, again, we did have a policy of the share buybacks, a significant share. We -- understanding the share buyback program, we, the shareholders approved a dividend policy, and we launched it, and it was going as per the authorities that we have from the shareholders, and the Board felt it was prudent to make those payments and possible to make those payments. And we were pleased to make the payments when they were done, but the pandemic, obviously interfered as it did with many, many other companies with very, very few exceptions that stop dividend payments or we've seen maybe reduce them. We will have an opportunity at our coming Annual General Meeting of the shareholders to seek authorization for resumption of dividend payments. That's would be made at the discretion of the Board based on circumstances at the time those payments will be made.Again, we are -- the company is turned the corner on dividends for the first 7 or 8 years of my engagement with DNO. Dividends weren't on the radar because we were a growth company. We weren't in a position to make those payments. And we thought the money was best spent, putting it in the ground, in Kurdistan, including in projects like Peshkabir. And that's not to be correct. And when we started returning money to shareholders, we thought, in the first instance, the share buyback program was the routes of choice to the company.I can't say anymore on dividends other than all shareholders like dividends and my capacity as Chairman of RAK Petroleum, where we, as you know, we own about 45% of the DNO's shares outstanding. We're shareholders. I'm a shareholder, and we'd like to see dividends. But obviously, it has to be done in the way that doesn't get in the way of the company achieving other objectives, which would strengthen its position to do even more. But we -- but for a long time, we haven't been a dividend company. We've been a growth company.And so we'll see, first, how the shareholders vote at the -- or authorities they get to the Board at the AGM and to see whether circumstances will allow those payments to be made, and it's not a secret that if oil prices stay where they are. There's a lot of cash coming in. And one use of that cash is dividend payments. In addition, as I said earlier, bond pay down and also other investment possibilities, which we are looking for every day opportunities and we've developed some opportunities, and we hope to be able to close them and execute on them and use that to grow the company.So I haven't given you a specific answer because I don't have a specific answer. And this is something that, again, is a matter for shareholders' approval and then the Board to make the determination at the time with the circumstances make it a prudent move.On your third question, I think that was a technical question, if you'd repeat it. I'll perhaps ask one of my colleagues to respond to that.

[Nikolas Stefanou, Research Analyst]

Yes. So my question was on Turkish decline. I think on the press release was mentioning about the gas injection program from Peshkabir, reduce those declines. So you could give me an idea of what kind of declines we're seeing now versus what would work before the gas injection program.

[Bijan Mossavar-Rahmani]

Nicholas, do you want to take a crack at that one, please?

[Nicholas Whiteley, Group Exploration & Subsurface Director]

Certainly. I think we are pleased by how the gas injection program is going at Tawke. It isn't just a matter of actually slowing the decline, but it also helps to reduce water and ultimately spread pressure around. And what we are seeing is it's still reasonably early days in terms of the gas making an impact. But we are certainly seeing a slowing of the decline. When we look at decline, we obviously look at the base decline, excluding new wells and sidetracks and anything else like that. And I guess, do we want to give specific numbers? So I think we saw a decline change from about 22% last year to about 19% early part of this year on the Tawke Cretaceous field. And I think the expectation is that, that will continue to slow that decline as the gas injection has greater impact on the sort of the vicinity around the wells and as the gas spreads out across the crestal parts of the field.

[Operator]

Then we have 2 remaining persons to ask questions. And the first one is Teodor Sveen-Nilsen from SB1 Markets.

[Teodor Sveen-Nilsen]

Three questions from me. Just on what's the latest status of Baeshiqa? What has actually happened there since you announced Exxon deal earlier this year? So that's the first question.The second question going back to dividend, of course, I understand you're not in a position to specifically guide on dividends since you haven't announced anything. But what kind of factors are you looking at when you decide dividend? Will it be a kind of gearing level, earnings level or cash flow level? Or how should we think when we model dividend?And my third and last question is, do we have an estimate of KRG's monthly public expenses? Is it like $600 million, $700 million, $800 million per quarter and the insight on that would be very useful.

[Bijan Mossavar-Rahmani]

On the Baeshiqa, the last statement that we made was that a transaction has been agreed with Exxon for the balance of their Baeshiqa interest and that we were -- we and Exxon were awaiting government approval, which is normal for the -- in support of that transaction. What isn't normal is that it's -- this approval is taken quite some time. But that's not normal for the industry, typically globally. It seems to be a bit more prevalent in Kurdistan that our transactions that have been sitting for years waiting to be approved for different reasons. But we do -- but we hope that it will be forthcoming. We're ready to gear up and move quickly to get the Baeshiqa production, going certainly from the existing wells.We have plans to realization of wells and then to continue to appraise, develop, explore that license. We've always said, we're very excited about the license. We've good and encouraging results from the wells we've already drilled and all this we've made public. So the last piece of this is the government approval, which again, we hope will be forthcoming in part because this is easy, quick oil production. And Kurdistan wants to have as much production in Kurdistan from Kurdistan as possible, as quickly as possible, and we're the quick price.As we get that approval, we can have production within 6 months or here or take. We have a crack team, operating team in Kurdistan and they have the plans in place. And they're waiting to hit the go button, which, again, will come once the approvals are in place. So we're very excited about it, and it's everyone's interest. That project be approved quickly. That's our program, commence as quickly, and it's literally spelled out in great detail what we're going to do next. We know how to do it and we know how to get the oil into the pipeline through Turkey and making a contribution on very, very, very quickly as DNO is typically done in Kurdistan.On dividends, I really don't have much more to say on that. I understand your questions, and I don't have an answer other than to say that the dividends are an important part of our plans to return cash to shareholders. And again, we had a buyback program. We had a dividend program. It was all interrupted. The last time around the way the dividend program worked was a specific knock amount was set aside to be paid. If I remember, on a raise of twice a year payments on the dividends. It's a fixed amount. And that seems to -- that was how we did it last round, I expect, it will be not dissimilar this time in terms of how much dividends we can pay. And again, our -- there's a lot of transparency about our accounts. You look at our debts, you look at our cash, you look at our expected revenues. And I think the answer is you come up with would all be terribly different than the answer is we come up with is sort of hitting the agenda or other driver of that decision than any prudence, but a thoughtful person would come up with.So you can sort of get into our heads as a prudent and thoughtful person. You know how other prudent and thoughtful people think about this. And we will be prudent about it more than anything. The pandemic was yet another reminder that things can change quickly for reasons completely unrelated to a company's own business and you don't want to risk the company.With respect to the KRG, were you asking about their spending or their revenues at that 600 million barrels -- $600 million figure?

[Teodor Sveen-Nilsen]

And that was their spending, their public expenses.

[Bijan Mossavar-Rahmani]

I don't have that number. But if one looks to see what they've lived with, that is order of magnitude, probably correct. But as with any government, the more money there is, the more they'll spend. So -- but it seems that Kurdistan. They've tightened their belts on where there was the ISIS crisis. They've tightened their belt and gave some of the funds that normally would regard to teachers and civil servants and others to the companies to allow us to keep going to generate revenues for them.So they've probably gone down to as low as maybe $400 million or so of -- when required, is $700 million a month a comfortable figure for them to spend, receive and spend probably. But even at these levels, they've cut back salaries and they have delayed payments and they have prioritized the oil companies where they're biggest generator of foreign exchange for them.And when we spend the largest share of our revenues goes to the government, so it makes sense for them to -- when necessary, to tighten the belt -- their belts and to reduce their other spending categories to keep the companies going, which they've done. They seem to -- based on the negotiations, I think there is some -- they've indicated indirectly anyway, the signal that with $600 million or $700 million coming out of Kurdistan directly, another $100 million for Baghdad that, that would be, for them, in 2021, a comfortable number that they could catch up on some of the expenditures that they've delayed including, importantly, again, in terms of salaries, locally.So I think the outlook is economically for Kurdistan is positive. The security situation, as you, I'm sure, know has deteriorated somewhat. ISIS is more active in the reports we see in some indications on the ground. So the security situation is -- the challenge that has increased, not nearly to the levels that we saw last time around. But one should keep that in mind as well that there are economic issues and challenges. There are political challenges. There's domestic politics, there are, but also this ISIS threats and from other malicious is an issue. And that's for some of the money. Of course, it also goes in Kurdistan as a priority.But overall, we're very positive about the outlook for 2021. The biggest challenge of all, again, will be the pandemic, flaring up again. But hopefully, that won't happen in quite the same way at least. But barring again some major unforeseen events, we're very optimistic that our operations will be safe, and they will be productive and they'll add value, and our production will go up. And we'll finally launch Baeshiqa and do other things. And we're all very, very excited about 2021. And that's reflected in again our budgets and hopefully, it's coming across in our presentation and in our mood and in our general posture.We're very much of a player, oil player, a little bit gas in Kurdistan. What we do matters hugely to Kurdistan as the biggest international oil company operator and volumetrically, certainly in terms of drilling activity. Kurdistan is extremely important to DNO, and it's a great partnership, and we want to keep building on it and to the benefit of both sides, which has been the history of DNO in Kurdistan since 2007 or so.

[Teodor Sveen-Nilsen]

Okay. Could I just follow-up on the first along Baeshiqa. If I understand you correctly, you're actually in a position to start production without any more appraisal drilling when the deal is closed. Is that correct?

[Bijan Mossavar-Rahmani]

Yes. We have a couple of wells that we can put our production pretty quickly. How those wells will perform, what sort of volumes remains to be seen. We have some sense of what those wells can do. We produce some of those wells during long-term tests. We truck those wells, the production of those wells, put them into the pipeline. That oil is lighter oil. It has more gas and there's some gas challenges, but those can be addressed. We can put some production into the system very, very quickly. But it's a large block. It's a highly prospective block, we believe, and it deserves a more appraisal in addition to more development wells and perhaps there are other opportunities for additional exploration as well. Very little work was done on that block before we came into it. It needs more seismic, it needs more drilling, and there's plenty to do on that block to keep us busy for quite some time. And the DNO way historically has been to go in, put in a couple of wells, start trucking the oil to market, use that revenue to drill the next wells and then to grow the business.So we -- that's how DNO's operated in Kurdistan and operated successfully. And that would be our approach. But again, if we got the approvals next week by -- like our teams have said they can get those production by the end of the year, at least some production, what that some production it is, I don't want to go into numbers. But Chris may have something you want to say all this. Chris, what, 5,000 barrels a day, 7,000 barrels a day something in that range with those first 2 wells without too much pulling, is that sort of a fair place to start?

[Christopher Spencer, Deputy Managing Director]

Yes.

[Bijan Mossavar-Rahmani]

Yes, he says.

[Christopher Spencer, Deputy Managing Director]

Nothing much more to add as you say.

[Operator]

Then we have the last question from Tom Erik Kristiansen in Pareto.

[Tom Erik Kristiansen, Analyst]

Tom Erik Kristiansen here. You talked a lot about capital allocation. And I guess that's a nice probably to have given the fresher outlook now. But not so much focus or questions this far on inorganic opportunities. Can I say a little more about what you see there? Is this something you actively are pursuing at the moment? And does that mean Norway only? Or is Kurdistan or else also interesting? And finally, have prices moved as much as oil price system this far?

[Bijan Mossavar-Rahmani]

So again, organic and inorganic growth both on our minds. I think part of the problem we've had it's not totally insurmountable, but it is a challenge when one can't travel. And I would -- I'm not -- I've been sheltering in the United States. We have others who are sheltering in Norway and others are sheltering outside of Norway. The U.K. and other places, these travel restrictions make it hard for us to engage in discussions with others. So I think that's slowed us down. Of course, in 2020 as long as the oil price crisis existed, nobody knew how to think about -- I guess some people, the deals are being done.But on our side, it was hard to fully engage in the process, which is importantly, if they are done face-to-face rather than Zoom to Zoom. So that slowed us out a bit, and we want to make sure through 2020 on a crisis intact. And then move on some other opportunities. And we have several that we've looked at, we chat with people. But it's just not -- it's not as easy to do much when you're thousands of miles parts. Bjorn, do you want to say anything more on that as you're sheltering in Norway, so you're able to at least move around in Norway, if not outside.

[Bjorn Dale, Managing Director]

Yes. Tom, also asked about organic growth. And of course, we mentioned Edinburgh and Gomez. So those are 2 exciting wells to deal-making...

[Bijan Mossavar-Rahmani]

Yes. I thought it was inorganic, but, okay. Good. Go on please, I don't want to interrupt.

[Bjorn Dale, Managing Director]

And regards to the inorganic growth opportunities still I think as before, we have an optimistic approach to that and -- yes.

[Bijan Mossavar-Rahmani]

Does that answer the question? I mean if there's no specific, I think, thing we have to report other than a discussion about the status of Baeshiqa?

[Tom Erik Kristiansen, Analyst]

I think that was answering the question, yes. Just to specify one last one. Are you looking at or is it deals outside of Norway and outside of Kurdistan as well or outside North Sea, you could say, is that also something you're looking at? Or is this 2 your core areas that you mainly focused on the inorganic opportunities as well?

[Bijan Mossavar-Rahmani]

Bjorn?

[Bjorn Dale, Managing Director]

Certainly, well, remind that we are in quite a few countries already, we're in Kurdistan, U.K. and Norway, and that's a big space to cover. But we also, of course, have significant operating capabilities in the Middle East and Africa region. So it was natural for us to see what our strengths are and see if there are matching opportunities available.

[Bijan Mossavar-Rahmani]

Jon, are we done with the questions?

[Operator]

Yes. And then I think I can leave it to your stand to close session.

[Bijan Mossavar-Rahmani]

Well, thank you, everyone, for joining us. Stay safe.

[Haakon Sandborg, Chief Financial Officer]

Yes. Thanks for taking part, and thanks for the good questions, and we hope to see you again soon.

[Bijan Mossavar-Rahmani]

Bye.

[Haakon Sandborg, Chief Financial Officer]

Thank you.

[Bjorn Dale, Managing Director]

Thank you very much.

[Bijan Mossavar-Rahmani]

Bye-bye.