Dno ASA
OSE:DNO
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
8.795
12.75
|
Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Okay. Welcome to DNO's First Quarter 2023 Earnings Call. My name is Jostein Løvås calling in from DNO's office in Stavanger. Other DNO participants will take part from Olso and America, showing that this company has a global reach. I am the Communication Manager of DNO, and I will share some practical information. All participants in this meeting are muted by the organizer and will not be able to unmute themselves, chat or share their screens. Present on the call are Executive Chairman, Bijan Mossavar-Rahmani; and CFO Haakon Sandborg. We will start off with a brief results presentation by Haakon, after which we will open up for questions from shareholders and analysts. The Executive Chairman will also be available to provide answers in the Q&A session. If you want to pose a question, please raise the tiny virtual hand on top of your screen. When chosen by the organizer, you will be notified on your screen that you are allowed to unmute, after which you will have to remember to unmute yourself too. With that, I leave the stage to Haakon.
Thanks, Jose. Hello, everyone, and welcome again to our first quarter earnings call. The rig that you can see on this photo successfully drilled 1 of the 2 NCS discovery wells that participated in for the first quarter, and that really provided us with a good start of the year for our exploration program. On the other hand, the quarter was also marked by the shutdown of oil production in Kurdistan for export through Turkey that started on the 25th of March. I will revert to these points for on the next slides. So for the highlights over this quarter, we had net production of 89,400 barrels of oil equivalent per day, BOE per day. And Kurdistan-- was split between Kurdistan at 70,900 BOE per day, North Sea, 14,800 and West Africa at 3,700 barrels. Now Kurdistan gross production totaled 94,700 barrels of oil per day, down from 17,800 barrels in Q4. And this reduction was mainly due to well workovers and maintenance at the Peshkabir field. As I said, we shut down a production in late March following the export pipeline closure. So this also had some effect on the first quarter production. Otherwise, our North Sea exploration success continues with the discoveries in Visund in Heisenberg on the 2 first exploration wells this year. So we are clearly building a significant long-term value now with 5 consecutive discoveries in the Troll-Gjøa area in offshore Norway. As we note here -- sorry, for our profit and loss statement, our Q1 revenues were down by 20% from Q4. That was due to lower production in Kurdistan and also from lower realized gas prices in the North Sea. With low impairments in the first quarter, our net profit basically doubled from Q4. And as before, we maintain our strong balance sheet with cash balances of NOK 911 million and net cash of NOK 344 million at the end of the quarter. Moving on. Moving on to the Kurdistan operations. We have a slow scaled back our spend levels in this business unit now due to the uncertainty on the timing of export resumption and also due to delays in payments for previous oil sales. This means that the 4 large drilling rigs we have used from the beginning of this year will likely go off contract by the end of the second quarter, as we show on the slide. We do I ever have a rig on standby for drilling all the important Baeshiqa free well with a current plan of spending as well in the third quarter. As we note, the operational spend levels in Kurdistan have been front loaded this year. And in Q1, we had already spent 40% of the latest full year projections. On this basis and with reduced activity, we will see a drop in the quarterly spend levels as shown on the slide. And we currently expect that the full year 2023 operational spend in Kurdistan will be around $50 million below the guided levels from February this year. But year-to-date, we have -- we have carried out extensive maintenance and workovers at our producing fields in Kurdistan to preserve assets and infrastructure and to be well prepared to revert to full production and exports again on short notice. On Peshkabir, the workover program has now been completed in changing out 6 electric submersible pumps or ESPs. And further, we have also completed 5 wells and studied 3 wells in Q1, and this will be completed this month. These 8 new wells are split with the 4 wells on each of Tawke and Peshkabir. So I would say that we are clearly taking adequate measures to maintain our production capacity in the Tawke license in anticipation of the resolution of the pipeline closure. At the end of March, and following the pipeline closure, we had produced 4 days of production at the Tawke license into storage tanks at Peshkabir, providing 300,000 barrels of oil in storage led to DNO. So once the pipeline operations resume, we can immediately start our exports from this significant oil storage volume and then follow up with the normal production as the wells are opened up for production again. It should be noted that the oil not produced during the Kurdistan shutdown represent deferred volumes that will be recovered and monetized as production resumes. Now we are moving to the North Sea, where we -- as I mentioned, I'm very pleased to see that our extensive exploration program is delivering strong results now, most recently with the 2 discoveries we have had so far this year. So Røver Sør and Heisenberg are the fourth and fifth consecutive discoveries at the Troll-Gjøa area, following the 3 proceeding discoveries shown on this slide. All in these 5 discoveries have provided 50 million barrels of oil equivalent net to DNO, in new recoverable resources. And let me confirm, we are, of course, really delighted with this strong exploration success rate and with these significant new resources. As one of the largest take-rate shareholders, we have a very attractive position in the Troll-Gjøa area, which is now clearly an exploration hotspot on the NCS. There have been a string of medium-sized discoveries in this area over the last years. And these are good candidates for development and tie back to nearby existing infrastructure. In addition, we are also excited about the remaining 7 wells in our exploration and appraisal drilling program this year, of which we have 3 exploration wells to spud in this second quarter. As such, drilling operations are currently ongoing on Carmen, the first of these 3 wells. We also have a rig now on location to drill at Eggen the next of these wells to be followed by Litago and later by the other wells noted on this slide go further. And this slide now shows the drilling program in more detail. The exploration wells in this program provided a significant 110 million barrels of oil equivalent -- sorry, BOE net unit the resource potential to DNO for the full year. And you see the details here on predrill volume ranges, and we show moderate to high chances of success on these prospects. With the 2 new discoveries, we have already added 26 million BOE in new resources net to DNO so far this year. As shown on this map of the 7 wells that remain to be drilled or completed as part of this year's program. All but two of these wells are in the Troll-Gjøa area. So I'd say, hopefully, look out for further valuation triggers going forward in this program. We'll now move on to some of the financial slides. And we saw a $6 million drop -- $69 million drop in revenues in the first quarter. As Kurdistan, revenues dropped by $37 million, mainly on lower production volumes. At the same time, North Sea revenues were reduced by $32 million, primarily on the lower gas prices. With loan impairments, the Q1 operating profit strengthened significantly to $155 million from a loss in Q4. We also had a reduction of $41 million in our cost of goods sold that came partly from movements in the North Sea over and lift and from lower depreciation. For the same reasons, we also see on our net income during Q1 from the previous quarter despite much higher tax expenses in the quarter. So absolutely, we have much stronger profits in the first quarter. As we move on to cash flow. We saw an operational cash flow of $155 million for Q1, which is pretty good, but it is still down from $230 million that we had in Q4. And to explain this decline in cash flow, it should be noted that we have $42 million in negative working capital adjustments in Q1. That came from -- mainly from an increase in receivables and also inventory in Kurdistan. And we also had a decrease in trade payables in the North Sea. I'd also like to point out that in addition, the last payments of override in Kurdistan were completed in Q4 last year, and this amounted to $20 million in the last quarter Q4 last year. And there under tax, we paid $43 million in a Norwegian NCS tax installment in Q1, and there was were for taxable profits last year in 2022. Now in the second quarter, we will have further tax installments to be paid over $82 million in this quarter for NCS. We had $74 million in asset investments and capitalized exploration in Q1, and this was split roughly 50-50 between Kurdistan and the North Sea. There was also $6 million in U.K. Deco, and we saw a net cash inflow of $8 million from Côte d'Ivoire in the quarter. So if you add this together, the net outflow for investments is thereby $72 million. Under finance net cash outflow amounted to $84 million, and these were primarily for $51 million in share buybacks and $25 million in dividends. So with these substantial shareholder distributions, cash balances were reduced by $43 million to $911 million at the end of the first quarter. But going to the capital structure, we can still rest assured. Our balance sheet strength is very much intact. We have the cash balances of $911 million, and we had a net cash position of $344 million. We're also pleased to continue the positive trend of increasing the equity ratio to reach a strong level of 50% at the end of Q1. As you can see, this is up from 37% a year ago, and it has been achieved through retained earnings and debt reduction. Now noting these positive developments, a recent analyst credit report to describe DNO as a financial fortress, which is not bad and kind of like that heading. But the main point to me is to focus on the importance of the flexibility and the robustness that we need and that our strong balance sheet that provides now. We are moving to the final slide and discussing the outlook for this year. And you should note here that until export restarts and the regularity of payment for past and ongoing oil sales is established. We will not be in a position to provide any updated projections of the full year Kurdistan production. We do expect a quick ramp-up of production once we are starting here, and we will revert with the revised guidance when the production has received. As discussed, we currently plan to reduce our operational spend in Kurdistan by around $50 million this year. this amount is split on CapEx by $14 million and OpEx by $10 million compared to our February guidance. On a group level, this would reduce our projected 2023 operational spend from the previous guidance of $640 million to a revised level of $590 million, split roughly with 1/3 on Kurdistan and 2/3 on the North Sea. The actual operational spend in Q1 was $156 million, and that was split about 50-50 on Kurdistan and the North Sea. As we look ahead for the North Sea, the projected production for this year remains at around 12,000 to 13,000 BOE per day. And we expect 3,500 barrels BOE per day from West Africa this year. We are-- otherwise we are pleased to announce today that we will pay a quarterly dividend of NOK 0.25 per share for the second quarter. That amounts to about the current rates, about $23 million in total. Now this will complete the use of the NOK 1 per share dividend authorization that we had from the last year's AGM. For the upcoming AGM at the end of this month, the Board is seeking authorization to cancel the 7.5% shares of the shares we hold in treasury. That's about 79.4 million treasury shares and seeking to handle those, and this can come basically from the share buyback program that we completed earlier this year. The Board will also be seeking authorization to continue shareholder distributions through dividends and maybe share buybacks also on a discretionary basis. So I think that wraps up the presentation part you said. And then I guess we hand over to you again to open up for the Q&A.
Yes. I don't see any questions yet, but people eager to have a comment from people in the or encouraged to ask. So Teodor are taking the challenge. So I will have to unmute you and I think you can now unmute yourself already.
So can you hear me? Perfect. Thanks for keeping questions. I have many questions, but I think I'll limit myself to 2, 3 now. And first part is just the pipeline situation. Just wonder, of course, we are all curious about what we actually know about the situation? How is the dialogue with the parties there? And do you have any kind of expectations of when you will see oil flowing again through the pipeline? So that's the first question. Second question is related to the strong balance sheet that you alluded to on you are now currently 35% net cash. We have a market cap, which is very strong. What do you plan to do with this cash and what will be the long-term gearing target for DNO -- and final question, that is on the area or the Troll-Gjøa area NCS. Can you say anything about the timeline for for development of the discoveries you made there.
Good. Thank you, Teodor. Bijan you please to address the first important question.
Yes. First, good afternoon to everyone on the call. I think there are some not in the European time zone in the United States and elsewhere, so perhaps it's good morning to them. But we appreciate all of you who have joined us. I think we have 120, 130 people on this call and a number of the names I recognize as individuals or shareholders or follow the company or our analysts. And so welcome to all of you. I'm not surprised here our first question has to do with the pipeline. The pipeline issue has been on not just on the minds of the companies operating in Kurdistan and the players in the region, but it's become a global issue that's been regularly reported on. It's more or more most reported, I think, developments in the Kurdistan oil story in the past 10 years or so. I don't have an answer yet or I don't think anyone does as to when the pipeline will reopen. I think everyone agrees the pipeline will reopen. You can't keep 400,000 barrels a day of production off the market. And this production is now, as you know, very desirable because it's an unusual development given all that's going on in the world oil market and limits and directional shifts in Russian exports. We have a situation in which a heavier sour crude is quite desirable now and is trading at a premium to its historic levels relative to lighter sweeter crudes. So this crude, it is not just a question of the volume that's off the market right now, but the quality and nature of the crude and there are refineries that are looking for the Kurdistan blend that we have been exporting as companies as DNO, importantly, through Turkey. So there's a lot of attention being paid to this. There are a lot of moving parts, as you know, several countries are involved and engaged in various parts of this. Traders are involved, producers are involved, the Iraqi budget is in play in terms of is the -- its contribution to Kurdistan. Kurdistan's own. Of course, issues are very much fate setter for the Kurdistan regional government as they are for the operators, there are consuming governments involved in trying to move this along. Turkey's very importantly involved, and these moving parts aren't always moving in the same direction. And there are -- there are different considerations, different challenges and different points of view, all of which has complicated this situation. The companies have not been engaged directly in any of these discussions, although indirectly, we certainly have been because we are impacted very much by these developments. And with the first run-up in oil prices falling the pipeline shut off, all other companies around the world benefited the only companies that were impacted negatively were the current players whose cutoff in production have contributed to the runoff in oil prices and still bollard prices globally to some important extent. But we've used this time and certainly, DNO used the time to continue during the first quarter, as Haakon mentioned, more workovers, more drilling. We -- the wells we're already drilling and the work we're doing, we decided to continue and complete and to be ready when the exports resume. So -- but beyond that, it's really made no sense for us to keep investing and retires that preserve our balance sheets and our ability to do more with what DNO has, as you've mentioned, a strong balance sheet and looking at other opportunities as we other companies always are on the look for such opportunity. So it's -- what we're doing is makes sense. And I think at the end of the -- this process and the pipeline will reopen, exports will move that -- and our production -- initial production will be higher, presumably because the wells have given a long-deserved rest at Tawke and Peshkabir. So we should have higher flush production initiating some period of time. We don't really know when that -- the volumes involved. But I think we're doing the right things and makes sense operationally and commercially and otherwise, to act as we do. Now what will get the pipeline started up again, as I've said, there are a number of considerations. And one of them importantly is the election in Turkey that is scheduled, the presidential election on the 14th of May with a possible runoff, if required a week or so later, I noticed when I got on this call that there's a lot of red behind me. It's a coincidence, but the red is the color of the great Republic of Turkey, Turkey, so that maybe as a reminder that the importance of Turkey and the Turkish election and the timing of the pipeline. So that's an important consideration. But I don't pretend this and we know exactly what will open the line and when. I don't think anyone knows, but we all know it will happen, and we're positioning ourselves for that. So that's all I can say, and that's, I think, all anyone can say, there's been a lot of speculation in the last month or so, it's going to open 3 days from now, the traders are involved. They're reach an agreement. This has been done. That's been done. -- we felt that it will take much more and it takes a longer period of time for all this sort itself out. But it will happen because 400,000 barrels a day is a lot of oil for the market. It's a lot of oil stricter company. There's a lot of oil for Iraq, certainly very Kurdistan. But they'll take it to patients. But this is deferred production. We have, I think, about 300,000 barrels of oil in storage that we can put in the market pretty quickly. We've said it's important for us as these issues are unraveled and resolved that the normalization of the oil sector in Kurdistan continue, and that will be a positive sign that if the discount for Turkish oil disappears because is viewed as politically and legally less problematic to certain buyers and some of those buyers have taken advantage to really push down prices. We should see higher prices for the crude that will be very positive. Hopefully, it will be more transparency in terms of volumes and value, and that's very important to us. DNO as a company and to other players in the industry as well. So I think out of all of this will come, hopefully, a somewhat more normalized oil industry and with greater values and better, I think, ability on our part to anticipate what we need to do as a company as investors and to benefit from the great value we have created over the ove rmany years as DNO in Kurdistan and we get more cash into the company. The level of arrears for the companies as a whole, I think are $1 billion give and take for DNO, it's about 1/3 of that. So it's a substantial amount of money, and we'd like to see that come into the system -- into our system and through our coffers onto our balance sheet, they make a big difference for us. Obviously, it's a lot of money. And moving forward, if there's better regularity of payments and higher value to the oil that will even strengthen DNO even further, at least with respect to our Kurdish operations. Our Kurdish operations are very important to us, but we're one of the few companies active in Kurdistan that has these other 2 legs that we're developing on, of course, in Norway, our home country, the other in West Africa, where we've taken a position and are looking for other opportunities to grow that position. So while this is a disappointment and there's been -- we'll have a weaker second quarter than we would like. I think out of all this will come out a stronger company and with stronger position in Kurdistan, again, coming out of the normalization. But at this point, that's all I can say. And we're waiting to see what happens next in the meantime, where we're positioning ourselves to hit the ground running when the opportunity finally arises that could be a week or two. It may be impacted by the results of the election in Turkey and no one knows. I think everyone has 1 or 2 pieces of the puzzle that they control or being with but the whole puzzle itself. It involves a lot of players and things will have to come together for it to happen.
Okay. If I could comment on the second question then, Teodor. You asked about the balance sheet and the cash position and why -- how we would use that going forward, I believe. Obviously, we are focused on handing a strong balance sheet, as I commented on the one I spoke here on the slides. And is proved to be important in the past that we do have a very solid robustness in the company for unforeseen risks or happenings that we should be having adequate protection in terms of extra cash to meet those situations like we're doing at the moment. But with the level of cash we have now, there is obviously a flexibility to do other things. We are committed to maintaining a good dividend program, and we are asking the -- the Board is asking the AGM at the end of the month to give more of an open authorization on dividends than we've had in the past. We have typically had sort of a fixed coronary amount per share that we can operate within for dividends. We are now going to a more normal industry practice that you sort of open up for a bit more flexibility and discretion on the board level to assess what the dividend level should be. But there will be a continuation of the dividend program as one of the elements of the use of cash. If you think back on the last 12 months, we have basically used around, say, $100 million to pay dividends in DNO. And we have bought back shares just over $50 million. So actually, we have been pretty active on distributing back to our shareholders with that sort of amount, $150 million in total. So whether we do the same thing in the coming 12 months, that's again more discretionary up now to the Board if the authorization is given by the shareholders. Otherwise, we are also focusing on organic growth in DNO through our exploration program with the success now. We'll continue that. We've been saying $120 million to $150 million sold per year in exploration expenditures in the North Sea, mostly in Norway. So I would assume that we will continue that sort of active exploration program with support from our balance sheet. We are in several discoveries now that will be developed over the next few years. So there will be a lot of development CapEx to be funded as well. So many good uses for our cash balances, of course. We have said many times, we are looking for adding a new production quite quickly, especially in the North Sea. So M&A is high on our priority list. And we also now have had a new region to our business with the acquisition of the position in Côte d'Ivoire in West Africa. So West Africa is also an area that we are looking at actively now for business opportunities. So we have some debt maturities coming up next year for our bond bot. We will deal with that, of course. And so those would be some of the things I can think of that we would be having use of our cash. When you think about the Norwegian tax system, of course, a lot of the exploration and development spending will be coming back as tax returns, but you need to fund those in the meantime. And the bank's side is less interested in stepping up for some of those financing than they used to be in the past. So more of that will actually be carried by companies like DNO than we used to do with the more available bank financing in previous years. So all in orders, there's a lot of good news in here, but the main point also is to, as I said, maintained a very solid, good financial strength. Will show you're ahead of the game and that you can meet foreseen situations like we have at the moment. I think your third question was on -- was it the Troll-Gjøa area?
Yes, that's correct. Potential developments in the frontier.
Bijan if you want, I'll just give it a go and you can add as I go along. As you know, Troll-Gjøa is a very important area now with several good discoveries over the last years. I think the gross discoveries are around 400 million barrels or so, which is very significant spread across several licenses. And we have Equinor as the actually the operator across the whole area, and it's a priority for them to develop all these discoveries. And as such, it's working closely with Equinor on those discussions on how do we develop these things. We also have the host operators at Troll Europe actually a part in exploration here. And of course, there could be joint development programs with these other companies as well. I think some of the communication there has been that we start development over the next years and target production by the end of the decade, late 2020. So this would be a very important addition to our organic growth program then with the several discoveries we are now participating in. So all in, this is really an a lot of value, I think, to all the companies in this area and to the NCS. So certainly a high priority to develop through this area of Western Troll Europe. So with an alignment, it looks like now very closely aligning with the several companies that are active. I think I don't see any real impediment for a start-up of joint development studies and continued discussions on these and basically getting a field development area development program put together by the various companies that are actively here as participants and operators. So very happy with the position that we have. We have acquired our positions here to efforts by exploration at the DNO back in 2017. So they saw potential here early on, and we have also been building through farm-ins and through the government license awards in the area. So I think the team has said that foresight and thought that this could be a very interesting area, which is basically materialized. One of the most important areas now along the Norwegian continental shelf. So we do want to do more here, and we are, as I said, looking forward to the remaining 5 wells that we have in the Troll-Gjøa area for the rest of this year. And if you see more discoveries coming along, that will, of course, add further to our incentives to develop this together with the other companies. So I think I just want to say this is a very strong addition to the valuation of our assets and the value of the company as such.
Let me just add a word to what Haakon said. Of course, I endorse everything that he said. But just wanted to add from my perspective, perspective of our shareholders, including our largest shareholders or region or otherwise. So we're pleased to have been welcomed back to Norway in the sense of open arms. We're in Norway, as many of you may know, oldest continuously active oil and gas company, the first one to be on the list on the -- also Stock Exchange. The company moved overseas quite a bit and successfully in Yemen in Kurdistan, but they made the decision to pivot back to Norway. And we've been welcome back and we've become quite active. We bought back some of the lessons we learned, operating overseas, nimbleness, quickness of decision-making. A focus on what we do through perhaps a somewhat different lens. And I think we're seeing the success of that approach now. And we're one of the most active explorers in Norway today. I was -- as we looked at the material ahead of this presentation, I think DNO is participating in over 30% of all the well expression wells being drilled in Norway this year. That's pretty significant. We have a piece of, I think, about 1/3 of the wells that are being -- expresses are drilled. So that's a very, very -- from an acquisition of no activity several years ago. So this kind of activity, I think, shows our both our commitment, our interest, but it also shows we've been walking back home in a sense, both by the ministry, governmental authorities and by partners, and we're pleased to be in a position we're in, and we'll continue with our current strategy of near infrastructure, lower risk drilling but an active -- very active drilling program to create value.
I believe the next question comes from Alex of Goodman stacks, I believe. Alex, you have to meet yourself
So as a disclaimer, I'm a credit investor, and so my 2 questions pretty much focused on the downside. So apologies for them not being fascinating. So firstly, probably Haakon, I wanted to check with you about the CapEx and OpEx outlook on Slide 9. So I wonder what assumptions on Kurdistan production, do you plug into that bar on the right for Q2, Q4? And how do you think it may look like if production remains suspended until the end of the year? And my second is on the balance sheet, just following up to the previous discussion. Is there any level or threshold in terms of net cash position or any other metric you may think of where you would think about suspension of dividends and share buyback in addition to CapEx, you've already announced to preserve the balance sheet quality. Again, assuming that Kurdistan remains disrupted growth.
Yes. Okay. The first question was on what kind of production levels we have on that spending graph that we have up on the screen now. Alex, was that...
Yes. Yes. So this slide is 430, I'm wondering just how -- yes what sort of production assumption for Kurdistan you have there and what it would look like if Kurdistan remains shut.
Well, think we've been very careful there. This is sort of a low scenario for us, basically limits very little production in this period going forward. On that assumption here, if we see that we are opened up again, we'll probably maybe then revise some of the spending finance for this year and increase them about what you see here. So the answer to that question is not a given of a number of as per day, but this is more of a prudent downside case that we can manage very well with what we have in resources. And then if there is -- as we assume a quick start-up, then we will then -- and we have a sort of visibility on how we get paid on areas and on the ongoing deliveries, then we can carefully ramp up their spending plans again. What you have seen in the past is our ability to be very flexible on the spend levels. You see that we are taking pretty good measures now in adding 4 large weeks to go off contract. And we can then look at getting some of these rigs back later on as we are ready to use them again. And we also have other things we can do to reduce our cash out in Kurdistan if this is going to take longer than anticipated with the shutdown. But this is really a program that also is focused mostly on the North Sea. When you look at the 590, about 1/3 of that is Kurdistan 2/3 is the North Sea. So in this plan for the year, full year, it's about 200 for Kurdistan that we have scaled them down to. So it shows that we can take it down quickly, as I said already. So the answer is basically lower low production in that scenario that it can come up again once we see that we can get paid and that we can export again. The second question on -- I thought it was something about the balance sheet and the minimum cash that we would need at any time. Yes, we have a sort of an internal level. We won't communicate so much on exactly where that is, but we have a conservative assumption that once you get to below a certain level of cash balance in really available bank deposits, so then we would scale back even further, but it would be a fairly conservative level that we would have as a real good cash closing to have at any time. But I think that number has been going up and down a bit internally. So I want to go out and say exactly where we are at the moment. But rest assured, again, that we are very conservative in our financial approach, we do want to have a good balance sheet, and we are actively taking cost-cutting measures and be wherever we can, if it's needed, and we've done that in the past several times. And then we can ramp up again quickly once we have the opportunity to go ahead. So if you look back at DNO's history over the last many years, you can see that we have been very, very proactive in managing challenging situations. And then also when we see the opportunity set going our way again, then we can ramp up. So this is the way we have been operating with, I would say, a good track record over many years now. So I think I'll leave it at that more general discussion.
Then we have an older friend here, Nikolas Stefanou, I'll allow your mic, so you'll have to unmute yourself.
Gentlemen, it's Nick Stefan from Renaissance. It's been a while since we chat. I have 2 questions to ask you. The first one is, I guess, kind of like upside the second, I'm really sure. So now that the same will kind of like be the entity that will market the crude in Kurdistan. Should we be thinking potentially in the future in new pricing form for you that you might have higher realizations I mean, because what I'm assuming now is that someone might be able to sell Kurdistan, I would say, at kind of like more closer to brand realization special what they were selling. So that's the first question. And then the second one, if I kind of like think of the subsurface, I mean, reality of Kurdistan and more specifically, fractures reservoirs, where what we want to see is kind of like the fractures, the metrics charging the fractures when -- I mean when there's not so much production, which is the case now. I'm just wondering what kind of like response would be seeing from the reservoir, maybe on a 2, 3 months' time or maybe even before that, if there's not going to be mean production and there's going to be some charging from the metrics. I just want to kind of like get an idea of the disposables we should be seeing in production.
Let me tackle those as best I can. First, on the SOMO issue. You're absolutely right. SOMO in its own sales historically has had greater realizations. And then Kurdistan has had for the reasons related to, as I mentioned, the legal and the political risk that certain buyers thought that Kurdistan oil represented, although that was probably carried to a bit of an extreme, and there's a lot of money made by traders trading Kurdistan oil. And one of the reasons perhaps at several wants to be more involved is to sort of manage the whole process. So there isn't a lot of disconnect between the same crude being sold by different sellers. But we fully expect that the SOMO prices, if the current plans, as -- have discussed fall into place will mean higher prices for the crude and how that price is then shared between the companies and the other players remains to be seen, but I fully expect that we will see higher realizations and that's a positive. But we have not been involved in those discussions at this point. I expect at some point, we will be. But we view that as positive not just in terms of realizations, but as part of this larger normalization of the oil industry in Kurdistan. So all that's positive. With respect to how the fields respond after this rest period online the rest period is. As I mentioned, it's likely that there will be some flush production coming even we don't know the exact amount of it. I think the theory, as you described it is correct. I would expect that some of these-- some of the oil that's not been produced will leave us with higher production rates should we decide to open up the wells or fully will have, we have some discretion as to how much production we are part of the market. And some of that discretion is driven by the arrangements, the pricing, the transparency, the payments of our arrears and payments are moving forward, regular payments. So we have some say in that and how that is done. We want to make sure we don't damage the -- any particular wells or reservoir. But I think the expectation at decent theory is that there will be initially for some period of time. It could be days, it could be weeks, there'll be additional oil available or should we want to pull it down. Now some oil may go off in some other directions that we may not be as easy to tap. But on balance, I would think that our ability to put more oil in the markets is greater once we open up and how incentivized we are to do that and how hard we want to pull will depend in part on how successfully we're able to monetize that crude and those decisions be made by us and also by force by our partner, Genel Energy, that is our partner in the Peshkabir and Tawke fields. So that's a conversation to have. At this point, again, it's -- maybe it's not the priority issue we're concerned with, but we'll have to face that decision at the right time.
Okay. I think -- well, we have questions from 2 people. That will be the last ones, I think. First, Tom at Pareto Securities, he had some problems with sound on his computer, so he sent me a text message. And the first one -- first question might be partly covered already, but I'll read it to you. Is there a risk of reservoir damage due to the shut-in? Or is this only a positive for the field in terms of pressure buildup in supporting initial production was resumed. Do you expect to be able to resume production in line with previous levels? Or will it take some time to get back to the 100,000 barrels a day? And then our new one is post resumed question exports, what do you need to see on the payment side from the KRG before you will increase activity to previous levels? Will this be a gradual process with a track record of several payments needed? Or do you expect to lift investments to the previous level immediately?
I think the first part of that question we've already addressed. And there's some uncertainty because this is all things that are happening in the reservoirs and the wells below ground. And then we have less visibility of what happens below ground than we do what happens above ground where we do have a bit more discretion. So the second question is, of course, more important one. We see this as an opportunity to create greater transparency in marketing arrangements and payments and more predictability in payments, the transparency in pricing towards the normalization of the industry in Kurdistan, which short, medium and long term is in everyone's interest, both Kurdistan's Iraq overall, our interest probably as well as Turkey to the extent Turkey has an important role in the movement of these crudes. So we don't end up with these situations where that created this problem in the first place, the arbitration, and that was results where were announced in March, leading to the shutdown as those issues have to be resolved. So above ground, we'd like to see normalization. Normalization means largest transparency of arrangements and pricing and costs. But the payments according to the production sharing contracts that we have, we have -- we and the other oil companies have proven sharing contracts, of course, with very strong rights and Latitude, we have a SOMO as part of these discussions. As we understand it, we'll be involved in the loadings at Ceyhan in Turkey and the Mediterranean. The companies under the contract are free to sell to whomever they want under whatever arrangements we wish to make. And there's a time when the pipeline was closed the ICS period, we were selling into the local markets, the local small refineries, topping plants. While they were small, some of them only a few thousand barrels a day, Denawas putting 120,000 barrels a day into the local markets. and it was cash and carry. It shows the 2 cases of cash or currency in Dubai or in the field, and we deliver the oil. So those opportunities are still embedded in our contractual rights and are a fallback. We haven't gone that route yet because we expect this issue resolved and the best pricing and the best netbacks, the net price at the wellhead will be highest in a sale through Turkey, to Ceyhan at some prices than it would be if we truck this oil long distance. But if the pipeline issues aren't addressed and resolved, we have alternatives or will flow to refineries. It's like water going downhill, water flows down mill, they'll find its way down, and our oil will find its way to market. But the DNO and the companies will be patient. Issues to sort themselves out. We think they will sort themselves out in good time and good order and end up in a better result for us. But if we're still sitting here 3 months from now and then there's no agreement on how the order is going to be moving, then that means we've -- we haven't been doing our job and finding another way to move the oil, and we will fund it other to move the oil. This is not the first time we've had this situation. I think Haakon referred to that in Kurdistan. A number of times for the new challenges when I first began 10 years ago, the question that everyone's mind was, how will the PSC survive? Will they need to be converted to the technical services agreements and you go with the oil, and what are you going to do and how do you get paid? And I always said that I have full confidence that we ultimately will get paid in Kurdistan. We have every time one way or the other, we get and paid the last time the areas were paid importantly by taking on the government's share 20% share of the Tawke license. We've proved that to be, I think, a good move both of the governments. They didn't have to be out of cash and improve the right move for us. We had more production and better pricing and ended up with a better result than had we gotten the cash at that point. So I'm confident these issues will sort themselves out. This time, it's a bit more complicated because more countries are involved because the arbitration on the politics, the election in Turkey and less come back in Kurdistan, it's a bit more complicated. But at the end of the day, I think these issues resolve themselves. It's in everyone's interest. We're talking about a lot of oil, a lot of money, not just to the immediate players, but to the global markets, and the dynamics of markets and politics and economics and the industry will not allow this oil to sit there. And definitely, we will make all that that happen. Shouldn't know we have a duty under the PSC to move the oil. So it's not just a right -- in the sense it's an obligation. We'll make it happen. The timing, though, will have to be a bit more -- as a company, we're being more patient about let issues sort themselves out if their dug is sort out, well, take it more involved.
Last question, I believe, is from Sander Solheim Nielsen of Fernley Securities. So Sander, please go ahead.
Yes. Two quick questions. First one, partially answered, but could we potentially see NSS projects mature into investment decision this year. So either in the Troll-Gjøa or potentially Røver Sør? The second question is how we should look at North Sea production for the remainder of the year. So in light of the first quarter production, the full year guidance now seems somewhat conservative. Can you please give a comment on that.
Yes. Was the question, Sander on investment decision on either the Troll area and possibly Røver Sør end of this year? Well, that will get that as quickly as of the end of this year. I can speak to this on the Brussel discussions. We are having a very good cooperation with LTR now. DNO is the operator on we are exploring and going with the potential build-out towards the Brage area now with OC. We think this has been a very good discussion fruitful discussion. And there will be, I think, some sort of decision points along the summer whether we proceed with the plan share. But I would think that is maybe a bit too optimistic or early to think it will have a full investment decision. There will be some decision gates along the way before we get there. but have a lot of good alternative discussions on how do we do this differently from a previous thinking. And I think we've seen some good progress made on that, but I cannot really commit to that we will have a decision by the end of this year. As for the other big area, that's, I think, also a bit too early to expect investment decision by the end of 2023. There's a lot of parties involved and they're big investments and things to be, I think, more mature before we can get to that point. Also this from DNO point of view, clearly that the operator almost many of these licenses, Equinor has a more aggressive plan, but we -- at least I -- without speaking for the operator, I wouldn't think that, that would be possible by the end of this year. But then referring to the appropriate operators to discuss with them what the possibilities are in with that question. So I think I'll end that as for now.
Okay. With that, we've been talking for more than an hour. So I guess, the interest out there is big. And if there are some press questions and so on, I think we can deal with that afterwards. So with that, I think we'll close this meeting, and thanks for participating, and see you again later. Thank you, everybody.