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Earnings Call Transcript 2024-Q1

[Jostein Løvås, executive]

Good afternoon, and welcome to DNO's First Quarter 2024 Earnings Call. My name is Jostein Lovas, and I am Head of communication here at DNO.The plan for today's call is to start with a brief presentation, which will be held by DNO's Managing Director, Chris Spencer; and our CFO, Haakon Sandborg. After the presentation, we will open up for questions in the Q&A session, where our Executive Chairman, Bijan Mossavar-Rahmani, will be available to take your questions. Please note that the Q&A session is for investors and analysts and any media requests will be dealt with separately. [Operator Instructions]And with that, let's start the presentation. I hand over to Chris.

[Christopher Spencer, executive]

Thank you very much, Jostein, and good afternoon to everyone from Oslo. It's my pleasure to be here today to talk you through our Q1 2024 annual release and subsequent events. I have the pleasure of presenting this quarter because I think it's a great quarter in terms of illustrating the value creation that we aim to achieve in DNO. As we've said many times that value creation is based on a low-cost production combined with our effective growth prospects, both in terms of organic portfolio development and inorganic through acquisitions. And all of those elements are at play in the slides ahead. And that in turn allows us to return some of the value created to our shareholders by continuing our dividend program.So let's move into the first slide, Jostein. One back, please. So if we look back at Q1, then on the back of the ramping up of production in Kurdistan and the similar production in the North Sea, we had strong revenues. And in the -- in our flagship Tawke license, we're pretty much back to where we were before the Iraq-Turkiye pipeline shutdown.And we've discussed in these quarters, we are selling into the local market there at the moment. We continue to push hard on our buyers and we've now managed to get prices into the upper 30s. But importantly, we're still selling what we call on a cash-and-carry basis. So we receive payment prior to delivery of the oil. And now, the vast majority of those payments have made to us in international bank accounts.On the North Sea Side, our exploration story continues with the -- another very strong performance in the APA round. I think we touched on that in the previous quarter. This is now all done and dusted and officially awarded. Hence, it appears again. But importantly, we've made great steps so far in 2024 on rebalancing North Sea portfolio through 2 bolt-on acquisitions, one of which was announced just this morning.And we will through that add more than about 12 million barrels of oil equivalent in terms of reserves and resources. And importantly, they contribute immediately to the production, and therefore, the cash flow of the company. We're looking at probably around the 5,000 mark this year. But the nature of the 2 transactions, we'll actually see that increasing a bit over the next couple of years. And we'll come back to that on the next slide.As I mentioned, the strength of the operational performance, our growth prospects and the very strong balance sheet that we still maintain, that Haakon will describe in his statement, has allowed the Board to maintain the dividend unchanged.If we move on then to the next slide, please. Fresh news out this morning. We're very, very pleased with another bolt-on. We announced, of course, the bolt-on in the U.K. earlier in the year, and we're pleased now that we've been able to add some production in the Norwegian sector.And most particularly, we're very happy because it's giving us a new core area. We had a presence in this area already with the Marulk and Alve licenses, and our license includes our ongoing Andvare development. We've now been able to pick up from Var Energi the other producing and under development fields in this area, and an interest in the Norne field and FPSO hub itself, which is obviously critical for further development of the area. This is, therefore, now a core area for us in DNO, and we obviously see good potential remaining, which is why we chose to make this acquisition.In addition to that, we hastened -- it's a nice production profile because the Verdande field will be coming on stream in late 2025. And so we have -- we're expecting about 3,000 barrels of oil equivalent per day this year, but it will actually be increasing over the next couple of years as that project comes in.Finally, as anyone who follows our adventure in the North Sea knows, we've had great success on the exploration side. And we've now moved, as I'll talk to you on the next slide, our third project into the development phase. And so this add-on production obviously generates financial synergies as we move forward and also should give our Board and the market generally more confidence that we could fully finance our development program and reap the value from our exploration success.Jostein, next slide, please. Then we've spent quite some time in recent quarters on the exploration side of our business, and we're still very active in that area. But the recent milestone in our organic growth portfolio is the final investment decision amongst the partners on what used to be called Brasse and which will now be called Bestla. Brasse has been a long journey for us, and so we're very, very pleased to finally have found a commercially attractive route to development for the field.And what is interesting to us is that the collaboration and cooperation that we've achieved with the operator and the host has in my mind been instrumental in opening this up. DNO has been very active on Brasse for a number of years. And we are finally through a very collaborative relationship with the operator of Brage, the new operator of Brage, okay, been able to come up with a commercially attractive solution.There's also been good alignment with other partners in the area, and you've seen a couple of those come into Brasse/Brestla. And I have to get used to calling it with minority interests. And certainly, that alignment in the partnership has also helped us get to the point we are at today. So now we're looking forward to the ministry approval and getting into the project execution phase and seeing first production from Bestla in 2 or 3 years' time, H1 2027, 3 years' time.As I said at the top of the slide, we're not to put our exploration efforts in the shadow. We had an appraisal well during the first quarter, which we confirmed Brage volumes. We thought we've discovered at the Heisenberg discovery and tested the deeper prospect at Hummer. And we are currently drilling at the Cuvette well, which is also in the Troll-Gjoa area. And we have 5 more wells to come this year. So there will be plenty more news on that front.I think with that, I'm turning over to Hookan to take us through the numbers.

[Haakon Sandborg, executive]

Good. Thank you, Chris. Yes. Hello, everyone, and welcome again to our first quarter earnings call. We are looking at the financial review now and start with these key P&L results for Q1 2024. Yes, in the middle here. We compare those mostly to the previous quarter, the fourth quarterStarting with the revenues, I think that was noted already. We achieved a higher net production in Kurdistan in Q1. And the key reason for that was that the Peshkabir field was in full production for the whole quarter. And still, our net entitlement production dropped under our production sharing contract as the carryforward cost pool was fully utilized during the first quarter under our Tawke production sharing contract. So the lower entitlement volumes in turn led to the $21 million drop in revenue from Kurdistan in the quarter.Our North Sea production was reduced in Q1, mainly due to lower uptime on the Marulk and Alve gas fields, but the sales volumes were still up on higher lifted volumes. And this provided a $5 million increase in revenues from the North Sea in this quarter. So in total, group revenues were thereby down by $16 million in the first quarter.Now for the cost in this quarter, we had lower depreciation in Kurdistan due to lower entitlement volumes. And other expenses are also down in Q1, including expenses for exploration and impairment charges. So mainly due to the lower cost, we thereby show an increase in operating profit of $23 million to a level of $61 million in this first quarter.As we move down further on the P&L statement, net finance expenses are also reduced from Q4. And this is mainly due to the lower interest expense following the buyback of our DNO03 bound in January this year, while tax expenses increased on higher taxable profits. But all in, net income, thereby, increased by $13 million to $17 million in Q1.Go to next, please. Moving now to the cash flow. And operational cash flow came in at $100 million. That's a good round number, I think. And that was up $7 million from Q4 last year. This cash flow of Q1 was net of $10 million in negative working capital adjustments. And these in turn were mainly driven by a decrease in payables and accruals, mostly in the North Sea. There were no NCS or Norwegian Continental Shelf tax payments or refunds in the first quarter, and we don't expect any or we don't see any in the second quarter either.Likewise, we don't expect any NCS tax payments in the second half of this year due to higher exploration expenditures and CapEx through 2024. We had a drop in our net investments by $18 million in Q1 to $51 million, and that was net of including $4 million in cash inflow from Cote d'Ivoire. The main investments in this quarter included a CapEx of $36 million, primarily on North Sea developments, and also North Sea exploration expenditures of $18 million.Finance cash outflow was $162 million. That was primarily covering $131 million of the buyback of the DNO03 bond and also dividend payments of $23 million in this quarter. Our free cash flow, which is mainly operational cash flow, less CapEx and decomm, came in at $44 million, up $11 million from Q4. So all in, our cash balances were reduced by $111 million in Q1, mostly due to the bond buyback.To the balance sheet. You see that our balance sheet strength is very much intact with high cash balances of $606 million, and we have a net cash position of $171 million at the end of the first quarter. We're also certainly pleased to see an increase in the equity ratio in the quarter, reaching now a strong level of 49% at the end of Q1. It should be noted here that we, since year-end 2021, strengthened our financial position significantly through debt reductions of $450 million in this period, while we had dividend payments and share buybacks totaling $270 million since year-end 2021.So with the debt reduction and in addition to higher retained earnings in this period, our equity ratio has increased from 35% at the year-end 2021 to the current strong level of 49%. And on this basis, we absolutely remain in very good shape with our current capital structure.I think I'll now end the financial discussion. And back to you, Chris.

[Christopher Spencer, executive]

Thanks, Haakon. And very impressive when you put that 3-year perspective slide. Thank you. Just before we go into Q&A, as usual, a few comments as we start to look ahead. We can't have a presentation without discussing the hope for the reopening of the export pipeline from the Kurdistan region. I haven't touched on that much so far, but clearly, it's very, very important to DNO. It would double our revenue from the region if that were to happen, and therefore, we do spend a lot of time and energy on that. We'll engage directly with the governments involved and also, obviously, with peer companies. And we are, again, hopeful that the announced meetings between [indiscernible], the 2 ministries, this week can give a new injection of energy into those [ options ].Notwithstanding the fact that we're on local sales. Clearly, that market has stabilized. We have reliable income and positive cash flow because of all our production costs. So we have tentatively started to reinvest. We had 3 wells that we just stopped drilling quite abruptly at safe points last year when I think it shut. We're going back to -- we can keep those and stimulate them and bring them on stream.And then the major investment from DNO into the region at the moment, as we've described in previous quarters, is the Baeshiqa 3 well, which is the operation on the Baeshiqa license and is a commitment well as part of the development plan there.On the North Sea, we continue to work, as we've been talking about in this presentation. We will continue to work on adding value through the drill bit and the acquisitions. And of course, the drill bit is sort of euphemistic for exploration and development. And we've seen good milestones on both those areas in the past quarter and there's more to come.So summing up, we still -- we like to think ourselves as a bold and nimble international oil, gas company. We're into our second half century, our second semi-centenarian. And I'll finish as I started by pointing to the value creation that we have based on our low-cost production and successful exploration and attractive growth prospects, supported by the robust balance sheet that Hookan has described that enables us to provide what I think is attractive value distribution to our shareholders, which, as it says, ultimately ranks highest for us and -- as they should for any listed company. Thank you.

[Jostein Løvås, executive]

Okay. Thank you, Chris and Haakon, for the presentation. I think we are then ready to start the Q&A session.

[Jostein Løvås, executive]

And let me see. Some of you have already raised your hands. I think the first question goes Teodor Sveen-Nilsen. Please remember to unused yourself.

[Teodor Nilsen, analyst]

Three questions. First on the acquired assets, which looks like a very reasonable deal from your point of view. I just wonder, will that be immediately free cash flow accretive? And second question, that is a further M&A. How do you think around the cost of capital for assets on the Norwegian Continental Shelf compared to other jurisdictions you have assets in?And third question, that is on the pipeline. As you said, Chris, you didn't discuss that too much in the presentation. Of course, I acknowledge the fact that it's extremely difficult to predict anything what will happen going forward. But I just wonder, what have you seen in terms of progress since we last met at the fourth quarter presentation 3 months ago?

[Christopher Spencer, executive]

Maybe I'll take the first -- the last question first, and then hand over to Haakon for the financial questions on the acquisition. So, over the last 3 months, what's been happening on the pipeline. I would say when we look back, there have been -- we thought that there was an important agreement between Baghdad and maybe on some of the technicalities around the budget law. At one point, that wasn't a complete solution but was maybe one piece of the puzzle. They went quiet.And then I think that on the back of the Prime Minister of Iraq's trip to the U.S., there have been some renewed energy. Perhaps it was that, perhaps it was other one from Turkey's visit to Baghdad. Difficult to really put cause and effect together, but it seems that there is a new initiative that's been launched by Ministry of Oil in Baghdad, which they talked about in the press having 2 committees to try to revolve the issues between them and Erbil, and the reportedly meeting this week in both the technical and commercial committees. So, we will see what happens. As you know, there have been lots of attempts to solve this over the past year. So I've given up speculating on when a resolution may come.

[Haakon Sandborg, executive]

Yes. Sorry, Teodor. We didn't hear you very well on the first 2 questions. Could you please repeat on those. We haven't gotten the volume circle correctly.

[Teodor Nilsen, analyst]

Yes. Sure. Absolutely. We'll do. So first question was on the acquired assets in North Sea. Question is, will those assets be immediately be free cash flow accretive? Or will there be more CapEx and operational cash flow over the next few quarters? That's the first question. And second question was on cost of capital. How do you assess the cost of capital for assets on Norwegian Continental Shelf compared to assets you have in other jurisdictions?

[Haakon Sandborg, executive]

Yes. On the first question, whether these acquired assets will be free cash flow positive. We have very yes on that. There will be some CapEx going in, so to that free cash flow number will, of course, move up again a bit through the years. In fact, we see free cash flow out of the assets from early on. So do you want to add to that, Chris?

[Christopher Spencer, executive]

Yes, agree.

[Haakon Sandborg, executive]

And I think your second question, Teodor, was on the cost of assets or the acquisition costs for the licenses or assets on the Northern Norwegian Continental Shelf relative to some of the other provinces that we are in. Is that right?

[Teodor Nilsen, analyst]

Well, unfortunately, it was more around the cost of capital when you assess M&A opportunities, how much higher risk do you assess to jurisdictions outside Norway compared to Norway, i.e., what's the spread of cost of capital Norway versus other jurisdictions?

[Haakon Sandborg, executive]

Right. Okay. Well, we work through our WACC model for the regions that we are in, and they will differ, as you point out, Teodor. So exactly what the difference would be, it could be 4% -- 3% to 4%, between what we typically apply in Norway and some of the other areas that we are in. So it depends a bit on the inputs to our WACC calculation, country risk, et cetera. So I would sort of point you in that direction on the level of what the difference will be.

[Christopher Spencer, executive]

That's a tough question. I mean, that's correctly answered from a financial point of view. But, Teodor, one aspect is jurisdiction and other aspect there is, are we talking about exploration, development, production? Are we talking about deepwater offshore where we have to say spend $1 billion before we get a new oil, or are we talking about Peshkabir where we have positive cash flow as soon as we bought the first well on stream? All of these things have vastly different risk profiles. And so, we add that to the jurisdictional risk when we were assessing projects.

[Bijan Mossavar-Rahmani, executive]

A couple of points from me. Teodor, as you know, it's not possible to get access to traditional sources of financing in Kurdistan because of the status of Kurdistan. So, there is a difference. And in the past when we have accessed financing, it's been typically through the Nordic bond markets, but traditional source of financing, they are not available in Kurdistan. So, it's not fully comparable to the range of options available in the North Sea and perhaps other areas.Secondly, on the issue of the pipeline reopening and our status in Kurdistan, I can say with some comfort that we're not in a terrible position in Kurdistan as we were when the pipeline first shut in. There was no market for local markets, "for crude from us" and from the other producers. But that market is not developed, and it's almost limitless in the sense that's an oil directly or in product form, find its way to global markets. What matters to us is that we are paid based on our contractual rights and the formula in hard currency outside of Kurdistan and before we agreed to load the tankers.This has not always been the case, as you know, and we approach sort of a $40 mark to the extent we actually paid that amount. And on delivery, that's worth $10, $20 a barrel to us and maybe even more. And $40,000 is not a bad price given our cost of production in Kurdistan.We prefer to have had all of the above, global prices, prompt payments, no arrears, et cetera, but that's never been the situation in Kurdistan for us or the other companies. Although we have said that when arrears build up, we have confidence that over time, we'll find a way to get those arrears paid to us. We did one of the big arear buildup occurred at the time of ISIS. And we got that more in terms of sort of contractual cancellation of certain obligations we had. We got by picking up a larger piece of the Tawke license, which turned out to be a very good deal for us. And I expect our arrears which are now probably just over $300 million, we'll get paid in some form of fashion.But in the meantime, we have an unlimited market for our production. We keep investing in Tawke, raising production. We're now averaging about 80,000 barrels a day. I hope we can get that up higher. We'll see how those wells that Chris referred to perform once completed. We're doing a lot of other workovers. We have other things in our inventory short-term, low-cost investments you're making to get production up. So we've managed to make up for the losses we incurred early in the process by having a reasonably robust revenue stream, cash stream coming out of Kurdistan. So it's manageable, and our financials are showing that now.

[Jostein Løvås, executive]

Okay. I believe the next question goes to Oyvind Hagen.

[Oyvind Hagen, analyst]

Adding to Bijan's comments on the local market. You are mentioning that the realized prices are up from yes, mid to low 30s to now high 30s. What is it that is driving this price increase? Is it the buyers that are now starting to compete more on price as volumes are reaching some sort of short-term maximum level? Or what is the driver here?

[Bijan Mossavar-Rahmani, executive]

Yes. It is about -- there's now more demand than there is supply. Before there was more supply than there's demand. And obviously, if the laws of supply and demand do work, there are buyers who prefer working with us because we're reliable. We have large volumes, and we've been a good partner for them in this process and vice versa. And we have our choice of buyers as well, and we have preferred buyers and they understand that as markets move in one director or the other, prices should be adjusted. And we're in a position to adjust them.There's, of course, also a dearth or a lack of sufficient volumes of heavier Iraqi blend crudes in the Mediterranean because the pipeline has been shut in for as long as it has been. So the market for these kinds of crudes is stronger. And it happens seasonally, or sometimes it respects market movements. So the buyers are making a lot of money on these trades. We like to see buyers make some money on the trades, but we don't like to leave extra dollars behind. So we have conversations with them and they understand. And when the markets move in the opposite direction where we move, and when they move in our direction, they move. So it's been a good relationship.And I think there's a large constituency now of buyers for our crude. And it has found its way again into the far, far, far reaches of the global oil trade. But it does take some discussion with them and explanation of our situation. And if we understand which we do now much better, what their economics look like, we can ask for a better split for us. And they know that if they don't concur, we have other options. My hope is that we will continue to move this price up because there still is money left on the table by us and we have a fair share of that.So I mean, it's -- even $40 a barrel isn't a bad price. There are times when oil companies would love to have had $40 a barrel for their crude. And the trade-off for us is somewhat lower prices in exchange for predictability and assurance of payments in dollars. So that's a pretty good trade for us. And we are taking quite a bit monthly, probably more than the market has realized from our Kurdistan operations. We reinvest some of it. We have to invest to keep production going, given the -- again, the nature of these fields and the natural field decline. But it doesn't take very much to invest to get attractive additional barrels out of the ground. So it's still -- in my mind, is still a very good business.There are political challenges and other challenges, the legal that have to be addressed. But in the meantime, we reached not unhappy equilibrium between the Kurdistan producers and the markets. And I think this is true probably of other companies as well, and we're in a special situation because we produce as much as we do. And my hope is that in the not-too-distant future, we'll get up to $40 and maybe push a little bit higher if unless there are major changes in the little market and that we can maintain 80% and maybe push that up a bit more. So we're pretty optimistic about that.

[Jostein Løvås, executive]

Anything else, Oyvind or you happy? Okay. Then I think we'll move on to Tom Erik Kristiansen.

[Tom Kristiansen, analyst]

Am I understanding it correct that you now, after earlier been kind of quite cautious on saying that local demand will fluctuate a bit over time, saying that you see it more steady and more established? So that's question 1. And then is there a scope now to, as this progresses sometimes move on to negotiate with the KRG to receive some of the receivables back or recover some of that on an ongoing basis in the near future? And then third and last question is on CapEx on the NCS. Can you touch a bit on where you expect that to go kind of this year, next year and 2026 on a profile basis given the development opportunities that you have in front of you?

[Bijan Mossavar-Rahmani, executive]

If you start with the first part of that, again, on Kurdistan, as I mentioned, the market for Kurdish oil is unlimited at the right price. We had -- the same issue came up during the ISIS period, where there were a lot of topping plants around in Kurdistan. And I'd be asked, "Well, how large is local demand then?" So local demand is not exactly the amount that's consumed in the local markets, but it's the amount of oil that local refiners, topping plants, refineries, traders can take and move and they can move that oil into the far reaches of the market, Singapore or other refineries.So, the demand is in that respect at the right price, unlimited at least for now, even though the topping plants were collected and shut down many years ago because they were dirty in terms of the very simple talking plants and skewed a lot of not just gases and other byproducts. So that's, I think, we're in a good place there.On the question of the arrears, last time around our arrears were approaching, I think, $1 billion, huge. And when the Kurdistan government was in a position to sit down and talk to us for a while they weren't, as they asked us to share in the pain of the ISIS attacks and lack of any revenues from Baghdad and we shared that. So when the situation turned around, they sat down and said well, what you want? Do you want cash? And we said no. And because if we get the cash, the best place to put it is in Kurdistan. And in Tawke, we had an arrangement where we had set certain parameters for the Tawke assumptions, $50 oil prices.But anyway. So we got the money back and then some. I expect there'll be a similar conversation -- if, hopefully, the Baeshiqa well comes in, there'll have to be some discussions with the government as to how best to proceed and under what terms. That could be a time to do some trades, cash for producing rights. Maybe that can be part of an extension of the Tawke license, which has been operating quite some time. So it will be hard for the government to come up with a cash to us and to the other producers, which I think approaches about $1 billion, because that money was used and it was their only source of revenues that they had at the time. It will be hard but not impossible, and maybe is part of a tripartite arrangement with Baghdad. There will be some resolution of that.But I'm certainly not worried, that, in due course, we'll find a solution that'll be fair or it will be fair and it'll turn out to be a win-win situation as it was last time. It has been painful for us. But now, we're comfortable that the money is coming directly to us and not going through that channel, where it can be blocked again if their needs -- the government's needs grow once again. If we're belt tightening, we've always expected them and told the government they've got to belt tighten too. It's not something that the governments want to do, but again -- and the importance of the oil companies needs, those are remaining in Kurdistan, that's to their economy and to their future.So it will sort itself out. And I think we've made the -- I mean, we've revisited the -- some of these contracts are quite complicated and they have a lot more going on. And we've been able to sort of claw back some monies towards the arrears, but not significant ones. That will have to be part of a different kind of negotiation. But in the meantime, cash coming out, I don't know how much we get. Chris and Haakon would -- so maybe $30 million a month or so coming out of Kurdistan. That's not -- as I say, that's not peanuts.

[Haakon Sandborg, executive]

Good. Then, was a question on CapEx for NCS from Tom Erik. He asked about '25 and '26. Well, we haven't really guided much from those years in detail as of yet. This year, we have provided a CapEx number for Norway and for the North Sea around $175 million, which was given in our February Q4 update. As we look at standard developments for 2025 and 2026, there will be some increase in that number because we're not going to have more developments for the coming year. Previous adjustment -- now Bestla will ramp up over the next years. And we have others as well, like [indiscernible] and others. So there will be some years now that you will see a bit higher than we had or projecting for 2024.Then when you head into later on in 2027 or 2028 and onwards, there will be increasing CapEx on developments as we have several development products definitely kicking in with the more spending from, especially from 2028. So, I think just to give you some idea what we're talking about, at least some increase now from 2024 over the next years. And then with the bigger increases will start kicking in later on from 2028 onwards.So there's quite a big program here now over those years. And as we have talked about before, that will give us a real organic ramp-up in production as these various projects come on street over the next many years. So that is a very significant increase in our production from all these projects. So, I don't know, do you have anything to add on too, Chris?

[Christopher Spencer, executive]

No. It's time of the year -- of course, the -- once we get into '27, '28 there's a lot of work to be done. A lot of the teams to be taken before that time. So that's certainly what we're aiming in order to get that production increase that we've challenged ourselves to achieve in the North Sea.

[Jostein Løvås, executive]

Okay. We've got some more questions here. And because I think the ambition is to wrap this up at the 1-hour mark, so we'll move on to [ Christopher Bakke ].

[Unknown Analyst]

Christopher from Clarkson here. First of all, congrats on a strong quarter. My first question relates to your expectations in terms of production in the North Sea this year. And do you still anticipate the closing on Arran in Q2? Second question relates to M&A. And while it's quite clear that you still want to increase your footprint in the North Sea, are you considering doing even bigger things in the North Sea, for example, spinning off the North Sea segment or merging that part with another NCS-based company?The last question, a rather technical one. But regarding the ITP agreement between Turkey and Iraq, is there anything stopping KRG from exporting through Turkey once the current agreement runs out in the summer of '25?

[Christopher Spencer, executive]

So the first [Technical Difficulty] question. The second was Arran. So Arran, yes. We will complete Arran in Q2 as previously forecast. And that combined with the acquisition we announced today is changing the frame quite a bit on an off-sea production. We've also had some ups and downs in -- as we always do in the fields that are going on. And similarly, as Bijan touched on over in Kurdistan, we've been renting Tawke up, and we have hopes for the rest of the year there.So, we are continue looking at our production guidance to the market. We just -- we haven't changed it as yet. But as with all other companies, we'll keep that under review and make the updates as and when it is necessary. Anything to add on that, Haakon?

[Haakon Sandborg, executive]

That's it.

[Christopher Spencer, executive]

What was the other question, sorry? Yes, the ITP. Well, is there anything that stops Kurdistan using ITP after the current agreement runs out? I'm not sure I'm the right person to answer that question because that really has to be addressed to those governments. I mean, I don't like, as you know, to get into sort of speculating. I'm not sure I have a full insight into the full suite of agreements that cover that very strategic beast of an infrastructure. So, I can't give a definitive answer to that. So I'd rather not go there. Bijan, I don't know if you have any -- if that or that Internet connection doesn't look very good.

[Bijan Mossavar-Rahmani, executive]

Can you at least hear me?

[Christopher Spencer, executive]

Yes, we hear you.

[Bijan Mossavar-Rahmani, executive]

Okay. I agree with Chris on the response on ITP. I think for us DNO, the interesting bit of a wildcard is that Baeshiqa, our partner is the Turkish Energy Company, TEC. And if we have a significant discovery and need to move oil, then the question is what will -- how will that sort of out because that's -- then you have Turkey having a stake in production directly. So, that's going to be a fun one to watch, but just for the rest, it's very political. The legal issues aren't resolved. The arbitration continues. Part 2 continues.How that might be affected by how the parties deal with ITP, these are all issues that lots of lawyers on all sides have been struggled with and trying to deal with and we have no particular insight other than we sort of hear what's going on. And so, I have nothing more to add to what Chris said, but Baeshiqa could be interesting. And how that will work, how that oil would move to the market, would move to Turkey and maybe through Turkey or to Turkey, whether by truck or a special pipeline, that would be built, we just don't know, but fingers crossed, we will have that problem because that would mean we have had a successful drilling program at Baeshiqa.

[Haakon Sandborg, executive]

I thought you had a middle question on whether we would consider spinning off our oversea business or merge or do something structural. Well, first of all, to note that we have been successful in building endless value through our exploration successes over the last year, and we are a big development program we just talked about. So we're starting to get really noticed among the oil companies that are active in the North Sea. And we have very good business development discussions, both through the large investment banks, but also in bilateral discussions with other oil companies.So there's a lot of opportunities for us to look at restructuring, but we are focused on what we have been doing is to grow organically through exploration and development. And as we have now shown also quite easy on M&A level growth to especially bolster production over the next years until our own production comes up. So I don't know if we weren't sort of answer your question, but just kind of confirm that we are starting to really become an important actor on the -- especially on the Norwegian Continental Shelf.And through that, being seen as an attractive candidate to talk to on various ideas that goes both ways towards DNO, but also that we speak to other companies. So, I think we're basically seeing what we call BD or business development type opportunities for us to maybe jointly explore with other companies or that we -- more M&A that we aim to. So a bit of a roundabout answer, but anything to add to that.

[Christopher Spencer, executive]

I think, just a final reflection for me because most of my time in DNO, those type of questions have been directly to Kurdistan, whether we should be merging with others in Kurdistan. So it's been a nice validation of the importance of our North Sea business now that that comes on to the radar screen.As always, with DNO, and that's very much in the moto that the shareholders are our #1 stakeholders, we're always in pursuit of shareholder value. So, if people come to us with transactions that we believe will add value to shareholders, we are open to discuss. I think it's as simple as that.

[Jostein Løvås, executive]

I hope we'll be able to squeeze in questions from 2 questioners at the end here. The first one is Lucas from Platinum.

[Unknown Analyst]

The question relates to the arrears from KRG. And my question is maybe pretty blunt. But has there been any sort of discussion about KRG paying their debt using their part of the oil that is produced now, that is instead of funding the KRG part of the oil through KRG and selling then those part of the DNO locally, DNO keeps part or all of KRG's oil and sell it as part of an arrangement to pay us the debt?

[Bijan Mossavar-Rahmani, executive]

Yes, the answer is yes. Of course, we've explored with them all sorts of mechanisms. As the price moves up, there's more money available for the KRG to share with us and with the other companies is one way of addressing the arrears, but you can be sure that where there's $300 million involved, we're focused like a laser on exploring with the options. But we're always realistic about what their limitations are and opportunities are, and for the limitations, we try to be a good corporate citizen when there are opportunities to try to grab them.So, thank you for your question. I'm delighted there's a group of our shareholders in this call -- on this call. Always happy to meet other shareholders and discuss with them what their concerns are, in addition, of course, to the analysts and others who build those information and the processes for shareholders as well. So, I just want to just tip my hat to our shareholders. As Chris says, we are very focused on all our shareholders and try to meet their needs and try to be in communication with them, and I hope that that continues. So thank you for your question.

[Jostein Løvås, executive]

Okay. So the last question goes to [ Nick Leonard ].

[Unknown Analyst]

There was a report. I saw about Iraq looking to reopen the old pipeline to Turkey kind of to the west of Kurdistan. Do you think that's feasible that they can repair and get that working in the not-too-distant future? And what do you think that could mean?

[Bijan Mossavar-Rahmani, executive]

We have no special insight on that. We speak to all the parties, but we have no particular insight. That's an option that the governments have to sort out. And we're not counting on it. We hope the pipeline will be open. We hope that the terms and conditions available to us on pricing and other contractual modifications possibly will be favorable to us and put us in the worse situation than before and probably a bit more so. But as Chris said in response to the earlier question, we don't have any -- really anything to add.It's an interesting question and we pose to ourselves. We really have nothing to add on that. I think it's on course and governments are involved at the highest levels. And we're just there producing oil and trying to stay as much as we can out of the regional political scene. That's not our role or our interest to do so.But when you have this kind of oil, 100,000 coming out of Tawke license or 90,000 coming out of Tawke license or whoever in that range and then another couple of 100,000, maybe a bit more from other oil companies, this oil will find its way to market. We've said this before many years ago, it was 5,000 barrels a day. It wasn't going to get very far. But at these levels, this oil will have to come to market and Kurdistan. And since production has become the tail that wags the dog -- the U.S. elections may be won or lost based on oil prices and the impact on the economy. And then Kurdistan becomes a bit of a factor. That's one reason the U.S. governments are involved in these discussions from time to time.So, we will leave it to them to sort out and we'll, again, try to avoid the pitfalls and try to grab the opportunities and do what we do best, find oil cheaply, efficiently, safely, cleanly. In Kurdistan, we have a great track record in that respect. I think we're in year 20 now of the Tawke contract. That's before my time. Maybe Haakon was around then, he must have been 14 or something. But so, we've been there for a long, long time, and we've done well.There've been some very, very strong years and some weaker years, but over time, DNO has managed well from the very beginning and very impressed on this. Then -- when I first got involved with DNO, the small Norwegian oil and gas company, this plucky company was there. And how fast the Norwegians were able to bring the oil to markets. And it was a source of pride for me although I can't take credit for it. There are others among our shareholders who have been there from the beginning who can do so. So, we've been very successful on balance in Kurdistan. And I think we can do better, and we can continue this great run that we've had over 20 years for the bumps along the way.

[Jostein Løvås, executive]

And with interesting words, I think we are about to conclude today's earnings call and a good day for DNO. And thanks for taking part, and we all look forward to see you again in 3 months' time. Bye.