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Earnings Call Transcript 2021-Q4

[Jostein Løvås]

[Audio Gap] and CFO, Haakon Sandborg, after which we will open up for questions from shareholders and analysts. Managing Director, Bjorn Dale, and Chief Operating Officer, Chris Spencer, will also be available to provide answers. [Operator Instructions] With that, I leave the stage to the Executive Chairman.

[Bijan Mossavar-Rahmani]

Good morning. You might be wondering where I am and why I'm of the -- that's the way I am. I'm in Kurdistan and in our field office at the Peshkabir field, which, of course, is 1 of the 2 fields in Kurdistan that we operate as part of the Tawke license. The 2 of Kurdistan's largest fields and very important for us to -- DNO and DNO's business as well as to Kurdistan. It's great to be back in Kurdistan. While COVID remains an issue, it's become possible to travel a bit more easily, and I took the opportunity to travel here to see our team and spend some time with our operations people here in Kurdistan, who've done a fantastic job during the pandemic in keeping operations going and in a safe manner, a healthy manner as much as possible, and they've been quite successful at that, and also to keep operations going, notwithstanding all of the problems that you're familiar with in terms of supply chains and travel restrictions and so on.I'm also here to -- for some visits with the members of the Kurdistan Regional Government and also to visit our fields and our operations. And Peshkabir, of course, we started up our gas gathering and gas transports to Tawke and injection project, and which is now we're humming along. You might occasionally hear in the background noises from the gas plants. And again, I'm pleased to be here. I'm pleased that Kurdistan is back in business and a positive normal, following 2 years of difficult pandemic restrictions that have affected the industry in so many respects.I will start, as I usually do with some operational and financial highlights and then turn to Haakon, who'll go into much greater detail on the financial results, both for the fourth quarter of 2021 and for the full year. Hopefully, most of you have had a chance to either see our press release or to see our slide deck and also the more detailed reports that were posted this morning on our website, but I'll just highlight a number of points beginning with operations. Jostein, please move us on to the next slide. Incidentally, the first cover picture was the signing ceremony with the KRG for the Baeshiqa exploration license, which we've been working on for several years to bring to this point. And that was finally signed in December, and we're off and running with our activities in Baeshiqa, and I'll come back to that in a subsequent slide. Our net production in 2021 was not too far off in Kurdistan compared to the prior year. It was down somewhat in the North Sea, the red part of the bar, but still, I think, under the circumstances, given the pandemic constraints we did quite well. Considering also that we didn't do any significant drilling in the Tawke field in 2021 for different reasons that we can go into. Our North Sea production was down in part due to natural field decline, in part to delayed new production and planned maintenance, but we were active in the North Sea in terms of exploration. We are one of the more active companies in the North Sea and in the Norwegian sector and we'll continue to be so in 2022 and beyond. We drilled 5 exploration wells, 4 of which were discoveries, 2 technical discoveries, but to which we feel are very likely to be commercial and will be a focus of our activities in the North Sea.We have not yet released, but we hope to do so before the end of this month, our annual statement of reserves and resources. But we do have the preliminary numbers, which we wanted to share with you. We exited the year 2021, with 2P proven and probable reserves of 321 million barrels of oil equivalents and contingent resources 2C of 189 million barrels of oil equivalent. We have fast tracking now the development of Baeshiqa, and expect early production, hopefully in this quarter. We're going to do this fast, the DNO way and now that we've been giving the green light to proceed.The next slide, please. In terms of financial highlights, and again, I'll leave it to Haakon to go into detail on these numbers. But significantly, we -- our revenues topped $1 billion last year, up 63% from a year earlier on the back of solid production, but also high oil and gas prices, importantly, high oil and gas prices. And of course, this is the story of our industry overall, but we were also a beneficiary of that. And we were able to hit $1 billion mark on the 50th anniversary of the founding of the company, and that's an important milestone about which my colleagues can be, and our shareholders can be justly proud.We exited the year with a net debt of $153 million, which was down from $473 million a year earlier. We resumed the dividend payments. We, of course, issued $400 million of new bonds, lowering our average interest rates and extending maturities, all of which, again, other companies, by and large, have done as well. On a cash basis, we received over $500 million from Kurdistan last year, allocated towards the entitlements and the overrides and payment arrears, but still have on the arrear side outstanding $169 million which is down from $259 million at the end of 2020. So we're chipping away at that. These numbers exclude of interest, and we are -- we remain in touch and in discussions with the KRG to accelerate the payment, all this debt and the terms and conditions under which the debt -- the accelerated repayment will take place. Next one, please. This is the reserve side, the story remains pretty much as we last discussed it, in terms of the composition and the location of the reserves. Our 2P reserves are largely in Kurdistan. We have 321 million barrels of oil equivalent across the portfolio. And again, largely Kurdistan, but we also have 189 million barrels of oil equivalent, as I said a few minutes ago, in 2C reserves, most of that is in Norway. And we had -- but some also in Kurdistan. Importantly, on the Peshkabir, we're looking at a gas reinjection project, but also largely in Norway.We have some numbers back in element numbers, our 2P reserves at current production rates should last 9.3 years. You add the contingent, almost 15 years. It's getting harder to replace our reserves, because we produced so much. In 2021, we produced over 30 million barrels of oil from our inventory, 30 million barrels is a size of 2P reserves. So a lot of companies, small and even some in the mid-cap. So finding 30 million, 40 million barrels a year every year consistently is not easy. But our hope and expectation is that over a period of 3 years or so with -- we're able to make discoveries, add reserves move from the contingent into the 2P side to keep the -- our reserve replacement ratio constant.And the key to this in 2022, of course, the Baeshiqa, which is the contribution here that we have Baeshiqa is nominal. But as we start production and get a better sense of the productivity of the wells and the size and scale of the discoveries, I expect fully well that we will have a reserve recovery situation. We have the same, again, understating the reserves being very conservative is the time we start off with Baeshiqa -- with the Peshkabir. We started to raise the low numbers in each year with -- as the field was further developed and we learned more about it, we kept increasing our Peshkabir reserves. So this sort of approach is not unusual for us as a company. But again, once we have our annual statement of reserves and resources completed and signed off on, we will share that, of course, with the market.Next, please. In Kurdistan, our Tawke license production, was largely unchanged, which was a bit of a miracle. Because we didn't drill and do much drilling in Tawke for about 18 months because of the pandemic, because we were sorting out budgets, and I think getting budget approvals and preparing for -- to hit the accelerator once again, which we've now done. And we're going to move quite fast with Tawke this year. I think we have something like 17 or so wells planned in Tawke, and that will, of course, help to recover Tawke production and hopefully keep our exit rates or average rates for the year where they were in 2021. We found maybe a little bit higher or a little bit lower, but we're very confident that the Tawke license will perform well in 2022. We had -- even though we didn't have any significant drilling at Tawke for this 18-month period, we did inject quite a bit of gas from Peshkabir as part of our gas rejection in carbon capture program. We injected in 2021 7.6 billion cubic feet. That's equivalent of 460,000 tons of CO2. So we hit 2 birds with one stone, both in terms of CO2, but also 3 birds in 1 capture of gas for future use, but also for in-house field recovery and to energize the field -- Tawke field to be able to maintain production levels above where they would be. And that's part of the reason Tawke field did as well as it did during this period. But also, we did some workovers. So our team was very good about going in and finding ways to treat the plumbing and to do other things shy of drilling to keep production higher than where they would have been. Again, we think this is the DNO way. And again, I'm very proud of our teams for sustaining production under these different conditions.I already discussed the production from license from Baeshiqa. We expect that over the course of the year, if we average out the production -- once production starts, which I expect will be the case in this quarter, that we will have an average of 4,000 barrels of oil per day from Baeshiqa, but that accounts for several months at the start of the year with no production. That means the productions are going to be higher. And we're targeting maybe an exit rate twice that, but we don't know. We'll have to see how the Baeshiqa wells will perform. But we're again, bullish about Baeshiqa, that would be a good addition. We hope to our production portfolio.And of course, it's not just our production portfolio, we have a partner, but also our most important partner in all these fields and projects is Kurdistan itself. And they, like the companies and other governments, are looking for more production at these oil and gas prices -- these oil prices in the case of Kurdistan. So everyone's incentivized to do more, more quickly in this very strong pricing environments, and we're committed to be part of that process.Next slide, please. I won't go into too much detail on this one. This is the Baeshiqa development. I think what's key here is that we drilled 2 discovery wells, all the license at one at Baeshiqa, one at Zartik. The quality is a bit different at least in the zones from which we produced, but we had something on the order of 15,000 barrels. This is not barrels a day, it's 15,000 barrels of 40 degree API oil from Baeshiqa. The Baeshiqa discovery well and 22 degree API oil from the Zartik discovery well, which we trucked to market at the time of discovery. So we proved that oil floater surface that gave us a lot of confidence that in terms of moving forward with the development plan, which again has been approved now. Our plan is to reenter these 2 discovery wells, put them on production and then continue with the drilling of additional wells.I think we have 3 new wells planned in 2022 at the Baeshiqa license, we will doing some seismic, but we'll be drilling 3 wells. At the end of the year, we hopefully will have 5 wells on production. So that could be significant, all the way down the road. We're cautious, and we'll see how these wells perform and we'll obviously, report to the market as we learn more. But in the first instance, we will be trucking this oil to market using test facilities and the time we'll be putting a more permanent service facilities and eventually, depending on the size of the volume of production, putting in more permanent pipeline and other facilities to get the oil to the export -- into the export system.Next slide, please. North Sea, I mentioned that our net production was down, and I explained some of the reasons were. We can go into more detail if there's interest in the Q&A session. We drilled 7 wells. I already mentioned, we drilled 5 exploration wells, but we drilled development wells. And importantly, the 2 that we believe are -- have commercial potential in terms of size and in terms of proximity to existing infrastructure on the Røver Nord and the deeper Bergknapp discovery that were made in -- that was made in 2020. Importantly, DNO has been taking a larger percentage interests in the new licenses. So these are more meaningful to us given the size of the company and our aspirations to grow the size of the company and grow our production levels. So we are taking a larger interest in exploration wells and hope that will pay out. We have 7 wells planned in 2022. These are in proven basins with moderate risk profiles. We continue to plug and abandon some wells and facilities, and fields that we inherited at the time we did the Faroe acquisition that's -- and that's moving along at a good pace. It's a bit of a nuisance to sales of cost, but we're cleaning up the portfolio that we have acquired and trying to sharpen our focus on growth, leading to growth. Next, please. We're closing in on 4 PDO project possibilities as part of the 2022 PDO. Brasse, of course, we talked about quite a bit over the last several years and see this cartoon in the Brasse field, and what we plan to do with it. But we have 50% of Brasse, we operate. So we're -- and then have some ability to manage that process. Our partner is Vår Energi. And we are -- have been in discussions with the host Equinor to bring the production into their infrastructure system. And bring the Brasse production more rapidly. We reached a subsea frame agreement with Technip during the sort of low point of the pandemic, where the industry activity was lower. So we lined that up in terms of schedule and in terms of cost. And we believe that will give us an advantage in terms of proceeding with the Brasse project.Elsewhere, there are other projects, which we -- that we don't operate. There's the Iris-Hades discovery. There's a Gjøk discovery, Orion are all targets, 3 targets for 2022 project sanction, and we have some statistics below in those boxes that I won't read. But they give you a sense of what's the reach at least Brasse, what our initial targets are, and thoughts are as to what Brasse will look like.Next, please. The next slide shows our North -- breaks out our North Sea 2022 exploration drilling and I had referred to 7 wells. You see it's going to be a busy year for us. We have, for the most part, large interests in the wells that we drilled or that are being drilled in our core area. They are drilled near our infrastructure. So we're hitting -- checking all the right boxes. Given again, the size of the company and the circumstances in the market. And we are very optimistic that we will again have discoveries and some of them meaningful in terms of the contribution to the company's initially resource figures and then ultimately, our proven and probable category reserves. So we're very excited about this. And as I said, we're one of the most -- the more and most active explorers in Norway now and very pleased to be in this position and committed to Norway and committed to exploration in Norway. Next, please. The biggest prospect that is in our [ exploration ] portfolio. We've talked about this before and others have as well is the Edinburgh prospect, that straddles the U.K./Norway border. We have 45% of that prospect. Shell is the operator. It's a high-pressure, high-temperature well and it will drill -- spud these in the Q1 2022. So that's coming on up pretty fast. This is an exciting prospect. It's one of the largest undrilled structures in the North Sea. It is one of the reasons we -- a number of reasons why we were interested in the Faroe portfolio. There's something -- parts of that, we aren't very keen on some parts of it that we're working on. This is one part that we were quite keen on, and we'll see how that goes. But again, this is being watched by a lot of people in the industry around the world as one of the largest prospects to be drilled and also interesting exploration, the wells, in 2022. I will say a few more words about -- some of the other activities in the North Sea. There is one last slide on this. The -- following the Røver Nord success part of our planning has been there are other wells in this area, which is the -- near the giant Troll field. And there are -- these 2 wells that are scheduled in 2022 that have been derisked somewhat by the Røver Nord discovery. And this is a -- again, that is a focused area for us, but we're focusing on it more sharply, and quite excited about these wells at least this year. And again, we have 3 equal participating interests in these. So if there are discoveries, they will be meaningful in terms of size and scale for DNO.So all in all, a lot of activity in the offshore Norway, and with Edinburgh offshore in the U.K. as well. A lot of activity in Kurdistan with wells in Tawke. We have a -- I think, a 3-well program in Peshkabir, so we drill more wells in Peshkabir. And of course, the 3 new wells added to reentry into the Baeshiqa wells in this year as well, it's a very active drilling year for us. Very active drilling and very attractive prospects, we believe, and we're quite excited about what 2022 can bring to the company.So with that, I'll ask Haakon to dive into the financial part of the presentation, and we'll be available for questions and answers.

[Haakon Sandborg, Chief Financial Officer]

Thank you, Bijan, and hello again, everyone. And thank you for attending this earnings call. I think with the return we have now, we have strong financial results last year. It's certainly going to get together again now and discuss the progress we made in 2021 and also, of course, talk a bit about our plans for the coming year. And for the financial review, we're starting here with the key annual figures that we'd like to show.And I know that it has been duly noted already today, but we are quite pleased and excited about going above $1 billion in revenue for the first time in our company history. And this is an important milestone for us that we will look forward to building on further as we move forward. The substantial revenue increase was driven by our sustained high production and the market recovery last year that we lifted oil and gas prices from the very low levels that we saw in 2020. At the higher revenues, we also generated strong cash flows last year, including our after-tax netback that we show here. This climbed to a record level at $782 million. On the same basis, our operating profit is back up to a solid level of $321 million. That's compared to the big operating loss we had in 2020. So in short, 2021 was thereby a good year for us in DNO, especially a strong finish in Q4. And with the tighter market balances and the increase in oil and gas prices that we see now, I think we have an even better starting point and then a very promising outlook for [ 2022 ]. Next one, please. As we normally do, we look at the P&L on the table in some detail. We have the Q4 to the left on the slide, and I'll start with that before we go on to the full year. So for the fourth quarter, our revenues increased by 56% from Q3 to reach a high level of $396.5 million. Kurdistan accounted for $180 million of these Q4 revenues, up from $149 million in Q3. And again, that this is both on the higher oil prices, but also higher entitlement volumes in our Kurdistan production.For our North Sea operations, revenues more than doubled from Q3 to $216 million in Q4. And for the North Sea, the main drivers were the higher lifted oil cargos or overlift in this quarter, with an effect of $62 million in Q4, but also higher gas prices that added $50 million of revenue in the quarter by itself. So this is all good.But as we move down on the left slide on the Q4 numbers, you see on the cost side that the movements in overlift, underlift also adds $58.8 million in the cost to our cost of goods sold, sort of catching up on the actual production cost here, tying that to the revenue. And as we go down on the other expenses or costs, we see that the exploration is up from Q3, some higher expense well costs. This is for the Gomez and the [ movement in the ] wells, but we also bought more seismic in the quarter that would be expensed immediately. As you can see, there is an impairment here of $27.3 million for this quarter, mainly on the Ula area in the North Sea. But -- even so our Q4 operating profit still doubled to $128.2 million, backed by the higher revenues. One other key item I would mention in Q4 is that there is a significant increase in tax expense to $40.1 million, mainly explained by taxable profits in DNO Norway or DNO Norwegian during Q4 as a result of the higher oil and gas prices compared to the tax loss we had in Q3 in this company. But all in, we have a solid quarterly net income of $64.8 million for the quarter. If you look one the right side on this slide, you have the full year P&L. And you can see the strong increase in revenues that we have discussed that was achieved in 2021, up by 63% from 2020.Again, out of this total revenues, Kurdistan accounted for $594 million, up by $225 million from 2020. That was mainly on the higher oil prices. North Sea revenues, $410 million last year. They were up by $164 million from 2020, driven by higher oil and gas prices, but partially offset by the lower volumes that we produced and sold. On the cost side, on the full year, we maintained our long-term positive profile on a stable and low production costs. While DD&A costs were significantly reduced in 2021 by lower DD&A charges per barrel in the -- or produced in Tawke license. Otherwise, for the full year, exploration expense increased in 2021 on a higher expensed well cost and also a higher increase seismic purchase -- seismic costs. And, of course, this reflects our higher exploration activity in our North Sea business unit. It's good to see that we have a much lower impairments for 2021, and this is a big contribution to the improvement of the operating profit to the level of $320.9 million in 2021, compared to the substantial loss we had in 2020. With lower taxable losses, we show a tax expense of $16.3 million last year compared to tax income of close to $140 million in 2020, undertaking on this should be said that surely the tax income in 2020 was due to the effects of deferred tax -- on deferred taxes from impairments. So really, that's the part of the tax income for 2020. But anyway, to repeat, it's good to confirm the remarkable recovery in our P&L results last year and in total we saw a solid net income for 2021 of $203.9 million. Go to the next slide. But -- however, as I think is also the case with our earnings presentation, the real fun in my view starts on this slide, where we again show some pretty good cash flow numbers. As such, our cash flow from operations more than doubled than last year to a solid level of $625 million, and that was mainly on the higher revenues. In addition, we received the North Sea tax refunds of $175 million, so that the total cash inflow on a cash flow basis was at $800 million. The cash outflows that we show here were primarily for the investment activities at $362 million. Split between exploration and CapEx at $276 million and the North Sea decom at $86 million.The finance outflows of $179 million. These items include the proceeds from our new $400 million bond that we did close in September. A payment of a shorter period bond in the same amount. Also, we paid $54 million on our RBL drawdowns in Q4. The dividend payment of $22 million in also in Q4 and otherwise for the year, mainly transaction costs and the interest expense on our bond and bank debt. But the main point here is that the strong cash flow from operations, again, funded the significant investments and finance outflows. And with the support from tax refunds, also, we increased our cash balances by $260 million to a high level of $737 million at the year-end.Next one. So okay, for the capital structure with this increase in cash balances, but also including the bank debt reduction that we had in Q4. Our net interest-bearing debt was capped by 68% last year to a modest level of $153 million at year-end. Also, important to the much improved earnings, strengthened our equity ratio to 35% at the end of the year. And the bond refinancing in Q3 also then, as we have mentioned already, that it's certainly to extend the debt maturities and to lower our debt costs going forward. So on this basis, we are pleased to note that we clearly strengthened our balance sheet significantly in 2021. As we look forward now, there is currently an attractive macro environment and a positive outlook over the next 3 years for the oil and gas industry. This is supporting the commodity pricing. At our [indiscernible] production, we thereby expect to build further on our free cash flow and on our financial strength. On this basis, we have good flexibility to both maintain our robust balance sheet, a key priority for us. But at the same time, also step up investments for further growth, as well as look at the ways of optimizing our capital structure going forward.Next one. So consequently for this year's investment program, we plan to ramp up our operational spend as we call it, to some of these 4 categories of investments and costs, to a level of $800 million, which is the big increase of $136 million from the year before. Our program is focused on organic growth through extensive development spending, including now the first phase on our Baeshiqa project, and we setted up the drilling in the Tawke license as well as the work on the 4 PDOs and ongoing development projects in the North Sea. CapEx thereby is up or will be up a lot this year to $320 million, split about 60:40 between Kurdistan and the North Sea.In addition and building on our successes last year, we also continue our broad North Sea exploration program. There's some key wells offering quite exciting resource potential this year. Overall exploration expenditures amount to $150 million in this program. Our OpEx, as mentioned, has been stable. There will be some increase this year to a level of around $255 million, and this is as we start up the new production from the Baeshiqa license. Finally, we have our -- playing abandonment expenditures or a decom if you want of $75 million this year. This will be to finish up most of the remaining decom work on the [indiscernible] and fields in the U.K. and also on the -- also Vår in Norway. It will be good to be done with this work soon, and this will also free up the use of cash flow for other purposes going forward. Anyway, that's it for our presentation today. I hope you take away that we have an exciting year ahead of us. And with -- as we see it a really good value creation potential, especially within exploration, but also within development for this year. I'll hand it back to you, Jostein. I think we're opening up for Q&A at this point.

[Jostein Løvås]

Thank you, and we've already got a question. I personally ask a question here, and that's Nikolas Stefanou from Renaissance Capital in London. So please go ahead, Nikolas.

[Nikolas Stefanou, Research Analyst]

Congrats on the very strong year. I've got 3 questions to ask, please. The first one is if we can go back to Baeshiqa and what's going to happen this year. I was a bit confused with the guidance. So is it -- are you contributing from 2 wells but then to drill another 3 and don't complete them? Or are we going to see 5 wells producing at the end of the year? Because I think you mentioned something like an 8,000 barrel per day exit rate, which I mean, sounds very low. How you -- I mean clarify those comments, please. The second question is, I guess, a bit more like got us in the next 2 or 3 years in the North Sea. Can you give me a sense of what kind of like CapEx we should be looking at in the North Sea assuming that those developments, you mentioned do get sanctions and well that might take production. And then the final one is, I guess, for Haakon. Okay. I mean there's been quite a few impairments over the past 2 years, which is understandable, but I would have expected some reversals given the sharper like rebound in the oil price. And usually, this is the quarter most companies do this. Why have we not seen this? I mean you can kind of comment on that as well, please?

[Haakon Sandborg, Chief Financial Officer]

I believe Bijan has to unmute himself.

[Bijan Mossavar-Rahmani]

Yes. Somebody muted me. They don't often get to mute me at DNO. But somebody did this. Anyway Nikolas, thank you for your questions. Let me address the Baeshiqa one first, because I'm physically the closest to it, right? It's just next door here, but not exactly next door, but I mean the vicinity and then I will turn to my other colleagues to comment on the other questions in terms of the North Sea and impairments and so on.On the Baeshiqa, our numbers are quite conservative. And those in terms of what we discussed internally, but certainly, what we did, we report to the market, we've typically been quite conservative in our figures. So we under promise and over produce rather than the other way around. But so what's -- yes, we will start production from the 2 discoveries. Those were less than a temporary status that would allow us to reenter and start producing pretty quickly. We're going to do that. We're going to -- we're committed to drilling of 3 wells. You'll see that on the chart that's on the screen now. The third well that will be spudded in 2022, but may push into 2023 or 2023, depending on, again, how much testing we do and what sort of else goes on with the other wells. Because we're entering 2 wells and doing 2 -- another 2 wells creates a scheduling issue. We may go faster, we may to go slower. But certainly, the intent is to spud Baeshiqa maybe we can put our production, I don't know. But again, we're being conservative of efforts. We're not -- these aren't -- these aren't shale wells where you complete and walk away from that part. We're not complete. We're -- our plan is to drill them, complete them, track them, complete them, act as necessary, acidize, perhaps is more appropriate in this context and put on production. We want to get production out as fast as we can. We have every reason to do so. We are very incentive to do so. We've been encouraged by the government to do so. Everything is fast tracked. But whether it's 4 wells on production or 3 wells on production on -- or 4 or 5, we'll just see how it goes. Some of that uncertainty also leads to some confusion as to what our production rates are. We've given an average for the year rates. I referred to an exit rate of around 10,000 or so, that's a sort of an internal target that I'm sharing with you. But there is uncertainty. What is certain is that we have discoveries, at least 2 important discovery wells drilled on this, which we're going to put on production. That's for sure. We're committed to a fast development. That's for sure. We're not going to wait to drill many wells and then start production once the service facilities are installed, which may take years. That's how large companies typically work, encourages on our successes and based on the fact that we come in and we drill. We put on -- put a [indiscernible] production and use the revenue to drill the second well and the third and keep going. And it will be appropriate time when we have sufficient size and scale of production to put in more permanent facilities, both on the field and in terms of pipelines and so on. So there'll be no holding back. There is no reason to hold back, and we'll charge ahead as fast as we can. And again, we will report to the market as we see. But this is a new field for us, and we'll have to see -- wait and see how it performs, before we give more definitive numbers, higher or lower or difference. So if you bear with us, you will find out soon enough to certain the most companies do. But you can also be assured that we are very excited about this part of Baeshiqa license. The previous operator and owner Exxon was very excited about this license and the possibilities. And this is part of our -- hopefully, Baeshiqa will become a very important part of our business in Kurdistan that the Tawke Field is a mature field. And it's going to go -- as it started to go into decline as mature fields do. We tried to stabilize that decline through gas injection and through again, some of the plumbing that we do and work with pumps and other sort of tricks of the trade. And we hope to -- and with the new drilling this year of 17 wells, we hope to stabilize it. Peshkabir is a newer field. It still has some growth potential. We're also working a deeper Triassic horizon at Peshkabir. We're going to look at again at the deeper horizon triassic in Tawke, maybe there's something there that would generate some excitement and some additional production. But Baeshiqa, we view as the future of -- an important part of the future in Kurdistan. And we're committed to make that happen and to spend what it takes and built it, that's the way people do it, which we've done, and we're very, very excited about it. Chris, would you like to do it, if you're saying, I'll unmute you.

[Christopher Spencer, Chief Operating Officer]

Yes. Thank you. Yes. So the other question was on the development portfolio and the North Sea if I remember correctly. And as Bijan explained during the presentation, we had a very exciting year in Norway with working very hard to get plans for the 11 operation delivered on 4 potential developments. That's really our key focus at the moment. We're working very hard to make sure those are successfully delivered. And I think we'll return on guidance with respect to any CapEx and forward breakeven and so forth later in the year, once we are more confident that those projects will be moving forward.With respect to the production impact, I think we gave some indication on the slide with respect to Brasse. So that's maybe of some help. I think we are focused on also that this year is not a one-off in terms of development portfolio. Bijan mentioned the 2 exciting discoveries we had last year. We're working hard to make sure that they're moving forward towards development. And we hope to have further discoveries this year to add to that development pipeline.

[Haakon Sandborg, Chief Financial Officer]

Third question, Nikolas, on impairments. And why don't we see any reversals sometime soon. And yes, that's a good question. We do have at least one very strong candidate on reversal that we conservatively have that so we wanted to be absolutely sure before we put that into our reporting and financial statements. But there may be others as well, but not quite ready to give you the names or the fields and all that. But once they are sort of pretty old-dated decision gains [indiscernible] et cetera. And things are firmed up, I think we'll be in a good position to come back with also -- with announcing at least one reversal, maybe more later in the year.Around the impairments, of course, we have done quite a few. Some way it has been tied to the [indiscernible] cost situation where we have had impairments. But as we talked about, we are mostly done well with most of the work on those large projects. So I think at least that risk goes away quite significantly at the end of this year when we're done with those projects. But we'll come back to you on the possible reversals, which is a good discussion.

[Jostein Løvås]

The next question here comes from Teodor Sveen-Nilsen from Sparebank 1 Markets.

[Teodor Sveen-Nilsen]

Three quick questions from me. First, on the lifting costs on NCS in Q4. Is the level you reported for Q4 something that we should expect going forward? Second question is on Baeshiqa. I just wonder, are there any big differences in the PSA terms compared to the talk PSA? And so last question is just on the OpEx guidance for 2022. Is it possible to shed some light on what that corresponds on a per barrel basis?

[Haakon Sandborg, Chief Financial Officer]

Can you say that first question again? I didn't catch the whole question on the first point, Teodor?

[Teodor Sveen-Nilsen]

Yes, our first question is related to NCS lifting costs. Should we interpret the Q4 lifting cost as a normalized lifting cost going forward? And then including the cost of the overlift?

[Haakon Sandborg, Chief Financial Officer]

Yes. That's a good question. What it was [ or 14.4 ] per barrel. I don't know Chris, the team do we have a view on that. I would say as the annual average was [ 17. ]9 and going down a bit in Q4. I would think that as we see some of -- maybe not so much this year, but later on when we have new fields coming on onstream the other ones you can see that coming down. But I don't know, I think it would be fairly well to -- fairly good assumption to assume it's around what we can see and expect for this year, what you have in Q4. I don't know if you have a comment on that, anybody else, Chris.

[Christopher Spencer, Chief Operating Officer]

Well, it's always a tricky one for a dumb engineer like me, because it's this variability with the liftings as well that makes it technically a bit difficult to track. But obviously, the sort of proportion of revenues that are associated with the lifting cost in the North Sea stayed constant. It's just the variability in liftings, I think, that make it difficult to track.

[Bjorn Dale, Managing Director]

I'll answer the question about the Tawke PSC. Yes, there are differences. I think by and large, the Kurdish PSC's cluster around the same numbers are similar, but with time they've been with some changes. The Tawke PSC as well as the first to be signed. The Exxon is one on the last to be signed at the time the PSCs have been tightened and so on. But they all cluster roughly around the same place in terms of the economics of these. What is it makes them different? Historically, the different PSCs has been the level of the signature bonuses that have been -- that have been paid all these PSCs. Exxon paid a significant signature bonus for the 6 blocks that it took in Kurdistan and an important part of that was the Baeshiqa block. So their economics factor that in, ours doesn't, because that was paid by Exxon. So in essence, the SA PSC is more attractive to us than it was to the previous operator and the license holder. But the PSC is even more attractive to us, because we -- the cost pool, Exxon's prior costs that were expended are counted as part of our cost because that will make the economics a bit, again, more attractive that we didn't have to pay the signature bonus and we had the opportunity to recover the cost. So our economics look different, and it should be attractive. Although if you look at them, again, the line item probably the top PSC on some of the metrics is somewhat more [ shorter ] than the Exxon. But again, by and large, where we are like purchase on PSCs cluster around the same sort of numbers for cost oil and [indiscernible] and so on.

[Bijan Mossavar-Rahmani]

So if we have a good discovery, we'll do -- it will be very economic to develop.

[Jostein Løvås]

So I believe there are 2 more people that wanted to ask questions, before I take...

[Bijan Mossavar-Rahmani]

Jostein, I think the third question Teodor, OpEx per barrel going forward, that was good.

[Teodor Sveen-Nilsen]

Yes. That's correct. It looks like on a per barrel basis will increase somewhat. Oh, yes...

[Bjorn Dale, Managing Director]

We talked about Kurdistan being stable and known for many years. It's been quite remarkable and good achievement for us. As you know, we're running just over $3 per barrel of lifting cost, which is more or less all in OpEx per barrel. So that is among the lowest you're going to see anywhere we maintain that for 2 current producers, Tawke field and the Baeshiqa field. So I don't think that there will be any changes on that. As I mentioned, there is a new field coming in our fields from the Baeshiqa license. There will be some increase on that. Average base for Kurdistan with the new production coming in from the Baeshiqa. But not that much, and we expect that once we see that production coming up from our new development that they will be approaching the very low levels that we have already from our 2 current producers. And we talked about the North Sea OpEx already. So I think we covered that question, if that's okay.

[Jostein Løvås]

People wanting to ask questions before we close the meeting. And the first one is Karl Schjøtt-Pedersen from ABG.

[Karl Fredrik Schjøtt-Pedersen]

One question regarding the split of CapEx between the barrier -- between Baeshiqa and Tawke, I guess. Could you elaborate on how our CapEx spending is allocated between the 2 fields? Second, in terms of exploration cost, is that entire amount related to activities in the North Sea?

[Haakon Sandborg, Chief Financial Officer]

Yes, let me answer the first question. I think we guided you on the CapEx for the year. So it's around Kurdistan, CapEx is around -- is under $200 million. Most of that will be for drilling on Tawke and Tawke facilities. I mean Tawke license, including Peshkabir. So out of the $200 million or so, a large majority is for the development of our existing producers, but I'd love to be able to give you detail on Baeshiqa. But say it is around 20% out of that. There's a rough guidance on the $200 million for Baeshiqa CapEx spending this year is when I gave plus or minus. That's okay?

[Bijan Mossavar-Rahmani]

If you look at these numbers, again, it's amazing that for so little money, we're doing so much activity in Kurdistan, in 17 wells somewhere else would cost a lot more than we sort of perfected that in Kurdistan Tawke field itself. We drill wells for well under $10 million a well now. Baeshiqa is deeper, a bit more expensive, although we got a handle on that. And with the experience at the early wells and the new wells that we'll drill at Baeshiqa will be more costly. But with time, again, we'll find the right way to do that as well, and we're lucky that DNO had artificial intelligence machine, we learn as we go, and we apply the learnings and get better and smarter and more efficient as we go. So you look at those numbers, the level of activity we're doing for those numbers is quite impressive by any standard. And that again to the earlier question about the quality of the PSCs. I mean the current PSCs are into the most attractive PSCs I've seen in the world there, they're tough. They're tough. The -- what was being Kurdistan's special is the fact that it hasn't properly been exploring. And there are opportunities to go in and do exploration of prospective areas and make discoveries, which DNO did, and our success has been not because the PSCs are incredibly attractive, and they're not. It's because what we're able to finding the oil and putting it on production quickly and at low cost that made it work for us, notwithstanding the fact that the PSCs aren't also attractive in the world and notwithstanding the fact that Kurdistan, as you all know, is land locked, so we pay quite a discount to get the oil to market. So even consider all of that, we've done very well, because we've done things the DNO way, and that keeps coming across, I think, in our presentations and in our activities. And with that, I will go back to my tour of the Peshkabir gas plant and eventually lunch with our operational people and it's a beautiful cool day here. And it's just great to be back, and it's great to see Kurdistan back again, and open for investments, and we're looking for other opportunities in Kurdistan as well. This is an important area for us. We are comfortable being here. There are challenges, but I think we feel that we are able to do things and our efforts are appreciated by the government and by those -- the communities and other stakeholders with whom we work here in Kurdistan.So it's a very welcoming place DNO and DNO is doing its part for Kurdistan as well. So thank you for participating. I think we had a large group on the call, and we'll see you on the next call, which I hope will be in Norway after some years and the COVID will calm down in Norway and the world will be a lot more normal place than it's been for the last 2 years. And thank you very much for your support during this period and your interest in our activities.

[Jostein Løvås]

Okay. Thank you.