DNO ASA, the Norwegian oil and gas operator, today reported a doubling of net profit to USD 35 million on revenue of USD 137 million in the second quarter of 2024. Net production rose six percent to 79,400 barrels of oil equivalent per day (boepd), of which Kurdistan contributed 59,800 boepd, North Sea 16,300 boepd and West Africa 3,300 boepd.

At the end of the quarter, the Company held cash deposits of USD 943 million and net cash of USD 158 million. The Board of Directors aims for sustainable dividends. On the back of solid results, a strong balance sheet and outlook, the Board has authorized a dividend payment of NOK 0.3125 per share in August 2024, up 25 percent from prior quarterly distributions, pursuant to the authority granted it by the Shareholders at the 2024 Annual General Meeting.

DNO increased spending in Kurdistan during the quarter to optimize production from existing wells at the flagship Tawke license (DNO 75 percent and operator), raising gross output from the Tawke and Peshkabir fields to an average of 83,500 boepd in the first half of the third quarter, up five percent from the second quarter and nine percent from the first quarter of 2024. To help address natural field decline, in addition to placing previously drilled wells into production, DNO prepares to mobilize a rig to drill the first new well on the license since early 2023.

On its other operated license in Kurdistan, Baeshiqa (DNO 64 percent), a 72-day testing program has commenced on the newly drilled B-3 well.

“We are not realizing full value for our Kurdistan barrels with the shutdown of the Iraq-Türkiye export pipeline, now twisted into a Gordian knot,” said DNO’s Executive Chairman Bijan Mossavar-Rahmani. “Until the knot is cut, we will compensate by spending more to produce more and by requiring payments in advance to our international bank accounts,” he added.

Meanwhile, in the second quarter the Company announced a discovery in the North Sea on the Cuvette prospect (DNO 20 percent), DNO’s eighth discovery since 2021 in the highly prolific area surrounding the Troll and Gjøa production hubs. The other discoveries are Røver Nord, Kveikje, Ofelia, Røver Sør, Heisenberg, Carmen and Kyrre, all close to infrastructure and with clear routes towards commercialization.

Even as it works to bring new discoveries on stream, the Company is adding to its current North Sea production through acquisitions. In the second quarter, DNO completed the purchase of a 25 percent stake in UK’s Arran field and announced the bolt-on acquisition of Norne area assets in Norway expected to close in the third quarter of 2024.  

To prepare for investments across its portfolio, including acquisitions, the Company issued a new USD 400 million five-year bond with coupon rate of 9.25 percent to supplement an existing bond with a remaining balance of USD 350 million. The offering was significantly oversubscribed and achieved a lower credit spread than previous DNO bonds, reflecting DNO’s strong financial position and outlook as well as flawless bond track record of 18 issues over the past 23 years.

Q2 2024 highlights 

• Net production continued to increase and averaged 79,400 barrels of oil equivalent per day (boepd) in the quarter, of which Kurdistan 59,800 boepd, North Sea 16,300 boepd and West Africa 3,300 boepd
• Kurdistan gross operated production totaled 79,800 bopd, of which Peshkabir field contributed 49,100 bopd and Tawke field 30,700 bopd 
• DNO’s exploration success in the North Sea continues with the Cuvette (DNO 20 percent) discovery announced in the quarter 
• On Baeshiqa (DNO 64 percent), a 72-day testing program has commenced on the newly drilled B-3 well
• Revenue decline since the previous quarter due to underlift and lower prices in North Sea and lower entitlement production in Kurdistan 
• Recognition of deferred tax asset related to the Arran acquisition which completed during the quarter, resulted in an impairment of goodwill. However, the overall book value recognized is USD 20 million higher than the consideration 
• Strong operational cash flow of USD 139 million, up from USD 100 million in the previous quarter 
• New USD 400 million five-year bond with coupon rate of 9.25 percent and USD 50 million buyback of DNO04
• The balance sheet remains strong with an equity ratio of 42 percent as the Company exited the quarter with cash deposits of USD 943 million and net cash of USD 158 million
• Dividend of NOK 0.25 per share (totaling USD 23 million) paid during the quarter

Gross production from the Company’s operated licenses in Kurdistan increased to an average of 79,783 barrels of oil per day (bopd) during the second quarter, representing a 5% increase from the previous quarter (76,310 bopd). The increase is mainly due to the start-up of three wells drilled during 2023, which were completed during the quarter.

Net production during the second quarter stood at 79,415 barrels of oil equivalent per day (boepd), up from 74,772 boepd in the previous quarter. In Kurdistan, net production averaged 59,837 bopd, up from 57,232 bopd in the previous quarter and North Sea averaged 16,321 boepd, up from 14,217 boepd in the previous quarter. In addition, the Company’s West Africa gas asset offshore Côte d’Ivoire averaged 3,256 boepd, down from 3,323 boepd in the previous quarter. The increase in net production compared to the previous quarter was mainly driven by higher production from Kurdistan. In the North Sea the increase was mainly due to inclusion of the Arran field after completion of the acquisition on 15 May and higher uptime on the Tambar oil field.

Net entitlement (NE) production averaged 33,489 boepd during the second quarter, down from 34,721 boepd in the previous quarter.

Sales volume averaged 30,038 boepd during the second quarter, down from 38,214 boepd in the previous quarter. The decrease in sales volume was partly related to the Tawke license and follows the reduction in net entitlement production and significantly lower liftings in the North Sea. The net underlift position was 0.41 million barrels of oil equivalent (MMboe) as of end-Q2 (Q1 2024: 0.11 MMboe).

Kurdistan region of Iraq 

Tawke license 
Gross production from the DNO-operated Tawke license, containing the Tawke and Peshkabir fields averaged 79,783 bopd during the second quarter (76,310 bopd in Q1 2024). 

The Tawke field contributed 30,684 bopd (28,379 bopd in Q1 2024) and the Peshkabir field contributed 49,099 bopd (47,931 bopd in Q1 2024) during this period. 

DNO increased spending in Kurdistan during the quarter to optimize production from existing wells at Tawke license, raising gross output from the Tawke and Peshkabir fields to an average of 83,500 boepd in the first half of the third quarter, up five percent from the second quarter and nine percent from the first quarter of 2024. In addition to placing previously drilled wells into production to help address natural field decline, DNO prepares to mobilize a rig to drill the first new well on the license since early 2023. 

As the export pipeline remains shut, Kurdistan sales to local traders continue at prices in the upper USD 30s per barrel with payment in advance to our international bank accounts. 

DNO holds a 75 percent operated interest in the Tawke and Peshkabir fields with partner Genel Energy International Limited (25 percent).

Baeshiqa license 
Due to the closure of the export pipeline, the DNO-operated Baeshiqa license has not been in production since mid-2023. During the second quarter of 2024, DNO continued to drill the B3 well on the license. Following the end of the quarter, drilling operations were brought to a close and a 72-day testing program commenced on the new well. 

DNO holds a 64 percent operated interest in the license (80 percent paying interest) with partners being Turkish Energy Company (TEC) with a 16 percent interest (20 percent paying interest) and the KRG with a 20 percent carried interest.

North Sea 

Net production averaged 16,321 boepd in the North Sea segment during the second quarter (14,217 boepd in Q1 2024), of which 14,344 boepd was in Norway and 1,977 boepd in the United Kingdom (UK) (13,824 boepd and 393 boepd in Q1 2024). 

The UK production increase was driven by contributions from the Arran field following completion of DNO’s purchase of a 25 percent stake in Arran in mid-May 2024. 

In the second quarter the Company announced a discovery in the North Sea on the Cuvette prospect (DNO 20 percent), DNO’s eighth discovery since 2021 in the highly prolific area surrounding the Troll and Gjøa production hubs. The other discoveries are Røver Nord, Kveikje, Ofelia, Røver Sør, Heisenberg, Carmen and Kyrre, all close to infrastructure and with clear routes towards commercialization. 

DNO expects to spud three more exploration wells in the North Sea in 2024, whereas two other wells that were originally planned for the fall have recently been postponed to 2025 due to revised rig schedules. 

Even as it works to bring new discoveries on stream, the Company is adding to its current North Sea production through acquisitions. In the second quarter, the company announced the bolt-on acquisition of Norne area assets in Norway expected to close in the third quarter of 2024.

North Sea production is set to grow significantly next year on back of recent acquisitions, restart of Trym (DNO 50 percent and operator) in the fourth quarter of 2024 and start-up of Andvare (DNO 32 percent), now scheduled for 2025. 

Two other ongoing Norwegian field development projects, Bestla (DNO 39 percent) and Berling (DNO 30 percent), are scheduled to contribute to DNO’s North Sea production later in the decade.

West Africa 

The net production from the Company's equity accounted investment, Côte d'Ivoire (West Africa segment), averaged 3,256 boepd in the second quarter (3,323 boepd in Q1 2024).

Financial

Revenues in the second quarter stood at USD 137.0 million, down 25 percent compared to the previous quarter (Q1 2024: USD 182.7 million). Kurdistan generated revenues of USD 56.5 million (Q1 2024: USD 60.2 million), while the North Sea generated revenues of USD 80.4 million (Q1 2024: USD 122.5 million). The main drivers for the revenue decrease were lower sales volumes in the North Sea reflected in the increase in the underlift position and lower entitlement volumes in Kurdistan. The increase in revenue in Q2 2024 compared to Q2 2023 is mainly due to the restart of operations at the Tawke license with local sales following closure of the export pipeline in March 2023.

The Group reported an operating loss of USD 3.2 million in the second quarter, down from an operating profit of USD 60.6 million in the previous quarter mainly due to higher exploration costs expensed and an impairment of goodwill in the current quarter in connection with the recognition of the Arran field acquisition. The impairment is more than offset by recognition of a related deferred tax asset.

Net financial expenses increased to USD 4.7 million (Q1 2024: USD 1.3 million) mainly due to higher unrealized loss on exchange rate fluctuations.

The Group ended the quarter with a cash balance of USD 943.1 million (Q1 2024: USD 606.5 million) and USD 158.1 million in net cash position (Q1 2024: USD 171.5 million). The increase during the quarter is mainly due to the placement of a new USD 400 million bond offset by USD 50 million buy back of the DNO04 bond.

Capital expenditures 

Capital expenditures stood at USD 61.3 million in the second quarter, of which USD 17.3 million were in Kurdistan and USD 43.0 million in the North Sea.

KeyFacts Energy: DNO Norway country profile