Earnings Transcript for DTNOF - Q4 Fiscal Year 2023

Jostein Lovas: Good afternoon, and welcome to DNO's Fourth Quarter and Full Year 2023 Earnings Call. My name is Jostein Lovas, and I'm 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 questions. Please note that the Q&A session is for investors and analysts, and any media requests will be dealt with separately. During the presentation, all other participants in this call will be in a listen-only mode. [Operator Instructions] And with that, let's start the presentation and I hand over the word to Chris.

Chris Spencer: Thank you, Jostein, and good afternoon, everybody, from a cold and wintry Oslo. This is, of course, DNO's 2023 interim results so as well as reporting Q4 of last year, we take a look back over the last 12 months or so and gives us the time to reflect on a very interesting year. As the headline, the first chart summarizes that last year, we had our challenges in Kurdistan but clearly, the year was characterized by a very strong rebound in production from our Kurdish business and of course fantastic success in the North Sea with our exploration program. In addition, throughout all the turmoil of last year, we have maintained our dividend payment to shareholders in line with our previously announced pivot towards shareholders. So running through this slide, obviously, Haakon will come back and talk more about the financials later, but I think that really the story of the financials is spelled out by the production to a great extent, where of course, Kurdistan is a lower production year-on-year compared to 2022. But given the circumstances that I assume most are aware who joined this call with the export pipeline being shut and our fields being closed in for most of Q2, tremendous result to end up with 35,000 barrels a day of production from Kurdistan for the full year and a running rate of 80,000 barrels a day as we came out of the year. On the North Sea side, our production actually pleasantly surprised. I think that was above guidance somewhat, and very nice contribution for our first full year with our Cote d'Ivoire position, the West Africa, and a very nice additional cash flow coming in from that asset in 2023. As we discussed in the previous quarterly call, the ability to ramp up production in Kurdistan, it comes from sales to what is called the local market. That means that we are selling our oil at low to mid-30s per barrel, which is uncomfortable for all. On the other hand, we are being paid in advance, so we don't release any of our oil until the money is in the bank. And so, we have extremely high payment certainty, you can get much better than that, and that gives us great comfort that any costs that we spend in the region will be coming back to us through the cost recovery mechanism in the following month. And of course, as we always do, we have reacted to a downturn in the Kurdistan business very rapidly and quite a remarkable reduction in operational spend through the -- from if you look at Q1 of last year through to Q3, Q4, and of course, great recognition to our team in Dubai and Kurdistan that have made that happen. And regrettably, a number of colleagues, we've a number of colleagues let go in that process. I think because this year of turbulence in Kurdistan has highlighted the importance of the strategic move the Board made a few years ago to pivot towards the North Sea. And following the move back in 2019, I think last year was a new standout year for us in our North Sea, given the organic value creation we have achieved through the exploration successes. And we've reported on those previously, but it's still very gratifying to look back on the year. And of course, we are not resting on our laurels. We have plenty more to come. And then this week, we're also pleased to announce what we expect to be inorganic value creation by acquiring a 25% in the U.K. producing field that I'll talk to, a little bit more on the next slide. Finally, through the thick and thin of 2023, we stuck with our commitment to our shareholders and maintained the dividend throughout the year. Next slide, please. So, as I touched on, clearly a real bright highlight for the DNO Group last year was our sort of breakthrough success last year on exploration. And there's a very nice chart from WoodMac for us where we are placed second in all of the explorers in Norway in terms of resources discovered. This is really a great validation of the Norway strategy of DNO, where we -- and I think that's also recognized in the Sonny WoodMac report that Norway itself remains a top destination for exploration in the globe in terms of the volumes that are discovered. And it is great for us that we're a leading player in that basin. In particular, what was great fun last year was to have to be involved in the biggest discovery for quite some years, which is the carbon discovery that I think we talked in more detail in the last quarter. Equally important is moving forward what we found towards development and both Bergknapp discoveries and Ofelia discoveries took important steps forward in that regard with appraisal drilling that confirmed the predrill expected volumes. And in Ofelia's case led to a small additional discovery in a shallower interval, which will be extremely helpful for the development concept of that asset. As I'll come back to on following slide, and we are not over yet. We have a lot of attractive exploration opportunities still in our portfolio and a good drill queue coming up. The engine is still running. We recharged with 14 licenses in the latest APA round. As we go through the year, we not only take drill decisions, our team is very focused on high grading our portfolio of the drill decisions. So, there's a lot of drop decisions in the background and I think that 14 means we're largely flat in terms of the total portfolio of exploration licenses. Very pleased that we were able to sign this week the deal with ONE-Dyas to acquire 25% stake in the U.K. field Arran. In the U.K. we have a sort of mini oil and gas business. We've had decommissioning. We have some exploration permits. One in particular we announced recently where we're an operator with Aker BP as a partner that is just across the border from the Alvheim area. And so to have the production that complements the rest of the business there, small piece of production is great. And in addition to that, we have historical tax losses, which means that that asset is of more value in our hands than it would be in the previous owners. And that gives you an opportunity to do a deal that both sides are happy with. The other aspect, we have been looking to enhance our production in the North Sea business generally, and that's alluded to in the next point that we are exploration and development heavy and we would like to balance that up with a bit more near term production. Having said that, we have -- going to have nice contribution from Andvare coming on later in this year to boost our North Sea production and Trym restart, which is dependent on the huge total project in Denmark. So it's currently slated to restart around March, April I believe is their latest announcement. Next slide, please. So what we've been very strong on recently is Norwegian exploration and that acreage is still producing great opportunities. As you see, six out of the seven firm wells that we have this year are in that Troll-Gjoa area where we've had tremendous success last few years and will be helping us move the existing discoveries towards development as well as being interesting in their override. A couple to highlight, I think, are the two numbers, one and three on chart where we've got the opportunity to praise our Heisenberg discovery at the same time as targeting very valid, very robust exploration prospects in the form of what's called Hummer and Angel. So we have two key objectives for both of those wells which is a very nice position to be in. And then the one other I thought to highlight on this slide is Falstaff. That is a DNO operated well and is the only one here not in that core area. And you will see from the numbers what then we are looking for. You'll see from the volume potential numbers that clearly this has a -- we have potential a much higher upside should this one work. And I think that gives you the context of what it is we demand from opportunities that are not in the core areas where we've had success so far. With that, it's time to turn over to financials and my colleague and CFO, Haakon Sandborg.

Haakon Sandborg: Thank you, Chris. Hello everyone and thanks again for attending this earnings call for our Q4 and full year 2023 results. I'll be doing the financial review, of course, and let's start looking at these key P&L figures focused for 2023 compared to those to 2022. As Chris noted, the shutdown of the export pipeline in March last year resulted in both lower production and lower realized oil prices in the local market in Kurdistan. So, our Kurdistan revenues consequently dropped by $567 million from $820 million in 2022 to a level of $253 million last year. As it was, North Sea revenues also declined last year by $143 million from 2022, and that was mainly due to lower oil and gas prices. Though, in some group revenues were thereby down by 51% to $668 million in 2023. As you can see on the slide the operating profit also dropped by close to 50% last year. That was on the lower revenues but also offset by reduced depreciation and much lower impairment last year. Tax expense was up in 2023 and this also then contributed to the low net income of around $19 million last year. I' will revert to these points over the next slides. Next slide, please. Lots of numbers on this slide, but to the left to comment briefly on the Q4 P&L results compared to the third quarter last year, we saw a substantial increase in Q4 revenues that was driven by much higher production and local sales in Kurdistan. There was also some increase in quarterly North Sea revenues on higher oil and gas prices. On the cost side, our cost of goods sold increased on the higher production in Q4, expense exploration was up on the purchase of seismic data, while impairment charges also increased in the quarter to $18.9 million, and that was due to revised estimates for the Vilje and Ula fields in the North Sea. As you can see, the Q4 operating profit is thereby pretty flat from Q3. As we move down on the P&L statement, net finance was high in Q3. That was due to the time value adjustments of the KRG arrears that we took in that quarter. So you can see net finance is net finance expense is back to a normal level in Q4. The drop in tax expense in Q4 is basically on change in deferred tax and in sum our net income improved significantly in the quarter and that is very good of course. If you look at the right on this slide you will see the full-year figures and again the lower revenues. Revenue is the main driver, but there are also some major cost changes including lower expense exploration last year that was due to, basically a higher expensing of dry wells in 2022. As mentioned, we had no significant impairment charges last year, so there is a big reduction in impairment compared to 2022. Now, net finance for 2023 includes the $45 million in financial expense from the time value adjustments of the KRG arrears in Q3. So, if you net out that item, there is a big drop in net finance expense that comes with a strong support from much higher interest income in last year. Again under tax expense, the impairments in 2022 provided significant tax income while we had high deferred taxes in 2023. That means that we moved from tax income in 2022 to tax expense last year. So, all-in net income thereby dropped to a fairly low level at $18.6 million last year. Thanks. Moving to the cash flow and as you can see, our 2023 operational cash flow fell substantially to $295 million down from $1.1 million the year before. This large reduction was again primarily due to much lower revenues. Just to mention as well, we also had negative working capital changes of $64 million last year, including a decrease in payables in Kurdistan and other items, and this compares to $66 million in the other way positive working capital changes the year before. However, we had high tax installments of $90 million in the first half of last year, while we cut the net investments to $280 million. That net number includes $20 million in cash inflow from our new assets in West Africa. As you can see under finance, net finance outflow was $160 million, primarily for our quarterly dividend program at $92 million, and also for our share buybacks in the first quarter of last year at $51 million. Thereby, in total, our cash balances dropped by $234 million in 2023 to $719 million at the year-end. But most of this reduction was in the challenging second quarter last year when we had no production in Kurdistan. So, you can note that it's good to be noted I think, that our cash position remained basically flat in the second half of the year as we gradually then strengthened our Kurdistan operations again. So it was mostly the second quarter that was the problem. So, as I said, we maintain solid cash balances at $719 million and with a net cash position of $153 million at the year-end. So our balance sheet strength remains very much intact. The slight reduction of our strong equity ratio to 47% at the year-end is mainly mostly due to shareholder distributions that we made last year. Next one but to comment a bit further on our capital structure, we have now fully redeemed the remaining balance of $131 million on our DNO03 bond. That was done on the 5th of January this year and thereafter we now only have the DNO04 bond remaining. This is outstanding at $400 million with a 2026 maturity. In addition, we currently have $35 million of bank debt outstanding under our RBL facility. With that, I think I would like to note that we have reduced our gross interest-bearing debt from close to $1.1 billion at the year in 2019 to the current level of $435 million. So combining that also with high cash balances and increasing rates on deposits, the net interest expense in this pair has also declined significantly from $80 million in 2019 to a net interest of only $8 million last year as you can see on the graph to the right. This substantial debt reduction and concurrent drop in the net interest expense, I see those as key components of the buildup our financial strength over the last four years, and like to note also that the reduced leverage has also freed up capacity to pay dividends to our shareholders that we are now using in our quarterly dividend program. Okay, for our operational spend, we reduced our actual total spend significantly last year to $561 million which was pretty close to our revised guidance from Q3 last year. This reduction reflects the spend cuts in Kurdistan following the export pipeline closure. Again, as we've noted before, this confirms our flexible cost structure in this region. When we look ahead, we increase our work program for 2024 by 15% to a spend level of $645 million and the increased spend is mainly within CapEx and exploration. The planned CapEx of $205 million this year is primarily focused on the North Sea. That reflects a broad development activity on several fields and produced if you want including Berling, Brasse, Tambar East, Brage and Andvare and other projects and fields we are working on. Kurdistan accounts for around one-fourth of the planned CapEx this year and this is mostly focused on drilling of the upcoming Baeshiqa-3 well and on the minor facility products in the Tawke license. Building on our successes over the last years, we continue our broad exploration program in the North Sea. As Chris discussed the total exploration expenditures increasing to $180 million this year. This is again an exciting exploration schedule includes the seven exploration and appraisal wells that were presented earlier today, which we think have a significant upside potential towards new resources. With the successful completion of most of that U.K. Decom work planned Decom expenditures this year is limited to $20 million. North Sea net production is projected to increase to 15,000 to 16,000 BOE per day this year and they have production starting up at Trym and Andvare. The acquisition of the 25% license interest in the U.K. Arran field will add additional net production of 2,000 to 2,500 BOE per day, after closing of the transaction. So we are very pleased with that very positive transaction in our view. We currently expect gross production at the Tawke field and Tawke license in Kurdistan to continue to average around 80,000 barrels of oil per day. And on that volume, we should again see significant free cash flow generation from our Kurdistan assets. As we note here on the slide, this production level could however change, depending on the outcome of discussions with the KRG, on the recovery of the outstanding arrears for past deliveries, and also regarding payment terms and conditions for future oil exports from this region. But as such, the IOCs, the oil companies in Kurdistan, have stated that the need for clarity on how these issues will be resolved prior to resumption of oil exports. And this in turn will drive investments in new wells and thereby in future production. Okay. With that, I'm going to stop here and hand it back to Chris.

Chris Spencer: Thank you, Haakon. Our last slide is just to sum up that as we've been stating for a few quarters now, we are putting investors first. So we continue to grow DNO as what we like to think of as a bold and nimble international oil and gas company. And we are now into our second semi-centennial and we're all working hard to see if we can get to the full century. Of course, the whole purpose of a stock-listed company is to provide a return to our shareholders and therefore they rank highest amongst our shareholders. And I believe in 2023, we've showed our commitment by maintaining a dividend despite the turbulence in the Kurdistan region. Since the resumption of dividends as you see, we have now returned $187 million to shareholders and there's been opportunistic share buybacks in addition. Our other very important investors are our bonds shareholders and we're very proud of the track record we have here. And once again, entering a tricky situation in Kurdistan with a very strong balance sheet has meant that we were able to pull ahead of time the remainder of the DNO03 bond. Just summing up, reflecting on 2023 where it brought us to, we believe that DNO is well set to go forward. We have very low-cost production in our heartland of Kurdistan. We've been adding a high amount of value organically through the drill rig in the North Sea, which is giving us attractive growth prospects. And we still have a robust balance sheet to maintain a combination of an attractive project slate and returns to shareholders. Thank you very much.

A - Jostein Lovas: Thank you, Chris and Haakon for presentation. And we are then ready to start the Q&A session. And we'll be joined by Bijan, you can see. [Operator Instructions] The first one goes to Teodor Sveen-Nilsen. Please go ahead. Have you unmuted yourself?

Teodor Sveen-Nilsen: Yes, I'm unmuted, but you didn't unmute me. Can you hear me?

Jostein Lovas: Yes.

Teodor Sveen-Nilsen: That's great. Okay, thanks for the update. Three questions for me regarding the first on the U.K. acquisition, which looks exciting. As far as I remember, you have some tax loss carried forward on the U.K. shelf. Can you use some of those tax loss carried forward and are in position to guide on a cash tax rate for that production? So that's the first question. Second question is, on the guidance that Haakon presented, what kind of scenario for pipeline opening or potential pipeline reopening? Have you baked into those estimates? And then following on that, given the scenario where the pipeline actually opens today, how will the operational spending CapEx develop in that kind of scenario?

Haakon Sandborg: Thank you, Teodor. I can start with question number one. Thanks for the kind congratulations. We're very pleased with the deal. As I mentioned, that we have a group of small interests. We've had a group of small interests in the U.K. related to decommissioning, exploration, et cetera. So it's great to put production on top of that to make a more financially sound entity. Part of that is definitely the tax losses that we've had. You're right. And I think those have been noted in the relevant annual reports. We haven't offered a cash guidance -- the guidance on the cash tax from the asset. That's maybe something we can take away and think about.

Teodor Sveen-Nilsen: Sorry, could I just ask? It's fair you don't have the numbers, but is it fair to assume that you actually can use some of the tax loss carried forward? There's no ring chance?

Chris Spencer: Correct. At least for this year. Maybe next we're not expecting to pay tax.

Teodor Sveen-Nilsen: Okay, thanks.

Chris Spencer: Then the second question was for some of your numbers.

Haakon Sandborg: Can you repeat that question again, please Teodor?

Teodor Sveen-Nilsen: Yes, absolutely. It's regarding the guidance for operational spending CapEx. What kind of scenario for pipeline opening is baked into that assumption? I guess with a full open pipeline and a credible payment mechanism, that guidance would look different. And then the third and final question was that in the scenario a full pipeline reopening today, how would the guiding look like in that scenario?

Chris Spencer: Well, I can maybe have a go at that and then maybe Haakon and Bijan may have something to add. But I think where we're at, Teodor, is we are planning for the worst and hoping for the best. So those figures assume local sales throughout the year. And really that is what we've been focused on. We tried to communicate the last couple of times as well. We are very focused on what we can control. We have an asset with a very low production cost. So we are making money from the production. And we're working extremely hard to maintain a very high level of local sales and extremely efficient operation to ensure that goes forward. So we aren't including any speculation in those figures. It's all based on the future as you see it. Of course, we would welcome the reopening of the international pipeline and the exports to the international markets. That'd be wonderful. And we are ready through DNO and our industry association to contribute in any manner that will move such discussions forward. And as was pointed out by Haakon on the second last slide, most definitely investment levels would be impacted by such a development as long as, we as one of the international companies can understand how we will be remunerated in such a scenario. In addition to that, as Haakon touched on, there is the issue of the arrears which the Kurdistan regional government still owe us. And we also see that there is potential for, if arrangements can be made for some repay -- payment of those arrears, then that could also lead to restart of some investment in the region. But all of that is speculation and in the future. So for the guidance we have based it on the way things are today. Bijan, Haakon anything to add?

Haakon Sandborg: As I mentioned, the indication of around $50 million of CapEx in Kurdistan this year is basically for the new well, Baeshiqa-3, and some otherwise just a maintenance and minor projects on the two producing fields in the Tawke license. So as Chris said, naturally when we are happy with the resolving of the outstanding issues on arrears and payments going forward, we will step up CapEx and drilling and go back to the normal operations in Kurdistan once all those issues have been agreed. Bijan, maybe you wanted to add?

Bijan Mossavar-Rahmani: Just that, the impact of the opening of the pipeline and a doubling effectively of our per barrel revenue, it would be very substantial to DNO when you consider the volumes that we produce in our net entitlement figures and then our ability to ramp our production even further. With that confidence, we're currently doing quite well at 80,000 barrels a day. We had expected that when we opened up the field without additional wells and additional spending that our production would be lower than this. So it's held up at 80,000 barrels a day, which is quite something. But to maintain that level going into the future. we need to make some probably modest investments initially. So there's this huge potential for a very significant injection of cash into DNO. The other, of course, as I mentioned, is the arrears, which are something in excess of $300 million. That's a lot of dollars. You put that in perspective, our current market cap is under $900 million somewhere. This is about a third of our market cap. And to the extent we can recapture that and some combination get better pricing. On the oil, the difference it'll make to the company is huge. This is not the first time, as you know, that we've had an arreas build up. This happened during the ISIS period where the pipeline closed off and we started trucking oil, as we are doing now, into the two local buyers, even larger volumes. We were then trucking about 120,000 barrels of oil a day, so it was a significant trucking but our netback was lower. But we did fine. And the arrears that had built up, we converted into a much larger piece of Tawke, and with the government's 20% stake going to us and some other obligations that we had under the contracts disappearing in exchange for some of the arrears, I think we did quite well. And all was going well until this, again, the latest crisis, a couple of years ago, economic crisis, because of the drop off in funding from Baghdad to Kurdistan. And then the legal resolution of the, maybe I'm not sure all the parties agree or it's been resolved yet, but with the ruling of the arbitration panel against Turkey on the matter of the use of the pipeline for Kurdish oil, the situation changed. So we've been hit by both of those, but it's not the first time we've been hit in Kurdistan. We've always managed to find a way through the fog and through the storm and come back on the other side. And that's our expectation hopefully that we will do the same this time. But as Chris says, we are not counting on it. We're taking a very conservative approach and planning around a conservative approach. But we expect things will improve and will impact us, our business at Kurdistan, significantly. And we are working very hard towards that. To the extent we have any ability to make a difference, we are working very hard to make that happen.

Jostein Lovas: I believe the next question goes to Øyvind Hagen. Please unmute yourself.

Øyvind Hagen: Thank you. Ivan from the Arctic here. I have a question regarding the local market and volumes that you are guiding for Tawke 2024? And when you're saying around 80,000, how good visibility do you have on the local market actually being able to absorb that? Have you managed to sign some longer-term offtake agreements? Or could you just elaborate a little bit on how you arrived at that 80,000 guiding?

Chris Spencer: If I could answer that. This issue came up the last time we were trucking large volumes. The question was raised, well, how large is the local market? Where is all this oil going? When we say the local market, that doesn't mean local consumption. It means purchased by local trading companies. At this price difference, where Brent is in the 80 range and our oil is in the low 30s range, the market for that oil with those margins is unlimited. It'll find its way to every corner of the world. If we're producing 300,000 barrels a day, that oil would move. They're constrained to trucks. But we found that trucks appear from nowhere or from everywhere, and move this oil, that would have normally been the constraint, constraint would be the trucks. That doesn't seem to be the case. So, again, we have to be careful to distinguish between local consumption versus local trading companies picking up this oil and moving it. And the trucking and purchase of this oil is importantly governed by the Ministry of Natural Resources in Kurdistan. They select, for security and other reasons, certain buyers that are authorized by them to buy the oil. We negotiate pricing with those buyers, and we move it. But and some of the oil sometimes does go into local refineries if some of the oil is cut off. But for the most part, the local market, our local traders moving this oil to wherever the oil will find a market. And at these margins and these prices, it'll find the market.

Øyvind Hagen: Okay, so the restriction on volumes is more set by DNO and the production capacity on Tawke, rather than limitations in amongst local buyers?

Bijan Mossavar-Rahmani: Exactly. Or limitations in trucking. Again, those trucks show up. I don't know how many trucks come in every day now, mostly in the hundreds. And during the ISIS period, when we were doing 125,000 barrels a day, we were, I think, filling a truck every two minutes. We likened it to a Coca-Cola bottling factory. These trucks would come, they'd load, they'd go, the next truck would come in. It was just an amazing operation to watch and I think that constraint is not one that we face. If it was, it'd be a problem, and there'd be more competition among the international operating companies to see who gets the limited number of trucks, but trucks are not a limit. Limit is how much can we produce and how to do so in a responsible fashion as an operator. So, we do know the harm to the fields and the natural reservoir pressure and so on. So, we act as a -- continue to act as a prudent operator. That matters to us as well. But we felt that 80,000 is a comfortable number. On some days we're up at 90,000, some days a bit lower. But we thought 80,000 is a figure that's achievable in 2023. And again, some of these other issues are resolved. We can go higher with the drilling of additional wells. And we're already doing some light work. We replaced pumps that go out and so on, so on. But we thought 80,000 was prudent and achievable. And we don't want to plan for much more than that. So, that we maintain our ability to control our own fates. And we have the support of our partners Genel of course, in our strategy, in our sales program, and so on. So, it's a contractor position contractor being the foreign oil companies who are parties to the Tawke license. Chris, do you have anything to add to that?

Chris Spencer: I think that's a good answer. And I think you mentioned our partner Genel I agree. They've been very supportive. Also the buyers. It's unusual for us to have such direct interaction with buyers in the oil business. And so it's been a great partnership with those buyers who Bijan saying they've got a great opportunity. And they've managed to develop their markets very rapidly. And, of course, the Kurdistan government who have controlled the whole regime.

Jostein Lovas: Okay, I think we can go to the next questionnaire. That would be Christoffer Bachke. Please unmute yourself.

Christoffer Bachke: Everyone. Christopher from Clarksons Securities. Thanks for taking my questions. First of all, congratulations on another strong quarter given the circumstances. Could you please talk a little bit about the capital allocation strategy going forward? How do you think around further M&A and also the trade-off between dividends and buybacks? Secondly, while I know this is a difficult question to answer. Can you say anything about the recent development in Kurdistan in terms of pipeline reopening? And what expectations do you have for reopening in the coming months? And lastly, when do you plan to build a B3 development well on the Baeshiqa license during 2024? Thanks.

Bijan Mossavar-Rahmani: Okay, on the capital allocation, I can just comment on that. We have repeatedly confirmed that we want to maintain our dividend program. We have reduced our debt, as I said in my comments this afternoon, and we have the capacity to maintain that. Our focus is on the dividend. We have done share buybacks in the past, but we're not sort of focusing as much on that at the moment. That could change, but we want to certainly have a priority on the dividend program. Otherwise, we want to keep our strong balance sheet intact. So we have always said we will keep a good to cash balance at the bottom of our balance sheet to be prepared for every sort of unknown that could come our way. So we will have that as well. But we have a pretty good program in the North Sea for capital investments in development, several projects, as we mentioned today, and also exploration, of course, supported in the back by the Norwegian tax regime, where they had tax refunds on tax losses, et cetera. So I think we will continue and go as we have done successfully now, when we have strengthened our position substantially and want to keep that intact at the same time as we grow the business with the use of our cash and our cash flow. Once we're back to a more normal situation in Kurdistan and we are seeing some of the same income and cash flow that we had in the past, then these comments might change. But for the time being, that's kind of where we are. Anyone add on to that?

Chris Spencer: On the issue of Baeshiqa, I think that's significant, that I believe we're the only company among the international oil companies in Kurdistan that's investing. And the Baeshiqa well is an expensive well relative to the development wells on Tawke field, which were running well under $10 million a pop. This Baeshiqa well, I believe, is in the range of $40 million or so. Some of that money has been spent in terms of supplies that were required before. But we decide to continue with the drilling program. The rig is not on location. We're rigging up, and we should be ready to go in several weeks’ time with that, that's a sign of our commitment to, but also continuing great interest in the opportunities in Kurdistan to be able to bring that, Baeshiqa to a and a sister field to production. Interestingly, as many of you follow us, and know, our partner on Baeshiqa is the Turkish energy company and of course, they're the ones who operate the pipeline through Turkey. So it's interesting that we have a partner in Baeshiqa that also is a key driver and decision-maker in what happens to the pipeline reopening. So intriguing.

Bijan Mossavar-Rahmani: I think there was one more question in between, wasn't there?

Chris Spencer: Yes, the question we get every time we have a quarterly presentation from every investor. So when's the pipeline opening? And I think we aren't in a position to shed any wonderful light on that. I wish we were. As Bijan touched on, we lobby and influence as best we can and we're certainly here to engage constructively to help that happen. But we're not a key player. Clearly, it's the governments who are in the driving seat on that. And so I think what our shareholders and other investors are looking to us is to make sure that we run the company as well as we possibly can through this period. And that's what we're very focused on and that's what you've seen in front of you today, that as Bijan said, there's a great opportunity for additional income if that happens. In the meantime, we are working very hard to ensure we have a profitable company and build a future for DNO.

Jostein Lovas: Great. We have a couple of more questions before we wrap this up at the one-hour mark. And the next one is Nik Stefanou. Please unmute yourself.

Nikolas Stefanou: Hi guys, it's Nick here. Can you hear me?

Jostein Lovas: Yes.

Nikolas Stefanou: Just a couple of quick questions for me. The first one is from the subsurface performance of both fields. When you guys shut them down, the initial expectation was that production initially will have some flash production, just basically because the fractions were charged by the matrix. Is this what you saw from both fields? And in general is other observers performing as you have expected them? So that's the first question. And the second one I think it's more of like a strategic question about the capital structure going forward. You guys called back the 2024 which was expected. You've got 26 in a couple of years' time, so perhaps in a few months or in a year's time you're going to start thinking what you're going to do with them. Now that interest rates are higher than say maybe a couple of years ago. Is your thinking basically to kind of like have that liquidity there? Just maybe refinance them at maybe a very high interest rate or just kind of like call them back or do you think you might be able to find cheaper sources of funding. So just kind of like get an understanding of how you think of the capital structure going forward?

Chris Spencer: Happy to. Yes. After the two rig fields were shut in for three months or a bit longer, in the case of Peshkabir, we have indeed seen plus production. Since restart, there's been several ups and downs, so although we have grown production nicely quarter by quarter, that hides quite a few fluctuations in the meantime, as we built up the market and the production, matching the market. And so it's difficult to say whether we are through that, what you might call flush production, we need a bit more time to understand that. At the same time, as Bijan mentioned in his comments earlier, we're treating the fields with kit gloves at the moment. We have a lot of ESPs for example, we have three phases in Peshkabir gas at the top, water at the bottom, and all in between. And we have the same now at Tawke, following our successful gas injection scheme. So, at 30-odd dollars a barrel, we don't have the same economic incentive to push these fields. So we're making sure we look after them.

Nikolas Stefanou: Thank you.

Haakon Sandborg: Okay. And on the capital structure Nick, good to meet up again. As we have talked about in our recent meetings, we basically have only the one DNO04 bond remaining, with a one long-term maturity September 2026. But as you know, we have been very busy and very repeating issue, a repeat issue in the bond markets for many years at least, I kind of see that as a favorite debt market for DNO, one that naturally fits with our profile and where we are with our operations. We appreciated the strong support of many investors. So we are looking for acquisitions and chances to grow the business. And when that happens next time, if it's a more flexible transaction, where we need to go through the capital markets, I think the bond market is where we would go again and finance a big part of that acquisition. So we are basically prepared to come back to the bond market, preferably when we have a new deal to fund to get a bit of what we have already on the balance sheet in terms of cash. If it's one of the North Sea transactions that we are been focusing on, then we also have the support of our reserve-based lending facility with seven banks, it has a limit of $300 million. So we see that as partly as an acquisition financing instrument that we can use to add on depending on the size of the deal. So if it's a North Sea deal, we could use both banks and bonds. And I think it's about cheaper source of financing. Well, bank funding has also become expensive with increasing rates and with the margin up. So it depends on the difference, of course. But I think we would basically, stay with where we are with adding new bonds and using the banks and having a strong balance sheet as the basis and use some of the cash in a given transaction. So I don't see a big change in our strategy in that respect. We will do what we have done successfully for many years and do that for the next investments as well.

Nikolas Stefanou: That's very clear. Thank you.

Jostein Lovas: Okay, then. I think we are getting closer to the end here. I'll remind the press that you can post your questions to us directly after the meeting. And last questionnaire will be [indiscernible]. You can unmute yourself. Go ahead.

Unidentified Analyst: Hi, gentlemen. Hi. Can you hear me?

Chris Spencer: Yes.

Unidentified Analyst: All right. Thank you for the opportunity to ask my question. Message loud and clear on that dividends are a priority, but still a question on share buybacks. You have purchased back $62 million in shares since 2021, of which $51 million was done in 2023 when the valuation of the company was, of course, significantly lower. Now, my question is regarding the role of valuation in your decision-making process between choosing between dividends and share buybacks? Perhaps you can share a bit of your thought process behind this. Thank you.

Chris Spencer: Yes. Well, we have used both options, as you know, as we talked about already in this meeting, we are now again focused on having a perceivable and long-term quarterly program that we want to try to maintain in a good way. So on the dividends, I mean, that's the priority basically at the moment. As I already said, I don't think we will short term engage in more share buybacks, but that could change if there's a reason to do so. And we're flexible in that respect as well. But the real focus now is on maintaining the dividend growth, but that could change. But that's been our priority.

Haakon Sandborg: I think it's always I wish there was a simple formula. I think we're always trying to balance providing return to shareholders with investing in a business and ensuring that there's also a longer-term return to shareholders. That is the classic evaluation for anyone, I guess, company. And I don't think there's a simple formula there. It's something we work with Bijan and the chairman and the board on quarter by quarter.

Bijan Mossavar-Rahmani: I think we can safely say that the first priority is to maintain our dividend policy. What's left over then, of course, we have options, share buybacks, other investments, and so on. But the dividend is becoming more and more sacred at DNO, as it is at other companies, oil and gas companies. So once those are taken care of, then share buybacks are also very attractive. Certainly, these prices place to put our funds. I do want to just end by responding to this question that keeps coming up, is that when will the pipeline open? Now the pipeline this next month, the pipeline will have been closed for a year. And how time flies. We do know that the pipeline will open within the next two years sometime, because the contract between Turkey and Iraq for the use of that pipeline ends at that point, Turkey can do with the pipeline what it wants without any further exposure on the legal side, that may be a factor in their thinking. So it won't be shut in forever. Once the existing arrangements end, and they will end, the pipeline will reopen. So you can sort of, I think it's about two years is sort of arguments whether it's a little less or a little more, but you can count on that. And two years may sound like a long time, but it really will come pretty quickly. And in the meantime, again, as Chris mentioned, there's a lot of value to us of getting paid in advance. It's been no use to us to have prices in the $60 a barrel range after all the adjustments in the past when we're getting paid zero for them, effectively, I'd rather have $30 in the hand rather than, you know, the promise of $60 somewhere or I can't quite reach it or grasp it, or it can be taken away from me. We're resilient, we're flexible. We're trying to work around that. I think we're comfortable with this $10 million a year, a month sum. We'd like to see it higher, of course, and we'll be fine. DNO has been was first in Kurdistan. It's been the most successful international oil company in Kurdistan, both among all entrants, whether it's Exxon or Total or others that came and went, Chevron or the smaller companies. We've outperformed all of our peers, and so we've found a way to deal with it. We think of it as a Norwegian way of doing it, and we're proud of it. And we're still standing for a lot of others have left the battlefield, and it is a bit of a battlefield.

Jostein Lovas: So with that.

Chris Spencer: Or chessboard. Or chessboard. So I'm not being too with that.

Jostein Lovas: I think we're done for today. Thanks you all for listening in. And don't hesitate to get in touch with us for any further questions, if you have any. We look forward to reconnecting in May, where we will present the Q1 results for 2024. Goodbye.

Chris Spencer: Thank you. Bye.