DNO reports strong first-quarter earnings

DNO, the largest operator in the oil sector in the Kurdish region of Iraq, said its profit surged in the first quarter of the year on higher oil prices and output from the Tawke oilfield, its main asset.

The company, which is controlled by RAK Petroleum and listed on the Oslo bourse, also said that it had acquired Origo Exploration, a private equity-owned company with exploration and appraisal licences in the UK and Norwegian sections of the North Sea, which it hopes will diversify the company’s interests away from Iraq and Oman.

DNO said its gross profit, which measures revenue minus cost-of-sales, was nearly US$47 million in the first quarter, more than triple last year’s first quarter and quadruple that for the whole of last year, which included some loss-making quarters.

Earnings before interest, tax, depreciation and amortisation (Ebitda), were $55m in the first three months of the year, versus $26m for last year’s first quarter.

DNO said revenue was $77m, the highest quarter since the end of 2014, when oil prices started to crash, and up from $42m in last year’s first three months.

World oil prices were sharply higher early this year after the deal by Opec and other major producers, while DNO’s output also was up compared the last year’s first quarter. The company’s working interest in the Tawke oilfield, which it operates in Iraq’s Kurdish region, rose 20 per cent to 69,000 barrels per day.

DNO’s interest in a relatively small offshore Oman oilfield was slightly lower, down 3.5 per cent at just below 2,500 bpd.

The company has previously said that it has resumed its drilling programme on Tawke to expand production this year after regular payments by the Kurdistan Regional Government (KRG) last year and this year, eating into the $1 billion of arrears the KRG had built up with DNO by the end of 2015.

DNO says it expects to drill a total of six new wells to increase production, and it has commissioned a 400,000-barrel storage facility to buffer disruptions to exports via the pipeline to Turkey’s Ceyhan export terminal that have previously been caused by sabotage by militants.

As part of a rationalisation of its assets, DNO has relinquished exploration licenses in the UAE RAK Onshore and Saleh properties, as well as the offshore Block 26 in Oman.

Bijan Mossavar-Rahmani, the executive chairman of both DNO and RAK Petroleum, indicated DNO will look to expand on the Origo acquisition in terms of building its assets in the North Sea.

“We are now positioned to pursue further asset acquisitions and, importantly, to compete in future exploration bid rounds offshore Norway,” he said, announcing the Origo purchase. The company did not disclose the valuation of the Origo acquisition other than to say it assumed Origo’s license obligations – seven in the Norway sector, four in the UK sector – and made “certain working capital adjustments”, adding that the Origo staff would be retained.

Origo was founded three years ago as a pure exploration company by long-time Norway-based oilman Svein Ilebekk, with backing from private equity outfits Riverstone and GNRI, and later Temasek, the Singapore wealth fund.

According to Origo’s deputy chief executive and finance head Ørjan Gjerde, those investors spent about $80m but wanted to exit the company for assets that could be turned around more quickly.

DNO is an investor that has more of an appetite for longer-term investment that can bring an oil discovery all the way to production.

DNO shares were up 3 per cent in late afternoon trading Gulf time at 7.66 Norwegian krone, roughly the middle of the trading range over the past year.

On Thursday evening, DNO said that as part of its buyback programme, it bought 1,150,000 shares at an average price of 7.6441 krone.

amcauley@business.ae

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