DNO ASA, the Norwegian oil and gas operator, announced a third consecutive quarter of operating profits and the completion of the first phase of the 2016-2017 drilling campaign at the Company's flagship Tawke field in the Kurdistan region of Iraq.
Four new production wells at Tawke, three of which targeted the shallow Jeribe reservoir and one the deeper Cretaceous reservoir, have added more than 10,000 barrels of oil per day (bopd) of production at the field. The Jeribe wells were drilled at a combined cost of USD 6 million and the Cretaceous well cost USD 7 million. Current field production averages just below 120,000 bopd.
"With Tawke, it's not just about field size and production level but about capital efficiency," said DNO's Executive Chairman Bijan Mossavar-Rahmani, adding that the field is low cost, quick drill, high return and flexible. "We just drilled and completed a shallow well in ten days for less than USD 2 million that is now producing 3,000 barrels a day worth USD 3 million a month," he reported. "This is one for the Guinness Book of World Records," he said.
Elsewhere in Kurdistan, the Peshkabir-2 well was spudded in early October to appraise the Jurassic reservoir and explore the Cretaceous horizon on a previous discovery to the west of the main Tawke field. The well is currently drilling ahead at 2,000 meters and is expected to reach target depth of 3,500 meters in January 2017.
"We can't wait to take our foot off the brake at Tawke," said Mr. Mossavar-Rahmani. The Company will drill two new Cretaceous wells in the first half of 2017 and plans have been drawn up to mobilize a third rig and drill additional wells at Tawke and Peshkabir. "But to proceed with significant new investments at Tawke, we need regular export payments from the Kurdistan Regional Government and a firm plan for repayment of the USD 1 billion in arrears to DNO," he added.
While recent payments by the Kurdistan Regional Government for exports have been irregular and delayed, Tawke payments year-to-date have totaled USD 255 million, of which DNO received USD 184 million.
DNO reported operating profits of USD 9 million during the third quarter on revenues of USD 49 million, bringing year-to-date operating profits to USD 33 million. The Company exited the quarter with a cash balance of USD 266 million, up from USD 238 million at 1 January 2016.
DNO also stated that its July 2016 proposal to acquire Gulf Keystone Petroleum Ltd. has expired as certain conditions to the recent financial restructuring set by Gulf Keystone itself appear not to have been met. Given the resulting uncertainties about Gulf Keystone's asset, commercial outlook and future rights and obligations at the Shaikan field, and following a careful review of Gulf Keystone's latest reserves report, DNO is prepared to consider an all cash transaction but at a meaningful discount to the previous USD 300 million equivalent cash-and-shares offer.