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DNO from Kurdistan slashes costs and defers drilling as impairments plunge it into the red

Norwegian player shuts in some KRG wells and lets rigs go and takes action on North Sea assets

Source: Upstream, By Eoin O’Cinneide in  London

Norway’s DNO has slashed its spending for the year as it reined in drilling plans and shut some production wells in the face of dire oil prices due to the Covid-19 pandemic.

The Oslo-listed player has released four rigs in its core operating region of the Kurdistan region of Iraq and shut in some production wells there, with no near-term drilling planned in the North Sea.

The company made a loss of $39.4 million in the first quarter, down from a profit a year earlier of $51.1 million.

Revenues remained strong, however, at $205.6 million as against $204.1 million.

Average working interest production was 99,857 barrels of oil equivalent per day, with 81,221 boepd from Iraqi Kurdistan and 18,636 boepd from the North Sea. Total working interest production in the first quarter of 2019 was 107,523 boepd.

DNO took $40 million in impairments in the most recent quarter on its North Sea assets due to the low oil price.

The dire market has caused it to cut $350 million from its 2020 budgets – around 35% – to be felt across all spending categories.

North Sea actions taken

“To achieve budget reductions, DNO has deferred most discretionary drilling and capital projects across the portfolio and continues to identify and capture cost savings,” the company said on Thursday.

“In the United Kingdom, no drilling is planned and the balance of the Schooner and Ketch decommissioning programme has been suspended and deferred to 2021/2022.

“The company has renegotiated service contracts for savings and extended payment terms where it operates, and is in continuous discussions with partners in the North Sea to reduce operating and other costs and defer non- critical projects where it does not operate.

“DNO’s 2020 North Sea drilling campaign has been scaled back and wells deferred, but firm plans remain in place for wells in five licenses over the balance of the year, including two exploration, one appraisal, two infill and two development/geopilot wells.”

Although it has release four rigs in Iraqi Kurdistan, it continues to operate a workover rig, although a number of production wells have been shuttered due to the oil market conditions and crude payment delays.

“A drilling rig has been cold stacked at each field and can quickly be mobilised if conditions warrant,” DNO said.

The company has drawn $115 million from its reserve-based lending facility to fund North Sea operations, but has suspended its dividend.

The cash balance at the end of the quarter was $543 million, up from $486 million at the end of 2019.

Fresh Kurdistan drilling

DNO on Wednesday had said it is days away from spudding its latest exploration well in the Kurdistan Region of Iraq after completing testing an appraisal of its last discovery on the Baeshiqa licence.

Drilling of the Zartik-1 exploration well is set to start on 15 May.

The well location is 15 kilometres south-east of the Baeshiqa-2 discovery made on the same licence late last year.

Testing and appraisal of that find has proven oil and gas in three separate Jurassic-aged reservoirs — Kurra Chine A, B and C.

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