DNO ASA

Good morning. My name is Bijan Mossavar Rahmani.

I am the Executive Chairman of DNO ASA. And I welcome you to the company's first quarter 2015 interim presentation.

I am joined this morning, as I am on all of these presentations by Bjørn Dale who is our Managing Director and Haakon Sandborg who is our Chief Financial Officer who will follow me with the financial presentation of the company's quarterly results. First with the operational review of the other quarter and the year to date highlights.

We have gross production in the first quarter of 2015 of just over 121,000 barrels of oil equivalent per day of which the company's working interest production was 72,873 barrels of oil equivalent per day. In Kurdistan our flagship Tawke field produced an average of 104,925 barrels a day of oil during the quarter of which just over 90,000 barrels a day was delivered by the Kurdistan Regional Government to the port of Ceyhan, Turkey for on road exports.

Another 8,679 barrels a day of oil was sold by DNO and its partner into these local Kurdistan markets and the balance was used in the Tawke refinery and represents some movements here in and out of storage. On May 3rd, the Tawke field hit a new field daily production record of 156,379 barrels a day.

I was told this morning that yesterday we up that figure somewhat and we hit yesterday a new field production record of 158,035 barrels for the day. So, obviously we're ramping up our production at Tawke and as we've indicated in the presentation today and in this morning's release to the markets with the completion of the Tawke's 30 well, was the last well in our drilling program and the installation of service facilities and other investments that we've made at Tawke, we've now achieved the objective we have set out for ourselves about three years ago of doubling production capacity of Tawke to 200,000 barrels a day.

We've very pleased with that we had set that out as a target for the company after having three years ago, doubled production capacity from 50,000 barrels a day to about 100,000 barrels a day and we were able to do this under as you know difficult conditions on the ground, with respect to security conditions and problems that were created following the ISIS incursion into parts of Iraq and this was done under very difficult market conditions as well with the price of oil collapsing and all the difficulties with the international oil industry has been facing, so I am pleased and proud of my colleagues who are able to reach this very ambitious but meaningful goal for the company and also for the oil industry in Kurdistan and [indiscernible] of Kurdistan a region itself. So I think we've accomplished much and accomplished it well.

We had also previously indicated that during the first quarter in February, we also reached another milestone in that we had seen 100 million barrels of cumulative production from Tawke and that number of force continues to grow and you can do the calculation from our quarterly numbers as to where Tawke, cumulative production is growing as well. We expect that, with the ramp up of Tawke production and again I indicate that the 200,000 barrel day figure is a capacity figure.

We are moving towards that number, but there have been indications, public statements made by the Kurdistan Regional Government and as you would expect as production from Kurdistan continues to ramp up and more oil is made available for export to Ceyhan and an important part of oil comes from the Tawke field that will unlock additional funds to Kurdistan and there is every expectation that those additional funds and those additional financial capabilities will allow the government to distribute funds of that the truly international oil companies that are operating and contributing to that production level. So we're doing our parts also to unlock value by unlocking payments from exports through the Kurdistan Regional Government.

Meanwhile given all the complexities, the financial complexities surrounding the discussions between Baghdad and Erbil, much of that is known through you to those who follow DNO and other companies and much of this is now known to lot of people around the world because this is constantly in the news. Those issues and problem and challenges are well known, but in the interim, in order to keep DNO a funded and our activities in Kurdistan funded of course we have in the past that currently look through local sales to generates a revenues to the company are indicated that our local sales during the first quarter averaged just over 8,600 barrels a day.

It was a bit less than we would -- lot less than we would have hoped. But of course during the first quarter there was an effort and a push to put as much oil into Ceyhan, into exports under the Baghdad to Erbil arrangements of the local oil producers in Kurdistan received little or no local sales allocations, but we have in recent weeks stepped up that production and we have contracts now in excess of 20,000 barrels a day of oil being sold into the local markets under a terms that ROE have described and disclosed these terms before, they are on a basis of 50-50 split between the governments and then the companies but also in the past in the few weeks as you know that your price of international oil, in particular brent has moved up.

Brent is the starting point for the calculation of pricing into the our local sales and with the increase in brent prices, our -- the prices that we receive in Kurdistan have moved up as well so even I have the double effect of higher volumes at higher prices which of course is positive and our target is to continue to monetize production, some combination of local sales which is continuously done on a cash and carry basis, so there is cash upfront which is obviously helpful but also on the basis of continuing discussions with the Kurdistan Regional Government in terms of unlocking payments before prior deliveries into the expert markets and all the while making a contribution in terms of ramping up production to make that possible. And the current price -- again pricing has been last the few weeks between $35 to $40 of barrel, I think that number has move up since as brent moves up, but you can track our pricing, by tracking the brents and you can do -- I think you can derive what the discount to brent is from looking at our numbers that we report to end the brent price.

The first quarter was a difficult quarter for the industry overall and for the DNO as well and the last part of 2014 was difficult for the industry because of drop in oil prices. We have that behind us the first quarter continued to get difficult one, we have that behind us now and I think we're all the way forward to 2015 as the second quarter, third quarter and beyond hopefully the worst of the oil markets issues and difficulties are behind us as a company and as an industry.

Part of the difficulty we face in 2015 the early part of the year, the first quarter and the last few weeks has been the crisis in Yemen which is been in one of our operating legs historically. You are familiar with the issues as led through a breakdown in security conditions of political situation and the Yemen is the country which is now at war with itself and at war with some of its neighbors, conditions there are extremely difficult and we made a decision to suspend our operations there, both because of the security conditions, because of we were unable to realize fully the production and development and expansion potential.

We declared -- we re-declared force majeure on our blocks suspend operations and have been downsizing or rightsizing our operating arm in Yemen, so that’s how we don’t continue to face losses and in terms in our operations and payment where there is no revenue coming in, but at such time as force majeure conditions are relief and the companies are able to go back into Yemen to operates at that point as we reach as a company at a decision point, at least we'll have an organization that fits for purpose. Our position is growing very large and we'll have a fit for purpose organization, hopefully conditions will allow us to go back in sooner rather than later, but at tough points I think the for us and other company going back in Yemen, hopefully both political conditions, security conditions, but also economic conditions and business conditions will be difference if it will allow us to grow a commercially viable business in our country.

But in the mean time we elected to write off all of our remaining positioning in Yemen both with respect to investments that have been made and with respect to oil as delivered and not paid for with respect to line field, so that's now off our books. But it did mean that we took a larger than we had planned and expected hit in Yemen, Haakon will go over some of the financials in more detail during his presentation.

You also whether during the quarter we did an equity offering we’re successful or some of our advisors are in this room and I am grateful for the support that we have both by our advisors, but also by the markets that’s equity offering was more than three times oversubscribed and we were pleased that that allowed us bring funds into the company just under a NOK 1 billion that allowed us to again strengthen our balance sheet, Haakon as I mentioned will go into this in more detail. During 2015, given conditions in the markets our target is to a line of spending with our earning, our earning is principally at Kurdistan the more funds coming from Kurdistan whether through local sales or in some combination with payment for prior exports, we will be in a position to do more in Kurdistan in particular and across the portfolio.

But in the meantime and we had set a cap on our CapEx of $100 million which was about third of what it was last year and about just over third of that has already been spent in the first quarter. We like other oil companies have been cutting back not just on CapEx and OpEx, but on staffing.

We expect we will have savings of about $20 million in just our staffing costs starting from the middle of this year. We also in terms of OpEx reductions coming back to some of our contractors and suppliers, we renegotiated existing contracts.

We will certainly be in much better position on the cost side with respect to future contracts cost had run away from the oil industry -- the oil and gas industry in the past several years, they are now being contained and we’ve even negotiated some payment schedules in terms of work that’s already been done and this is I think in line with what other companies are doing to try to manage under the difficult conditions in terms of price in the industry. This is a graph we always show in terms of our historic and our quarterly or annual production on the company working interest basis split between our operating operations under different countries and in the case of Kurdistan split between exports and local sales numbers again that reflect the description that I gave in terms of our activities.

Tawke again, Tawke 200,000 project is complete, we double capacity in less than two years with 10 new horizontal wells, the installation of 44 kilometer, 24 inch pipeline and construction of two new early production facilities with a combined capacity of 80,000 barrels a day, which supplemented the existing central processing facility at Tawke of 120,000 barrels of oil per day. The Tawke-30 well, the last well as I mentioned in our Tawke 200,000 project and also in our 2015 drilling budget, Tawke-30 was completed and is currently producing on the order of 10,000 barrels a day.

At Tawke to-date we have spent on the order of $1 billion, our finding and development cost at that field is under $2 a barrel which is by again by any standard incredible and impressive number. We have remaining two key reserves at Tawke of 680 million barrels as at the end of 2014 where our last annual reserves numbers were generated.

I mentioned we drilled 10 horizontal wells in part of the Tawke 200,000 project since inception of our fuel development program has involved the 30 wells. Installation again of 200,000 barrels day of processing capacity.

Now two pipelines with the capacity -- combined capacity of over 300,000 barrels a day, we build the second pipeline both to be able to move additional volumes of crude but also first two pipelines gives us some redundancy and some flexibility that we’re not be holding to one pipeline alone in terms of movements. But of course we also have a road tanker or trucking loading capacity at Tawke of 125,000 barrels a day which was a significant number allows us to put a lot oil into the local market if the export market is for some reason not available to us and it gives us again the ability to switch back and forth and with significant volumes.

So that’s a flexibility that has serviced well in the past, I’m certain it will service well in the future as well. On the Yemen, I have mentioned our challenges and our measures we’ve taken and again we are into a difficult period not just in terms of decision to suspend but decision to rationalize and downsize the organization.

But that’s also something that the rest of industry has done in Yemen as well and we've also in addition to the two operated blocks exited block 53 where we were not the operator, but the operator in the joint ventures decided in January to leave and we left that block together with them as well. We've already reported our reserve numbers to you and not in a quarterly presentation but another presentation I'll just remind you all these numbers we've had impressive growth in terms of company working interest proven in probable reserves over the course of the last five or six years in 2014 that growth start was reversed a little bit.

The explanation for that is that our focus Tawke has really been to get the 200,000 barrel per day program in place rather than doing additional drilling to add reserves or that has also been driven by the fact that again with our and our partners lower generation at Tawke, we had to make some difficult decisions to whether to do additional step out or exploration drilling or to focus on our expansion program and we choose to focus on the expansion program and drilling is reflected in that but also the fact that we produce a record 33 million barrels Tawke last year, royalty reserve numbers are down. We expect once drilling resumes hopefully towards the end of this year that we will be able to add reserve at Tawke and the first the prospect the field that we would hope to bring into our reserve portfolio is the Peshkabir field which we estimate to all about 225 million barrels of gross un-risked reserves.

So that’s the first place that we will go to generate reserve additions and eventually production, but we've also have a significant potential as we reported on before at another block in the Kurdistan at our Benenan heavy oil field and on that block is to the healthy Erbil license where we estimates the resource potential to being excess of 2 billion barrel. This is heavier oil; it has its own challenges.

There is significant heavy oil potential in Kurdistan, the companies have gone for the easier oil first -- the lighter oil first and heavy oil has its own challenges but these challenges that have been addressed successfully in over a long period time and other heavy oil producing areas in the United States and Canada and Venezuela and elsewhere. And so we believe that the problems the challenges are there but they are manageable how we go about doing that is something that we're focusing on to the company now.

But feel there is significant promise there for us in terms of our Kurdistan portfolio as well. For the rest of 2015 our drilling program has been scaled back we will need to do more of Tawke the 200,000 barrel a day figures again is a capacity figure, it’s not an ongoing permanent production number when these wells as you know fields begin to go into decline in terms of production rates and to sustain those rates you have to make more investments in terms of drilling additional development wells, we’ve already drilled again 30 wells of Tawke a field of that size will eventually have multiple zones in terms of numbers of wells on it.

There will be a 10 point necessity to drill wells to deal with and put in facilities a deal with water production at the field, those investment again we will make when the revenues are coming to us to allow us to do that. As far we and our partners are concerned we’ve made the investment at Tawke at this stage we're going to now sit back and the next thing that has to happen at Tawke is a more normalization of payments and as those payments come we will make the additional investments to sustained our production rates and to make decisions about additional activity and developments at Tawke.

We are continuing with activities elsewhere in [Almon] one block our block 36 onshore we are at an early stage in terms of exploration activities, offshore on block 8. So we have been looking at drilling other another development well to move up our production rates of from that offshore field, our working Tunisia in terms of exploration of appraisal continues.

We’re looking for other opportunities, we’re looking some other country entries and there are of course a large number of acquisition opportunities available for assets or corporate transactions this is a buyers markets with a lot of these stress assets looking for new buyers and new owners and we are looking at opportunities, although again we also recognize that wells in buyers’ market our ability to execute significant transactions is limited and we have to be thoughtful in terms of what it is of we want to do and where that's what enhance your overall portfolio and would strength from the company overall. We've certainly a one foot on the accelerator, one on the brake, that really means there a couple of things, first we are in a position as a principally onshore company to have moved investments up or down pretty quickly, if we were larger offshore, when you're offshore you make a commitment to a platform and a field development program, you can’t really scale back, that's a two, three, four year commitment and investment.

You can start on stock investments in platforms on offshore activity, on shore you can do that, especially in Kurdistan we've made decisions to drill another well and start drilling pretty quickly and then complete that well in the matter of weeks. So what we do is driven by decisions to execute those decisions can be done quickly and they can be reversed pretty quickly as well.

So first onshore we were able to accelerate or slow down depending on, decisions that we take, and those decisions are importantly taken by revenue generation. And we've said before, if revenues are normalized and come in on a regular basis we will do more, if they don’t we will do less.

So in our sense we do have one foot on the accelerator, one foot on the brake it’s a privileged position to be in because you can start from stop investment decisions you don't want to be forced to do that because revenues are also coming or not coming but at least we have the ability to adapt our investments on our drilling program based on realistic decisions and considerations about our capabilities and our resources to be able to do that. With that thank you and I'll turn to Haakon.

Good morning everyone. I guess as you have seen, this is clearly not a great quarter for us in terms of financial results.

Just let's now go through and look at the key factors driving in the Q1 financials and the forward outlook. The main reason for the weak financial results for this quarter are really the lower operating revenues, of $26 million and this is in turn primarily due to both lower volumes and also lower achieved oil prices for our local sales in Kurdistan.

In addition, we did not receive any payments for export deliveries from Kurdistan in this quarter. The lower head local sales volumes partly reflect as you've heard the federal increase in our export deliveries from Tawke in the quarter and our exports increased to 80.1 million barrels in total.

Just to give an example here, if you assume an average oil price of say $55 per barrel for these exports, a gross value of the exports would amount to around $445 million in gross value for Q1 alone. And the announced share of these significant export values has not been books in Q1 revenues and we continue to record export revenues only on a paid basis.

So as you will see our Q1 numbers would have been quite different had we have been able to be paid for our contractual share of these exports. Clearly the developments in Yemen that Bijan discussed have also impacted our Q1 results and Yemen revenues also dropped on lower production in the end of the quarter.

And we have now suspended production. $27 million of write downs that we took is really going across all of our assets, property, plant and equipment, exploration wells and other assets.

So it's a full right down now over the Yemen assets given the situation in this country. So from this basis we show a negative net back of $37 million that you see up here.

And also an operating loss of $69 million for the first quarter. This off course is disappointing.

On the other hand the increase in local sales contacts in Kurdistan that we achieved at the end of the first quarter, indicate that revenues and results should now be improving for the second quarter and hopefully going forward for the rest of this year. Also the fact that we have reached 200,000 barrels per day capacity level at Tawke we expect to deliver more, have higher production and that this will lead to further export payments and also further increase in local sales revenues.

Now, this slide shows the distribution of revenues and gross profit across our producing business units in the first quarter. And then if you compare just with the fourth quarter last year, the revenues or [indiscernible] dropped by $44 million in Kurdistan and that is basically leading to its negative gross profit of $29 million for the quarter.

Our business in Oman held up pretty well with their revenues over $9.4 million and a gross profit of $2 million. Yemen revenues down by $7 million compared to a Q4 and to a level of 3.2 million and that resulted also in its negative gross profit of 4.5 million.

So again the financials for the quarter are pretty much driven by the low or extraordinary lower booked revenues and such as that we have this quarter behind us now and that we are on track to improve these results. And we move to the P&L results in more detail and again you’ll see the big drop of the $54 million in revenues from Q4.

To break that down a bit, lower local sales in Kurdistan accounted for $24 million of this reduction and that's with $15.5 million in lower volumes and an effect of $8.5 million from lower achieved oil prices. As I mentioned the revenues are also down compared to Q4 because of the lack of export payments.

We had a payment of $21 million achieved or received in Q4. If we move over to the cost side, for that cost of goods sales, total listing cost remain fairly stable in the first quarter while our DD&A depreciation was reduced by $24 million from Q4.

This significant DD&A reduction accounts mainly from higher net entitlement reserves that Tawke field at year-end 2014. But Yemen and Oman also had lower DD&A due to asset impairments in Q4 and combine that with lower production volumes in Q1.

And the expense exploration of $7 million we have now taken or carried to cost expense to previously capitalized exploration wells in Yemen with an amount of $5 million, accompanying for most of that item on expense exploration. The other Q1 write-downs in Yemen that I mentioned are shown under other operating expenses in this table.

So this all leads to the operating loss of 69.2 million for the quarter. Under net finance, so we have included $7 million impairment of our holding on RAK Petroleum shares that is reflecting both share price movement and FX movements in the quarter.

On the other side, we have also had further FX gain on our [krone] bond dept. So with after tax reach over net loss of 74.2 million this time.

And we look at our investments and we have had strong CapEx growth for years now, as you have seen mostly going into development work in Kurdistan, but also we have had significant investments in our other business units. So we have been through a period now with high investments and we have successfully completed the major expansion projects.

For 2015, as you have heard we are now planning to slowdown in investments and reduce CapEx to a level of around 100 million, again with continued focus on Kurdistan. I’ve discussed this before, but it's important that we have lot of flexibility Bijan was touching on that in terms of setting our spending levels and we are again now clear to come in or need to come back to position where we can fund all our expenditures from our cash flow which has being the goal and our achievement for years in the past.

So as you’ve heard, we are lining our spending with our earnings and we certainly expect to be back in the increase investment mode, back in 2016 at least, if not before. To get a bit more on detail on the private placement, the equity raise that we’ve given in March, on March 9th, it was full amount of NOK 975 million and we were certainly pleased to see strong demand from investors.

In order to minimize dilution for this placement, the offering was done as combination of sale if treasury shares and new shares. In total amounting to placement of 73.6 million shares and the offer price, the achieve price was NOK 13.25 per share.

Now the treasury shares going into this transaction where previously acquired at an average price of NOK 8.10 per share. The background here is that we have been following the capital markets quite closely for time now, with the focus on the high yield bond market as the main market for our debt funding.

As these debt markets were weak going into this year, we decided to do as two step program. Starting with these private placements and coming back to later to return to the bond markets to the refinancing, once we see the markets conditions improve.

So from our point of view very important for us equity offering has strengthened our balance sheet and our cash position and has been done with limited dilution for shareholders and also strengthened our capacity to refinance the bond loans maturing in April next year and clearly strengthened the company’s financial position in having that capacity. In terms of cash flow the operating cash flow after pay tax and interest amounted to $6.4 million in the quarter, as we discussed in the previous quarters we have an [under lift] on the local sales in Kurdistan that was at a level of $112 million at year-end ’14.

This less increased slightly in Q1 to $114 million at the end of the quarter. But as we are now receiving on the improved split of 50/50 between KRG and the contractors for local sales from Tawke.

We end to reduce this under lift through 2015 based on our expectations for local sales. The first quarter CapEx of $35 million was primarily used for completion of the expansion products on the Tawke field.

So as you see to the right here, the net proceeds from the private placements of added the $180 million in the equity and that’s increased our cash balance $203.6 million at the end of the quarter. So here is our capital structure following the private placements with solid cash balances and continued low leverage and strong equity ratio at now 50%.

As we have divested our treasury shares in a private placement, our financial assets consists of the holding of RAK Petroleum shares with the value of $28 million at the end of Q1. As I mentioned the dollar value of our bond loans accrued Norwegian krone bond loan was further reduced by FX movements in Q1 to a level of the $209 million at the end of the quarter and we will discussed now monitor the debt markets to determine an opportune time to refinance and preferably also to add to this debt level.

So I think with that, we’ve been through the main points. Thank you for listening and we will now open for Q&A.

[Indiscernible] On the receivable in for local sales in Kurdistan, what is the reason for the increase now in Q1? It's not a big increase, but I had hope that this would now start to decline as you're receiving a larger split of the revenues and what’s your net enactment share is?

Yes, you're right, even in -- we basically have very low local sales in the quarter. But there is two components here we have the local sales that are directly paid by buyers upfront, but you also have local refinery at the Tawke plant, at the Tawke CPF area, where we delivery around 5,000 barrels per day into our refinery.

That refinery produces diesel and other products, and also residual fuel oil. The reason for this increase this time is that we were not totally paid for our -- I can’t see the annual record -- we were not fully paid for our share of revenue from that refinery business.

So that’s really the reason, so when we now expect to see better local sales from the new contracts that we have discussed in our presentation today, we do expect with 50/50 split that we will see a movement down. In other words reduce that under lift through the increased local sales.

Follow-up if I may, why weren’t you paid the full revenue split on the distilled product?

Well that’s a discussion between DNO and [indiscernible], so we need to settle that for this period we were not totally paid on that. So we have our contracts and we know Hagen our share and that’s now added to the under list by the $2 million.

And final question on the local sales you said that you now have contracts in place for 20,000 barrels per day, is that to be seen as a guidance for Q2 or is it a guidance for the full year or how should we think about that?

It's not a guidance in part because as we mentioned before these contracts are cash and carry basis, as long as the cash is coming in, we’re happy to deliver. When the cash is not forthcoming we don’t and of course as oil prices -- there are violent movements in oil price that will change the picture because if you're buyer you're paying cash now and you sell it and receive your payment and pricing 30 days later or longer than that introduce risk that will freeze up that markets, that business, similarly from our point of view prices were up.

So if we may want to do the transaction on different basis. These are not long-term contracts; in fact short-term contract is driven by how much is paid.

If the buyer pays for larger volumes then it becomes a longer contract, if smaller volumes effectively becomes smaller contract. So it really depends where the pricing order goes that’s one consideration, another consideration of course is there was competing call on our production that whether it's to go into Kurdistan own sales, or summer sales or local sales.

There is this constant tension between where the oil should go and depending on the relative other considerations as soon as outside of our control we can sell more or less. And the volumes aren’t exactly 20,000 barrels, typically the way this is done is, buyer comes and says I want to lift 5000 tons for example and here is a payment for the 5000 tons.

Some days it's higher some days it is lower depending on truck availability tankers. It’s not the constant number, we're now running a bit over 20,000 barrels a day we like to see that number be higher because it is cash that we have control over it’s not that we’re not be hold into payments from other.

But on the other hand if we are able to sell this oil at Ceyhan International, that discount disappears and that discount is driven by the additional cost of moving oil or a long distance sometimes by tankers. So our preference will be to sell our order to international markets.

So that’s our preference, there is pricing. But in terms of preference for short payment to local sales it gives us and historically has given us that, it's hard to give guidance because we're driven by so many moving parts.

But certain we see 20,000 barrels a day of local sales as a minimum number for us it's not enough to allow us to make meaningful investment at Tawke and to the extent is everyone interest ours Kurdistan Regional Government, even Bagdad’s to have to maximize production from Kurdistan which importantly means maximizing production from Tawke. We have to make investments and we've said that’s we did what we said we would do to get those to 100,000 barrels a day, 200,000 barrels a day beyond that we will not be making additional investment.

We are not in a position to do so and those investments are necessary required for us to make those the payment situation has be normalized and I think that’s a strong message we have sent, it's reasonable it makes sense my point of view. But it also makes sense from others point of view too, to allow us to make those investments and not discuss that the other international companies in Kurdistan have all said the same thing and it makes good sense.

So for how long do you have this ability on 20,000 barrels of day going into a local market based on the contract that you have?

As long as the cash comes in we will supply the oil. I can't -- to answer that question, I don’t know.

Again it depends on -- but we will certainly push for volumes in the lower market in excess of 20,000 barrels a day. We backed the seat numbers significant higher than that unless the export payment issue is normalized and which we prefer to see higher price that we would be generating from export sales.

[Indiscernible] Pareto Securities. The earnings in Kurdistan, I think two three weeks ago [Dr.

Peshkabir] he said that in May export levels would likely reach 650,000 transport from Kurdistan including [indiscernible] and unless our prices held significant lower you're reaching a level where we were basically economically independent of course you're giving a lot of that export to Bagdad. But you seem to be approaching more than a billion monthly export revenues and which is also close to the budgeted transfer from Bagdad, how significant is this and can you say anything about the implications for payment to DNO and the international companies if prices on export levels stay at these levels?

Obviously, the revenue stream the value of exports from Kurdistan has been climbing. Both as a result additional volumes that have gone into Ceyhan and as a result importantly of higher prices.

As the revenues increase, the likelihood of payments not just to your companies but to other creditors increases. And we’ve seen in the past that when revenue were high payments were coming to our companies.

And when revenues were restricted payments stops, not just to company but to other creditors and others who need to be paid. The problem in Kurdistan has been at least three fold the drop in oil price didn’t help, it hurt quite a bit.

The fact that there needs shot up as a result of the extra cost of dealing with Syrian and Iraqi refugees and the conduct of war, all this were grain on resources and a call on resources as well. So revenues came down from their own oil sales at time when demand from other sectors shot up.

And of course 2014 the dispute with Baghdad meant that money coming from Baghdad dried up. So the difficulties were all known, it’s quite transparent, it’s quite obvious why the problems occurred.

But as you described this now also transparent at some of these issues are being relief in terms of oil prices, additional volumes and payment understanding formalities with Baghdad; these all the positive side and as things become positive payments will occur and they will occur to the oil companies both because we've been waiting for long time these numbers have built up, but also because payments in oil companies mean additional payments investment that will lead to additional payments in the future. This is not rocket science what's happening and what was happen and what will happen I think is driven by rational behavior and by conditions that we can really understand.

So we've been optimistic, we will remain optimistic, we've been careful not to say more than we are in a position to say about these issues. I think are credit loyalty matters to us importantly, it matter to our shareholders, to the market; we will say what we know, we won't suggest the things will be different and we can expect and we've always been cautious and this cautiousness has spread to other aspect of our business.

As you know unlike other companies we don’t book till the oil is exported we've not received payment for that’s a very conservative balance sheet approach. But it also means that we also have all disclosed in what we are owed for export having been paid for, when you book it you have a clear number, we don’t.

We get asked that question often and we haven’t given a precise number I can today give you a range that number is in excess of $500 million less than 1 billion, but more than 500 million. So it's a sizable number and as a situation becomes unlocked, that’s obviously receive a little bit love to receive with time but also to regularize normalize payment to us.

We've also been again a bit careful with respect to example local sales figures, not to give numbers that we can stand behind and I know this is been a expectations in the market perhaps of higher local sales based on statement made by others not by us. We are very cautious, we're very conservative in what we say and that’s in part toward driven by a wish to be credible and impart driven by the fact that I also represent a 40% shareholder, I'm not going to hike the other company I'm chairman of; the numbers have to be reasonable and the numbers that reflect reality as we see it, as condition changed we will say those conditions are changed.

So that conservatives bear with us on that conservatism, we like to be giving out bigger numbers, we're careful not to do so. But what we have repeatedly said is that we are very excited about our position in Kurdistan we are very proud of what we accomplish, we are a firm believer that this is an asset for DNO, it’s a world class great significance.

We have the best oil field in Kurdistan under to the best fiscal terms the best cost structure very, very pleased to be part of this story and excited and we're obviously optimistic about monetizing this asset. We get asked often also, are you looking with consolidation in Kurdistan, are you a buyer or a seller and we don’t talk about that we do say that we're sitting some very fine assets in Kurdistan and we have our hands full and there is still much we can do within our portfolio.

And our portfolio is again is a strong one and in I’ll just [announce] it as a resources base as with in terms, I get fiscal term and its cost structure. Other operators, other companies in Kurdistan talk about being sellers or buyers.

I think all the other companies in Kurdistan have said they are looking to sell or sell down the only companies they don’t say it are DNO and I think [Axon], I think everybody else is said they want to farm down or sell -- sell the company or sell the asset, and we don’t talk about that either, we are in Kurdistan for the long run, we have plenty to do on own and our assets. But we've also said that as optionality’s arise throughout the portfolio we will be looking to see what makes sense to us in terms on a renew country entries and we're out looking and in discussions and also in terms of other assets and once those are in the bag in hand we will report that to the market and to our shareholders on that as well.

Just one follow up, because of all focus on export payment. But you mentioned Benenan and that you expected to earn around the area of more than $2 billion in place if there is export payment within the next year, how long are we looking at?

2017 before we can see production and can you say anything about development cost and better production was that, way early to say and the thing about?

It is too early to say we know there is a significant resource base, unless said if it's the asset room from other part of the world where there has been heavy oil experience that would have been developed some time ago. But in Kurdistan both we has easier field for DNO as well as for others and because the infrastructure heavy oil has not been present there is a challenge but that obviously is a terrific resource for us.

We will probably have to reach out and developed additional heavy oil expertise and experience maybe by bringing in another company that has had heavy oil experience as a partner we are looking at those options. We can probably do it on our own but it would be helpful to have again access to heavy oil experience and certainly it will be helpful to have a heavy oil infrastructure in that part of Kurdistan because our other assets that also had the heavier potential that are have not intact because it isn't heavier oil infrastructure in Kurdistan.

I think with time as payments are normalized and companies step-up their investments in Kurdistan, a focused areas is going to be heavier oil because there is heavier oil is potential in Kurdistan. It hasn't been tapped and some other opportunities that companies have tried to tap have not been successfully -- not successful, there have been a lot number of $100 million oil wells at Kurdistan but they’ve not been successful.

So, Kurdistan has been about success and it's been about not success. And we've just pleased and proud to be all of the success side of the story.

Torbjørn Håland of Fearnley Securities, two questions if I may, firstly, when you are now ramping up production in Kurdistan, I'm assuming a lot of share of that is going to go through exports. Could you comment a bit on how that relates to the 550,000 barrels that has in part of the agreement with between Erbil and Baghdad.

Do you expect to take a higher share at that or do you expect those were sold sort of independent of that the agreement and secondly, I know that the central authorities in Baghdad has recently issued some loans to be able to pay the international oil companies. Do you know if that is at all on the agenda for the KRG to do something similar?

Thank you.

I can't comment on the Erbil-Bagdad agreements in part because it's not my place and in part because it is not clear how those agreements are meant to work on or working a practice and there is lots of you follow the press that all the different views and so how much is doing produce and exported and what the agreements called for, so, it's hard there for us to comment on that. We know that what we're contributing to that's and to the expectation is we've discussed it for the clarity and that's we need to have part of that oil be monetize and the payments made to ourselves and to our partner on Turkey and it is our expectation and they have repeat said, that's a with time, the company should be the once even on exports -- exporting and the company should be receive with full allocation as for their production sharing contracts as this normal everywhere or at most places in the world.

So the intent has not changed, the arrangements have not changed, what has changed has been the circumstances on the ground, which again I’ve described and everyone understands. And it’s sympathetic and we're tried to be a good corporate citizen, but it's also fair at that some point, we hit the limit of what it is that's we can do to contribute.

Our best contribution is been to get Tawke production capacity ups to 200,000 barrels a day. But we cannot fund the [indiscernible], we can fund Bagdad and we have to fund our own activities.

So I think the intent is there and as a resources open up that this intent will be active on and the clarity is critical to us in terms of making additional investments, that's happened. If you're asking are those specific numbers, as to how much we go into exports and how much we go into local sales or otherwise, no these discussion are ongoing, and circumstances changes as they do.

If you recall there was a year ago last year where we were setting significant into the local market and generate significant value for that. Our preference is to going to the expert market, there are obvious some other examples that are companies operating in the south, who are been allocated oil in Ceyhan to pay for their activities and their investment on the south, that's a model that perhaps we can also follow that's -- we're giving oil at channel and as other companies with [indiscernible] to be given by so more, given oil either by for past exports that were handled by Iraq or by current experts that are being handles by some combinational [indiscernible] and that we would be than free to make those sales as other companies in the south are now doing.

The other developments that's may give us a key, to unlock this issue and we're pursuing those as actively as we can; and are optimistically again that solutions will be found as the situation changes. But politically also financially with higher oil prices and higher oil deliveries the benefits.

Good morning this is Michael Alsford from Citi and just a couple of question from me if I could please. Firstly just could you confirm on talking what the current well capacity is now and I guess you producing 158,000 is that kind of where you can get to or can we tell a little more production coming through from the existing well stock and then I guess on that basis on the current investment plans, what's the underlying decline rate we should see in the second half of the year and then into 2016 if we done to see further investment and then just on your acquisition point, as you mentioned earlier, also a bit surprise that you were saying that you're looking at acquisitions.

and I know u strengthened the balance sheet, but I guess is not a huge amount of fire power to look around and add new assets in the portfolio, could you maybe not necessarily specifically talk about deals you're looking at, but maybe more broadly talk about the criteria you're looking at in terms of are they production assets, development assets, perhaps a bit more regional focus that you’ll have? Thanks.

In terms of the wellhead capacity, we’ve indicated that we now have 200,000 barrels a day in capacity in Kurdistan in terms of wellhead processing and pipelines and that statement is -- think is quite clear. With respect to define rates, we don’t know and we have to at some point open up the wells and see how the wells have performed at those rates and that will come.

We’ve been clear to say this is capacity; it’s not our production figure. We have said we will ramp up towards the 200,000 barrels a day number, once we hit it, we will understand how the wells are performing, how the field is performing at those rates and we will understand then a better senses decline rates and also in terms of what additional investments such as water handling or additional wells will have to be with investment that we make to try to sustain those rates if that’s a desirable rate to try to sustain over some period of time.

So we will get there, but part of the process of getting there is commissioning of additional units and the beginning of fuel tests and part of that is driven by understanding how much of that additional production will go to the company and our partner versus the government. So there are some moving parts there too.

But the stand-by is going to be an exciting journey to 200,000 and beyond or not. In terms of acquisitions, I also indicated that while it’s a buyers markets, we’re limited, most companies of our size are in terms of what it is we can do, I’ll indicate some of that maybe sort of assets performance, some of that maybe they get different nature.

We would want to make investments that are financeable in one way or another. So we will be looking at again contracts that either our size, that we can support either with our existing balance sheet or moving to for example, one option that Haakon referred to as the high yield markets, that could be source of funding for acquisitions, or performance or expansion.

But some producing assets maybe on their own fundable through reserve base funding. For example, regarding to the improvements, regarding to be able to do what is bite-size for us.

How large that bite is again will depend in part on the size of the target, but we’re not going to standstill. We have scaled back activity, but even with a scaled back activity we’re looking at the 200,000 barrels a day production just from that one field.

We’re up to that level that’s a lot of oil by any standard, but certainly by the standards of our company, of our size, and our market capitalization, that’s huge. So we did nothing and that’s about [indiscernible] very sizeable, but it's important for us to continue to find other opportunities.

Again, Yemen is now not a contributor to our operations. We need to find something to replace that, whether it’s a new country entry with some of the same entrance in size of scale or whether it's another opportunity within our existing portfolio, I don’t know but we are looking, but we have constraints as any other company of our size in terms of whatever we can do.

But we are looking and as we find and execute we will report, another thing more I can say on that, I get asked often are you can look for other companies in Kurdistan and our answers has been right now we have our hands full in Kurdistan, we are in some of the best assets. If something comes long that’s hugely compelling and doable, we’ll look at it.

But more of that I don’t have anything concrete to report to you at this time.

[Indiscernible]. You're right about, if you get paid you're going to drill [indiscernible] and then -- but you didn’t mentioned anything about and of course drilling more in the Kurdistan reservoir.

Couple of years ago you talked also about long-term having plans to do the heavy oil treasury [indiscernible] does that mean that there are both of are even further out of time and less prior to the other as you mentioned in the report?

Those aren’t going away, so when it starts, we have to drill or lose, if that was a case we would be more compelling decision. Those are not going away we have again been very busy trying to get to Tawke 200,000 line.

We have may have made it sound very easy because we said we're going to do it, we've done it, but it's not that easy, it’s taken the resources, its taken time and it's been quite an achievement. So not dealing with some of the other opportunities as we are driven by the fact that they're not going away, our priority was to get done at Tawke what we said we would do and this was a compelling thing to do not just for us but for the [indiscernible] because it released so much more oil that could be monetize and by monetizing the oil we stood to gain as well.

But also because it's been a difficult time in terms of -- since the payment having being coming through on a regular basis. We were constrains in terms of what it is we could put back in the ground so I wish we could have done everything you have to everything; even the biggest companies have an inventory things that they space out, for the biggest company is sometimes an inventory of 30 year inventory, we don’t have that luxury and our inventory may be three years rather than 30 years.

So we're bit frustrated all of us that we can't do more but do you what understand what the constrain are and as opportunities in terms of payments and revenues and be able to execute those opportunities improve and you will sure that we'll be there doing whether what is it that we do as a company and we do well as a company that’s to drill and to create value that way.

And one additional comment you said of course this is in the new about Kurdistan, what was down in the U.S. but some of this is not coming this closer on the debate ongoing in the congress about arming -- sending direct arms to Kurdistan and even to some of the [Sindi] tribes, you’re a personal friend of the new defense minister, can you share anything on that debate may be just the significant of that debate and I think the President is now in the U.S just these days?

Yes the President is running a delegation on Kurdistan is in the United States this week. The deliberation was in the congress the United States, I can't comment on and I read what you read and I no access information beyond what is available from press.

So I can't comment on that and that’s not something that we're in a position to influence or to even track more than is tractable by others. Our focus is on what we do on drilling and producing and getting paid and that will remain our focus like a laser as a company on those issues.