DNO ASA

Good morning. My name is Bijan Mossavar-Rahmani.

I am the Executive Chairman of DNO ASA. And I welcome you to our interim presentation of our Third Quarter 2015 Quarterly Results.

I am joined as I am at all of these quarterly presentations by our Managing Director, Bjørn Dale; and our Chief Financial Officer, Haakon Sandborg. I begin once again with our corporate overview and operational highlights slides and presentation.

In the quarter but also year-to-dates, we’ve had very robust operational metrics with our year-to-date production up nearly 30% from the same period in 2014. So operationally we continue to show good results and this is an operational performance that has been achieved despite early and aggressive measures at DNO to reduce costs.

We started our cost cutting and other savings measures about a year ago today, so very early in the -- following the start of the decline in oil prices. We believe that the worst of the oil price crisis is behind us now, both in terms of global price levels but also in terms of the impact on the company and the measures that we had to put into place in response.

And we have also been showing in terms of our financial metrics, small but importantly steady improvements over the past two quarters and Haakon will go into that in his part of the presentation. And of course, the recent Kurdistan export payments have been a welcome step in that respect.

As you know, we received one payment in September and that’s about just over $20 million to DNO and another one in October which will not be -- it is not part of our third quarter results. The aggregate value of our Tawke production or the overall Tawke production is on the order of $2 billion per year at current prices and at current production volumes.

So that gives an indication, not just of the size and scale of the Tawke field even in a world of depressed oil prices but in terms of the importance of Tawke production to Kurdistan and it puts into perspective the discussion that we will also have about DNO’s receivables from our Kurdistan operations. This is a large number and our focus has shifted now to monetizing our share of this production, including exploring other marketing arrangements, which will help in the monetization of our production and also better pricing net backs for DNO further production.

We have said before and I say again, a regular export payments schedule and a timetable for the recovery of our significant receivables figure from Kurdistan operations is key to resuming our investments at the Tawke field. As part of our cost cutting measures and our reorganization in the wake of the developments of the global industry over the past year, we have had significant staffing reductions but also we’ve had some important tactical recruitments, in particular to the executive team that I will touch on a bit later as well and we believe that as a result of this rightsizing of the organization, we have a leaner and stronger organization.

Moving forward, that’s better suited to meeting the challenges that we face as a company and as an industry and we believe a combination of the measures we have put into place over the past several quarters reposition us for a growth moving forward and of course, growth is critical to DNO as it is to any company and I believe that we’ve come out of the crisis and are now positioned for and poised for growth. A bit more details on our third quarter operational highlights.

Our gross production in the quarter was just over 152,000 barrels of oil equivalent per day, of which our company working interest figure was just under 94,000 barrels of oil equivalent per day. An important part of that, of course, is the Tawke field in Kurdistan where our output in the third quarter averaged just over 145,000 barrels a day, of which just over 120,000 barrels per day was delivered to the Kurdistan regional government for pipeline export through Turkey.

Another 21,000 barrels a day was sold into the Kurdistan local market and the balance of those numbers was processed in the Tawke refinery and went in and out of storage. Production, as you know, in Yemen continues to be suspended under force majeure due to the security conditions in that country.

But we continue to monitor political and security developments to gauge whether and when DNO’s operations can resume in Yemen. Additionally, we continue to pursue new ventures of opportunities and when we have more to say on those we will share them with you and with the markets more broadly.

This is a graph that we show every time. It tracks the company’s -- company working interest production by country of operation.

I won’t go through this in much detail other than to again point out that the -- that this does track our operational performance and metrics. Our production is has been on a steady increase since about 2013 when our investments in Kurdistan started to bear fruit.

You’ll see that the bulk of our production goes into the export pipeline through Turkey. We still have local sales but the largest part of our production goes into the pipeline in Turkey, which makes the payments issue, of course, so critically important to DNO and its financial performance.

In terms of the financial highlights, I’ll just touch on some of these, our gross revenues in the last quarter of $52 million was just shy of the second quarter figure but importantly double the number in the first quarter of 2015. We reversed the operating losses of the previous four quarters.

This past quarter an important point of reference in terms of our financial performance. Our Tawke export payment that was a gross figure of $30 million but our partner Genel Energy shares in that.

Our net figure was $22 million to DNO. We recorded that in our third quarter figures.

But in addition to that from our local sales of both crude oil and refined products, we generated net to DNO another $24 million for a total of $46 million from our Kurdistan operations in the third quarter. Importantly, our local sales revenue were just slightly higher than our export revenue, I expect in the fourth quarter it will seem stronger export revenues were perhaps less local sales, but of course, that depends on the access to the pipeline through Turkey versus our need to put more oil into the local market.

We ended the quarter with a cash balance of just shy of $250 million, so a comfortable cushion for us going into 2016. Again Kurdistan met its commitment, its public statements that it would allocate a share of export revenues with DNO but also the other two operators that are in production.

Also over for two months, this commitment has been honored and we have every reason to believe it will continue to be honored moving forward. The revenues that we’ve generated from our exports and from our local sales fall below our contractual entitlements from the Tawke field though the receivables growth has been growing at a slower rate in this past quarter as more money has been coming in to us.

Still our receivables at the end of the quarter stood at just under $1 billion a very significant figure but of which $872 million has not been booked. And you recall that we do not book our export payments until those are received.

We have another $120 million that we booked in terms of our local sales and these numbers are up from $947 million in the end of the second quarter. So it’s still growing but the rate of growth and the amount of growth has dropped off somewhat.

And of course, we want to see that flattened out and be reversed on as short order as is possible. I indicated that we continue to sell into to the local market when the pipeline in Turkey shuts down for operational, technical or other reasons.

We have the significant road tanker loading capability at Tawke. And we can load up to 125,000 barrels a day which gives us considerable flexibility again to monetize our production and move our production into alternative sales outlets when the export option is temporarily closed to us.

Again our Tawke investments moving forward are tied to our revenue stream from Kurdistan. New drilling and new investments are required, not just at Tawke but at any field anywhere to offset natural field decline and to sustain or increase production.

Tawke has been very resilient even though again we’ve been cutting costs. The Tawke field performance has been strong and resilient this year.

But there will be inevitably declines in production of the field if we don’t make the investments to keep up the production moving forward at historic or perhaps even improved rates. But there is no -- to husband our funds, we are spending enough to keep the field operating safely.

But it’s clearly understood that field will go on to decline if we don’t make the investments to prevent that. And the timing and the extent of these investments will be driven by the timing and extent of the revenue stream that would be forthcoming to us from exports.

With improved payments, the next well we want to drill in the Tawke -- on the Tawke license is the Peshkabir appraisal well. We had announced previously a Peshkabir field discovery in the Tawke license.

We are very excited about Peshkabir but we have indicated that the spending for that and other activities elsewhere in Kurdistan also are driven by revenue generation to the company from the Tawke field. But I am hopeful again that we are now in a regular payment mode and that the company would certainly like to drill the Peshkabir appraisal well.

So appraisal development well but some exploration component as well, we would be hopeful we could drill this well in 2016. We are preparing for drilling elsewhere in our portfolio as well.

Our drilling program, of course, is a less ambitious one that we have in mind a couple of years ago. But we do still have some wells in the portfolio that we’d like to drill.

We have an exploration well that’s planned to be drilled in Oman on our onshore Block 36. And we are also looking very closely and actively at drilling another development production well offshore on Block 8 in Oman to increase oil production importantly but also some gas production from the West Bukha field.

And that also would be a 2016 well if our additional studies and work find an appropriate location to place that well. We also of course have the significant heavy oil resources in the Erbil license.

We’ve indicated that there’s more than two billion barrels of oil in place on that license. We’ve drilled some wells into that as you know, we’ve had production from that license in the past.

But we want to go back in and do more drilling on that license and bring some of that oil on production as well. But again that’s contingent on normalization of a payment schedule from the Tawke field in Kurdistan.

In Tunisia, we have a seismic program in 2016 that would be followed by drilling of an exploration well in Tunisia in 2017. I indicated that we have been building up our executive team.

And I am pleased now to present this slide to you. Of course, Bjørn, you’re all familiar with and Haakon as well has been in the company since 2001.

Our not so new anymore Chief Operating Officer, Jeroen Regtien, is here. He came to us from Shell Egypt, where he was the Country Chairman and Managing Director of Shell’s operations in Egypt.

Claes Abyholm has been there with us for over a year. He is our General Counsel.

But we have two new executive management team members that have joined the company in the past month or so, James Edens, who is here somewhere. James joined us this year from CNR, Canadian Natural Resources International, where he was responsible for their North Sea and Offshore Africa operations and we welcome him as our new Commercial Director based in Dubai.

And Nicholas Whiteley is here. Nicolas who joined us this year also as our Exploration Director -- I am sorry -- Commercial Manager, Commercial Director and Exploration Director.

Nicholas is based in Oslo. And he came to us from Cairn India, where he was responsible for their exploration ventures program.

So welcome to our two new members of the team. I think we have a strong team and again well positioned to drive the company to a bigger and better opportunities and success.

So, with that I end my part of the presentation and turn to Haakon.

Okay. Good morning, everyone.

I would say following quite a challenging first half of this year. We are now as you heard today quite encouraged by the progress we have made so far in the second half of the year.

This is both in terms of the export payments in Kurdistan but also the effect that we are seeing from the cost cuts we have taken to counter weaker oil prices. Let’s now go through and see how this has worked out for the financials in the third quarter.

Starting here with these key financials. We show stable revenues in Q3 through the $22 million export payment, our share that we received in September.

But offset by a lower local sales revenues, coming from both a drop in volumes and prices achieved in this quarter. Oman revenues are also down by $2 million from the previous quarter.

I know that you may have heard me say this a few times before. But in looking at these reported revenue numbers, it is important not to lose sight of our real value generation.

As such, our gross export deliveries from the Tawke field reached a substantial volume of 30 million barrels in the first three quarters this year against which we have only booked the paid exports over $22 million in our accounts for this period. On this basis, DNO’s net receivable for unpaid exports has increased by an estimated $230 million year-to-date.

Pending actually payments, this amount has so far not been recognized in our revenues. That would obviously have made quite a difference.

But as it stands, we will now have to gain on this through later payments of the receivable. For now, getting back to the reported numbers.

Our netback cash flow shown here strengthened to $24 million in this quarter and that was driven primarily by a significant reduction in our cost of goods sold. This reduction in costs in turn consist of both lower listing cost and lower DD&A.

I’ll come back to that on the next slide. As you see here, the operating profit thereby strengthens to a breakeven level for the quarter, up from losses in previous quarters, so some clear improvement on this line also.

Here we move to our P&L. The drop in cost of goods sold of $23 million is a key factor for the third quarter.

This drop consists of a reduction in listing costs over $14 million and $9 million lower DD&A compared to Q2. Most of this cost reduction comes from Kurdistan, where listing cost for this quarter were affected by several factors including down scaled activity levels, cost cutting measures and also effects from reversal of accruals.

The drop in DD&A on the other hand is due to lower net entitlement production, mainly from lower local sales from Tawke in the third quarter. Other than cost of goods sold, reduced exploration costs also contributed to the operating profit improvement.

Net finance expense is at $14.9 million. That includes an impairment of $4.7 million for the RAK shares held by DNO.

And after finance and tax, we show a net loss for the quarter. Here we also show the year-to-date numbers on this slide.

Revenues as we can see are significantly down this year, primarily on lower volumes and prices for local sales in Kurdistan but also lower production and lower prices were -- affected revenues from Oman and Yemen. Despite a big drop in cost of goods sold so far this year, the lower revenues then are the main reason for the net loss for the year-to-date statement.

For our investment program, this slide shows clearly the extensive cut backs we have taken, the reductions we have made in spending this year. I noted before, this is partly due to the completion of the Tawke field build out in the second quarter this year.

But also in view of year-to-date cash flow and weaker oil prices, we are now further reducing our short-term cash outlays and spending to now a projected level of $70 million this year. Of that amount about close to $50 million has been spent year-to-date.

These adjustments of the investments and investment levels confirms the higher spending flexibility that we have in the company and as before, we continue to focus on cash flow funding of our expenditures. Looking here at cash flow.

We also show improved operating cash flow in the third quarter even if it came in at a negative $22 million after tax and interest. But similar to the second quarter, this came about as cash flow from operations in Q3 was reduced by working capital changes in an amount of $42 million.

This in turn came primarily from further reduction in our trade and other payables in the quarter. The reduction in payables is spread across the business units and it partly reflects the contractual payment schedules we have for our various investment programs and contracts.

But we also see that lower activity levels and lower costs in the licenses generally draw the payables further down. Otherwise, as shown here, we have very low investments recorded in the third quarter.

But the investments as shown here are net of $10.6 million CapEx or investments that we accrued for in Q2 but that were actually carried out in the third quarter. So a bit of a move over there and the $10.6 million that we talk about here is thereby also a big part of the reduction of the payables in Q3.

The booked receivable for local sales in Kurdistan increased slightly to $120 million in the quarter. And that is because the contractor entitlement still exceeds the current 50-50 split that we have this year with the government in Kurdistan.

So the actual local sales revenues so far this year have thereby not been sufficient to start working down this part of our receivables. Through the refinancing of the bonds that we carried out earlier this year, we prepaid the remaining $178 million of our previous bond debt in August and the cash position was thereby reduced to $247.2 million at the end of the quarter.

But with this cash position and net interest bearing debt limited to $153 million, we maintain intact a solid balance sheet with low leverage. For our financial assets, the value of the shareholding in RAK Petroleum now stands at $18 million.

As promised in the second quarter presentation, the equity ratio moved up again in Q3 now to a stronger level at 46%. That is following the prepayment of bond debt in August.

I would note again that through the bond refinancing, we now have five year maturities on the new bonds. And under current market conditions, it is good that we have already prepaid the previous bonds that had their maturity in April next year.

So, I’d say yet again we are in good shape on the balance sheet and for the funding. With that, I think we’ll round off the presentation and we will now move over to the Q&A session.

Thanks.

This is John Olaisen from ABG Sundal Collier. A question on the Tawke.

What do you think is the necessary maintenance CapEx to keep production left at ballpark current production?

I will answer that question in reverse and say that we will be not in a position to make any significant investments at Tawke until there is a regularity of payments for exports. We are asked so what does that mean, how many months of exports payments we have to see, at what level.

Rather than to give a specific figure, I would like to refer to the Kurdistan Regional Government’s own statement that there will be monthly payments to the operators through the end of 2015 continuing into 2016. And that in 2016, if the government is in a position to start paying the companies receivables down that the government will do so.

And they have said this depends in part on oil prices and more revenues from higher level of exports. So there has been no specifics given as to how that might work.

And so far again this quarter, they have honored that as you know and we have every expectation it will continue to be honored. And it will be honored not just because the government wants to meet its obligation with the companies but because there is a realization that without the payments the existing operators are not in a position to make new investments to either maintain production or certainly not to increase it.

And this is a problem, this is a threat to the Kurdistan because oil is the single largest by far source of independent revenues to the KRG. So it’s out of the realization that this needs to be done to maintain production levels and possibly even to increase them.

But also the lack of payments on top of all the other issues, the drop in oil prices, the security threats in the region have meant that some of the other companies that either are small operators or were in exploration phase have shut down either operations or have stopped making investments, there are some small exceptions. But as a rule, Kurdistan’s oil industry activities have shrunk substantially and you can see this by number of rigs that are active, which is minimal from the number of companies that have indicated smaller ones are there for sale as companies or that they want to sell their assets or farm down their activities, you are seeing a bit of that.

So there’s a realization in Kurdistan that the way to reverse this is to have more predictable, more regular payments to the current operators. So that drives their -- that reality drives their decision making too.

From our side, we will want to see in going into 2016 a number of months of payments on a regular basis; but it’s not just the regularity of the payments but it’s the amounts as well. And once we have seen these payments or once we have put into place alternative payment mechanisms, we would prefer to have these payments be irrevocable.

The payments track or production sharing contracts are entitlements as they are anywhere else that companies operate. Then we would be in -- we’d have more predictability and less uncertainty but we and I -- and I expect the other companies as well, I won’t speak for the other companies, but I expect we certainly will want to see a number of months of payments before we are in a position to start making additional investments.

Now, how much payments do we need to start making what kind of investments, I don’t want to address that now, because again there’s some hypothetical, we’ll just have to wait and see how that evolves. We will make sure that from a safety point of view and an operational integrity point of view that we don’t compromise Tawke operations, that’s critical to us.

But in terms of what will we do in terms of infill drilling and enhancements and the replacements or operating of major surface facilities, we will not be in a position to do that until and unless we see a regular payment stream. In the absence of some of these investments, Tawke productions will start to fall off, again as part of natural decline but in a sense it doesn’t matter so much to DNO or the other companies facing that if we are not being paid for a 150,000, it drops to 100,000, it doesn’t really matter to us because we are not being paid.

It does matter to Kurdistan greatly. And this is a reason that I believe that having reached this realization now that we will see a different approach to this and Kurdistan will have to make sacrifices.

The more that’s paid to the companies, the less money is available for other purposes but this is a critical and pressing and priority for them. I have been traveling to Kurdistan regularly, I am there every month and there is a realization in the senior most levels of the government that this issue has to be addressed because it’s become a critical one for the companies.

Sure. But the recent gross amount of $30 million on a monthly basis, is that sufficient for you to cover your OpEx and also leave amount, some money for CapEx?

And secondly, in Q3 you had a minimum CapEx level, $1 million and your production fell somewhat from Q2. My question related to that, is that drop in production in Q3, is that more like what you expect as natural decline if you don’t investment in anything?

Two questions. Is 30 enough for you to start investing?

And secondly, is the underlying depletion in Tawke field reflected in the Q3 production versus Q2?

The payments in September and October and for the balance of the year pay for previous investments that we have made. As you know, we have major investments in Tawke production, capacity increase and some of those payments we’re still making for the previous CapEx program.

So those payments are for the past. We will be looking to see what payments we receive in 2016.

If we receive $30 million on a gross basis every month in 2016, there is some cushion there to make some additional investments but not significant, because that still falls short of our entitlements. We have payments to make on our bond borrowings.

We have other corporate related expenditures. So would we be satisfied with our share of $30 million a year as DNO?

No, that is well below our entitlement figure for these production levels. And it certainly doesn’t go any distance towards the repayment of our receivables which is critical to us, we are entitled to that and we will push to receive that.

So $30 million a year on an ongoing basis would be enough to meet our -- again there’s asset integrity. There will be some additional investments we can make, I don’t want to identify those now, we’re still thinking about those inside the company, but we would not be satisfied with $30 million a month given the level of production that we have.

And as I indicated in one of our slides, as we said before, the value of our production even at these low oil prices and even at these somewhat lower production levels for Tawke are on the order of $2 billion a year, there’s plenty of money there to provide us funds to reinvest and continue to sustain and drive Tawke production.

And the second part of the question, the Q3 production versus Q3, is that like the underlying depletion if you don’t do this?

The depletion, the underlying depletion at Tawke has been less aggressive than it has been at other fields in Kurdistan. I think you can assume that the field will continue to decline in terms of its production.

We will know what the decline rate is after the fact rather than trying to predict it looking forward but I assume that there will be a decline, it’s natural in any field and we will know once it’s occurred rather than trying to anticipate it.

Okay. Thank you.

Trond Omdal, Pareto. There have been reports now that the yield between Kurdistan and the traders in Ceyhan is that they receive $850 million, some day $820 million and that to fulfill that obligation they are going to have to deliver enough volumes given the current prices.

At that calculation, at current levels, Europe, seems you are about there and watching institute growth that that is just enough to cover the public sector payments. Currently there is an ongoing discussion on the budget with Iraq on the new budget for 2016, but if you see run rate export revenues from the south, they are much less.

So what would be the incentive for KRG to agree with Baghdad given the rest of it or is it more likely that they will go alone now that they have reached that threshold? Is there anything you can comment on that?

Not very much Trond, I read the same sort of things that you do. We are not privy to the terms of the sales at the Ceyhan between the Kurdistan side and the traders.

So what we know about those is what is published. So I have nothing more to add on that.

And in terms of the Baghdad/Erbil discussions, those are complicated discussions and they go in different directions and we are not part of those discussions and we are not in a position to influence those in any way. What matters to us is what matters to us.

What matters to us is to be paid eventually on the basis of our entitlements, which was the case before the ISIS crisis and the oil price crisis. And with those payments, we would be in a position to make investments from which we would benefit as would the KRG.

So the focus of our discussions with the KRG are payments to DNO and what is required and what we are in a position to do with those and there is an understanding that with payments we can invest more. And we invest more we produce more production and that production is shared the largest part to Kurdistan, smaller part to us based on our contractual entitlements.

And I think that’s the appropriate place for our focus and our discussion and that’s understood. We, at DNO, when the ISIS crisis came, as you know we were the only company in Kurdistan state that kept producing and kept investing and we were investing at a time of difficult time not just in terms of security but of uncertainty as to the future, but we completed our investments in terms of the Tawke capacity expansion and we continue to produce knowing that the oil prices have dropped and that the Kurdistan Regional Government’s ability to pay us short term was restricted.

And we kept going but the situation was not sustainable. In a sense we have gone in the bond market and borrowed money to invest in Kurdistan, we are borrowing in a sense on behalf of Kurdistan, that’s not sustainable.

This is not a good business model for any company, they understand that and that they understand that our weakness becomes their weakness, our strength becomes their strength. Remember again that when we produce more, the larger part of that revenue goes to Kurdistan and there are contractual arrangements.

So there is that understanding and I think that things have settled and at least the parameters of the issues are now better known in Kurdistan in terms of Erbil-Baghdad discussions, in terms of the security issues, there is the price of oil is a more greater reality now that oil prices are where they are and this isn’t going to be reversed in two weeks time. I think there is -- we are now tackling with them the issues that we faced based on the new realities that now everyone sort of accepts.

So I am confident that irrespective of what happens on these other discussions, other arrangements to which we are not party that with respect to our situation we will see greater payments in terms of both amount and in terms of the frequency and regularity but we are also looking at alternative marketing arrangements over which we would have stronger predictability and regularity.

One follow-up. Can we assume that the Ministry of Natural Resources, they are accepting and they haven’t protested against your decision to not do any investments?

And the follow-up, the ongoing conflict on the extension of Barzani’s presidential term, has that had any security implications in the Dahuk or in Erbil, would that contain mostly the unrest [indiscernible]?

Again I visit Kurdistan regularly and I have been there recently. We have had other member of our Board has been in Kurdistan very recently.

We have our team there, we have a lot of people going in and out and from a security point of view we feel comfortable. I feel comfortable, as I do it myself going into Kurdistan.

I believe our assets are secured as best as we can secure them and as best we can determine. We would not put our people in harm’s way if we thought that there was a threat to them.

So from a security point of view I think we feel comfortable. I think that’s evidenced by our travel to in and out of Kurdistan.

So I think that is not a concern other than, we’re always concerned about everywhere you never know when a threat might occur. With respect to how Kurdistan is responding to our lack of -- our inability to invest, they would like us to invest more, I would like to see us invest more but our ability to do so is limited by the physics of our resources, I mean it is what it is.

So they would like to see us do more, we would like to see us do more and we have explained that we can do more if we have more revenues and we believe there is scope for more regular and larger payments to us to allow us to do that. It’s important the kind of payments we require to make in those critical investments is not huge because Tawke, the character of the Tawke field, it doesn’t take substantial amounts of money to allow us to make investments to sustain, even perhaps grow a bit production over the current levels, so we are not talking billions of dollars but some of these investments are in the tens of millions of dollars, it’s not a lot of large amount of money.

And again the contribution we’re making, the value of this oil at $2 billion is sizeable enough that it warrants making these investments from the Kurdistan point of view as well. But also to allow a mechanism to get our receivables paid.

If we were producing 5,000 barrels a day and we had a billion dollar receivable, I’d be very seriously concerned that we’d never get that money back but that’s not the situation. We’re generating $2 billion a year in revenue even at these low prices and our receivables are $1 billion and our needs are in the tens of millions of dollars a month on an ongoing basis.

It’s very, very doable. And it makes sense to do it both from the company’s point of view and Kurdistan’s point of view.

This is the best investment Kurdistan can do and towards revenue generation is to pay DNO its entitlements. And they understand that and we have explained that to them.

They understand the math. This is the best place for them to put their money.

Teodor Nilsen, Swedbank. Three questions.

Number one, how should we think about reserve development assuming that you’re in zero in 2016? Number two is on CapEx for the fourth quarter, you guided for $70 million this year and you spent $50 million this quarter.

So what will you use those $20 million on? And then number three I guess that’s a follow-up of decline rates assuming zero production in -- sorry -- zero CapEx in 2016.

What should we put into our [indiscernible] decline rates for 2016, high 10% to 20% and any number would be useful?

On the reserves. You mean the reserves of Tawke.

Do you mean the reserves of Tawke?

Yes.

Well, the Tawke reserves will be down certainly by the amount that we produced and we’re producing quite a bit. So you can expect Tawke reserves decline based on the actual production levels.

But our Tawke reserve expectations were based on the additional drilling. We still don’t fully understand the field.

And so I expect without work and without some of the capital investments looking forward that our Tawke reserves numbers will be impacted by how much, I don’t know. We’ll have to wait to see our own reservoir team and our external reservoir engineers come in and provide some guidance on that.

The Peshkabir well, if we are able to drill it and I am very hopeful we will in 2016. We’ll of course move the needle somewhat on our reserves.

But I don’t want to get ahead of myself. The Tawke reserve numbers are significant as is the challenge for DNO is getting paid for our ongoing production.

And if that issue is addressed and it’s being addressed, I think we will see that reverberates in other ways on the corporate side including on the reserves numbers. But I don’t want to get ahead that number.

I am not worried about that right now. My worry is the payment issue getting that sorted out.

In terms of again the production decline and again we’ll know after the fact, I would say with a significant amount of confidence that without investments we are not able to reduce the natural field decline. Fields decline, I don’t know 10%, 20% a year sometimes even with investments.

We will do again asset integrity investments from a safety and operational safety and then integrity point of view but even the best fields with investments have at least a 10% or more decline. So will we see a 10% decline in 2016?

Will it be closer to 20%? I just don’t know.

We’ll know after the fact. I expect there will be something in between but we’re not planning for it.

We will hope that we’d be able to arrest some of that with investments. And we’ll know after the fact in part because we’ll know what revenues we receive after the fact and we’ll know what we’re able to do with those revenues.

But I think you can assume there will be a decline but in a sense, it doesn’t matter to us unless we’re being paid. If we’re paid it does matter, we’ll do everything we can to arrest that decline.

And I’ve made this also -- made this point in Kurdistan that with the investments both the company and the government, importantly government will gain because there will be more production and they understand that. So I think this is all well understood.

And I expect we will see action on their part. So as a consequence and again it’s just not DNO that’s facing this situation, the other operators are as well.

That’s understood too.

And the CapEx part of your question. Well, again, it will be mostly for Kurdistan and mostly for Tawke.

There is sort of a limited work program being carried out that we have worked on throughout this year, it focus on the pumps that we have now in most of the wells to maintain oil production as far as we can. But also on the new processing facilities, power generation, et cetera, across Tawke field but not that big, I mean, it’s what we can afford with the current cash flow that we are focusing on.

So there might be also be some investments outside of Kurdistan, Oman, Tunisia. But most of these anticipated $20 million will be focused on Tawke and the work program that we have on a limited basis ongoing.

Also on the question about investments and decline, as you know, at Tawke we put in the electrical submersible pumps in number of key wells and that slowed down some of this decline. So as a consequence of some of the earlier investments we made as part of the Tawke expansion program we put into place facilities that have arrested decline that probably have benefit more aggressive.

So that’s been helpful but the pumps need and these facilities need to be maintained and sometimes replaced and upgraded across the field and if that isn’t done in a timely fashion, you will see an impact on production. We’ve had some questions from the website.

One was again to explain how our local sales mechanism works? We’ve mentioned this before that hasn’t changed.

When we do sell into the local market to local traders, we receive 50% of the sales revenue. For those that hasn’t changed.

We’d like to see a larger percent of it going to DNO. So towards our entitlements for those sales on our refinery sales we are currently selling the fuel oil and on the fuel oil sales we receive 75% of the sales revenue.

There have been quite a number of questions about again payments, what do you expect payments levels will be, how much do you need, did you make the investments? I think we’ve touched on that.

Some questions as to when you think you’re going to get the $1 billion back? Important question, of course, I don’t have an answer for that.

It won’t be overnight clearly. But we are -- we’ve had discussions as to how best to address that issue.

What we’d like to see again is a monthly payment that meets not only our ongoing entitlement for that production but begins to pull down the receivable number and as circumstances allow we like to see that accelerated, of course, an increase in the price of oil would do a lot of good in that respect. We can’t count on that.

But it’s clearly not acceptable to us that we have a very significant and substantial receivable sitting there and there are not addressed. So we’ve been very engaged in that discussion as well.

How to handle that, we’ll see but it’s not very far from our minds, our discussions.