DNO ASA

Okay. I guess participants are coming in, as we speak, but I will start and introduce this earnings call.

Welcome to DNO’s Third Quarter Earnings Call. My name is Susan Lerose [ph].

I am the Communication Manager of DNO and I will share some practical information with you. All participants in this meeting are muted by the organizer and will not be able to unmute themselves, chat or share their screens.

However, you are advised to turn off your camera. We will start with a brief presentation of the third quarter 2021 results by Executive Chairman, Bijan Mossavar-Rahmani; and CFO, Haakon Sandborg, after which we will open up for questions.

If you want to pose a question, please raise the tiny virtual hand on top of your screen. If you are chosen or when you are chosen by the organizer, you will be notified on your screen that you are allowed to unmute, after which you will have to remember to unmute yourself too.

Please say your name and position before asking your question. And with that, I leave the stage to the Executive Chairman.

Good afternoon, everyone, and good morning to those of you who are in United States or in another part of the world or its still before noon. I am in the United States.

This is yet again a quarterly presentation and it’s driven by COVID requirements and restrictions. My hope is that the next one, I will be in Norway, and we can do it in person, certainly with the Norwegian participants.

But I have been saying that, I think, in the last two quarterly presentations and these pandemic restrictions continue. But thank you for joining us.

I think we have maybe close to 100 participants joining us for this meeting. Thank you for your interest.

And without further ado, I will make some introductory comments on the quarter, focusing importantly on the operations side. Haakon will speak through the financial results and performance of the company during the quarter.

And then we will, of course, open it up to discussion among the full group. Your side, if you please take out the next slide.

This is a summary slide that we thought would be captures a few messages. First, again, this is DNO’s golden anniversary year.

It’s our 50th year as a company in Norway with much -- a lot of history, a lot of stories, a lot of successes the company has had, but we have been celebrating this year, our 50th under again COVID conditions and difficult conditions in the overall global economy, political system conflicts all of the climate change debates and the issues raised about the oil industry, the fossil fuel industry and its future. But we are proud to be a growth oriented E&P company and with a focus of the Middle East and the North Sea, and that remains very much a part of who we are and what we believe we are best equipped to do as a company in the interests of our stakeholders.

We do stand out in the industry, not just because of our age and we are not one of the older companies around the world and still standing. And there are older companies but some of them are changing as you well know, their focus and their orientation.

But now, we are one of the old boys or old girls, yeah. So and we are proud of our tradition and we are proud of what we do.

We also stand out in that our lifting costs continue to be industry beating lows that about $5 per barrel across our operated assets. That’s very low by any standard and we are also very low carbon company.

Again, beating the industry averages, our CO2 intensity is about 10 kilograms per operated barrel of oil produced and we will say a few more words about how that stacks up versus the rest of the industry. And the future of the oil and gas industry with all of that’s happening around us, the future will be that of the low cost, low carbon companies, we will be one of the last companies still standing to turn off the lights, as fossil fuels exits, whether it’s 30 years, 40 years, 50 years or 100 years.

So, with that, I will start the review of the slides, starting with the third quarter operations. Our gross operated production in the Tawke license, our flagship license in Kurdistan, which we share with our partner, Genel, gross operated production averaged around 105,000 barrels a day in Q3, it’s down a little bit from Q2 and of that total close to 79,000 barrels a day was net to DNO’s interest, which is a substantial amount of oil for a company of our size, as you know.

The North Sea contributed another 13,000 barrels a day of oil equivalents, because we also have gas production in the North Sea that was up, importantly, as a percentage of North Sea production from Q2, but of course, that additional few thousands barrels is lost in the rounding of our Kurdistan operations. But still very important to us, because that’s one of our important growth areas with respect to exploration and it’s been part of our strategy to diversify DNO’s activities beyond Kurdistan.

Our total net production was about 92,000 barrels of oil equivalent per day for the quarter. Our Tawke license 2021 gross operated production, we have given guidance of about 110,000 barrels a day earlier this year.

That guidance is essentially unchanged. We are still looking to act come out of the year with average in that range or approaching that range, they would be off couple of thousand barrels a day or something, but we will see how the rest of the quarter goes.

But essentially, that’s the average figure for the year that we expect. Our actual exits level could be a little bit higher as a result of some of the wells that we have been drilling and working over coming in, but we will see.

North Sea production guidance for the year remains unchanged, again at about 13,000 barrels of oil equivalent per day. Next slide, please.

On the financial side, our revenues were up significantly in Q3, importantly because of the strengthening commodity prices that have impacted all oil and gas players, but also because we have had the higher North Sea sales in the course of the quarter. And you will see on the right that’s a bar diagram that shows split between Kurdistan and North Sea what’s has been going on on the revenue side.

And we show the splits, our profit for the year -- for the quarter has been $65 million. That’s essentially flat.

It’s a little bit up from Q2. It hasn’t kept up percentage wise with our revenue growth in the quarter and that’s -- Haakon, in the financial slides will touch on this a bit more, but it still has been a third consecutive quarter in which we reported operating profits and that’s good.

As you know, we closed on a new $400 million five-year bond issue with a coupon rate of 7.875% during the quarter. This lowered our average debt interest rate, but also extended our maturities and help strengthens our balance sheets and we were pleased with the outcome of that bond issue.

We received $120 million from Kurdistan in the quarter that includes as it does every month our share of entitlements or share of the oil that’s actually produced and exported. But also an override that we continue to receive every month based on 3% of the Tawke license production.

This is related to an agreement that address debt that KRG had to us back in the ISIS period, plus a payment towards new arrears that were created when COVID hit wherein Kurdistan withheld some payments from all the oil companies and they have been paying down that debt on a monthly basis. So the total payment was about $120 million that represent, I believe, two months -- now three months or third month came in in the -- has come since, but that was the figure for the -- those actual received in the quarter.

At the end of the quarter, these new arrears, the outstanding amount has dropped to $203 million. Again, this is as of the end of Q3, that numbers come down further since then with some more recent payments.

That’s down from close to $260 million at the start and that excludes any interest. DNO like the other companies that have been affected by this have been in continuing discussion and dialogue with the Kurdistan Government about how to handle interest on these arrears during this period and how to fact that into either the payments or into other obligations that companies may have in -- with respect to their assets in Kurdistan.

Next slide, please. I have mentioned our gross operations that split -- the split between Peshkabir and Tawke.

And the quarter was close to 60,000 barrels a day from Peshkabir and about 45,000 barrels a day from Tawke. At Tawke, we hadn’t done any drilling for about 18 months, when the price of oil crashed.

There were some delays in getting approvals from the Kurdistan Government in terms of spending, because they were trying to pause on spending during a difficult price and COVID period. But we were able to reduce some of the natural production decline that occurs at all these fields through pressure support from gas injection, which we will talk a little bit more about and also workovers at the smaller things that we could do at the existing wells shy of doing new ones.

So we were able to slow down the natural decline rates. But now we have resumed drilling at Tawke and we have a new well designed.

It’s -- we also drilled cheaper wells and more quickly, and we hope that we will see improvements in the decline rates maybe setting up production at Tawke moving forward as a result of this now and increased level of activity. Both Tawke and Peshkabir will have multiyear development campaigns.

At Tawke, a mature field, the next phase is to drill more and more and more wells and to do so cheaply and that’s again the natural progression of fields as they age. It’s like being on a treadmill you run faster in place just to be.

It’s a standstill and we will -- that’s anticipated and then planed for Tawke. Peshkabir is a younger field.

We have an active drilling program there. But that’s less about a lot of drilling in a mature field and still about trying to test the limits of the field and see what it can do, and perhaps, add some additional production then to it.

We declared commerciality on our third -- on our second license in Kurdistan. Hopefully, it will become our third field at Baeshiqa.

That’s the asset we acquired from ExxonMobil. The transfer of the interest to us was completed.

We have 64% of that license, 80% on a paying basis. And the transfer has been approved.

We have submitted commerciality. We have submitted a development plan and that’s been under discussion with the Kurdistan Ministry of Natural Resources.

There’s some fine tuning that’s been done and some final discussions with them as to how the developments will proceed. Once we have all of that in place, we expect to be able to fast-track it, as we always do in Kurdistan and that’s been key to our success.

By fast-tracking here, we mean that we have two wells that we would -- two discovery wells and they were left in a state in which they can be reentered and production started. We have already produced some test oil from those two wells.

We will start with those and then we will then drill additional wells to bring that license to a higher level of production, and then again, hopefully by any standard in record time. The next slide, please.

We have talked about our gas capture and injection program in Kurdistan to replace flaring. This is something that we had initiated several years ago and commissioned in mid-2020 before much of the current focus on global climate change issues in the current context of COP26 and other discussions are ongoing.

That was $110 million project. The purpose was to reduce flaring at the Peshkabir field, where we had associated gas production, which we don’t have at Tawke to move -- that’s a soft flaring move that gas to Tawke, inject it there both for safekeeping, to keep it out of the atmosphere and also to help with some enhanced recovery of additional Tawke oil.

We are pleased with how that’s proceeded, and we have been able to check all of those boxes and we have been proud to do so. Iraq is one of the largest flares of gas, associated gas in the Middle East, perhaps, in the world.

This is the first project in Northern Iraq and Kurdistan to reduce gas flaring and inject the gas again for future recovery. But in the meantime, for enhanced production, if that’s possible in the field and the government on the strength of the success we have had has now mandated that the other operators should do the same as much as possible and with some -- within some timeframe.

But this has been -- this project has been held up as a success story and a model for how other companies and other operators should handle the treatment of associated gas. We have now initiated a Phase 2 of this project -- of this program, that’s going to cost another $25 million and that’s to deal with gas breakthrough as this gas is pumped into the Tawke field, some of it will break through and they will -- we will be recapturing it and putting it back in the ground to avoid any flaring at Tawke.

I mentioned that our CO2 intensity is very low. It’s at the level of 10 kilograms.

That’s about half of the target for 2025 set by a group of 12 of the world’s largest oil and gas companies. So it’s a figure we are very proud of.

But in addition to CO2, I know there’s been some focus shift at COP26 about CO2 and a shift away from CO2 to methane. Methane is an important a nasty gas.

We have started in 2019 a project to eliminate routine venting of methane. So we were again ahead of the debate and discussion on methane and we have now taken that to a Phase 2 also to launch a methane leak detection and repair initiative to be able to monitor and to mitigate fugitive methane emissions.

These are methane emissions that occur around equipments and so on, tanks -- storage tanks, but that will not be visible to the eye, but detectable and that will be part of our effort and a contribution on the methane side, as well as part of our efforts in this area. And again, we have done these for years and we are tend to be quiet about them.

We do it, because it’s the right thing to do. But it’s important because we were asked by stakeholders, by shareholders, by analysts, by bondholders, what are -- what is DNO doing, and of course, we have a good story to tell in this area as well.

Next slide, please. On the North Sea, I mentioned our production was up a bit from Q2.

We had appraisal wells drilled on the Bergknapp discovery that was made in 2020, in which we have a 30% interest, which resulted in a 35% resource estimate upgrade in Q3 and we are very pleased with that, as we continue to buildup our inventory of discovered resources in the North Sea, in Norway in particular. We have drilled.

We have been very active as a driller. Our exploration efforts in Norway are an important part of our overall exploration strategy and portfolio.

We operated and drilled the Gomez exploration well. It’s encountered hydrocarbons, not very substantial volumes.

But it could be volumes that could be meaningful. We are with our partner assessing the commerciality to see if that discovery is in fact commercial or not and we will report back obviously as we learn more.

Our Brasse field where we have 50% and operate is on track for 2022 PDO and we have made some further progress on that. And DNO recently entered into a strategic framework agreement with Technip FMC to cover certain subsea deliveries as part of our effort to constantly review and high grade our portfolio.

We have exited Fogelberg and shelved our Trym South permits. But continue to do again active exploration, but also development drilling and appraisal development.

It’s been an active year for us in that area and we talked about the first of four back-to-back Fenja wells having been spudded in October, first oil planned in the first half of 2023. So we were active and hope to grow the contribution of Norway production to our overall production volumes.

Next please. This slide I won’t try to read everything on this slide for you, but it’s available as a refer for your reference.

It has our 2021 and 2022 exploration drilling program and some detail the North Sea. Okay.

I think, with that, I will stop and turn to Haakon Sandborg to discuss our -- in more detail our financial performance during the third quarter. Haakon, please?

Good. Thank you, Bijan.

Yeah. Hello, everyone.

We will now move to a discussion on the Q3 financials. Move the slide, please.

So we start with these key figures and we are again pleased to deliver solid quarterly financial results. This year we have increasing revenues and we have strong cash flow generation, and also somewhat higher operating profits in Q3.

So, as Bijan said, our revenues have climbed up by 38% from the second quarter to a solid level of $253 million. And this growth was mainly driven by the increase in the North Sea production and sales, but also, of course, by higher oil and gas prices.

But just to mention a bit more on the business unit level, the Kurdistan revenues in Q3 of $149 million. They were up by $8 million from the second quarter.

That was primarily on the oil prices. That the North Sea revenues of $104 million in this quarter.

They were up by $61 million from Q2. So that’s quite significant and that was mostly on the higher produced and also higher lifted volumes supported by the very good oil and gas prices.

Our netback, which is an after tax cash flow before working capital change has benefited now again from higher revenues and from tax refunds and you can see a new development and reaching a solid level of $194 million for Q3. As I said, some increase in our Q3 operating profit that comes from the higher revenues again, but that’s despite the increase in the impairments and also higher expense for exploration in this quarter.

So, again, quite pleased, and we see these as good financial results for this quarter. Next one, please.

As we normally do, we will go through a lot of detail on our profit and loss statement our P&L. You see the Q3 numbers to the left on the slide and here you can see the increase in revenues from Q2 that I mentioned.

On our cost side, lifting cost and DD&A remain very stable in Q3 from the second quarter. But there is this reduction in North Sea underlift at least increase in our total cost of goods sold of $19 million in this quarter.

So that’s the main movement around the cost side on the cost of goods sold. But if you go down the cost, you can see that the expensed exploration is up by $10 million and that comes mainly from expensing on a well called the Black Vulture well.

We have significantly higher impairments in Q3 at $40 million. That comes from, again, the revised R&D submissions from licenses that we participate in and there has been the revised cost schedules and the revised production profiles that go into these submissions that we have used in our evaluations.

So that is getting to impairment on a couple of licenses, including the Ula area. But in addition to this type of impairments, we have an impairment from U.K.

decommissioning cost on this Schooner and Ketch project that we are working on. So, higher cost there has been impaired.

At the same time, we have had a positive movement on the other decomm project that we have in Norway called Oselvar, where we have had a cost reversal. So that’s good development in Q3.

It all leads to the operating profit of $65.4 million in Q3, up from $60.9 million in Q2. You see, net finance is stable and we have of course the interest expense as the main element, but this quarter we also have items that include bond refinancing cost growth, et cetera, or accretion.

But we also this time had a positive reevaluation effect on our KRG receivables. Interesting to see on the Q3 tax expense as it is of $6 million, compared to a tax income over close to $25 million in the second quarter and we see that this is now due to reduced tax losses and some changes in deferred taxes.

So with the reduced tax income, we show a net income of $30.9 million in Q3, down from $56.7 million in the second quarter. Next please.

Oh, sorry, let’s stay on this one. I have a bit more on this one.

I need to talk -- go back again, we have to, sorry, talk about the year-to-date also on the right side of this slide. As I mentioned last quarter, we see very strong recovery now from the weak market conditions that we had last year.

And you can see revenue is now up by $161 million -- $167 million provided mainly by higher oil and gas prices. But then again, year-to-date costs of goods sold are also significantly reduced from last year.

That is now mainly due to lower DD&A or depreciation mostly and this comes from reduced DD&A charges per barrel in Kurdistan and from lowered North Sea production this year compared to last year. So we also have a reduction in cost of goods sold from the build up in the North Sea underlift due to lower lifted volumes so far this year.

On the year-to-date, this slide also we have much lower impairments this year and we saw much better operating profit year-to-date to $192.7 million compared to the substantial operating loss that we had last year. Now our year-to-date tax income of $23.8 million is also much lower than last year.

That’s mainly due to lower impairments with the tax effect and the deferred tax changes. But anyway, after finance and tax, we are pleased to show a year-to-date net income of $139 million.

And in my view, obviously, with our high production and the current oil and gas prices, we see a good outlook for further strengthening of earnings going forward. Now we will go on the next one.

We will give you some guidance on what we term as the operational spend, some of the CapEx, AbEx integration and the OpEx categories. And our operational spend guidance for this year is basically unchanged, except we have a $15 million increase in projected NCS or North Sea exploration spent compared to our Q2 presentation.

And the contributor on that exploration increase is the additional work that we have been doing on the successful [inaudible]. The projected operational spend is split between $200 million in Kurdistan for this year and $460 million in the North Sea and that is before North Sea tax refunds importantly.

As we show in the quarterly spend graph on the right side of this slide, the year-to-date operational spend is at $493 million for the first three quarters and we project an estimated additional spending of $167 million for the fourth quarter this year. So, staying very close to our guided levels here.

Let’s go to the next one. So, for our cash flow, we again now have delivered a solid operational cash flow in Q3 at $142 million and that’s again on the back of increasing oil and gas prices, but also with the higher North Sea volumes.

So we see that reflected an increase in our pre-tax profit, including or adjusted for non-cash items up by $44 million in Q3 from Q2. In the third quarter, we received two monthly payments from the KRG and we have since then received other payments after quarter end.

But with the two monthly payments, we received $120 million from the KRG in the third quarter, compared to $159 million with prepayments in Q2. So we thereby had a negative working capital change over $24 million for this quarter, mainly from the increase in KRG receivables that impacted the Q3 operational cash flow.

But as shown on this graph to the right, we have received North Sea tax refunds in an amount of $37 million and that again added to our quarterly cash flow. We increased our investments further now to $109 million in the quarter and as we show on the slide, $81 million has been invested in assets and asset developments and $28 million in decommissioning spend.

Now, Bijan mentioned that, but we had a successful closing of a new $400 million bond in September and now in the third quarter we used $300 million of that plus to buyback and redeem the remaining DNO02 bond. So, like to note that, as we have done many times before through this new bond placement, we had an early call and early move on our bond maturities to both extend the maturity profile and to enhance our credit profile.

But in sum, as we have seen in recent quarters, cash from operations again funded all investments in the quarter. And if you add the tax refunds and the finance proceeds, we increased cash balances by a substantial $132 million in Q3.

And I think we said that before also, but we see very good output now for continued strong cash flow generation going forward. So next one, and here we have our capital structure.

You can see that we continue to strengthen our balance sheet. Also through the third quarter, we have increasing cash balances and we have a conservative leverage in my view, as we saw with a steadily declining net interest bearing debt level.

So as such our cash balances have grown by $213 million over the last 12 months, since the end of the third quarter last year and this has mainly been achieved through increasing cash flow from operations, backed by the higher commodity prices and also with support from the accelerated Norwegian tax refunds in this 12-month period. Over the same year, we have cut net interest bearing debt by 39% to $360 million at the end of Q3 this year.

But the reduction has come mainly through the higher cash balances but also we have reduced all the debt in that during the last 12 months. So, on the right, with the improved earnings this year, we had also strengthened our equity ratio to the current level of 33%.

With this balance sheet and strong cash flow generation, we are, obviously, in a very solid financial position and we plan our -- as we plan our investment programs and we will consider other uses of capital also going forward. As we normally do and plan on doing now, we will rework with the updated plans and work programs and guidance for next year in our Q4 presentation in February.

So that was a review of the financials for the quarter. That’s the end of the presentation.

So, I think, we can now move on to start the Q&A session with the questions from our participants. So, please, Susan.

Yes. I think we already have gotten a question from one of our old friends, Teodor Sveen-Nilsen.

He’s an analyst with SpareBank 1 Markets. So, if you just make sure to unmute yourself and the scene is yours, Teodor.

Thank you. Good afternoon and thanks for taking my questions.

I have three questions. First, on the general industry trends, we see in certain other industries bottlenecks and other change.

I just wonder how is that incurred this time, where do you or do you at all experience any bottlenecks? Second question is on KRG payments, you said you got two payments in the third quarter, just wonder whether or not we should expect four payments in fourth quarter?

And last question is on Bergknapp development and just what kind of development concepts do you expect for that discovery? Thanks.

Teodor, good afternoon. Let me start with some answers.

On, excuse me, bottlenecks, yes, I think there -- we feel those in Kurdistan to an extent. It’s probably not been as difficult as perhaps in other areas, because we have made -- we purchased stocks in advance of equipment, casing and so on.

So we have been prepared to an important extent before disruptions and delays. Plus the rigs we use are typically dedicated rigs in Kurdistan operations.

So we don’t have the same issue that perhaps in other parts of the world, they have trouble getting rigs and rig crews and mobilized to drilling. So it’s -- that’s not been an overwhelming challenge for us.

The bottlenecks -- they are not really bottlenecks, but there have been disruptions, of course, and challenges from -- that are COVID related, making sure that people go in are quarantined, the teams are quarantined, the fields are properly protected and we ensure the safety and health of our employees and market will be better successful, in that respect, there’s been a lot of hard work by our colleagues in Kurdistan and those in Dubai who manage the Kurdistan operation. And -- but the challenge has been in the human side, making sure that our people are safe that early on.

There was a question of bottlenecks in terms of getting vaccine, people are vaccinated, and again so it’s a different maybe kind of bottlenecks that you had in mind. But remember at the start of the pandemic, the bottleneck in vaccines is probably more of an issue for people than the bottlenecks in casings, for example, or rather wellheads of equipment.

So we have come out of that I think, it’s not over yet. Hopefully, it’s on -- it’s -- we can see the light at the end of the tunnel.

I think DNO was managed certainly our operating activities to address and manage the challenges posed by COVID. With respect to Kurdistan payments, do we expect another payment?

You do know, as well as any of us probably better the payments on Kurdistan are sometimes delayed, sometimes we are surprised with how quickly they come. Suppliers were disappointed that they are slowed down.

But they do make it whether they are a week late and it’s becomes slipped over that to the end of the month or the end of the quarter. I don’t know I can’t give you any assurance, but the payments have been coming and coming both from with respect entitlements, royalties for those who have some royalties, but also with respect to the payment of arrears.

We are not happy that the arrears are still outstanding, but they are being worked down and so we have every confidence that payments will come. But whether they come the day before, the day after the close of a quarter, I can’t really save it.

You see them coming. These are large sums of money that the Kurds are paying for the companies.

It shows the commitment on their parts to do so. They understand that without these funds, these companies can’t spend in Kurdistan to the same extent and if we don’t spend, revenues are going to go down and they are pushing us to produce as much as possible to take advantage of these oil prices.

And they understand that for us to do that, the funds or the payments have to be coming in on an ongoing basis. So I have every confidence payments will come, but the timing of them one day or two days or five days before or after, I can’t say.

And also, as you know from the analysis of other companies, not all the payments come to all the companies on the same day. Sometimes one company gets payments earlier than others do.

And then sometimes all three payments are spread over two days or three days. So some of that I think is related to the banking system delays.

So I don’t know if I have answered your question with respect to timing, exact timing, but we have every confidence payments will come and continue to come strong, given where oil prices are and the fact that our production is what it is. On the Bergknapp, I don’t have an answer to your question.

Haakon, do you have any -- do you want to add on Bergknapp? I think it’s a little early in the...

Yeah.

…maybe you…

Maybe I guide to that, but I know from discussions with our technical teams that this is a concept that we are still for the early base. We are looking at possible tie into existing infrastructure and then we have a lot of installations in the nearby area around this discovery area.

So likely to sort of tie into the existing infrastructure in the neighborhood and we know that we together with our partners are working on maturing the options. But that’s sort of the level of detail I can go into now at this stage, Teodor.

Okay.

Okay. Thank you.

That’s all for me.

Okay. Then I believe the next question comes from Nikolas Stefanou with Renaissance Capital.

You may unmute yourself.

Good afternoon, gents. It’s Nik from Ren.

Thank you for taking my questions and I have to also give you congratulations on the 50th anniversary of the company. And I have got a couple of questions, then a follow-up.

Bijan, I am bit disappointed not having a dividend announcement today. I think this is what the market was expecting, especially given how healthy cash flow is, how much you have reduced net debt?

And then, also, what your peers are giving to their shareholders. So what was the reason you decided not to announce the dividends in this quarter and any comment around that will be quite helpful?

And then my other question is on the Tawke license, it looks like despite the kind of like drilling, how to say, there because of the and I will say approval delays, you are still pretty much on track to deliver your target or at least be quite close to about 110,000 barrels per day. Can you give me an idea, with development now resuming at Tawke, what kind of like exit rate we could see for them this year?

Thanks.

Let me answer your second question first. I think I have mentioned that our exit rates could be probably a little bit higher than the 110,000 barrels a day and that’s just an estimate, but -- in that range, because, as you know, the third quarter again, the numbers were a little bit lower.

So the fourth quarter will have a little bit bigger -- higher for us to catch up, but I expect our exit rate will be at these 110,000 barrels a day and maybe a little bit higher, we will see, every day the figures are a little bit different. We are currently, as we have some of these new wells coming into production, there are days in which our production is running higher than 110,000 barrels.

But where we end up at the end of the year, I don’t know, but I think 110,000 barrels is a safe estimate as an exit rate. It may be a little bit high in terms of the average for the year, but -- not but -- if it is by not very much, I don’t know, whether it will be or will hit that average or not, again, depends on what happens in the next month and next, I guess, close to several weeks or so.

But we have done well. This is a, again, we are very pleased and proud with our team in Kurdistan, when they knew and we knew that we weren’t going to get new wells down in Tawke.

The question was how do we keep Tawke production as high as we could in the face of natural field decline and they got busy, they rolled up their sleeves and started doing other interventions and were able to do a fantastic job. Of course, those sorts of interventions, you always -- you can’t keep doing those.

You have to drill wells at some point and now we have started drilling wells. So we have had -- under the circumstances, I think, we have done well at Tawke, as I think you were suggesting.

But we will have to drill wells to keep Tawke production declined from being too harsh. On the issue of dividends, as you know, last -- I guess, May at our last Annual Shareholder Meeting, the shareholders approved the startup of our previous pre-COVID dividend program, which was to dividend out, I think, something in the order of $20 million equivalents in the second half of each year and the equivalent amount in the first half of the following year until the following shareholder meeting.

So the Board has a discussion and the authority to dividend outs up to the equivalent of $20 million before the end of this year. That authority is in place.

It cannot be -- the amount cannot be increased, we can’t borrow against next year’s $20 million to do -- to increase it, if you wanted to, as a Board. So we were capped at $20 million and the Board understands that anything less than $20 million is sort of meaningless.

So the $20 million figure is the target. The question is, does the Board want to proceed with the dividend distribution or not, that decision has not been taken.

In fact, we haven’t discussed this in our recent Board meetings, whereas our focus has been on some of these other challenges that we face. But we agreed as a Board that as we repair and then now strengthen our balance sheet, that we have assurance that we were successful with that, the payments from Kurdistan continue on an ongoing basis and predictable basis, that oil prices would support it before we took that decision.

We didn’t want a situation in which another crisis would hit and we start a dividend program and then cut it short again. We were very disappointed as a Board that COVID forced us we felt to cut dividends and cut costs, we cut people large.

I mean really went in with a carving knife and then cut back expenses in ways are quite painful to staff and never minding shareholders. I wear as you know two hats at DNO, one is as the Executive Chairman, the others as a very significant shareholder personally and through [inaudible] wearing my shareholder cap -- hat, I’d love to see dividends.

And as on a predictable ongoing basis and reflective of the underlying strength of the company’s financially. But as a -- wearing my DNO hat, I need to make sure that the rest of the management team and the Board, that’s -- well, that we put the company’s -- put dividends in the context of the company’s larger, again, financial program, obligation and opportunities.

So we would have close to two months to go before we have -- we can make that decision. We have a Board meeting at the end of November.

It’s I believe the last scheduled Board meeting for the year. So there will be an opportunity to be at that time to make a decision about the dividends.

But, also importantly, to put that into the context of a longer-term dividend plan and there are other uses for cash. Obviously, as you well know, we have a lot of cash coming in and some of that cash, we want to return to shareholders as other companies are doing, whether it’s in the form of dividends or share buybacks, we have done both in the past.

But we want to put it in the context and think about a plan that is sustainable over a longer term, because again, the worst you can do is start something and have to stop it, start and stop it. And we don’t want to be in the business of making a big dividend distribution and then stopping, that’s not the way to at least from our point of view to do it.

So the door isn’t closed, the door is open, because the shareholders have given the authority and a lot of the shareholders, including myself in my shareholder capacity, would like to see dividends that meet those targets. So my suggestion would be to have some patience and we will come back, obviously, with the Board’s decision on dividends, certainly before the end of the year, because we have that limits that’s closing, yeah.

I believe the last question will come from Karl Fredrik Schjøtt-Pedersen with ABG Sundal Collier. Please.

Thanks. Thank you for taking my question.

With reference to slide number 13 showing the operational spend, there is a substantial increase in the CapEx in Q4 relative to the other periods. Is this an indication of an activity ramp-up, which should extrapolate into 2022 and could you elaborate on the allocation of this capital?

And how would that play into production in especially Tawke and Tawke license for 2022?

Haakon, do you want to respond to that?

Yeah. So, as you know, there is a lot of activity ongoing in both our business units.

Now, Karl Fredrik, we are moving up really in schedule in Kurdistan, as Bijan has discussed. We have two large rigs now moving in and drilling rigs continuously in Kurdistan.

We are looking for a third large rig to even do more drilling and we have two smaller rigs also in operation in that area. So we see that the pickup of our drilling program in Kurdistan, that’s one reason why you see increased CapEx coming into Q4.

And then in the North Sea business unit, very high activity also ongoing, so I don’t have a full breakdown list here. But I could mention that for Q3, I mean, front of the page, we had $38 million of CapEx in Q3 and this sort of coming up quite sharply in Q4.

But for Q3 by itself we had $22 million spent in Kurdistan expect that to come up now with more drilling, more rigs in Kurdistan from $22 million in Q3. We had $16 million CapEx in Q3 in Norway.

That was mainly for Ula, Brage and Fenja and those three will also continue to most activity into Q4. We had included in our Q3 numbers.

So we will have more exploration ongoing and hopefully capitalized and they are not expensed into Q4. So there’s also -- well, that’s a separate category, but we also -- as you know, we are active on decomm including the $167 million.

So, I think, the answer to the question is really basically continuing and setting up from Q3, especially in Kurdistan on the drilling side on both Tawke field and the Peshkabir field. As we go into next year and we will guide you on that in the Q4 presentation in February, but, yeah, then, of course, hope and expect to be quite heavily involved on the Baeshiqa development also into next year.

So expect the trend of -- if you can well see a trend there on a line basis here increasing into next year is the expectation. If you look at the annual figures, it dropped down quite a lot with the COVID in 2020, coming up again in 2021 and I expect to be increasing our spending into 2022.

But, again, we will revert on that in February. Do you want to add to that, Bijan, maybe?

No. I think you captured it.

Again, we have had a strong quarter. It’s been quite a reversal from the damage COVID did to our business, to a lot of businesses and it’s been amazing how quickly this has turned around again in our industry and many other industries.

We have had a strong third quarter. I expect we will have an even stronger fourth quarter and if those trends continue we will have a strong 2022.

But I don’t want to project into the future we will wait and see what happens to the world economy in 2022. But we are excited about where we are and where we are going.

Haakon has a very steady hand and a very steady voice for those of you who are participating in these before, you can’t get him to show too much excitements and I have sort of picked some of his habits. We are really very excited where the company is and the opportunities that are opening up and with the rapid reduction in our net debts, that creates an opportunity for us to look at different paths forward.

But what is clear about the DNO story is that we will stay an E&P company. We are not looking at opportunities in windmills and solar and other things.

We are good at what we do and we have had 50 years history of doing it and I expect to have a long ride still ahead of us. That’s who we are and what we are and I think we are well positioned, again, as a low cost, low carbon company and for those who are looking for this kind of an opportunity and investment and the job is on the right, this is what we are.

I was quite struck when we did our bond road show with how much -- how supportive the bond side was to the E&P story, not just DNO’s, but overall. The equity side is still hesitant, it seems, to some extent.

But I think we will see some change on the equity side, the sentiment as well as these volumes of cash into all the companies, the E&P companies’ coffers and treasuries. So we are excited about that, as well the change in the sentiment and the support we get on the equity side, yeah.

We are about to close the meeting, but Karl Fredrik if you have a very short follow-up question, you are allowed.

Yeah. Okay.

Thank you. I will be brief.

No dividend this time, lot of cash on the balance sheet. Are you looking at M&A, and if so, is it in which regions?

Nothing that we can clearly obviously report on or discuss, I think a lot of our efforts and time is spent this year on recovering from COVID and strengthening the balance sheet and focus on our current operations. We are always of course looking out to see how we can grow the company in a way that’s accretive and meaningful.

I don’t expect those M&A will do much more in Kurdistan. We are already the most important player in Kurdistan among the IOCs and with Baeshiqa, hopefully finally getting underway, we will get that -- so that’s a better opportunity for us to grab.

Assets in Kurdistan are changing hands at very significant prices and we would rather do it ourselves. And we are able to do it because we have a history in Kurdistan.

And again, Baeshiqa is a very, very good asset base to grow, so it won’t be in the Kurdistan. North Sea and we are always looking at the opportunities for growth in the North Sea.

Sometimes opportunities come up that makes sense for us and other times not, sometimes it makes sense and we know -- they are done before we have a chance to move on them and other times isn’t there. So, we are -- obviously, we have an office, full office and team and sometime they are always looking at opportunities and if the right one comes along at some point, we will do it as we did with Faroe Petroleum.

Outside of Kurdistan and the North Sea, in fact, again, their deals are pitched to us or we look around. We are not trying to do a global search for opportunities either for exploration or for mergers or acquisitions.

It has to be something that would be compelling and it has to be somewhere where we DNO have a competitive or comparative advantage before it makes sense for us to proceed. So nothing to announce, same sort of a low level look at all companies sort of have, but our focus has been really on recovery.

But as you say, now that we recovered and as the cash pile builds up, growth through mergers or through other brownfield activity becomes one of the options we would have to pursue. And we are at a crossroads the way much of the rest of the industry is.

Do we harvest fruit from the trees that were planted some time ago or do we plant new trees? And shareholder -- many shareholders want, like, the oil companies to do the harvesting, produce and distribute the cash to shareholders, some still look through grow, to see opportunities, where the other players are pulling out and that I think is the challenge that we face and other companies face too.

Do we harvest or do we plant new trees?

And with that, I think, we should close the meeting and thank you all for attending and see you again soon hopefully in person.

Okay. Thank you.