DNO doubles capacity at Tawke in Iraqi Kurdistan

Norwegian independent DNO has doubled capacity at the Tawke field in Iraqi Kurdistan to 200,000 b/d and, as a result, expects more output and crude deliveries to Turkey, helping to "unlock payments" that the company is owed by the Kurdistan Regional Government (KRG).

DNO has completed installation of surface facilities and another well, meaning Tawke now has a wellhead, processing and pipeline capacity of 200,000 b/d. The company hit a record high daily production level at Tawke on 3 May, at 156,400 bl. Production will ramp up in the coming weeks, the company said today.

Of the 105,000 b/d that Tawke produced in the first quarter this year — an 82pc increase on the year — 90,200 b/d was delivered by the KRG to the Turkish port of Ceyhan for export. Around 8,700 b/d was sold domestically and around 6,100 b/d was used in the Tawke refinery. DNO has a 55pc interest and operates the Tawke licence. London-listed Turkish company Genel Energy holds a 25pc stake and the KRG has the remaining 20pc.

DNO, and other independent oil companies are still owed money for crude export sales from the KRG. While the KRG and the Baghdad government have reached an agreement on sharing oil revenues, the falling price of oil has left Baghdad unable to make some financial transfers, although the KRG is still keeping its side of the initial agreement by supplying crude to Iraq's official crude marketer Somo. Crude exports to Ceyhan were 563,000 b/d last month .

In the meantime, DNO said it expects higher production at Tawke and increased exports to Ceyhan to help unlock payments to the company.

"The timing and extent of export payments will drive new investment at Tawke which will be required to sustain the high production rates," DNO executive chairman Bijan Mossavar-Rahmani reiterated today.

KRG oil minister Ashti Hawrami said last year that the regional government is committed to paying foreign oil firms, but admitted that, until a comprehensive agreement is reached with Baghdad, it "will have limited capacity" to fulfil its promise.

Unpredictable payments for exported crude forced DNO and other firms operating in the region last year to readjust their focus towards the less lucrative but more stable domestic sales market. In its 2015 outlook DNO said its priority is to align its spending with its earnings, with revenues from domestic sales driving the year's capital programme. But sales revenues in the first quarter have slumped to $26mn from $80.1mn in the previous quarter, as a result of lower realised oil prices and reduced local sales. Because of the non-payment by the KRG, DNO's share of the gross export deliveries of 90,200 b/d from Tawke in the first quarter is not reflected in the company's revenues.

DNO's domestic sales and crude used at Tawke's refinery peaked at the end of last year at 26,900 b/d but dropped to just 9,600 b/d in the first quarter this year, as exports jumped to 55,900 b/d from 31,600 b/d at the end of last year. But new contracts for local sales from Tawke averaging 20,000 b/d have been agreed, the company said today, based on a discount to Brent crude. DNO said realised prices are around $35-40/bl. Buyers are required to pay for crude in advance.

The company's capital expenditure (capex) was $35mn in the first quarter, and the company reiterated that its capex target for 2015 is $100mn, compared with $297mn in 2014.

DNO's overall working interest production in the first quarter was 72,900 b/d of oil equivalent (boe/d) compared with 45,700 boe/d a year earlier. In Oman, where DNO has a stake in the West Bukha field, working interest production dipped to 5,770 boe/d from 7,600 b/d a year earlier, while output in Yemen fell to 1,570 b/d from 2,500 boe/d in the first quarter of 2014.

DNO made a loss of $74.2mn compared with profits of $23.7mn a year earlier.

et/ts

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