DNO ASA (DTNOF) Q4 2022 Earnings Call Transcript

DNO ASA (OTCPK:DTNOF) Q4 2022 Results Conference Call February 9, 2023 5:00 AM ET

Company Participants

Jostein Løvås – Communication Manager

Bijan Mossavar-Rahmani – Executive Chairman

Haakon Sandborg – CFO

Bjorn Dale – Managing Director

Conference Call Participants

Teodor Sveen-Nilsen – Sparebank 1 Markets

Steffen Evjen – DNB Markets

Tom Erik Kristiansen – Pareto

Jostein Løvås

Good morning. Welcome to DNO’s 2022 Fourth Quarter and Full Year Earnings Call. My name is Jostein Løvås. I am the Communication Manager of DNO, and I will share some practical information. All participants in this meeting are muted by the organizer and will not be able to unmute themselves chat or share their screens. Present at the call are Executive Chairman, Bijan Mossavar-Rahmani; and CFO, Haakon Sandborg.

We will start off with a brief results presentation by Haakon, after which we will open up for questions from shareholders and analysts. The Executive Chairman will also be available to provide answers in the Q&A session. If you want to pose a question, please raise the tiny virtual hand on top of your screen. When 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.

And with that, I leave the stage to Haakon.

Haakon Sandborg

Very good. Thank you, Jostein Hello, everyone, and again, thanks for attending this earnings call. Just to start out with, we are clearly very pleased with the solid operational and financial results that we achieved in 2023 with a strong progress on many fronts, and I will now be reviewing these developments, starting with the highlights for the year. That’s followed up by operations and finance. So 2022 was another year with high activity for DNO. And among the many highlights full year, we show record revenues of close to $1.4 billion. And we also have an operating profit of €431 million, driven by our solid operational performance and by higher oil and gas paces. And with this revenue growth, we also had an all-time high free cash flow at $619 million. Now we further maintained a high and stable net production in Kurdistan and also in the North Sea. And we were pleased to add 3,300 BOE per day called the new production in West Africa. This new production follows from our acquisition last year of a 9% stake in a key gas license offshore Côte d’Ivoire. This license has 4 gas fields. And between them, they supply over 200 million cubic feet of gas per day, covering around 3/4 of the country’s gas needs.

For our shareholders, we also significantly increased the quarterly dividend and initiated a share buyback program last year. In our active North Sea exploration and development campaign, we saw that we had 2 new commercial discoveries. And we also submitted 2 field development plans, and we’re awarded interest in 10 new equation licenses. So I would say quite a lot going on here, and we’ll now go over to look at the operations in more detail. For Kurdistan, we kept the gross production at the Tawke license stable again to just over 107,000 barrels of oil per day that was supported both by an active drilling campaign then by enhanced recovery from our gas injection. These efforts also provided the first quarterly production increase at the — take field since 2015 . Further, we have now completed the second phase expansion of the Peshkabir to Turkey gas capture and the injection project that had additional cost of $25 million. Since the startup in 2020, this successful project has captured 1.2 million tons of CO2 through weighted flaring. So it has a major positive climate impact. And it’s still the only project of was kind in Kurdistan.

In addition, we started the fast-track development of the Pascal license last year with the initial production from the first discovery wells, averaging around 1,000 barrels of oil per day, 10 million to 12 million cubic feet per day of gas. Moving over to the North Sea. We had net reduction around 13,300 BOE per day last year, and we also reached actually 15,000 BOE per day in the fourth quarter. We saw that gas accounted for 36% of the North Sea production last year, and that was contributing an important 20% of the total group revenues in 2022 . We submitted the field development clients or PDOs, if you want, for the ExxonMobil and Brage projects at year-end. Both projects will benefit under the favorable temporary tax program on the NCS. I also like to note that we increased our stake in the valley to 13% in Q4 . Well, we did not submit a PDO invested on year-end, as previously planned. We are now reviewing a potential tieback of this discovery to the Brage platform together with the Brage operator. Again, in January this year, DNO was awarded 11 new licenses in the latest A license round in Norway, including one operatorship and we were thereby again among the top 5 recipients of licenses.

Our exploration commitment in Norway is also creating significant value through participation in 4 recent discoveries in the Troll area, including a new discovery on the [indiscernible] [indiscernible] that was announced only this morning. And moving on, we aim to build further on our North Sea exploration success and add further to our reserves and resources through participation in 9 new exploration and appraisal wells this year. We’ll show this on the slide. These exploration wells provide a significant 110 million barrels net unrisked resource potential to DNO. And you can see the details here on the redrill volume ranges, and they show a moderate to high chance of success on these prospects. So we are clearly excited about this drilling program and its new resorts potential for 2023 . Well, we’re moving now to finance. Let’s start with these key annual figures. And as I mentioned, we have a big increase in revenues last year to a record level of just under $1.4 billion. This revenue and stable cost of goods sold in turn, increased the operating profit by 34% to $431 million. And this is despite the significant North Sea impairments last year. The stronger operating profit and lower finance costs and higher tax income following North Sea impairments, all led to a near doubling of our net income last year to a strong level of $385 million. So as noted, 2022 was there by another good year for us in DNO despite the impairments and weaker results in Q4.

Now to comment further on the Q4 P&L results if you see here on this detailed table. We show stable revenue from the third quarter as lower revenues in Kurdistan from lower oil prices primarily in the quarter in Q4, was offset by higher sales in the North Sea from the Alveand Brage fields. Q4 production costs increased on higher production costs on Baeshiqa and also on the Brage and Oda areas. As you can see on this slide, there is some increase from movement in North Sea overlift in Q4 . But obviously, the big item for this quarter was the full impairment that we took on Brasse and on the Oda area. As there was no video submitted on Brasse by year-end, while Oda was impaired based on updated production and cost profiles. On the positive side, there was, however, a reversal of prior impairments on Bali and the net impairment charge came in at SEK 244 million pretax. And this then leads to an operating loss of $76 million for the quarter. Going further down on the table here with the P&L deferred tax and tax income effects from the impairments tax income of €129 million. And after that, we show a net income of SEK 42.6 million for Q4.

Moving on and then returning to our full year financials. As discussed a few times before, cash flow generation is a key strength in DNO, building on our substantial low-cost production and operational efficiency. You see this again clearly for 2022 with operational cash flow near doubling to an impressive, in my mind, a level of $1,123 million from SEK 625 million in 2021 . For the cash outflows, we paid $21 million in NCS taxes last year. I’d just like to note that the 3 final NCS tax installments for 2022 are due in the first half of this year, the way it works and a little Norwegian we see. And we currently expect that these 3 installments will amount to $126 million due to the significant taxable profits last year. We increased the investments to $415 million last year and this split between exploration and CapEx at SEK 375 million and North Sea come at €17 million. These investment numbers are shown net of $30 million in cash inflow owing from the acquisition of our new assets in Cote d’Ivoire. And looking a bit forward, we are pleased that these new assets will provide a new source of long-term cash flow to the company.

We also had finance outflows of $469 million, and these were mainly for debt repayment at SEK 324 million as we bought back $264 million in the DNO03 bond. And we also repaid the SEK 6 million in RBL Bank debt. Further, we upped our shareholder distributions to $84 million through increased dividend payments and also by starting the share buyback program in December. So all in, we remain in a strong position with cash flow funding these significant investments, debt repayment and shareholder distributions, but at the same time, also adding to our cash balances by $270 million last year. Thereby end of the year, as you see here, with SEK 954 million in cash. And I mentioned already, we had a free cash flow that strengthened substantially last year to the strong level of $619 million. Here you are. And I must say that now in addition to discussing cash flow, I’m also increasingly enjoying presenting our capital structure, where we backed by free cash flow and debt repayments have strengthened our balance sheet significantly from a net debt position of €473 million at the year-end 2020 to a net cash position now at €388 million 2 years later at the end of 2022.

And with the support from retained earnings and debt reduction, our equity ratio has also strengthened substantially to a solid level of 49% at the year-end. So the key takeaway here is that we have built a robust and strong balance sheet, and we now have high financial flexibility on new investments and on capital allocation. We also see that our debt service charges have been significantly reduced primarily because of bond buybacks and the RBL debt reduction. But we also enjoy some reduction from the lower reduced coupon on our 2021 bond. Through the active treasury management and we are further benefiting from increasing interest on our higher cash deposits so that we see that interest earnings are becoming much more significant for DNO. As we have a fixed rate bonds for interest expense, but earn more on deposits. You also see here that net interest charges per quarter are dropping from $19.2 million in Q1 2021 to only $2.6 million in Q4 last year. So the lower net interest charges, thereby free up cash flow and add further to our dividend and share buyback capacity we now are using to increase the dividends and to run the current 5% buyback program. With the 2.5% treasury shares that we held prior to starting the buyback program, we will reach a 7.5% company shareholding that we plan to cancel later this year.

And for our operational spend, we increased the total spend last year to $741 million, which was pretty close to the revised guidance from Q3 last year at SEK 725 million. As you can see here, the main increase last year was in higher CapEx due to drilling and high activity on the Tawke license development of Baeshiqa as well as development and capitalized exploration on several North Sea licenses. We look ahead, we have a solid work program for 2023 also with a spend level of €640 million and with CapEx now at SEK 220 million, focused mainly on continuing the drilling program in Kurdistan on the Tawke and Baeshiqa licenses and further on early work on the burning development and on infill drilling in the Brage area in the North Sea. But we are, however, reducing planned CapEx in Kurdistan in 2023, but we are prepared to quickly adjust investments upward then depending on the timing that they will see on the government payments for our oil sales from Kurdistan. Our planned North Sea CapEx this year is also down from 2022 . Spending on the recently sanctioned development projects will be fairly moderate in this year. But this will be gradually ramped up as we move closer to the project execution phases.

As mentioned already in the building on our successes over the last years, we continue our broad exploration program offshore Norway. The total expects amounting to $150 million this year. It’s always good to note that we are completing our current DCOM program as planned and our valent expenditures, thereby dropped significantly this year to $25 million. For 2023, we guide on production from the Tawke license at around 100,000 barrels of oil per day, a 6.5% reduction from last year, reflecting the lower planned CapEx. North Sea production is projected to come in around 12,000 to 13,000 BOE per day, and we expect that natural decline will be offset mostly by production startup of the Fenja field later in this quarter, Q1 2023 . For our dividend program, we are pleased to announce today another dividend payment in February of INR 125 crores per share, amounting to around $25 million in total this time. So fine, in summary, we aim to maintain high production in Kurdistan and stable volumes in the North Sea. We have a broad work program ahead of us on drilling and development. And we have absolutely an exciting North Sea equation schedule. And I’d like to note that, like we said a year ago for 2022 with the current tight market balances and a positive outlook for oil and gas prices, we have a very good starting point also for this year for 2023 . That, I think the presentation today, and then we will move on to our Q&A session.

Question-and-Answer Session

A – Jostein Løvås

Thank you, Haakon. I’ll start here by taking a question from Teodor Sveen-Nilsen, Sparebank 1 Markets. I will unmute you and you will be allowed to meet yourself, Teodor.

Teodor Sveen-Nilsen

Thanks for the presentation. I have 3 questions. First, on cash balance, of course, you have very solid cash balance now. I think that’s the all-time high. Should we expect it to stay at that level? That’s the first question on the cash balance. And secondly, just to remind us of your capital allocation framework. Second question on KRG payments, at least some of your peers are reporting of some delays from KRG now more than before? Are you experiencing the same? And are you taking any actions to solve this issue? Third question on the top production of 100,000 barrels per day guided for 2023, what would that have been if you had invested the same as you did in 2022 in Tawke? Thanks.

Haakon Sandborg

Great. If I maybe start on the cash side and then the next question is on the payments. Yes. I’ll tell thanks. We — on the cash side, we’re seeing very high balances at the moment. We expect, as I said, we have a good outlook for the year so that we will have a good cash coming in, assuming regular payments on export sales from Kurdistan. But we have another quarterly likely dividend payment in Q2 . Then we’ll go back to our AGM in May this year and discuss what the dividend program should be for the coming 12 months from the AGM until the next AGM. That’s a bit too early to say what that will be, but there will be some likely proposal on the new dividends, of course, at that AGM. Otherwise, we continue to look for new opportunities, especially to add more on the North Sea production side. And we have a good operational spend program for this year. So I don’t know, depending on what goes out on new transactions or potential new ideas. So we think that the big some effect on the cash level going through this year, but it depends on the success of the new business. Wanted maybe to add to that, Bjorn?

Bjorn Dale

No, I think it covers it. I’m happy to take all the questions to on Kurdistan payments. As I think Parker mentioned in one of the slides we’ve — since the end of the reporting period, we received another, I think, $63 million in payments for both Tawke and Baeshiqa license production as have, I believe, now all the other companies. As you know, we don’t report payments as they come in. We do it at partly accounts party presentations. But the payments have come in to DNO and our partner, Gandalf the Tawke license and similarly in the Baeshiqa for Tawke and for our partners TEC. And I believe all the other companies have also reported the receipt of the August payments. There have been delays in payments, and those delays have grown a bit in the last several months. I think for us, the readers in the sense that like pain is probably cumulative cumulated just over $200 million, give or take, I think we’re about 3 months behind the previous more from schedule. We expect that those payments will come.

The reason for the delays are several, and I’m sure you and others who follow Kurdistan and follow the companies that know some of the reasons for its an important one, of course, has been the disruption in the Mediterranean markets as a result of the sanctions against Russia and the deep discount a competing crude, the euros crude has faced in the eMarket that crude has now moved to our belief to China and India and other markets, but the discount still has applied to Kurdistan blend as well, which has reduced the government stake, and that’s created some financial difficulty for them and the resulting in delays. But as you know, this is not the first one has happened there have been — previously there’s been, in some respects, a bumpy ride. But at the end of the day, these issues get resolved and payments get made. So we have received now the August payment in line with the other companies. We expect the September payments probably on the coming several weeks. So that’s I think that, that should explain our Kurdistan story.

I think the question you asked was that if we keep up the spend we have in 2022 in Kurdistan and copy license in 2023, what would that do to our production. Is that basically the question, Teodor?

Teodor Sveen-Nilsen

Yes, that’s correct.

Bjorn Dale

Had we — interestingly, the more wells we drill, the better the production, interestingly because I think their expectations earlier that Turkey was in permanent decline and it hasn’t been and it’s a mature field and basically if you drill the development wells, you have the production. With sufficient spending on wells, we probably would have maintained the 2022 production level of about 10,000 barrels a day across the license. The — that we now expect to drop to about 100,000 barrels a day in this year with some drilling, but also some surface plumbing. I mean they’re ways to add production or maintain production other than that through drilling of new wells. There’s a limit to how much you can do. But there are some things we can do, but I think trying to have maintained spending discipline, and with some delays on these delays in payments, I think it leads us to scale back the spending until we have assurances of the timing of — not the certainty but the timing of payments. We have said for many, many years that in Kurdistan at Turkey because it is an onshore field or we can manage spending. And as a result of production very quickly. And we’ve said in the past that we have talking one or all the accelerated one for all the brake the next part of the promise on the brake, but the means that if we have the go ahead to spend more, we’ll get more production if we own the production will come down, but that can reverse in our direction pretty quickly. I expect we’ll see some of that braking and accelerating in 2023.

Jostein Løvås

The next question comes from Steffen Evjen at Arctic. So, Evjen, please.

Steffen Evjen

I have one question on the cash flow. So even though you faced a delay on the payment for August, that’s led into Q1, your cash flow this quarter appears to be very, very good. And I was just wondering if you could take us through the different elements that resulted in a very strong cash flow this quarter? And also, how we should think about these elements going forward, to what extent they are one-offs in this quarter? And what we should put into our models also for the rest of the year and into the future here.

Haakon Sandborg

Yes. Thanks, Evjen. I’m sure you have seen both, of course, our presentation this morning, but also our cash flow statement. Is your question on Q4 by itself or for the year?

Steffen Evjen

It’s mainly on Q4 . And it’s — some of it, we understand fairly well, but especially the dividend from Mondol would be interesting to understand whether that’s an annual dividend that we should expect or if it’s a quarterly figure? Or how should we think about that one?

Haakon Sandborg

Yes. Okay. Well, I’m just kind of referring to our quarterly report for Q4 and the cash flow statements. You will see there the normal noncash being added back, and there’s limited movement on working capital net this time. So we had a tax refund paying $1 million received for the U.K. in the quarter. But I think you see the other parts are mainly the investments that I discussed and the financing activities that we least touched on for the year. For Mondol that we acquired the Côte d’Ivoire transaction that we discussed. It was, as you may remember, paid for with the issuance of new shares in DNO. So it wasn’t any cash transactions. But through that acquisition of a company, we acquired a cash balance, what, a couple of $20 million since we acquired control of that asset back in October last year, we have had a good cash inflow on top of that. So that gives us that number of $30 million or so that I discuss becoming from transaction in West Africa.

No, I don’t think I can promise you $30 million per quarter going forward. That would be great. But I think we can — I don’t know, we have sort of guided that based on the long-term government contract on the gas sales with a fixed index price on the gas that we will have a good steady cash flow for many years going forward. Exactly what that will be, I don’t know, what can we say on that? I’d say, around $20 million or so led to the net cash flow per year. That’s what I referred to when I said we look forward to new long-term cash flow because this has a long profile on the production and long contract and with the government by government entity. So that’s also been coming into play for many years going forward. So I think $30 million for Q4 was more of a transaction one-off, if you want. But the long-term view is steady, good cash flow from our new assets. And we are certainly looking to do more in the West Africa as we have talked about on prior occasions. So I don’t know if you had a more follow-up on that, Evjen?

Steffen Evjen

No, that’s very clear, Haakon. And then if I may, just one more question on the cash balance that you have now and the bonds outstanding. Can you provide any guidance on how you’re thinking about your current outstanding bonds?

Haakon Sandborg

Yes, we have the long term as we’re thinking about it, the D4 that we raised back in 2021 . That has a merger in 2026 . You see that as well as one of the main back bonds of our debt funding structure. So really short-term planning to do much on that unless there is a pricing we now of opportunity that we could look at to buy back some of that. The discussion, I think, Evjen, would be on the shorter dated DNO03 bond that matures in May next year. That has the balance of €131 million remaining in the [indiscernible] the majority of that bond. So we will be looking at that as well, what to do with that. Should we do something this year or maybe wait. We haven’t really communicated on that yet, and we will leave that open for now. But on the banking side, as we’ve seen, we reduced our bank debt to limited amount compared to what it has been of $35 million. So we may do something on the bank side, but it sort of depends on, obviously, our borrowing base capacity will be going forward. So I think I’m not going to tell you exactly what we plan to do with the DNO03, but that’s the one that would be especially, I think, to do something on that for this year.

Bjorn Dale

Just to add on the carrying cost of our debt now is quite attractive because with higher interest rates, I think our net effect the coupon rate is about 4%, give or take. So it’s pretty cheap money where since the end of the reporting period, I think we’re now seeing over $1 billion any cash that’s available to consider other transactions if they come along. As Haakon mentioned, our financing costs and is used to do something in order of $70 million or $80 million a year. It’s not up to $10 million a year. So this is pretty cheap money and a lot of it’s certainly for a company of our size. We have a lot of very dry powder that we can use if the right opportunities come up. And as we’ve said, we’re doing more of a pivot towards our shareholders. DNO has been terrific to its bondholders over many, many several decades and often has been importantly a driver of that, but — and that will continue, but we now want to take care of our shareholders as our other companies in our industry, there’s been a prior shareholders more money back to them, and that’s important to us, and we’re able to do that down the — with our overall financial picture. I’m pleased about that, too.

Jostein Løvås

I believe we have 2 more people wanting to ask questions. So we are getting closer to you to the end. And the first one is Tom Erik Kristiansen at Pareto. Please.

Tom Erik Kristiansen

You provide an update on the political situation, your views there when it comes to KRG and the federal government. There’s been some noise over the last year or 2 . Has there been any fundamental changes you think on the relationship there? And also second question on Baeshiqa, what are the next steps there? What can we expect is obviously at least back in time and asset with a lot of potential. Is it gas handling that is the main issue with increasing volume today? That is my 2 questions.

Bjorn Dale

The political question, I think it’s fair to say you probably know as much more about it than I do. It’s a work in progress. It changes and these tensions is tooling and flowing has been going on for decades or centuries for millennia. So it’s nothing new and to predict which was to go at any given time is very difficult. And if it’s not impossible that there are times of the tension is high and it typically has been high and sort lifetime. They expect potentials will continue and how the different parties within Rockport the other is a challenge for all and it’s not just about curds versus the Rockies, but in the rake Rock itself, the rest of the other also, of course, different political and religious fractions. Our role is to produce oil and to do it safely and to do it profitably, both for Kurdistan, which is our host and also for us for the company for DNO. We managed multiple crises as I mean at ICS, store or a matter of things and somehow things go on as they should. I think for a while, looking ahead, what will dominate the discussion and the thinking there is going to be a disastrous and tragic earthquake that is Turkey so hard and a series of hard like that will take a lot attention some time. It’s just been unfortunate, but at one is about cost.

With respect to Baeshiqa, we plan another well this year. We are — I think it’s fair to say that Baeshiqa is very prospective and very promising from our point of view. We haven’t quite unlocked it yet. We’re trying to like it. We’d like to be quality of approved. We like our contractual arrangements. It has some challenges, but we had — we drilled some wells, but we haven’t quite unlocked it yet from a service point of view, gas is an issue. There is a aspethereis gas that we’re coproducing. We don’t want to reduce and flare gas for any longer than we need to. So we have to find a way either to bypass the gas or to find a way to put that gas to some other use and really the opportunities and options, but we’re going back into trying to unlock the oil with the next well and so we should have a better idea once that well is to is also. So figures cost on our side, but we’re still very committed the spending and the Baeshiqalicense will go on in Turkey where taking the pop accelerator a bit of Baeshiqa foot is on the accelerator that may give you an indication of how we think about it.

Jostein Løvås

Okay. The last question then comes from Yuriy Kukhtanych. I believe you have to introduce yourself a little bit. Please?

Unidentified Analyst

First, thank you. Good morning, gentlemen. Thank you for the presentation. My name is Erik Otas, I’m representing Millennium Capital. I have 2 or 3 questions, please. And apologies, but they will be on Kurdistan again. You mentioned in your update that you may adjust upwards or downwards your CapEx and production in Kurdistan. And I just wanted to ask you what are the milestones for you to do that? Would you wait until the government pays you the current receivables that they own to you because the delay in the past that you guided for was about 2 months now, the payment delays widened to about 6 months. And situation actually changed quite a lot last year. And the big change was, of course, the flood of the Russian oil and the hugely discounted Russian oil on the market. And so my first question is what are the markets that we should think of which you will be considering when you adjust your CapEx upwards and downwards because this is a pretty aggressive move, I think, from the company, especially if you continue to negotiate the payments from the Kurdistan regional government and by reducing production at Tawke, you’re also reducing revenue to the budget. So I’m wondering where your negotiations are standing now. So that’s my big first question. And the second question, very short on the discounts. Can you confirm that — that your discounts or realized discounts from selling corrode has widened or remained the same since the introduction of a price cap and ban on the Russian oil.

Haakon Sandborg

First part of your question with respect to markers, I don’t think we have some specific markers as such. We know this relief when we see it, so we know the issues that impact our ability to put fresh funds in and spend when we see that. So I don’t think we have on the fold markers as such. Again, this is not the first time we’ve been in the situation. We were talking about this many years ago about the Foroohar. And I guess all understood in Kurdistan, I would — I’m going to characterize it as aggressive because we’ve done it before and encourage to understand the issues, and we understand their challenges what is the single most important source of foreign exchange revenue, matters usually to the economy. But in 2021, they had something in excess of $10 billion in revenues from oil produced by and the other companies, and that’s a record.

So balance then. And if they’re not able to pay and pay in a private fashion, they’re under a lower amount of pressure, too, including, as you said, for the market and the push back. And it’s not just about the discounted euros, of course, given all that’s going on, as alluded to before politically and the challenges the Supreme Court ruling and so on makes buyers a bit more cautious and weary even, but also allows quire to negotiate that much farther to get bigger discounts. We know Curtis blend is discounted and it’s discounted heavily relative to where it was before the sanctions against Russian Urals sales in that region. How much of that is justifiable. So expect as a market matter, I don’t know, but I think someone is making a lot of money in between the sellers and the ultimate buyers refineries. And I think that large rule will close or probably have started to close already.

We don’t have a lot of visibility as a company, as an industry on those margins because, as you know, the Kurdistan government essentially purchase the oil from us and sells it onward. We’re not privy to the sales arrangements and pricing. In the past, we had a formula and seem to work for the government work for us and some months of formula was more advantageous to the government and sometimes less that than they just. But over time, it worked. That formula has not been the challenge. We continue to build an invoice on the basis of that formula because we don’t know what the alternative is quite yet. And my expectation has been that there’ll be a rough few months when we come out of it and the market realities would take over. So the issue of pricing is something that the government has raised that we have not agreed to change formula because we have visibility and transparency on the pricing. And until we understand how that works, whether it persists and what it means for us, we continue to invoice based on the previously agreed formula that’s the only pricing arrangement. We agreed to in the past and we continue to invoice on that basis. And we’ll see how the market is going to sort out.

Jostein Løvås

Before we close this off, I think it will give Tom a chance for a quick follow-up question. And that will be the last for today, I think.

Unidentified Analyst

So can I just clarify, have you already cut production in Turkey or this is just the guidance for the year and the actual production CapEx cut hasn’t happened yet?

Haakon Sandborg

I don’t think we’ve gone in and made the decision or start to a on the cut back production. Now there are some routine work that gets done. We face pumps, we do other workovers. So when the time fluent because of the earthquake and some uncertainty as to how long the pipeline will be shut in on what that meant for us in terms of our production because there’s a limit to how much we can produce into storage, if the pipe is running, we made, I think, a decision operational decision, let’s take the time to deal with some maintenance work and some other surface but also will work during this time when there’s some uncertainty as to the working in the pipeline. And that’s not over these after shops. I don’t know what we can predict exactly what nature brings next. So I think in the first quarter, when we see some reduction, not a lot but some reduction in the production rates as we get we deal with some delayed maintenance work. But that should pick up the issue as how much are we going to spend drilling additional wells without funds coming in from the sale of that oil to pay those wells. We’ll continue to do the easy plumbing and cheaper planning work that will help keep action up. But I think it’s reasonable to expect that our productional average for the year will drop off, but we’re able to, again, hit the accelerator necessary and get back up to the 2022 levels. If they come in, and we have funds with us to do so.

Bjorn Dale

I do want to make one point. As in other countries that are strangers, this is a partnership between us and Kurdistan. We share a lot of common interest. We try to work with each other. They understand we have certain prerogatives and certain needs as a public listed company, and we have such shareholders. We understand that they have their own challenges and things that drive what the governments do and they do whether that be again, their own system. We try to accommodate each other because their success is our success. Our success is theirs. So it’s a partnership that but there are times when things are a little shaky for whatever reason on our side, on their side, we try to work it through. We’ve done so now successfully since 20 — the last 15 years. DNO created deal in the modern oil industry in Kurdistan and Kurdistan has been — created the modern DNO. It was a very different company with both gross financials. So it’s a partnership. Thank you.

Jostein Løvås

Okay. So with that, I think we’ll wrap up today’s presentation and Q&A. And thanks for participating, and we look forward to see you again on the next occasion. Bye.