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Edited Transcript of DNO.OL earnings conference call or presentation 31-Jul-19 8:00am GMT

Half Year 2019 DNO ASA Earnings Presentation

Oslo Aug 5, 2019 (Thomson StreetEvents) -- Edited Transcript of DNO ASA earnings conference call or presentation Wednesday, July 31, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Bijan Mossavar-Rahmani

DNO ASA - Executive Chairman

* Haakon Sandborg

DNO ASA - CFO

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Conference Call Participants

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* Karl Fredrik Schjøtt-Pedersen

ABG Sundal Collier Holding ASA, Research Division - Research Analyst

* Teodor Sveen-Nilsen

Sparebank 1 Markets AS, Research Division - Research Analyst

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Presentation

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [1]

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Good morning. My name is Bijan Mossavar-Rahmani. I am the Executive Chairman of DNO ASA. Welcome to our Half Year 2019 Interim Results Presentation. I'm joined as I am always joined in these sessions by Haakon Sandborg, our Chief Financial Officer, who will cover the financial portion of our presentation. I will as usual cover the corporate overview and operational highlights section of the presentation. I'm very pleased to see so many shareholders and others who follow the company and my own colleagues here this morning. I understand -- I realize that the Norwegian summer is coming to a close, it's coming to close for all of us. But we've had a very busy second quarter, a very busy first half and we're back to work. And hopefully, the presentation will give a indication of the -- of our activities over the course of the past 6 months. It's been a very busy half year for us, a very busy second quarter, and we've had some very solid results, both operationally and financially, which Haakon and I will share with you in this presentation.

Starting with our corporate overview. Again, as I indicated, we've had a very solid first half 2019, a very solid second quarter 2019, with rise in revenues, with a strong profitability, with record activity levels across the company, and now a material contribution from our North Sea operations in the wake of the company's takeover of Faroe Petroleum to add to our North Sea portfolio and North Sea activities, and we're starting to see those numbers now come in on both the operational side but on the financial side. We recorded in the first half of the year, a net profit of almost $120 million, which is double the level in the first half of 2018. Our company working interest production was just over 107,000 barrels a day of oil equivalent in the first half of this year, up almost 40% from the same period a year ago.

Our operational spend of almost $275 million, including both the capital expenditures, the exploration expenditures and our lifting costs, which are split 60% in Kurdistan and 40% in the North Sea after-tax. Again, it's pretty much on target with what our expectations have been. Our full year 2019, projected operational spend the same, consisting of the same 3 components, is expected to be just shy of $700 million, $680 million to be a bit more precise. And the spend over the course of the year, about evenly split between our operations in Kurdistan and our activities and operations in the North Sea. And again, the North Sea numbers are after-tax figures. And that's pretty much on target with respect to our earlier guidance.

We will continue in addition to our organic growth activities to pursue M&A opportunities across the portfolio, focusing importantly on development assets and producing assets. We already have a very robust exposure to exploration opportunities, particularly in our North Sea segment, but to the extent exploration opportunities of interest come up, we will, of course, look at those carefully and pick up those opportunities that are fit our -- both our risk profile and our footprints. So I expect to be active in that space as well.

Focusing now on the operational highlights of the first half of the year. We have ramped up our operational activity with 14 wells spud in the first half of 2019. We are on track to deliver the largest annual drilling program in our company's 48-year history. We're quite pleased that we are running now as hard and as fast as we are. We have 36 wells planned across the portfolio. With a good mix of development and infill and exploration wells. The split, as you can see, is 23 wells, expected to be developed in the infill ones and 13 wells to be exploration and appraisal wells. So a good mix in terms of our own portfolio. H1, company working interest production figure that I referred to a bit earlier was split 89,300 barrels of oil from Kurdistan and 17,800 barrels of oil equivalent from the North Sea. Our operated production in Kurdistan, the gross figure, including the share of our joint venture partnering, Kurdistan climbed 20% in the first half of the year to just over 126,000 barrels of oil per day, up from 106,000 barrels of oil a day in H1 2018, an increase of about 20,000 barrels a day or roughly 20% in operated gross production in our 2 principal Kurdistan fields, so we're quite pleased with that performance as well. In the North Sea, our operated production averaged just over 4,000 barrels of oil per day, following the acquisition again and incorporation of the former Faroe Petroleum assets in our portfolio. In terms of the financial highlights and again, Haakon will go into substantially more detail on both the first half and the second quarter numbers. I just want to refer you to our revenue figure for the first half, was stood at $470 million, which was up over 60% from the same period a year ago, of which 360 -- $362 million was from Kurdistan and $108 million from the North Sea activities.

We of course, completed the $780 million acquisition of Faroe Petroleum and closed that in March 21 of this year. We issued a $400 million new bond issue, which closed in May of this year. And during that period, we also purchased back $78 million of previous shorter-term outstanding bonds. We exited the first half of the year with a cash balance of $574 million, plus $94 million in treasury shares and other marketable securities.

And finally, our shareholders approved in our Summer Annual General Meeting, a second year of dividend distribution on the back of our strong financials, and we're very pleased now to have that program in place and continuing -- and hope to continue to do so in coming years.

In terms of our Kurdistan operations, we've often described the Kurdistan as a place where we have a foot on the accelerator, a very, very fast-moving car in fossil fuel, fueled car in this instance. And that foot remains on the accelerator and has been for some time and you see the results in our operating figures.

Our flagship Tawke field remains the largest in terms of production and reserves of the -- proven reserves anyway of the international oil company-operated fields in Kurdistan. So Tawke remains #1, even though, Tawke production has slid back. It is a mature field. We've discussed some of the challenges of operating a mature field and our efforts have been devoted to drilling more wells and trying to maintain production at targets for this year of roughly 70 million to 75 million -- sorry, 70,000 to 75,000 barrels a day and our drilling program has been able to sustain that. Of course, Peshkabir that I'll come to later is a younger field. So different set of challenges and opportunities. But we're pleased that Tawke production has stabilized, again, over the course of the first half of the year at close to 72,000 barrels a day on average, it moves up a bit with new well drilling and down again as we produce the field. So that's going to be bouncing around a bit, but to the extent it bounces in that 70,000 barrel a day range and a little bit higher. We're pleased with the performance of our drilling and of the field itself.

In the first half of the year, we brought 3 new wells on stream. And again, we have a fairly active drilling program at Tawke. But we're also now shifting to something we've wanted to do for some time, and that's to drill a deeper well at Tawke to test some of the deeper horizons in the field. And we've added a fourth rig now, appropriately named, Viking-11 to support -- not a Norwegian rig, only named as such. But that supports a 13-well program in Tawke in the remaining part of the year, including, again, a deep well to test the lower Jurassic. We will have a slide that I'll come to in a few minutes that will show you the breakdown of the drilling program in Kurdistan, including Tawke, and you'll see how busy we have been and will continue to be in the second half of the year. We are progressing a project that we had announced some time ago, to move production of gas from Peshkabir where there is more production, more gas production than there is at Tawke, over to the Tawke field to reinject it into Tawke, to assist in additional recovery from Tawke, but also to avoid the need to dispose of, including through flaring of the gas at the Peshkabir field. So we'll hit 2 birds with 1 stone with that project that has been launched. At Tawke, again, to give a sense of the size and scale of this field, we ended the first half of the year with cumulative production of 268 million barrels since inception, again, through the end of June. So that gives a sense of the size and scale of Tawke and Tawke's contribution, both to DNO over the -- over this period of time or close to now a dozen years, I think of production, but also the importance of Tawke to the oil sector in the Kurdistan.

Shifting to the newer, younger field of Peshkabir. The Peshkabir field as you know, we've also had to put on the accelerator there. Brought that field into production in record time, certainly for DNO, but I think for any of the operators in Kurdistan and then by any standard globally. This has been a very, very rapid and very successful developments.

Peshkabir at over 50,000 barrels of oil a day, is now the second largest international oil company-operated field in Kurdistan. And between and, of course, the DNO maintains its position as far and away the largest producer among the international companies of oil in Kurdistan and we're pleased and very proud to have that to be able to do so. Production in Peshkabir is averaging around 55,000 barrels of oil a day. And again, that number moves around as we do workovers or drill new wells and add new wells and produce the field. But it's holding fairly steady at that level and that's a level at which we'd like to, I think produce that field at least for the time being. We've had 2 new production wells that have been brought onstream at Peshkabir, and we have a drilling program for another 4 wells that will be spud or drilled in the second half of the year.

So again, a fairly ambitious and fast-moving drilling program at Peshkabir. With the completion of the Peshkabir-to-Tawke gas project that I referred to, we will have, not only the first enhanced oil recovery project in Kurdistan among the international oil companies, but we'll be I think probably the first to fully eliminate the flaring of gas from field operations in the region as well. And that's obviously a good target to have and a good accomplishment to be able to reach and record.

At Peshkabir, the cumulative production since start-up, only a couple of years ago, it's just over 20 million barrels as of the end of the first half. And that gives a sense as to the size and scale of the Peshkabir opportunity and the velocity of our production opportunities. We have already produced over 20 million barrels of oil from that field. A 20 million barrel oil field is considered an important contributor. I wish we had more of those in our North Sea portfolio and those are larger, but we're in early in the Peshkabir development and we've already hit this milestone, and we'll be going again rapidly. And very, very, again, pleased and excited about the Peshkabir opportunity as we are -- the continued opportunities and successes at Tawke, which we hope to replicate elsewhere in our portfolio as well. At Baeshiqa, which is another of the licenses that we have a -- we are operator of and have a participating interest in, in Kurdistan. We've been, as you know, a drilling exploration wells at Baeshiqa. We have now drilled 2 wells, 1 was a shallow well, Baeshiqa-1 well as we call it, that was -- its purpose was to target the shallower Cretaceous reservoir and on that license. That well was completed. It's been -- and its testing and further operations have been suspended. Pending the completion of testing of a second deeper well, targeting a larger potential reservoirs on the license, the Baeshiqa-2 well. These wells as we've explained before, are very close to each other. It was less than 10 meters and that sort of range these are very, very close to each other and the drilling activity and testing activity of one could impact the other. So we've been slower to test these wells, but we are getting ready now later this month to test the larger, deeper well, the Baeshiqa-2. And hopefully, we will know what we have in that well towards the probably a couple of month test period, towards the latter part of the fall. And we're all very anxious to see, again, what we have at least in those wells at Baeshiqa. There's a third well that has been set for drilling, that drilling of that well in a separate structure about -- is 20 kilometers away from these wells. So there's a fairly sizable block. That well will commence drilling early in 2020, and we are all impatient to get that going as well. And continuing again to drive our business in the Kurdistan region.

The testing of the Baeshiqa-2 well will be a rigless testing protocol that helps in terms of cost. We've drilled the Baeshiqa-2 well under budget and in very good time. So we're pleased with that. But again, the next stage -- steps will be the testing. And again, I mentioned that the third well the Zartik well, is called the Zartik prospect, will also test the deeper Jurassic and Triassic reservoirs in this part of Kurdistan. This is a slide that I mentioned, shows our drilling activities in 2019, principally. In Kurdistan, you will see we have a very comprehensive, very full drilling program on the Tawke license, involving both the Peshkabir field and the Tawke field itself. But also on Baeshiqa, the arrows, of course, give a rough estimate as the drilling periods for these wells. The black are the development and infill wells, the red are the exploration and appraisal wells. In Kurdistan, we're more heavily balanced on the -- or active on the development and infill drilling because we have 2 large discoveries and 2 large fields and operations. But again, the red arrows indicate that we also have exploration and appraisal activity as well. The third from the bottom row shows a lot of these derricks, each derrick represents a well. The reason there are so many stacks across that space is these are the Jeribe shallower wells, typically take a couple of weeks to drill. But this is for the shallower field overlying the somewhat deeper Cretaceous reservoir, the main producer reservoir at Tawke, but those -- that shallower reservoir has also been an important contributor. And so we have a lot of smaller wells drilling in that period and that explains the odd, perhaps configuration of the drilling program, breakdown.

A quick update on the North Sea and I won't focus too much because many of these projects are operated by other companies, and they make their own announcements, and they make their own disclosures to the markets. So those of you who follow the North Sea Norwegian operations will be familiar with some of these wells and some of these projects from the operators' releases. But just to summarize quickly, where we stand. DNO currently has 89 licenses in Norway, 12 in the United Kingdom, 1 in Ireland and 2 in the Netherlands. But of course, the principal focus is Norway. We were awarded 2 new DNO operated exploration licenses in the U.K. this past quarter. So U.K. is also an important leg of our North Sea. I use the term North Sea in a broader sense of the term. U.K. is also an important second leg, and we -- part of our efforts in terms of expansion of our opportunities for DNO there, will focus on the U.K. sector, both in terms of exploration opportunities, but also perhaps in trying to add inorganically to our portfolio through acquisitions, partnerships and so on. Our production is diversified because it's -- we have production across 13 fields in the larger North Sea, of which 9 are in Norway and 4 in the U.K.

Our first half 2019 company working interest production, which I referred to earlier, of almost 18,000 barrels of oil equivalent per day. The bulk of that is almost 17,000 barrels of oil equivalent per day, that is in Norway and just under 1,000 barrels of oil equivalent per day in the U.K., and we hope to raise -- be able to raise in the coming months and years both of those figures and the contribution of Norway and the U.K. to our overall production.

We're active as we said we would be in the North Sea. We have 10 exploration appraisal wells and 5 development infill wells planned for 2019. And we have a comparable North Sea drilling schedule to the one I showed you for Kurdistan and again, broken out by license and operator and the field prospects, I won't go through all of these. These, of course, are on the -- in the published material that we have available for you. But again, here, as you look at this, you see both the level of activity, which you notice of the red lines and the red wells, the exploration appraisal wells here outnumber the black one. So more focus on a well count basis anyway on the North Sea with exploration, more focus in Kurdistan on development activity around the existing production assets.

With that, I close my portion of the presentation, and ask Haakon to come up please.

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Haakon Sandborg, DNO ASA - CFO [2]

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Okay. Good morning, everyone. So today, we are presenting our Q2 numbers much earlier than we have done in the previous years. And it's good to see that we still have your attention even in this summer vacation period. As you have seen, we're also pleased with our second quarter results as our Kurdistan operations continue its impressive performance, and as our new North Sea platform is adding a new growth to the company. So let's now look at the key quarterly figures. And here, you see that we show a solid increase in Q2 revenues to $266 million, that's up $62 million from the first quarter, and the revenues are split between Kurdistan with $193 million, and the North Sea with $73 million.

The Kurdistan revenues increased by $24 million in the second quarter and that was driven mainly by higher realized oil prices. While the North Sea revenues increased by $38 million and that's explained by an oil lifting from the Ringhorne East Field, adding $30 million in revenue. And also from other revenues from the assets, we acquired through the asset swap deal with Equinor.

I'll show you a bit later. But on the cost side, our cost of goods sold are up by $17 million in the second quarter. This is due to higher depreciation mostly from the new North Sea assets that's coming from higher production and also due to movements in -- we also have movements in over and underlift positions. But it's good to see that our production costs are remaining stable in the quarter as before.

So for the quarter, cost-wise, the increase that we see in the cost of goods sold is offset by lower exploration costs in the second quarter. So in reality, the total costs are very stable from the first quarter into the second quarter. That means that with the higher revenues and stable costs I talked about, we add back the depreciation. Our Q2 netback cash flow increased by 65%, a big increase to $177 million. Also again with the stable costs, Q2 operating profit increased near threefold, reflecting the increase in revenues. So all in, we are pleased with the positive developments in the key figures in the second quarter.

Here we have a lot of detail on our P&L statement. I'll go through that and comment. Talked about the reasons for the increase in Q2 revenues, up by 30% from Q1. You should bear in mind here that the North Sea revenues recorded in Q1 reflected the asset base before the asset swap with Equinor, and that the swap was completed after the first quarter.

Looking a bit on the other cost items, in addition to cost of goods sold. We have the expensed exploration in Q2 of $18.3 million, and that was down from $32.8 million in Q1 mainly due to lower expensing of exploration wells. We have admin expenses, significantly down by $18 million from Q1. Remember, there were several one-off items relating to the Faroe acquisitions that we took in Q1. And there's also some cost reversals now in Q2, so that's a big change from the first quarter.

The increase in other operating expenses in Q2 is mostly due to accrual for legal costs and other items. But as noted, the total costs are still stable. And with the revenue increase, we saw a quite a solid operating profit of $99.4 million for this quarter.

Going further down on the Q2 P&L we see that there's an increase in Q2 net finance cost, that's largely due to costs of our new bond facility, $400 million in the quarter and also due to bond buybacks, plus the higher interest expense on a higher debt position.

The reduction that you can see here in the tax income as it is for DNO now with our Norwegian business. The reduction is due to movements in deferred taxes, but also due to some reduction in the tax receivables themselves for this quarter. So with all this, we saw a solid net income of $68 million in Q2, up 33% from Q1.

Looking at the year-to-date numbers to the right on this slide. Revenues are up $180 million from year-to-date last year, that's driven by higher production volumes and higher oil prices that are increasing the Kurdistan revenues by $84 million. And we also add new North Sea revenues with an amount of $108 million. We also then have -- we increased our license in Oman, that means that we have then no revenues from Oman in this first half of the year compared to $12 million that we had in that license in Oman last year.

Again, year-to-date, cost of goods sold up by just over $100 million. That's due to -- mainly due to the first time recognition of the North Sea business and expenses, depreciation, et cetera. Otherwise, of course, North Sea activities increased our year-to-date exploration activities -- sorry, exploration expenses and also the tax income. And the net finance is driven also by the bond transactions and interest expense year-to-date. So on this basis, we are pleased to report a year-to-date net income of $119 million, which is double from the same period last year.

I know Bijan touched on this and we also discussed this in our first quarter presentation in May, but it's important to just repeat that we are increasing our operational spend substantially this year to the projected level of $680 million, and that's shown net of tax refunds for exploration costs in Norway. This spend level is split between Kurdistan and the North Sea in equal shares. And the increase from last year is due to the higher drilling and the development activity in Kurdistan this year and the growth in the North Sea operations.

So looking at where we are now with the year-to-date operational spend of $274 million. That is in accordance with our planned level for the year. And we are -- we think on good track forward to reach the full year guidance of $680 million in operational spend this year.

Looking at the lifting costs on a separate basis, they remain, as I said, stable and low year-to-date in Kurdistan at a level of $51 million. And now we also have North Sea lifting costs at the level of $44 million year-to-date.

So let's look at the exploration and CapEx on this slide. We basically maintain our CapEx projection for the year of $375 million. That's split between Kurdistan $225 million and the North Sea with $150 million. Looking at the year-to-date CapEx in Kurdistan, that's at a level of $109 million. That's main focus has been on the high activity and development at the Peshkabir field and also on the Peshkabir gas utilization project.

We have also drilled, as you have seen, several production wells at both Peshkabir and the Tawke fields and continued the exploration drilling at Baeshiqa. For the second half of this year, we will further step up the Kurdistan drilling program with the new drilling rig that we have mobilized for Tawke production wells. And again, the drilling program now includes the exciting new well that will go into the deeper structures in Tawke with this new drilling rig.

So we will see what's now in the Jurassic potential as well. We -- I think it's important to just repeat that we will progress the important Peshkabir gas project that will be aimed at getting rid of eliminating the gas flaring. And also then enhancing Tawke oil recovery, which we hope could be quite important.

We have also said in the past and repeat now that the operational spend level -- the high level, we have of spending investments in Kurdistan is basically supported by the quick cost recovery that we have on the production -- on the license contract terms in Kurdistan. Also for the North Sea, the program investments are moving forward as planned. We have year-to-date CapEx and capitalized exploration of $77 million and that's spread across the development and drilling on Ula, Fenja and several other main licenses in our portfolio.

Year-to-date expensed exploration for the North Sea is at $50 million. And again, in the second half, we will participate in several new exploration wells now going forward. And that is, again, supported by the significant tax refunds that we get on the exploration expenses in Norway. Here, moving to the cash flow. We saw an operational cash flow for the second quarter of $77 million shown here on this slide. And this cash flow is basically after we deduct working capital increases of $85 million. And I just wanted to mention that these working capital changes include an increase in receivables, so the $64 million for KRG payments of oil deliveries from the Tawke license. But these payments -- the payments in questions were received very shortly after the end of the second quarter and they were due to a change in banking arrangements on our side, on the DNO side. So in my view, when you add back the $64 million, the underlying operational cash flow for Q2 is in reality at a higher level than what we show here at $141 million.

So I think if you take that factor into account, the cash flow for this quarter is also at a very solid level, but just because of this technicality, we are now showing a lower number on the operational cash flow.

Further explanation is needed on the investments here for the second quarter. We received $46 million from Equinor for the settlement of the asset swap deal that we did, completing on the 30th of April this year. And this asset swap is dealt with as a business combination. And my accounting colleagues will point out that's done in accordance with IFRS 3. So it's reflected in the cash flow statement and also in the balance sheet to the purchase price allocation for this swap deal. So bear in mind that this $46 million, $30 million represent earnings on the assets that we have now acquired in the swap deal, from the 1st of January to the 30th of April. And this $30 million in earnings are recorded as proceeds from license transactions under the investment activities when you look at the cash flow statement. The remaining $16 million of the $46 million represent the reimbursement of CapEx we have had on the divested assets. And this $16 million has been netted against investments in Q2. So in other words, when we look at the investments here of the $68 million, that's basically after we have taken out the settlement amount of $46 million in these 2 tranches. We have also an important addition from cash from finance this time that includes the new $400 million bond debt net of the repayments we made on the previous bond issues. And through the cash flow and the new bond proceeds, we thereby increased cash position by $319 million in this quarter. I'm not showing it here, but otherwise, the year-to-date cash flow is of course dominated by the acquisition and completion of the acquisition of Faroe Petroleum, paid for from our cash balances. And we also had substantial CapEx year-to-date, that's been funded mainly from cash flow.

Here is our balance sheet, if you want, on our capital structure. And with the new bond facility in Q2, we have increased our cash balances back to a robust level of $574 million. And we have, in my view, a conservative net interest-bearing debt level at $434 million. The asset values in our balance sheet have however increased from the Faroe acquisition. And this growth in the values lead to a lower equity ratio, currently at 40% at the end of the quarter.

Still, I think supported by our very strong production and our strong cash flow. And in view of the low net interest-bearing debt, we still maintain a very solid financial position in DNO.

Okay, allow me at the end to touch again on our track record in the bond market. And here, you should listen to bragging. It comes from the heart, so I'll be going through our track record now. As such, we were very pleased as you can tell with the successful $400 million bond placement in May. And we have a rollover of $60 million of DNO01 bonds and also the buybacks of $17.6 million of bonds -- bond value in the Faroe bond. And this is the 16th bond placement we have made over the last 18 years and we had perfect debt service on all that, all those years. So I think we have been a very strong credit for all these years. And as you can see on this graph, we now have long maturities on most of our bond debt, that's further adding to our credit strength in DNO. With our new North Sea business, we will be working also more on the RBL and the exploration financing and amending and increasing those. And you see that in red here, and we'll come back to what we're doing on the banking side in our third quarter reporting.

I think with that, Bijan, we will round off, and then we will open up for questions. Thank you.

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Questions and Answers

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Karl Fredrik Schjøtt-Pedersen, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [1]

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Karl Schjøtt-Pedersen from ABG Sundal Collier. Two questions, if I may. Could you shed some light on the longer-term perspectives in terms of investment and production guidance? And also you were talking about inorganic opportunities, especially M&A. And you discussed U.K., but are there any other areas that you're looking at? Are you looking beyond the areas that you're currently operating in?

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [2]

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Our focus -- 2 important focus areas are the North Sea, the larger North Sea, the U.K. and Norway and Kurdistan. And at this time, we don't have any plans to go beyond these 2 areas. We were as you know, in a number of other areas. We pulled back into 2 areas, where we think we have a particular strength, a competitive advantage and a comparative advantage, certainly in Kurdistan operationally. And in Norway, on the strength of our long history in Norway as Norway's oldest continue -- continuing oil and gas company, the first to go on the stock exchange. We have very, very large and active and supportive Norwegian investor base. And so we feel that we have the support of the industry and the government here. So it makes sense for us to be in areas where we have a special, we believe, advantage and a position and to build on those. So our focus areas at this point are in these 2 -- in 2 areas and I think that's -- it's a good mix of exploration and production, a good mix of geological risk, political risk. I mean it's -- we feel it's a right balance for us and this is where our focus area will be. But we don't have anything specific to say about what kind of opportunities we're looking at, we're always looking at opportunities. And as you saw with our Faroe Petroleum acquisition, we're looking at more to do. There are assets and opportunities available in Norway, there have been in the U.K. These are 2 very active markets, and we are -- we hope to be active in these markets moving forward. But I don't have anything specific at this point to discuss.

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Karl Fredrik Schjøtt-Pedersen, ABG Sundal Collier Holding ASA, Research Division - Research Analyst [3]

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And in terms of the longer-term guidance on investment level and production. Do you expect to see, for example, exploration staying roughly at the same level? Or do you say, expect this year to be an exceptionally high investment level?

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [4]

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No, we certainly want to be active in exploration and we're doing what we said we would do. We are on track for our production rates in Kurdistan. I don't want to get ahead of ourselves in talking about 2020. That will importantly depend on, again, on the program we have in Kurdistan right now. It will depend on what we find at Baeshiqa or other opportunities in Kurdistan, we're looking at. But for 2019, again, I think we've been on target with what we said we would do. And moving forward in terms of exploration and activity in the North Sea, we want to do more. And we put out a goal in the North Sea of hitting 50,000 barrels a day by our 50th anniversary in 2 years. So there's not a lot of time left -- enough time to get there, but that's an ambitious and aggressive target we set for ourselves, but I think it's doable. So at this time, I think those are the 2 targets we put out, both internally and to the market. Beyond that, my hope and expectations will be continue to grow as a company and through a combination of organic, but also inorganic capture of opportunities.

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Teodor Sveen-Nilsen, Sparebank 1 Markets AS, Research Division - Research Analyst [5]

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Teo Nilsen, SB1 Markets. First congrats on strong quarterly results. And I have 3 questions. First, on just a follow-up on 50 by 50, of course, that's an ambition target. Can you just shed some light on how you look on the North Sea M&A market and chance for reaching that target? Second question is on Baeshiqa, which you definitely talked positive about for a few quarters. Is it possible to share some kind of volume estimate; or two, should we expect you to be able to book in a [2 CA] resources by end of '19? And my last question is regarding the Barents Sea. We have seen a few other Norwegian operators that are not that active in the Barents Sea in 2019 compared to 2018. So you should begin efforts around your activity level in Barents Sea in next few years?

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [6]

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50 by 50 is ambitious, but we are an ambitious company, and I think it's doable. And certainly, through some combination of organic and inorganic. I prefer it to be organic because it's cheaper, but inorganic to -- you asked what our thoughts are about the market. North Sea is a very active market. I think it's fair to say that over the last several years, Norway has been more of a seller's market. Assets have been harder to get at attractive prices, it's fully priced. And the U.K. was a buyer's market, we can get opportunities in the U.K. at perhaps below sort of -- below-market clearing prices, well I guess any price through the market is market clearing price. But I think the characterization of Norway as a seller's market, the U.K. as a buyer's market is probably a fair one. I think we're seeing a bit of a shift there. The U.K. has a lot of companies are coming to the U.K., that's because prices are firmed up in the U.K. And I think we're seeing some -- maybe the beginnings of some price, not weakness, but obviously, the lack of exploration success in Norway as I think has made the Norwegian sector, perhaps, a little bit more competitive, we'll see. But we're looking at opportunities in both these spaces and I think it's getting deals done is possible, it's a question of what price you prefer to pay. And there is sometimes companies have different views of where oil prices are going or gas prices are going. But I think it's doable. On the Barents Sea, I can't comment on that. I don't think we as a company have a view that's very unconventional about opportunities in Norway. So I think our views are conventional with respect to Norway. And I think our risk profile is more conventional. I don't think you'll see us going out and taking a lot more risk beyond where the rest of the industry is. So -- but Norway, I think will be in the pack rather than outside the pack. In Kurdistan, we were outside the pack. And again, this is -- this predates my joining the company, when DNO was in Kurdistan and it was outside of the pack. But I think in Norway, we are more mainstream now as we get a firmer footing perhaps we'll take somewhat longer steps. And on Baeshiqa, I don't really have much more to add. I don't want to give a target. But we've said, we will -- on the Baeshiqa-2 well, which has been just sort of targeting the larger potential opportunities. We will know what we have as we go through our test protocol before the end of the year. So rather than throw some number out now and have to pull it back, I'd rather we come back to the market, and with a better understanding of what we have found or not found at Baeshiqa.

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Teodor Sveen-Nilsen, Sparebank 1 Markets AS, Research Division - Research Analyst [7]

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So it's also meaning that we should expect you to be able to book something in your annual set and the resources for 2019 on Baeshiqa?

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [8]

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If there's something to book on the Baeshiqa-2 structure, I think we should have enough knowledge to make that determination by the end of this year. Of course, there is a separate structure, the Zartik structure, which is a stand-alone structure, the same kind of targets, the Jurassic, Triassic, but independent in terms of the risk and the opportunity. And so that will be a 2020 decision and determination.

Okay, Teodor, I'm just as eager to find out what we have and impatient. But we're doing this correctly. The Baeshiqa license has been a challenging one for us for many reasons including the fact that there's been really no infrastructure in this area. We've had to recreate an infrastructure and the supply chain and it's been a challenge. I think DNO has been very uniquely well placed to meet that challenge, and we've done an incredible job. We spent a lot of time. Again, it's -- in a sense, it's been like starting all over again. So the conditions, Baeshiqa were the conditions of DNO found itself back in 2005, 2006, where DNO had to bring in rigs from outside to fill up its own little refinery because diesel wasn't available. And we're facing some of the same challenges in Baeshiqa. But I think we've a lot of lessons learned. Our relationships are established. And we've done a tremendous job in terms of getting to where we are as fast as we have. And now we're on the cusp of taking the next step and seeing what it is we have. But I'm impatiently following this and as we are as a company. And we'll -- obviously, will come to the market when we know.

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Haakon Sandborg, DNO ASA - CFO [9]

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I could -- am I on? I could add that there are lots of interest on the web here with the questions coming in here. And they are mostly focused on the same thing that we have discussed here already, including Baeshiqa. There is interest in the new Tawke deep well, we'll have to come back to that. There's interest in the working capital changes. I hope we have addressed those in our presentations today. I just wanted to thank the investors and people that have sent in the questions, but I think we have covered most of them already.

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [10]

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But we haven't responded to all the job applications that are coming up.

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Haakon Sandborg, DNO ASA - CFO [11]

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I got a few here now.

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [12]

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Good.

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Haakon Sandborg, DNO ASA - CFO [13]

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Okay.

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Bijan Mossavar-Rahmani, DNO ASA - Executive Chairman [14]

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Well, thank you very much. Thank you for joining us today, and we will see you at the third quarter -- well, I guess, no, at the end of the full year interim presentation and early next year. Thank you very much.

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Haakon Sandborg, DNO ASA - CFO [15]

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Thanks.