Dno Asa Ord

Good afternoon, and welcome to D&O's first quarter 2024 earnings call. My name is Justin Levos, and I head up communication here at D&O. The plan for today's call is to start with a brief presentation, which will be held by D&O's managing director, Chris Spencer, and our CFO, Håkon Sandborg. After the presentation, we will open up for questions in the Q&A session, where our executive chairman, Bijan Mosmaramani, will be available to take your questions. Please note that the Q&A session is for analysts and analysts, and any media requests will be dealt with separately. During the presentation, all other participants in this call will be in a listen-only mode. If you want to ask a question in the Q&A, please click on the virtual hand on top of your screen. When you are selected, you will be notified on your screen that you are allowed to unmute, after which you must remember to unmute yourself. And with that, let's start the presentation. I hand over to Chris.

Thank you very much, Øystein, and good afternoon to everyone from Oslo. It's my pleasure to be here today to talk you through our Q1 2024 and indeed subsequent events. I have the pleasure of presenting this quarter because I think it's a great quarter in terms of illustrating the value creation that we aim to achieve in DNO. As we've said many times, that value creation is based on our low-cost production combined with our attractive growth prospects, both in terms of organic portfolio development and inorganic through acquisitions. And all of those elements are at play in the slides ahead. And that in turn allows us to return some of the value created to our shareholders by continuing our dividend programme. So let's move into the first slide, Jostein. One back please. So if we look back at Q1, then on the back of the ramping up of production in Kyrgyzstan and the similar production in the North Sea, we had strong revenues. And in our flagship Taukey license, We're pretty much back to where we were before the Iraq-Turkey pipeline shutdown. And we discussed in previous quarters, we are selling into the local market there at the moment. We continue to push hard on our buyers and we've now managed to get prices into the upper 30s. But importantly, we're still selling what we call on a cash and carry basis so we receive payment prior to delivery of the oil and now the vast majority of those payments are made to us in international bank accounts on the north sea side our exploration story continues with the um we with the uh another very strong performance in the apa round i think we uh touched on that in the previous quarter this is uh now all done and dusted and officially awarded hence it uh appears again um but important importantly uh we've made great steps uh so far in 2024 on rebalancing uh north sea portfolio through uh two broadband acquisitions one of which was announced just this morning and uh we will uh through that add more than about 12 million barrels of oil equivalent in terms of reserves and resources. And importantly, they contribute immediately to the production and therefore the cash flow of the company. We're looking at probably around the 5,000 mark this year, but the nature of the two transactions will actually see that increasing a bit over the next couple of years. And we'll come back to that on the next slide. As I mentioned, the strength of the operational performance, our growth prospects, and the very strong balance sheet that we still maintain that Hawker will describe in his segment has allowed the board to maintain the dividend unchanged. If we move on then to the next slide, please. So fresh news out this morning. We're very, very pleased with another Voltron. We announced, of course, the Voltron in the UK earlier in the year. And we're pleased now that we've been able to add some production in the Norwegian sector. And most particularly, we're very happy because it's giving us a new core area. We had a presence in this area already with the Merrill and Alva licenses, and our license includes our ongoing and VARA development. We've now been able to pick up from more energy, the other producing and underdevelopment fields in this area and an interest in the NORNA field and FPSO hub itself, which is obviously critical for further development of the area. This is therefore now a core area for us in DNO and we obviously see good potential remaining, which is why we chose to make this acquisition. In addition to that, it's a nice production profile because the Vedande field will be coming on stream in late 2025. And so we have, we're expecting about 3,000 barrels of water equivalent per day this year, but it will actually be increasing over the next couple of years as that project comes in. Finally, as anyone who follows our adventure in the North Sea knows, we've had great success on the exploration side. We have moved, and we've now moved, as I'll talk to you on the next slide, our third, project into the development phase. And so this alien production obviously generates financial synergies as we move forward and also should give our board and the market generally more confidence that we can fully finance our development programme and reap the value from our exploration success. Next slide, please. So indeed, we've spent quite some time in recent quarters on the exploration side of our business, and we're still very active in that area. But the milestone, the recent milestone in our organic growth portfolio is the final investment decision amongst the partners on what used to be called BRASA, and which will now be called Bestifer. Brass has been a long journey for us, and so we're very, very pleased to finally have found a commercially effective route to development for the field. What is interesting to us is that the collaboration and cooperation that we've achieved with the operator and the host has, in my mind, been instrumental in opening this up. DNO has been very active on Bressa for a number of years. And we are finally, through a very collaborative relationship with the operator of Braga, the new operator of Braga, OK, been able to come up with a commercially effective solution. There's also been good alignment with other partners in the area. And you've seen a couple of those come into Brasser slash Vestler, as I have to get used to calling it, with minority interests. And certainly that alignment in the partnership has also helped us get to the point we are at today. So now we're looking forward to the ministry approval and getting into the project execution phase and seeing first production from Vestler in two or three years' time, H1, 2027, three years' time. As I said at the top of the slide, we're not to put our exploration efforts in the shadow. We had an important abrasal well during the first quarter, which we confirmed the type of volumes we had thought we'd discovered at the Heisenberg discovery and tested the deeper prospect at Hummer and we're currently drilling at the Couvette well which is also in the Trollier area and we have five more wells to come this year so there'll be plenty more news on that front I think with that I'm turning over to Hawkins to take us through the numbers Thank you Chris Yes, hello everyone

And welcome again to our first quarter earnings call. We are looking at the financial review now and start with these P&L results for Q1 2024. We'll compare those mostly to the previous quarter, the fourth quarter. Starting with revenues, I think that was noted already. We achieved higher net production in Kyrgyzstan in Q1. And a key reason for that was that the full production for the whole quarter. And still our net entitlement production dropped under our production sharing contract as the carry forward cost pool was fully utilized during the first quarter under our talkie production sharing contract. So the lower entitlement volumes in turn led to a $21 million drop in revenue from Kyrgyzstan in the quarter. Our North Sea production was reduced in Q1, mainly due to lower uptime on the Maroc and Alba gas fields. But the sales volumes were still up on higher lifted volumes. And this provided a $5 million increase in revenues from the North Sea in this quarter. So in total, group revenues were thereby down by $16 million in the first quarter. Now, for the costs in this quarter, we had lower depreciation in Kyrgyzstan due to lower entitlement volumes. And other expenses are also down in Q1, including expense declaration and impairment charges. So mainly due to the lower cost, we thereby show an increase in operating profits of $23 million, to a level of $61 million in this first quarter. As we move down further on the P&L statement, net finance expenses are also reduced from Q4. This is mainly due to lower interest expense following the buyback of our D&O O3 bond in January this year, while tax expenses increased on higher taxable profits. But all in, net income thereby increased by $13 million to $17 million in Q1. I'm moving now to the cash flow, and operational cash flow came in at $100 million. That's a good round number, I think, and that was up $7 million from Q4 last year. This cash flow from Q1 was net of $10 million in negative working capital adjustments, and these in turn were mainly driven by a decrease in payables and accruals, mostly in the North Sea. There were no NCS on the region continental shelf tax payments or refunds in the first quarter. And we don't expect any and we don't see any in the second quarter either. Likewise, we don't expect any NCS tax payments in the second half of this year due to high exploration expenditures and the capex through 2024. We had a drop in our net investments by $18 million in Q1 to $51 million. and that was net over including a $4 million in cash inflow from Koch Devoir. The main investments in this quarter included the capex of $36 million, primarily on North Sea developments, and also North Sea exploration expenditures of $18 million. Finance cash outflow was $162 million, That was primarily covering $131 million of the buyback of the DNO-03 bond and also dividend payments of $23 million in this quarter. Our free cash flow, which is mainly operational cash flow, less capex and decom, came in at $44 million, up $11 million from Q4. So all in, our cash balance is reduced by $111 million in Q1, mostly due to the bond buyback. To go to the balance sheet, you see that our balance sheet strength is very much intact with high cash balances of $606 million. And we have a net cash position of $171 million at the end of the first quarter. We're also certainly pleased to see an increase in the equity ratio in the quarter, reaching now a strong level of 14.9% at the end of Q1. It should be noted here that we, since year end 2021, have strengthened our financial position significantly through debt reductions of $450 million in this period, while we had dividend payments and share buybacks totaling $270 million since year end 2021. So with the debt reduction and in addition, higher retained earnings in this period, our equity ratio has increased from 35% at the year end 2021 to the current strong level of 49%. And on this basis, we absolutely remain in very good shape with our current capital structures. I think I'll now end the financial discussion and back to you, Chris. Thanks a lot.