ShaMaran’s Q2 report and Genel Energy’s H1 update point to the same conclusion for DNO: the reported quarter was weak in Kurdistan, but the second-half setup has improved.
ShaMaran shows what international pricing can do for Kurdistan field economics and confirms that the export-payment mechanism is functioning. Genel, DNO’s 25% partner at Tawke, provides the more direct read-across: production has restarted, domestic prices have improved and drilling is under way again.
DNO’s own trading update, released on 28 July, also removes much of the uncertainty around the Q2 headline numbers. Kurdistan production was negligible, but North Sea output held up relatively well and realised prices were remarkably strong.
ShaMaran’s operating quarter was weak. Atrush and Sarsang were shut for most of Q2, cutting average gross production by 97% year-on-year to 1,900 barrels per day. Revenue fell 50% to USD 17.8m, adjusted EBITDAX 46% to USD 11.9m and operating cash flow 92% to USD 2.2m.
The accounting result was stronger than the production figures suggest. Most Q2 revenue came from Q1 exports sold from Ceyhan, lifting the average net realised price to USD 84.23 per barrel from USD 33.12 a year earlier. Combined with lower lifting costs and minimal depletion, this raised gross margin 4% to USD 13.3m and net income to USD 8.8m.
The DNO read-across is straightforward: international pricing can materially improve Kurdistan economics, but security and payment execution remain the constraints. SOMO cargo payments have generally arrived around 30 days after lifting, yet the expected PSC top-up payments remain outstanding. Atrush and Sarsang restarted in late June, only to be shut again on 20 July.
Genel’s update matters more directly because it owns 25% of the DNO-operated Tawke licence.
Gross production was close to 80,000 barrels per day before the shutdown at the end of February. Because Tawke was suspended for almost four months, H1 gross production averaged only 26,400 barrels per day, or 6,600 net to Genel. Domestic realised prices improved from roughly USD 31 per barrel before the shutdown to around USD 37 after the restart, while operating costs remained close to USD 4 per barrel.
DNO initiated Tawke production on 28 June and Peshkabir production on 11 July. Two new Peshkabir wells have also been spudded as the eight-well programme restarts after a gap of almost three years.
Genel estimates that a return to exports could more than double Tawke free cash flow. But management also made clear that it wants PSC-consistent payments before committing volumes to the export system.
The message is constructive, but conditional: the asset is restarting and drilling has resumed, while full export economics still depend on top-up payments and security.
DNO’s trading update showed Q2 net production of 84,912 boe per day in the North Sea, 273 boe per day in Kurdistan and 3,246 boe per day in West Africa. North Sea sales averaged 80,511 boe per day, while Kurdistan recorded no sales.
The offset was pricing. DNO realised USD 115.1/boe for North Sea oil, USD 89.5/boe for gas and USD 69.0/boe for NGLs, all far above Q1 levels.
The North Sea portfolio also continues to evolve. Dvalin Nord started production on 30 June and is expected to contribute 3,000 boe per day net to DNO at plateau. The company also completed the acquisition that lifted its Vega interest to 8.8%.
This leaves less suspense around production than usual. The more important question is how strong realised prices, lifting timing, investment and Norwegian tax payments translate into cash flow. DNO paid USD 98.3m in Norwegian taxes and USD 39.4m in dividends during the quarter.
For the financial benchmark, Bloomberg consensus expects revenue of USD 876m, EBITDA of USD 670m, EBIT of USD 556m and net income of USD 120m. That corresponds to EPS of USD 0.13 and DPS of USD 0.04, with quarter-end net debt expected at USD 686m. Compared with DNO’s reported Q1 figures, consensus implies roughly 40% higher revenue and 56% higher EBITDA.
At today’s NOK 16.62 close, DNO is valued at around NOK 16.3bn, or USD 1.72bn. Adding net debt gives an enterprise value of roughly USD 2.4bn. Q2 EPS converts to around NOK 1.23 per share – a 7.4% earnings yield for the quarter alone. Mechanically annualised, consensus implies roughly 3.4 times earnings, an EV/EBITDA multiple below 1.0x, a dividend yield just above 9% and net debt of about 0.3 times EBITDA.
That clearly screens as cheap, but Q2 should not be treated as a sustainable run-rate. Realised North Sea oil and gas prices are likely to fall from the unusually strong USD 115.1/boe and USD 89.5/boe achieved in the quarter, meaning that mechanically annualised multiples overstate the durability of current earnings.
The opposite may be true for Kurdistan. Q2 includes virtually no contribution from the region, while a lasting peace deal in the region – combined with credible PSC-based export payments – could lift Tawke volumes, realised prices and cash flow considerably. The more useful valuation question is therefore whether a much larger Kurdistan contribution can offset, or potentially more than offset, lower North Sea realised prices. At the current share price, the market still appears to assign limited value to that normalisation scenario.
Comments
Nothing yet. Say the first thing.
Sign in to join the conversation.