Good morning. Welcome to DNO's 2022 Fourth Quarter and Full Year's 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'll 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. With that, I leave the stage to Haakon.
Very good. Thank you, Jostein. Hello, everyone. 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 2022, with strong progress on many fronts. I will now be reviewing these developments, starting with the highlights for the year, and follow that by operations and finance. 2022 was another year with high activity for DNO. Among the many highlights for a full year, we show record revenues of close to $1.4 billion. We also have an operating profit of $431 million, driven by our solid operational performance and by higher oil and gas prices.
With this revenue growth, we also had the all-time high free cash flow at $690 million. We further maintained a high and stable net production in Kurdistan and also in the North Sea. We were pleased to add 3,300 BOE per day of 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 four gas fields, and between them, they supply over 200 million cubic feet of gas per day, covering around three-quarters of the country's gas needs. We also significantly increased the quarterly dividends and initiated a share buyback program last year.
In our active North Sea exploration and development campaign, we saw that we had two new commercial discoveries, and we also submitted the two field development plans and were awarded interest in 10 new exploration licenses. I would say quite a lot going on here, and we'll now move over to look at the operations in more detail. For Kurdistan, we kept the gross production at the Tawke License stable again at just over 107,000 barrels of oil per day. That was supported both by an active drilling campaign and by enhanced recovery from our gas injection. These efforts also provided the first quarterly production increase at the Tawke field since 2015. Further, we have now completed the second phase expansion of the Baeshiqa to Tawke gas capture and injection project at an additional cost of $25 million.
Since the start-up in 2020, this successful project has captured 1.2 million tons of CO2 through avoided flaring. It has a major positive climate impact. It's still the only project of its kind in Kurdistan. In addition, we started the fast-track development of the Baeshiqa License last year with the initial production from the first discovery wells, averaging around 1,000 barrels of oil per day and 10 to 12 million cubic feet per day of gas. Move over to the North Sea, we had net production around 13,300 BOE per day last year. 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. That was contributing an important 20% of the total group revenues in 2022. We submitted the field development plans or PDOs, if you want, for the Andvare and the Berling projects at the 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 Berling to 30% in Q4. While we did not submit a PDO on Brage by year-end as previously planned, we are now reviewing a potential tieback of this discovery to the Brage platform together with the Brage operator.
In January this year, DNO was awarded 11 new licenses in the latest APA license round in Norway, including now one operatorship, and we were thereby again among the top five recipients of licenses. Our exploration commitment in Norway is also creating significant value through participation in four recent discoveries in the Troll-Gjøa area, including a new discovery on the Røver Sør that was announced only this morning. Moving on, we aim to build further on our North Sea exploration success and add further to our reserves and resources through participation in nine new exploration and appraisal wells this year. We show these on the slide. These exploration wells provide a significant 110 million barrels net unrisked resource potential to DNO.
You can see the details here on the re-drill volume ranges, and they show moderate to high chance of success on these prospects. We are clearly excited about this drilling program and its new resource potential for 2023. We're moving now to finance. Let's start with these key annual figures. 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 turns, in turn increased the operating profit by 34% to $431 million. 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. As noted, 2022 was thereby another good year for us in DNO, despite the impairments and weaker results in Q4. To comment further on the Q4 P&L results that 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 Alv and the Brage fields. Q4 production costs increased on a higher production cost of Baeshiqa and also on the Brage and Ula areas.
As you can see on this slide, there is some increase from movement in North Sea overlift in Q4. Obviously the big item for this quarter was the full impairment that we took on the Brage and on the Ula area, as there was no PDO submitted on the Brage by year-end, while Ula was impaired based on updated production and cost profiles. On the positive side, there was, however, a reversal of prior impairments on the Balder, the net impairment charge came in at $244 million pre-tax. This leads to a 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. The tax income, $129 million.
After that, we show a net income of $42.6 million for Q4 alone. 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, level of $1,123 million from $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 three final NCS tax installments for 2022 are due in the first half of this year, the way it works under the Norwegian regime.
We currently expect that these three installments will amount to $126 million due to the significant taxable profits last year. We increased investments to $415 million last year. Let me just skip this. Split between exploration and CapEx at $375 million, and North Sea Decom at $70 million. These investment numbers are shown net of $30 billion in cash inflow flowing from the acquisition of our new assets in the Côte d'Ivoire. 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 the finance outflows of $469 million, these were mainly for debt repayment at $324 million as we bought back $264 million in the DNO03 bond. We also repaid $60 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. All in, we remain in a strong position with the cash flow funding these significant investments. Debt repayment and shareholder distributions. At the same time, also adding to our cash balances over by $217 million last year. We thereby ended the year, as you see here, with $954 million in cash.
I mentioned already, we had a free cash flow that strengthened substantially last year to the strong level of $619 million. Moving on. I must say that now in addition to discussing cash flow, I'm also increasingly enjoying presenting our capital structure, where we are 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 two years later at the end of 2022. With the support from good retained earnings and debt reduction, our equity ratio has also strengthened substantially to a solid level of 49% at the year-end.
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 RBL debt reduction. We also enjoy some reduction from the lower reduced coupon on our 2021 bond. Through active treasury management and through we are further benefiting from increasing interest on our high cash deposits so that we see that interest earnings are becoming much more significant for DNO. We have a fixed rate on our bonds for interest expense, but earn more on deposits.
We 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. The lower net interest charges thereby free up cash flow and add further to our dividend and share buyback capacity that we now are using to increase 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. 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 $725 million.
As you can see here, the main increase last year was in higher CapEx due to drilling and high activity on the Toki license, development on 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 the CapEx now at $220 million, focused mainly on continuing the drilling program in Kurdistan on the Toki and Baeshiqa Licenses, and further on early work on the Berling development and on infill drilling in the Brage area in the North Sea.
We are, however, reducing planned CapEx in Kurdistan in 2023, but we are prepared to quickly adjust investments up or down, depending on the timing that we will see on the government payments for our oil sales from Kurdistan. Our planned North Sea CapEx this year is also down from 2022. As spending on recently sanctioned development projects will be fairly moderate in this year. This will be gradually ramped up as we move closer to the project's execution phases. As mentioned already, and building on our successes over the last years, we continue our broad exploration program offshore Norway with total expense amounting to $150 million this year.
It's always good to note that we are completing our current decom program as planned, and our abandonment expenditures thereby drop significantly this year to $25 million. For 2023, we guide on production from the Toki 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 12,000-13,000 BOE per day, and we expect that natural decline will be offset mostly by production start-up 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 NOK 0.25 per share, amounting to around $25 million in total this time. 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 exploration schedule. I'd like to note that, like I 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, rounds up the presentation today. We will move on to our Q&A session.
Thank you, Haakon. I will start here by taking a question from Teodor Sveen-Nilsen with SpareBank 1 Markets. I will unmute you, and you will be allowed to unmute yourself, Teodor.
Good morning, all, and thanks for taking my questions, and thanks for the presentation. I have three questions. First on cash balance. Of course, you have very solid cash balance now. I think that's all-time high. Should we expect it to stay at that level? That's first question on the cash balance. Secondly, just remind us of the, 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 Tawke 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.
Great. If I maybe start on the, on the cash side, and then we'll move on to the next questions a little bit later. Yeah, Teodor, thanks. We're on the cash side. We're seeing a very high balances at the moment. We expect, as I said, we have a good outlook for the year so that we will have good cash coming in, assuming regular payments on export sales from Kurdistan. We have then another quarterly likely dividend payment in Q2. 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. We have a, you know, a good, operational spend program for this year. I don't know, depending on what goes out on new transactions or potential new ideas, I would think that, be some effect on the, on the cash level, going through this year, but it depends on success on the, on the new business. Want maybe to add to that, Bijan?
I think that covers it. I'm happy to take on the question, Teodor, on the Kurdistan payments. I think Haakon mentioned 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. You know, we don't report payments as they come in. We do it at our quarterly accounts or quarterly presentations. The payments have come in to the DNO and our partner, Genel, for the Tawke License and similarly in the Baeshiqa for DNO and for our partners, TEC.
I believe all the other companies have also reported the receipt of the August payments. There have been delays in payments. Those delays have grown a bit in the last several months. I think for us, the arrears in a sense of late payments probably have accumulated just over $200 million, give or take. I think we're about three months behind the previous more prompt schedule. We expect those payments will come. The reason for the delays are several. I'm sure you and others who follow Kurdistan and follow the companies know some of the reasons for it.
An important one, of course, has been the disruption in the Mediterranean markets as a result of the, of the, sanctions against Russia and the, discount a competing crude, the Urals crude, has faced in the Mediterranean market. That crude has now moved to the, to I believe to China and India and other markets. The discount, still has applied to Kurdistan. Of, of land as well, which has reduced the government stake, and, that's created some financial difficulty, for them, and, resulting in delays. As you know, this is not the first time this has happened. They've been... Kurdistan has been, in some respects, a bumpy ride. At the end of the day, these issues get, resolved and payments, get made.
We have received now the August payment in line with the other companies. We expect the September payment, probably in the coming several weeks. That's I think that should explain our Kurdistan story. I think the question you asked is, was, that if we keep up, the spend we had in 2022 in Kurdistan and Tawke License in 2023, what would that do to our production? Is that basically the question that you had?
Yes, that's correct.
l field, has shown surprising resilience. The more wells we drill, the better the production. This is contrary to earlier expectations of permanent decline. With sufficient capital expenditure on wells, we could have maintained the 2022 production level of about 110,000 barrels a day across the license. However, we now expect production to drop to about 100,000 barrels a day this year. This decline could be mitigated with some drilling and surface plumbing work
I mean, there are ways to add production or maintain production other than through drilling of new wells. There's a limit to how much you can do. There are some things we can do, but I think in trying to maintain spending discipline and with some delays, these delays in payments, I think it's behooves 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 Tawke, because it is an onshore field, we can manage spending, and as a result, production, very quickly.
We've said in the past that we have at Tawke one foot on the accelerator, one foot on the brake. We were asked what.
Next.
Put on the brake, the means that if we have the go ahead to spend more, we'll get more production. If we don't, the production will come down, but that can be reversed in either direction pretty quickly. I expect we'll see some of that breaking and accelerating in 2023.
The next question, comes from Øyvind Hagen at Arctic Securities. Øyvind, please.
Thank you. Thank you for taking my questions. I have one question on the cash flow. Even though you faced a delay on the payment for August, that slid into Q1, your cash flow this quarter appears to be very good. 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?
Yeah. Thanks, Øyvind . Good morning. I'm sure you have seen our... Both our, of course, our presentation this morning, but also our cash flow statement. Is your question on Q4, by itself or for the year?
It's mainly on Q4, and, you know, it's, some of it we understand fairly well, but especially the dividend from Mondoil 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?
Yeah. Okay. Well, I'm just kind of referring to our quarterly report for Q4 and the cash flow statements. You will see there the, you know, the normal non-cash being added back and there's limited movement on working capital net this time. We had a tax refund, $21 million received for the U.K. in the quarter. I think you see the other parts are mainly the investments that I discussed and the financing activities that we at least touched on for the year. For Mondoil that we acquired, the Cote d'Ivoire transaction that we discussed, it was as you may remember, paid for with issuance of new shares in DNO.
It wasn't a cash transaction, 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 of last year, we have had a good cash inflow on top of that. That gives us that number of $30 million or so that I discussed coming in from the transaction in West Africa. 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 based on the long-term government contract on the gas sales with a fixed indexed price on the gas, that we will have a good, you know, 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 net to DNO, net cash flow per year. That's what I referred to when I said we look forward to a new long-term cash flow because this has a long profile on the production and a long contract, and with the government buyer government entity. That's also then coming into play for many years going forward.
I think, the $30 million for Q4 was more of a, you know, transaction one-off, if you want. The long-term view is a steady, good cash flow from our, from our new assets. We are certainly looking to do more in West Africa as we have talked about on prior occasions. I don't know if you had more follow-up on that, Eivind.
No, that's very clear, Haakon. Thank you very much. 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?
Yeah. We have the long-term as we think about it, the DNO04 that we raised it back in 2021. That hasn't matured in 2026. You see that as well as the, you know, one of the main back bonds of our, of our debt funding structure. Not really short term planning to do much on that unless there's a pricing window of opportunity that we could look at to buy back some of that. The discussion, I think, Øyvind , would be on the shorter dated DNO03 bond that matures in May next year. That has the balance of $131 million remaining, as we have bought back, you know, the majority of that bond.
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. On the banking side, as you've seen, we reduced our bank debt to limited amount, compared to what it has been, of $35 million. We may do something on the bank side, but sort of depends on how we see our borrowing base capacity will be going forward. I think, I'm not gonna tell you exactly what we plan to do with DNO03, but that's the one that would be question, I think, to do something on that for this year.
Yeah. Just to add something. Carrying costs on our debt now is quite attractive, because of higher interest rates. I think our net effective coupon rate is about 4%, give or take. It's pretty cheap money. We're since the end of the reporting period, I think we're now sitting at over $1 billion in cash that's available to consider other transactions if they come along. As Haakon mentioned, our financing costs and the used to be something in the order of $70 million-$80 million a year. It's now down to $10 million a year.
This is pretty cheap money and a lot of it, certainly for a company, of our, of our size. We have a lot of very dry powder that we can use if the right opportunities come up. As we've said, we're doing more of a pivot towards our shareholders. DNO has been terrific to its bondholders over many several decades. Haakon has been importantly, a driver of that. That will continue, but we now want to take care of our shareholders, as are other companies in the, in our industry. There's been a pivot towards shareholders and more, more money back to them, and that's important to us. We're able to do that now with the, with our overall financial picture.
Very pleased about that too.
I believe we have two more people wanting to ask questions, so we are getting closer to the end. The first one is Tom Erik Kristiansen at Pareto. Please.
Could 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 two. 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? It's obviously, at least back in time, an asset with a lot of potential. Is it gas handling that is the main issue with increasing volumes today? That is my two questions. Thanks.
On the political question, I think it's fair to say he probably knows as much, if not more about it, than I do. It's a work in progress. It changes and these tensions and this toing and froing has been going on for decades or centuries, for millennia. This is nothing new. To predict which way it's gonna go at any given time is very difficult and if not impossible. There are times that the tension is high, and it certainly has been high certainly in my lifetime. I expect tensions will continue and how the different parties within Iraq work together. It is a challenge for all, and it's not just about Kurds versus Iraqis within the Iraqi Iraq itself.
The rest of Iraq, there are also, of course, different political and religious factions. 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, of course, for the company, for DNO. We've managed, I mean, multiple crises since I've been at DNO. ISIS and all sorts of All manner of things, and somehow things go on as they should. I think for a while, looking ahead, what will dominate, the thought, the discussion and the thinking there is gonna be this disastrous and tragic earthquake that hit Turkey so hard and Syria so hard.
Again, that'll take a lot of attention and some time. Which is very unfortunate, but nature runs its on its own course. With respect to Baeshiqa, we plan another well this year. I think it's fair to say that Baeshiqa is very prospective and very promising from our from our point of view. We haven't quite unlocked it yet. We're trying to. We like it. We like the quality of the crude. We like our contractual arrangements. It has some challenges, but we drilled some wells, but we haven't quite unlocked it yet. From a subsurface point of view, gas is an issue. There is gas, but there is gas that we're co-producing. We don't wanna produce and flare gas for any longer than we need to.
We have to find a way either to bypass the gas or to find a way to put that gas to some other use. We're looking at different opportunities and options, but we're going back in to try to unlock the oil with the next well. We should have a better idea once that well is drilled. Results are in. Fingers crossed on our side, but we're still very committed. The spending and the Baeshiqa License will go on. In Tawke, we're taking the foot off the accelerator a bit. On Baeshiqa, importantly, our foot is on the accelerator. That may give you an indication of how we think about it.
Okay. Thank you.
Okay. I believe the last question then comes from Yuriy Kukhtanych. I believe you have to introduce yourself a little bit. Please.
Of course. Thank you. Good morning, gentlemen. Thank you for the presentation. My name is Yuriy Kukhtanych. I'm representing Millennium Management. I have two or three questions, please. 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. I just wanted to ask you know, 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 two months. Now, the payment delays widened to about 6 months. Situation actually changed quite a lot last year.
The big change was, of course, the flood of the Russian oil and the hugely discounted Russian oil on the market. My first question is, you know, what are the markers 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. By reducing production at Tawke, you're also reducing revenue to the budget. I'm wondering, you know, where your negotiations are standing now. That's my big first question. The second question, very short, on the discounts.
Can you confirm that, or that your discounts or realized discounts from selling your crude has widened or remained the same since the introduction of price cap and ban on the Russian oil? Thank you.
First part of your question, with respect to markers, I don't think we have some specific markers, as such. We know there's relief when we see it, and we know there are issues that impact our ability to put fresh funds in and spend when we see that. I don't think we have quantifiable markers, as such. That again, this is not the first time we've been in this situation. We were talking about this many years ago, about the foot on the accelerator, foot on the brake. I think that's well understood in Kurdistan. I wouldn't characterize it as aggressive because we've done it before, and the Kurds understand the issues, and we understand their challenges.
Oil is their single most important source of foreign exchange revenue. Matters hugely to their economy. But in 2022, I think they had something in excess of $10 billion in revenues from oil produced by DNO and the other companies. That's, I think, I believe, a record. It matters to them, and if they're not able to pay and pay in a timely fashion, they're under a lot of pressure too, including, as you said, from the from the market and the pushback. It's not just about the discounted Urals. Of course, the given all that's going on, was alluded to before politically, and the challenges, the Supreme Court ruling and so on, makes buyers a bit more cautious and wary.
Also allows buyers to negotiate that much harder and to get bigger discounts. We know Kurdistan 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, in some respects, as a market matter, I don't know. I think someone is making a lot of money in between the sellers and the ultimate buyers, refineries. I think that margin will close. It probably has 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 purchases 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 that seemed to work for the Government, work for us, and some months, the formula was more advantageous to the Government and sometimes less advantageous, but over time it worked. That formula has now been challenged. We continue to bill and invoice on the basis of that formula because we don't know what the alternative is quite yet. My expectation has been that there'd be a rough few months, but we come out of it and the market realities would take over.
This, the issue of pricing is something that the government has raised. That we have not agreed to a change formula because we don't have visibility and transparency on the pricing. Until we understand how that works, and 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 markets sorts itself out.
Before we close this off, I think it will give Tom Erik the chance for a quick follow-up question, and that will be the last for today, I think.
Oh, sorry for not removing the hand. I'm fine, thanks.
Okay, there is no-
Jostein, sorry, can I just clarify, have you already cut production at Tawke or this is just the guidance for the year and the actual production cut, the CapEx cut hasn't happened yet?
I don't think we've gone in and made a decision or instructed anyone to cut back production. There are some routine work that gets done. There, we replace pumps. We do other workovers. When, because of the earthquake and some uncertainty as to how long the pipeline would be shut in and what that meant for us in terms of our production, because there's a limit to how much we can produce, put into storage if the pipeline isn't running. We made a, I think, a decision, operational decision.
Let's take the time to deal with some maintenance work and some other surface, but also well work, during this time when there's some uncertainty as to the working of the pipeline. That's not over. These aftershocks, I don't know what we can't predict exactly what nature brings next. I think in the first quarter, we may see some reduction, not a lot, but some reduction in the production rates as we get, we deal with some delayed maintenance work. That should pick up.
The issue is how much are we gonna spend drilling additional wells, without funds coming in from the sale of that oil to pay for those wells? We'll continue to do the easy plumbing, the cheaper plumbing work. That'll help keep production up. I think it's reasonable to expect that our production average for the year will drop off. We're able to again, hit the accelerator if necessary, and get it back up to the 2022 levels, if things come in and we have funds with which to do so. Thank you very much, gentlemen.
Okay, with that.
I do wanna make one point. As in other countries, other jurisdictions, this is a partnership between us and Kurdistan. That we share a lot of common interests. We try to work with each other. They understand we have certain certain prerogatives and certain needs as a publicly listed company. We answer to shareholders. We understand that they have their own challenges and things that drive what governments do, and they do within the again, their own system. We try to accommodate each other because their success is our success, our success is their success. It's a partnership. There are times when things get 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 last 15 years. DNO created the oil, the modern oil industry in Kurdistan. Kurdistan has created the modern DNO. You know, it was a very different company with post Kurdistan, you see these as financials. You know, it's a partnership. Thank you.
Okay. With that, I think we'll wrap up today's presentation and Q&A. Thanks for participating, and we look forward to see you again on the next occasion. Bye.
Thank you.