A bumpy start to the year in the Middle East raised questions about potential consequences for the relatively stable Kurdistan region of Iraq and the international oil and gas companies working in the region. Following the assassination of Major General Qassim Soleimani we downgraded long-dated DNO bonds as these are the most liquid corporate instruments which quickly reflect changing investor sentiment.
However, the US-Iran tensions did not persist. DNO bonds have posted an impressive recovery with their z-spreads tightening to levels last seen long before the news of delayed payments hit the wires in December 2019. Fundamentally, little has changed in our long-term credit view on the company in the past two weeks.
With Kurdistan back to paying for oil, and security risks normalising, we upgrade to Hold on DNONO 23s and DNONO 24s based on the company’s strong stand-alone credit metrics: high cash flow generation, low leverage and long-term debt profile; and potential upside from exposure to the North Sea as explained in our report published 14 November 2019.
DNO published a brief operating update last week reporting a 29% yoy increase in working interest production in 2019. Output growth from 81,700boepd to 104,800boepd was achieved due to the acquisition of Faroe Petroleum in 2019 (+17,400boepd) and expansion in Kurdistan (+7,700boepd). Production volumes were largely in line with DNO’s 2019 guidance.
DNONO bonds performance