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Abu Dhabi, UAETuesday 17 July 2018

DNO suspends oil production in Yemen after labour blockades

Company, part owned by RAK Petroleum, has declared force majeure in suspending production at two of its three blocks in Yemen.

The oil and gas company DNO has partially suspended oil production in Yemen following labour union blockades.

The Oslo-listed company, in which RAK Petroleum holds a 42.8 per cent stake, has invoked force majeure in suspending production from two of its three producing blocks in Yemen.

It has licences for six blocks, all of which lie onshore in various stages of production and exploration. Block 32 and Block 43 produced 1,600 barrels of oil per day. DNO operates both the blocks.

Earlier this month, DNO had expressed concern over the “challenging” security situation in Yemen, which had affected its drilling and production.

“Shut-in only impacts 60 per cent of our production in Yemen and has limited financial effect on DNO,” said Bjorn Dale, the company’s chief executive. “Both our planned production and development projects have been under pressure due to the security situation.”

Its capitalised costs in Block 32 amounted to US$500,000 in the first quarter. Investments in Block 43 were $1 million, and $600,000 in Block 53. Development costs associated with its Yaalen field in Block 47 amounted to $4m.

“Access to and conduct of operations on these blocks have been restricted since late last year as a result of blockades by local groups restricting movement of equipment, supplies and contractors,” the company said in a statement.

The DNO workers have been on strike since Sunday, saying their legal demands have not been met, according to reports in Yemeni newspapers. The company is in talks with the government and the unions to resolve the outstanding issues.

“If the production is fully shut in during the third quarter but returns to its normalised level in the fourth quarter, we estimate a 3 per cent reduction to our 2014 estimated earnings before interest and taxes,” the Oslo-based Swedbank First Securities analyst Teodor Sveen Nilsen said in a note. He has a “neutral” rating on the shares.

In September, DNO had suspended work on its Block 47.

The company’s overall net profits for the first quarter fell to $23.7m from $30.1m a year earlier. Revenue from its producing assets onshore Yemen was $16.1m.

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