DNO Slips as Iraq Tensions Curb Outlook for Payments: Oslo Mover

DNO International ASA (DNO), the oil producer focused on Iraq’s Kurdish region, dropped to its lowest level in more than four months in Oslo as political tensions in the region check investor hopes about new export payments.

The Oslo-based company fell as much as 4.6 percent to 8.8 kroner, the lowest intraday level since Sept. 13 and the biggest decline in more than two weeks. DNO traded 2.7 percent lower as of 1:20 p.m. in the Norwegian capital. More than 1.9 million shares have been traded so far today, equivalent to 75 percent of the stock’s average volume during the last three months.

DNO and other companies operating in the northern Kurdish region of Iraq, including Genel Energy Plc (GENL), have been caught in a conflict between the semi-autonomous Kurdistan Regional Government and central Iraqi authorities over oil revenue sharing, production contracts and land. Tensions have deepened in recent months, with armed clashes in the disputed Kirkuk area in November, a halt in oil exports from Kurdistan in December and a new warning last weekend from federal authorities to Exxon Mobil Corp. (XOM) to stop dealing with the Kurds.

The tensions make a rapid resumption of exports and further payments to DNO for its oil exports unlikely, according to Svenska Handelsbanken AB analyst Kjetil Soerum.

“Some measure of dialogue between Baghdad and the KRG is necessary to get those payments,” he said by phone from Oslo today. “In the longer term, our estimates rely on more incoming payments. There’s no doubt that’s in danger now, and that’s what the stock market is discounting.”

Political Climate

After resuming exports from Kurdistan through the federal government’s pipeline in August, the KRG halted them again on Dec. 22, saying Baghdad still owes international companies money. The federal government in September agreed to pay the companies 1 trillion Iraqi dinars ($858.4 million), of which a first tranche of 650 billion dinars was sent and redistributed by the KRG. Iraq’s Deputy Prime Minister for Energy Affairs, Hussain Al-Shahristani, has since said that there will be no second payment.

Handelsbanken, which has a buy recommendation and a 13.7 kroner target price on DNO, is currently reviewing its estimates, Soerum said. “The political climate has degraded and if there are no more payments, that needs to be reflected by the figures sooner or later.”

DNO, the first foreign company to drill for oil in Iraq after the U.S.-led invasion in 2003, has so far received three payments for its exports, worth a combined $280 million.

Build Reserves

The Norwegian company, which also operates in Yemen and Oman, got more than 80 percent of its output from Iraq in the third quarter, with working interest production of almost 34,000 barrels of oil a day from its Tawke field in Kurdistan.

Gross production from Tawke reached 65,000 barrels a day during the fourth quarter before exports were halted, the company has said. DNO operates the field with a 55 percent stake, while Genel holds 25 percent.

Since the beginning of the year, DNO has sold its oil into the local market at a discount to international prices, company spokesman Tom Bratlie said by phone today. DNO, which plans to increase production capacity at Tawke to 200,000 barrels a day by the end of 2014, expects political tensions to ease and give way to more predictable export payments, he said.

“We believe there will be a normalisation and that this will be solved,” Bratlie said. “At the same time, we respect the fact that the political processes must proceed at the pace at which authorities in Iraq and Kurdistan are working. We have to relate to that, but we continue to build both reserves and capacity in Kurdistan.”

DNO is scheduled to announce its fourth-quarter results on Feb. 12.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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