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DNO Climbs as Iraq Find Prompts Possible Goal Review: Oslo Mover

June 11 (Bloomberg) -- DNO International ASA, the oil producer focused on northern Iraq, rose the most in nine months in Oslo after saying it may boost its output target after a find in the region’s Tawke field and the successful test of a well.

The company jumped as much as 9.9 percent, the most since Sept. 17, and was up 6.4 percent at 10.93 kroner by 11:55 a.m. in Oslo. About 8.7 million shares have been traded today, almost four-times the average daily volume in the past three months.

DNO’s latest find, at the deep Tawke-17 well in Kurdistan, tested at 1,500 barrels a day, the company said in a statement today. The find, more than 200 meters below the main field reservoir, “likely bumps recoverable reserves on the Tawke license to the one billion barrel mark,” Chairman Bijan Mossavar-Rahmani said.

The Norwegian oil producer also said Tawke-20, its first horizontal well at the field, flowed at an average of 8,000 barrels a day from each of the first four of 10 fractured corridors. If a second well, Tawke-23, backs up the results of Tawke-20, DNO will “consider further enhancements to our current target of 200,000 barrels a day of production capacity by 2015,” the company said.

“Our valuation of the field increases from 10 kroner per share to well above 13 kroner per share using a conservative 75 percent risking due to the political climate in Iraq,” ABG Sundal Collier Holdings analyst Anders Holte said in a note.

Payment Concerns

DNO, the first foreign company to drill for oil in Iraq after the U.S.-led invasion in 2003, has been caught in a conflict between the semi-autonomous Kurdistan Regional Government and central Iraqi authorities over oil revenue sharing, production contracts and land.

While ABG expects DNO shares to gain “materially today,” the “positive reaction might be held back by the lack of visibility on payment mechanism for crude oil exported out of Kurdistan,” Holte wrote.

DNO International is the operator of Tawke with a 55 percent stake. Genel Energy Plc has 25 percent, and the Kurdistan Regional Government the remaining 20 percent.

“While the discovery and likely reserve upside at Tawke was partly expected by the market, the indication of a higher 2015 production target is new, and we expect to see a significant positive share price reaction today,” Pareto Securities AS said in a note. “We reiterate our buy recommendation on DNO.”

Shares in the company, which have gained 44 percent during the last 12 months, have been supported by reports that oil majors including Chevron Corp. and Total SA are looking to buy assets in Kurdistan. The region has potential reserves of 45 billion barrels of oil and 3 trillion to 6 trillion cubic meters of gas, according to the regional government.

Although the current problems with exports means “little immediate earnings impact is foreseen” as a result of the latest find at Tawke, it “raises the value of DNO as a potential M&A target,” Nordea Markets said in a report today.

To contact the reporter on this story: Alastair Reed in Oslo on at streloar1@bloomberg.net

To contact the editor responsible for this story: Christian Wienberg at cwienberg@bloomberg.net

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