DNO Seen Owed $700 Million for Oil as Kurds Battle Islamists

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DNO ASA, the biggest oil producer in Iraqi Kurdistan, is owed almost $700 million in export payments amid political rows over crude revenues and battles with Islamic State, according to the median of six analyst estimates.

Their figures, from a survey this week and covering exports since 2009, range from $400 million to $1.1 billion, with the average and median estimates within $685 million to $690 million. DNO’s own estimate is $500 million to $1 billion.

The Oslo-based company and producers including Genel Energy Plc have been caught for years in a dispute between the semi-autonomous Kurdistan Regional Government and central Iraqi authorities over the spoils from the nation’s crude. Operators rely on local sales at low prices and intermittent exports.

While the two sides reached a deal on exports in December, the KRG complains that it’s not receiving its full budget dues. Payments to producers are also held back to fund the battle with Islamic State militants after a collapse in crude prices last year put additional pressure on government spending capacity.

“A credible payment mechanism is the most important trigger for the DNO investment case,” said Teodor Sveen Nilsen, an analyst at Swedbank AB. “But even when the KRG is in a position to pay, they probably can’t hope to get the whole amount. An amicable solution between 50 percent and 80 percent of the total is something DNO should be satisfied with.”

Gains Erased

DNO erased gains of as much as 3.9 percent in Oslo trading and was little changed at 10.66 kroner by 3:16 p.m. local time.

The company got three export payments from the central government through 2012 totaling $280 million. It also received $20 million from the Kurds in December for exports controlled by regional authorities through 2014, before the agreement with Baghdad.

The company has in past years raised output at its Tawke field near Kurdistan’s borders with Turkey and Syria, reaching a daily record of 175,500 barrels on May 28, Executive Chairman Bijan Mossavar-Rahmani said in an interview last week.

The figure represents 5 percent of Iraq’s total output and makes DNO the biggest producer in Kurdistan, he said. While the company and partner Genel will increase output toward 200,000 barrels a day, the field’s facilities can’t produce more without significant investment, Mossavar-Rahmani said. That will require higher revenues than the company is earning now, even as it seeks to increase gross local sales beyond current levels of 30,000 barrels a day, he said.

“We expect to get those revenues irrespective, because we have a contractual right to those revenues,” he said. “When the situation on the ground allows us to be paid, we expect to be fully paid.”

Managing Director Bjoern Dale on Friday declined to comment on the analysts’ estimates, citing the company’s own range.

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