Oil Producers DNO, Genel Surge on Kurdish Exports-Pay Pledge

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DNO ASA and Genel Energy Plc shares surged after the government of Iraq’s northern Kurdish region said it would start paying them for oil exports next month.

Oslo-based oil producer DNO rose as much as 26 percent, the most since November 2011, while Genel gained as much as 12 percent in London, reversing earlier losses. Gulf Keystone Petroleum Ltd., which also produces oil in the region, added as much as 26 percent.

The Kurdistan Regional Government will start allocating a part of revenue from oil exports to producers on a monthly basis from September to cover their running expenses, and may make additional revenue available to the companies to start paying dues for past exports as shipments rise next year, it said in a statement on its website.

“This is a potential game changer,” Teodor Sveen Nilsen, an analyst at Swedbank AB, said by phone. Investors can now start pricing the possibility of stable export payments back into DNO’s shares, he said.

The monthly payments would be the first stable compensation for the companies’ exports, which have been caught for years in a dispute over revenue sharing between the KRG and Iraq’s federal government. Even after Iraq’s central government struck a deal with the Kurdish region in December to allow increased shipments, payment continued to elude producers after the collapse in oil prices squeezed both governments’ budgets.

The KRG’s pledge “represents a further important step towards the establishment of a regular payment cycle,” Jon Ferrier, Gulf Keystone’s chief executive officer, said in a statement. DNO said it couldn’t comment immediately on the KRG’s statement, while Genel declined to comment.

Missing Payments

The KRG last month started selling crude produced within the region and exported through Turkey independently of Iraq’s federal authorities, saying it wasn’t receiving its full budgetary dues from Baghdad. The direct oil sales freed up cash for producers who have received “hardly any” payment for their oil since May 2014, the regional government said, without specifying how much the companies will receive.

DNO, Genel and Gulf Keystone got their last payment for exports in December, the only one since exports resumed a year earlier. Kurdistan producers have been delivering increasing volumes for exports as they’ve boosted production, and sold the balance in the local Kurdish market at a significant discount to international prices.

Air Strikes

“The KRG acknowledges and appreciates the economic contribution to the Kurdistan region made by the producing international oil companies and their success in raising oil export from Kurdistan to record levels,” according to regional government’s statement.

DNO and Genel shares sank to the lowest levels in years over the past week after Turkey conducted air strikes against PKK rebels in northern Iraq, increasing the uncertainty facing companies in the region. Exports from the Kurdish region have been halted because of repeated attempts at theft and sabotage on pipelines carrying crude to the Turkish port of Ceyhan, Kurdistan’s Ministry of Natural Resources said Sunday.

DNO closed 13 percent higher in the Norwegian capital at 8.60 kroner. Genel gained 12 percent to 414.75 pence and Gulf Keystone traded 17 percent higher at 34 pence as of 4:02 p.m. in London.

(An earlier version of this story corrected the date of the previous-largest DNO price move in the second paragraph.)

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