DNO Faces Kurdistan Delays on Iraq Violence as Exports EyedMikael Holter
DNO ASA may need to push back growth targets for Kurdistan production after Islamic State militants who overran large areas of Iraq pushed into the country’s north, prompting service companies to evacuate workers.
The Norwegian producer may fail to reach a goal of boosting capacity from its Tawke field to 200,000 barrels of oil a day by the end of the year, Executive Chairman Bijan Mossavar-Rahmani said in an interview today in Oslo. Surface equipment and a pipeline still need to be installed by service businesses.
DNO dropped by as much as 2 percent to 18.7 kroner in Oslo and traded down 0.7 percent as of 12:48 p.m. local time.
“The timing of it could slip,” the chairman said after second-quarter earnings. “If we have to start again on some of these with new contractors, there could be some slippage. A few weeks, a few months, I don’t know. It’s not a crisis for us.”
Clashes between Islamic State fighters and Kurdish forces supported by U.S. air strikes have threatened to destabilize the semiautonomous region that had enjoyed relative calm compared with the rest of Iraq. Oil companies including Chevron Corp. and Afren Plc have evacuated expatriate staff and halted drilling.
The company, which reached a 130,000 barrel-a-day capacity at Tawke, is for the first time allowed by Kurdish authorities to independently seek buyers of its oil in the world market, Mossavar-Rahmani said. Finding customers has started, though it’s too early to say when a sale could be made, he said.
“We’re very excited,” he said. “How it will work out in practice in terms of volumes and cargoes and pricing and who the buyers are, will evolve. But I hope that we’ll have much greater clarity on those issues in the next weeks or months.”
Producers in Kurdistan, caught in a clash over the proceeds from oil sales between regional and central Iraqi governments, began exporting through a new pipeline to Turkey this year.
DNO now expects the Kurdistan Regional Government to sell that oil as its share of production, while companies will offer their share independently, Mossavar-Rahmani said. The sales may go through the pipeline to Ceyhan or other Turkish ports.
It’s unclear whether there will be some reconciliation of accounts for the oil that has already been sold, he said.
Operations at Tawke haven’t been interrupted as the company boosted security, retained key staff and reinforced management. Net income fell to $44.4 million in the quarter from $48 million a year earlier, missing analyst estimates of $46 million.
DNO, the first western explorer to drill for oil in Iraq after the 2003 U.S.-led invasion, is “better positioned to adapt to recent developments on the ground,” the company said.
During the second quarter, before Islamic State fighters took over some Kurdish-controlled towns, DNO set daily records for production at Tawke of 133,192 barrels and for exports of 126,048 barrels, it said. Average output from Tawke in the quarter was almost 110,000 barrels a day, with 65 percent sold in the local market at a discount to international prices.
DNO is the operator of the field with 55 percent, Genel Energy Plc has 25 percent and the local government 20 percent.