DNO shares dive on potential loss of Iraqi
September 24, 2009
Norwegian oil producer DNO International (DNO.OL)
plunged as much as 55 percent on Thursday, on fears
the Kurdish Regional Government (KRG) may make a
temporary suspension of its licences in the
semi-autonomous Iraqi Kurdistan region permanent.
DNO said it was in talks with the KRG to resolve the
spat but analysts were unclear what the company
could do to rectify the situation.
By 0953 GMT, shares in DNO were down 46.1 percent at
3.59 crowns -- knocking almost $500 million off its
market value. The shares had been suspended since
Monday due to the KRG dispute.
Analysts at Credit Suisse said earlier this week,
before the share collapse, that Kurdistan accounted
for almost 75 percent of DNO's value.
The spat centres on the
sale of 44 million DNO shares to the KRG, which
later ended up in the hands of a privately-held
Turkish company, Genel Energy.
The KRG suspended DNO's licences after details of an
Oslo Stock Exchange probe, which revealed the KRG's
role, were made public. The KRG said the revelations
had caused it "unjustifiable and incalculable harm".
financial watchdog Kredittilsynet said it had asked
the police to probe the share sale.
The row has undermined faith in licences signed
between the KRG and western oil companies and led to
fears for the future of a planned merger between
Genel and Heritage Oil (HOIL.L), another significant
player in Kurdistan. [ID:nLM261452]
It has also dented hopes that the region, which the
KRG said has reserves of at least 40 billion
barrels, will become a major oil producer and help
Iraq meet its plans to boost oil output sharply in
APOLOGIES AND COMPENSATION
Analysts have said that it was not clear what DNO
could do to rectify the situation with the KRG.
RBC Capital Markets analyst Al Stanton wrote in a
note dated Sept 22: "Other than an apology from Oslo
-- from the OSE (Oslo Stock Exchange) and DNO -- it
is unclear how the situation can be rectified."
"Any financial compensation, say an adjustment to
DNO's Production Sharing Contract, would compound
the issue, in our view, as it would further
highlight the risk of "fiscal creep".
However, others said the KRG had an incentive to
find a solution.
"Even with this conflict, the Kurds don't want to
frighten away others from the region -- so both
parties have an interest in resolving this," said
Marius Gaard from brokers Carnegie.
"But there is uncertainty about what kind of
solution they can achieve to undo the claimed
damages by the Kurdish side."
Gaard said the present valuation prices in DNO
gaining some compensation in the event its contract
DNO exports around 50,000 barrels per day from its
Tawke oilfield in Kurdistan,www.ekurd.netbut
has still not received any revenues due to ongoing
disputes between the KRG and central Baghdad
authorities over the sharing oil receipts.
The spat has also knocked shares in other foreign
oil companies operating in Kurdish-controlled Iraq,
such as Heritage Oil and Gulf Keystone (GKP.L).
DNO said it was preparing for legal action against
the Oslo Stock Exchange, which it believes breached
confidentiality rules by disclosing the buyer of the
treasury shares. The Oslo bourse has repeatedly
denied any wrongdoing.
The Norwegian company added that it will now
"investigate strategic options" including moving its
listing to another exchange, or alternatively moving
to another exchange only the subsidiary holding the
licenses within the Kurdistan region.
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