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 Charges in Iraq's Kurdistan cause DNO to slide into the red

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Charges in Iraq's Kurdistan cause DNO to slide into the red  23.8.2012 
By Florian Neuhof - The National UAE

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August 23, 2012

OSLO,— DNO, a Norwegian oil and gas company with a focus on the Iraqi autonomous region of Kurdistan, does not expect to be paid for its exports out of Iraq this year, adding further pressure to its already strained finances.

The company on Wednesday revealed second-quarter earnings plunged into the red as it renegotiated its most important production contract with the Kurdistan Regional Government (KRG).

DNO recorded a loss of 176.2 million krone(Dh109.5m) on sales of 155.4m krone. This contrasts with a profit of 162.9m krone in the second quarter last year.

The company was hit by retrospective charges arising from the renegotiation of the production-sharing agreement for its share in the Tawke field in Kurdistan, its prime asset. Production also declined, after a long-running dispute over oil payments between the KRG and Iraq's central government resulted in a renewed halt to exports out of Kurdistan. DNO pumped about 17,000 barrels per day (bpd) in the second quarter at Tawke, down from about 43,000 bpd a year earlier.

Exports have since resumed but DNO is not expecting a repeat of last year's windfall when the finance ministry in Baghdad opened its purse strings to dish out payments for exported Kurdish oil. The Norwegian company received 500m krone for such exports last year, said Helge Eide, the managing director. "We don't expect that this year," he said.

DNO merged with the UAE's RAK Petroleum last year after insufficient payments out of Iraq had exhausted its finances.

While revenues have improved, most of the money it receives is from crude sold into Kurdistan itself.

Nevertheless, there is optimism at DNO. "If you look at the first quarter in isolation, it doesn't look good at first glance. But if you look behind the figures, it is not all that bad," said Mr Eide.

Despite losses in the second quarter, the company posted a profit of 131m krone for the first half of the year. The company is on track to increase production at Tawke to 100,000 bpd by the end of the year, said Mr Eide, and production costs have fallen.

The reimbursements to the KRG are coming to an end, meaning future earnings will be unencumbered by one-off charges.

DNO's share-buyback programme is continuing apace, with the company currently holding 9 million newly acquired shares.

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