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Is Norway's DNO In Deep Trouble Over Iraqi Oil Spat?

Tyler Durden's picture




 

One story that has not made much headlines in the MSM is the sudden escalation in hostilities between Iraqi's Kurdistan Regional Government (KRG) and Norwegian E&P company DNO International ASA. The firm, whose trading on the Oslo exchange was suspended yesterday, and which likely will not trade for several days, has seen a forced halt to its key Iraq oil exploration over a dispute involving a potentially illegal stock sale. As Iraq operations account for a bulk of the company's enterprise value, many shareholders will be quite concerned when shares resume trading sometime on Wednesday. 

Reports Bloomberg:

Trading was stopped yesterday at 3:56 p.m. and today the
exchange extended the suspension. DNO is in talks with the
bourse and seeking a meeting with the Kurdistan Regional
Government, Mark Edwards, a London-based company spokesman, said
by phone. “We don’t know how it will impact results as we don’t
know how long production is going to be shut down.”

The Kurdistan Ministry of Natural Resources in a letter
yesterday informed DNO its operations would be halted for a
maximum of six weeks and said the company needs to “remedy, and
to our full satisfaction, the damage done to the KRG reputation
and for once and all to sort its internal problems” with the
exchange. DNO would not be entitled “to any economic interest”
during the suspension, the authority said.

The exchange disclosed that the Kurdish authority acted as
a middleman in a transaction of 43 million shares of DNO in
October last year. DNO had sought to keep the authorities’ role
undisclosed after a probe discovered contacts between Natural
Resource Minister Ashti Hawrami and DNO Chief Executive Officer
Helge Eide.

The KRG on Sept. 19 said it brokered the transaction to
help the Norwegian explorer’s investments and that no officials
benefited from the transaction. The KRG bought the shares on
behalf of Genel Enerji AS under an agreement to provide a cash
advance loan to the Turkish company.

DNO in April disclosed that Genel Enerji AS was the buyer
of the 43 million shares, or 4.8 percent of the company. It was
fined in June for not revealing the identity of the buyer
sooner. After an appeal, the Stock Exchange Appeals Committee
last week ruled that DNO didn’t break rules on dealing with
insider information. It upheld a ruling that it breached
regulations in not being sufficiently forthcoming with
information to the exchange.

DNO is delivering 45,000 barrels a day from its Tawke field
through a pipeline to Ceyhan, Turkey. It owns 55 percent of the
field, which has reserves of 150 million to 370 million barrels.
Other companies in the region are Heritage Oil Plc, which is
combining with Turkey’s Genel Energy International Ltd. and
Addax, bought by China Petroleum & Chemical Corp., or Sinopec.
Gulf Keystone Petroleum Ltd. also explores in the area.

DNO's operations in Iraq, which is the third-largest holder of oil reserves (just ask Bush, he knows all about it), are critical to the viability of the company. The analyst community response to the KRG action has been one highlighting the dangers to the DNO business model unless prompt remedies are found:

“This is terrible,” said Trond Omdal, an analyst at
Arctic Securities who has a “buy” rating on DNO. “Eighty to
90 percent of the reserves, the value of DNO is in Kurdistan.”

DNO last traded at 6.66 kroner is Oslo yesterday. The shares
have gained 50 percent this year, giving the company a value of
6 billion kroner ($1 billion).

If DNO’s operations in Iraq are “nullified and they only
remain with Yemen, Equatorial Guinea, Mozambique, U.K. and Det
Norske Oljeselskap ASA, then you’re left with a value of around
3 kroner a share,” said Omdal. “Deduct 2 kroner in debt, and
you’re not left with much.”

Whether this is merely an overture by an "interested party" to see the existing DNO collapse as a result of its KRG complication, or simply a way for Iraq to stretch its political muscles and demand better concession terms is as of yet unknown. However, it merely underscores the dangers that E&P companies face when dealing with transition economies. A good example of bad things escalating is the case study of Transmeridian which bet a little to heavily on Kazakhstan (with the gleeful support of one Jefferies and Company), only to eventually go into bankruptcy. Zero Hedge will follow this development closely.

The letter filed by the KRG regarding DNO can be found here.

 

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Tue, 09/22/2009 - 11:25 | 76343 Anonymous
Anonymous's picture

This is complete BS by the KRG. They are holding DNO responsible because a Norwegian financial newspaper got hold of the information about the oil minister from Oslo Stock Exchange through freedom of information requests. DNO even tried to keep Hawrami out of the public. And now he is pissed of at them for something the Stock Exchange and media in Norway did. Unbelieveable.

Tue, 09/22/2009 - 11:51 | 76380 Anonymous
Anonymous's picture

Since when is Bloomberg not part of the MSM? Aren't they the definition of a mainstream media participant?

Tue, 09/22/2009 - 15:21 | 76590 I am a Man I am...
I am a Man I am Forty's picture

I've seen important stories covered on Bloomberg that aren't covered anywhere else.  I consider them MSM, but they will report on stories that others won't.

Tue, 09/22/2009 - 12:42 | 76394 chumbawamba
chumbawamba's picture

Any foreigners with investments in Kurdistan will see their money flee from their grasp like so many American 401K holders crica Fall 2008 once that area explodes again.  The Kurds will be wiped out, and even if their zionist backstop is still around, I doubt it will do them much good.

Kuridstan is a chimera.

I am Chumbawamba.

Tue, 09/22/2009 - 13:24 | 76450 trx
trx's picture

Other signs of Contraction:

* Schlumberger sues Norwegian brokarage firm (Sundal Collier), wants NOK 700bn.

* IBM demand NOK 30bn from  Norwegian phone company (Telenor), while the company is being riped of in Russia.

* State of Congo court rules that the Norwegian government has to pay them NOK 3000bn. (about the zize of the Norwegian SWF) as penalty to allegded spionage.

 

The horses have started biting......

 

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