DNO goes into reverse on concerns over oil output

An oil field in Tawke of the Kurdish region in northern Iraq. Hadi Mizban / AP Photo

Shares of DNO, the Kurdish Iraq oil producer, erased some of Monday's record gains as analysts voiced concerns about output from new wells.

The company, part-owned by the UAE’s RAK Petroleum, fell 1.91 per cent yesterday to 22.06 Norwegian krone a share on the Oslo exchange. At one point on Monday after DNO announced it was pumping extra volumes from two new horizontal wells at its flagship field Tawke, shares had climbed 5.7 per cent to 23.17 krone a share, the biggest gain in nearly a month.

The two wells are contributing an extra 37,000 barrels per day (bpd) to the field’s output, less than the company’s first two horizontal wells, which together pumped 57,000 bpd when they were announced in September and October. DNO also said that production hit a record 129,000 barrels a day on March 5.

“The actual well rates were marginally below what Norwegian analysts expected, but in the range DNO said you could expect,” said Trond Omdal, a partner at Arctic Securities in Oslo. “The news didn’t quite merit the big rally and of course it fell back later.”

Monday was also the first day of trading following a weekend meeting between Nechirvan Barzani, the Kurdish region’s premier, and Ahmet Davutoglu, the Turkish foreign minister.

Exports by producers in the Kurdish region, which also include Genel Energy and Abu Dhabi's Taqa, have been long stymied by a dispute between the Kurdish Regional Government and the federal government in Baghdad over oil contracts and revenue-sharing. Exports via an independent pipeline from the Kurdish region to Turkey completed last year have been on hold while the three governments seek an agreement.

The weekend meeting between Kurdish region and Turkish authorities may have ignited optimism about exports, said Shwan Zulal of Carduchi, a Kurdish-focused consultancy.

“On the politics of export front, the Kurdish PM’s visit to discuss exports – possibly independently from Iraq – among other issues is encouraging news for investors,” he said. “However, no deal yet.”

Last month, DNO announced plans to build a second pipeline from Tawke to the export hub of Fishkabour, a tie-in that lies at the nexus of Turkey, Syria and Iraq. It is also targeting doubling production capacity to 200,000 barrels by the end of the year.

One of the biggest gainers among listed exploration and production companies last year with an increase of 160 per cent, DNO attracts large volumes of day traders because of its terrain, said Carl Christian Bachke, an analyst at Nordea Markets in Oslo.

“It’s rather normal with these kind of reactions, with 2 to 5 per cent either way,” he said. “This is an area where a lot of rumours arise and there are political talks every other day, and obviously the main important thing in the share price is whether Erbil and Baghdad will agree on an export solution.

“But that has, let’s face it, gone on for some years and now there are talks and obviously that makes such share sensitive to any kind of rumours being posted.”

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