Monday, January 24, 2011

DNO International and Oil in Kurdistan



Oil explorer DNO International will have been glad to hear that Oil exports are expected to resume soon. The company was featured in an earlier article on stocks focused on oil in Kurdistan linked here

According to the Kurdistan Regional Government (KRG), oil exports are due to resume by February. From the press release from the KRG website

'At a joint press conference following the meeting, Prime Minister Maliki described their discussion as positive and said, “One of the meeting’s key achievements was agreeing on the resumption of oil exports from the Kurdistan Region.”

As well as deciding to resume Kurdistan’s oil exports, Prime Minister Salih and Prime Minister Maliki agreed that the Kurdistan Region will keep a share of its crude oil to supply its local refineries and power plants.'

This bodes well for the listed plays. As discussed previously, my favoured play is DNO International. DNO gave a guarded welcome to the news. According to a Reuters article
'There is definitely information that is still lacking here," said DNO spokesman Tom Bratlie. "It's not like we can just push a button. At the moment there are several issues that have to be agreed upon before we can start exports.'

which could be construed as negative news. However, I don't think it is unduly worrying.


Kurdistan Oil and Iraq

The process of horse-trading over the Iraqi 2011 budget is on-going and oil revenues are the critical issue. In the previous article, I highlighted some of the differences between the Iraqi Technical Service Contracts (TSC) and KRG Production Sharing Contracts (PSC). They appear to be similar and, I suspect that the will to adjust the PSCs from Baghdad, will not prove to be the issue at hand. I suspect the key issues between the KRG and Baghdad will relate to the relative percentages that each pay for the costs of development in Kurdistan. Naturally, the KRG will want them to be paid nationally, as their share of oil production is currently than their share of the Iraqi population.

If I am right, than the issue could be more about from who DNO get paid rather than how much etc. Moreover, Kurdistan is a land locked country, whose neighbours are hardly friendly and, view any aspirations to a Kurdistan state as being a  potential threat. I don't think Kurdistan is in any position to discourage foreign oil explorers, especially if they are allied to the countries they need to transport their oil.


DNO International and RAK Petroleum

One of the key attractions of DNO is that RAK Petroleum holds a strategic stake. They are seen as potential bidders and when/if  the issue of the Kurdistan agreements is finalised, I would expect speculation to increase. RAK Petroleum holds near 30% of DNO and has managed to get the Co's Group Commercial Director, Shelley Watson, onto the board of DNO International. 

Watson was nominated to the DNO board at the AGM in June alongside another RAK Petroleum Director, Zalmay Khalilzad. Given that the latter (he did not take up the position due to heavy workload) is a former US ambassador to the UN and Iraq, I think it fair to conclude that RAK Petroleum has a good angle on what is going on in Iraq and Kurdistan.

I top sliced a few DNO recently on the move up.


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Source:

Earnings View 'Oil Stocks Exposed to Kurdistan'

Reuters article 'DNO says no exports until Iraqi deal clarified'