Kurdish sales ease DNO's pain as it waits to export

Kurdish sales ease DNO’s pain as it waits to export

Q2 operating profit 99 mln crowns vs 82 mln forecast.

August 18, 2010 1:13 by Reuters

Norway-based oil company DNO International ASA is selling enough oil inside Iraqi Kurdistan to stay afloat even without the central government’s permission to export, the company said on Wednesday.

A power struggle between the central government in Baghdad and Kurdish authorities in Erbil has kept DNO from exporting oil as planned, but CEO Helge Eide said his company is making a profit in Kurdistan anyway — more so than analysts had forecast for the second quarter.

DNO reported an operating profit of 99 million Norwegian crowns ($16 million) for the April-June quarter, against 2 million in the same period a year ago. Analysts polled by Reuters had on average forecast 82 million.

Eide attributed the better-than-expected performance primarily to an increase in local sales from DNO’s Tawke field in the Kurdish region of Iraq.

DNO’s working-interest production at Tawke rose to 17,145 barrels per day in June from 4,404 in May.

In an interview, Eide said the local sales increase had continued into the third quarter, with Tawke producing about 20,500 barrels per day in July. That was thanks to capacity growth at DNO’s own refinery at Tawke and a rise in short-term contracts to other Kurdish refiners.

He said DNO’s resulting strong cash position relieved some of the cost pressure of waiting for the central and regional governments to allow a resumption in exports, halted last September, after a period of sending more than 40,000 barrels per day to market through Turkey.

AS NORMAL AS POSSIBLE

Eide said the company could not wait for a political resolution. “We have to do business as normally as possible,” he said, noting “low, stable lifting costs” had enabled DNO to operate Tawke profitably while the Iraqi debate rages over export payments and powers to award contracts.

Analysts said a resolution clarifying DNO’s role in Kurdistan might not come until a new government emerges following Iraq’s parliamentary election in March.

Trond Omdal, an analyst at Arctic Securities in Oslo, changed his projection for a resumption of DNO exports from the third quarter of 2010 to the fourth quarter.

But Omdal said the robust increase in local sales means DNO can comfortably wait out the political process.

“This changes the case quite dramatically if those sales can be sustained,” he said. “They would like to export sooner rather than later, but you could almost defend the current share price on the basis of continuing local sales alone.”

Eide cautioned that short-term sales contracts in Kurdistan could fluctuate. He said the August figures in particular could decline as a result of the Ramadan holiday.

Omdal said DNO’s reported cash holdings of 821.6 million Norwegian crowns ($133.5 million) also put it in good stead to handle a pending arbitration award involving third-party interests in its Kurdish operations.

(Editing by David Holmes)