x Abu Dhabi, UAESaturday 20 January 2018

DNO's oil operations suspended

The government of Iraqi Kurdistan may move to permanently terminate the operations of the Norwegian oil producer in the region.

The government of Iraqi Kurdistan has suspended the operations of the Norwegian oil producer DNO International over embarrassing stock exchange disclosures. The move raises questions about the company's future and the investment climate for all foreign firms in region. The dispute centres on whether the Oslo Stock Exchange should have disclosed that the Kurdistan regional government (KRG) helped DNO with the sale of treasury shares last October to enable the company to raise money when banks were unwilling to lend. Also in contention is whether the KRG or the Kurdish natural resources minister benefited from the transaction. There were no allegations of illegality but DNO's share price rose sharply in response to news that Baghdad had agreed to allow oil exports from Kurdistan to start in June. Claiming "unjustifiable and incalculable harm" to its reputation, on Monday the Kurdish government gave DNO six weeks to clarify the situation and make amends. "We have decided to suspend all DNO's operations and its involvement in the Kurdistan region with immediate effect," Ashti Hawrami, the minister of natural resources, said in a letter to the company. "If DNO fails to remedy the damages caused and fails to remove any other claims, the KRG may consider termination of DNO's involvement in the Kurdistan region with or without compensation. Any compensation, if offered, will factor in the magnitude of the damages caused to the KRG," he added. During the suspension DNO, which two years ago became the first foreign oil company to pump Iraqi oil since 1972, will not be allowed to export crude from Kurdistan's Tawke oilfield. Another firm would manage the project, the regional government said. Mr Hawrami insists that he merely facilitated the transfer of a 4.8 per cent interest in DNO to Genel Enerji, a Turkish company which also pumps Kurdish oil. In his letter, the minister said he felt personally targeted, based on the Oslo bourse "selectively releasing such misleading information", which led to media speculation about corruption. For its part, DNO said it was considering legal action against the exchange for breaching confidentiality. At the company's request, trading in DNO's shares was suspended on Monday until today. The stock last changed hands at 6.7 kroner. "DNO will direct its full attention to the situation and the requirements of the KRG. DNO will explore all options available to protect the interests of DNO shareholders," the company said. Earlier this month, the Oslo Stock Exchange fined DNO 1.1 million kroner (Dh693,000) for failing to provide enough information on the share transfer. On Wednesday, the bourse said it stood by its decision to release information which it claimed came mostly from conversations and e-mail correspondence with DNO. But now analysts are wondering how the dispute will affect the already clouded outlook for more than a score of foreign oil firms that have signed production-sharing contracts with the Kurdistan regional government. "The situation has highlighted the risks of doing business in the region," said Al Stanton, an analyst at the Canadian international investment bank RBC Capital Markets. Jurisdiction over Kurdistan's natural resources has been a cornerstone of the region's political aspirations since the ousting of Saddam Hussein from power in 2003. But that, together with an difficult territorial dispute, has placed the regional government at loggerheads with Baghdad which has sought to establish tight central-government control of the oil and gas sector. The discord has stalled the passage of a federal oil law which in turn has left all oil contracts signed in the country on shaky legal ground. Companies operating in Kurdistan face the added obstacle of the central government's refusal to recognise their contracts with the Kurdistan regional government. DNO, which was pumping about 50,000 barrels per day of crude from Tawke, said last week it had not been paid for the nearly six million barrels of Kurdish oil it had produced for export to date. But the problems with Baghdad mean the regional government depends on patient support from foreign partners such as DNO if it hopes eventually to realise its resource aspirations. "My impression of the Kurdish government is that they really want to encourage investment in their region," said Marius Gaard, an analyst with the Norwegian investment bank Carnegie. "It's in their interest to resolve this case as soon as possible." tcarlisle@thenational.ae