Shares in Oslo-listed oil company DNO International (DNO.OS) surged more than 13% Friday as it announced it has finalized revised production agreements on its controversial Kurdish oil assets in northern Iraq, and has successfully tested for oil and gas at new well.
Analysts welcomed the news, saying it set in stone what the company said about the revised agreements with the Kurdish Regional Government in its fourth-quarter results presentation, and showed promise for increased production from Kurdistan.
DNO said the Hawler well, its first in the Erbil area, has tested at around 9,000 barrels of oil a day, and 11 million standard cubic feet of gas a day. Managing Director Helge Eide said that he hoped the well will form the basis for a second field development within the region.
It also said that it has amended its production sharing contracts in the region, splitting the Dohok area into two license areas, one for the producing Tawke oil field, and one for the remaining Dohok area. It now has a 55% stake in the Tawke PSC, a 40% interest in Dohok PSC, and a 40% interest in Erbil PSC.
It previously held a 40% stake in the Dohok-Tawke joint PSC, but this was raised to 55% in compensation for the company bearing 100% of the Tawke field development costs.
Following the split of the license area, DNO's interest in the Dohok portion reverted to a 40% interest.
Company spokesman Ketil Joergensen said the revised agreements are a "significant milestone, and a step in the right direction" toward ending the controversy over its export of oil from Iraq.
The KRG and Iraq's central government have long been at loggerheads over the validity of production sharing agreements signed between the KRG and foreign oil companies. Joergensen said it "is very difficult for us to say" when export might commence, and wouldn't comment on whether the amended agreements would be honored by the central government.
"That is a question you will have to address to the KRG. We are very cautious on commenting on the overall national and political challenges," in Iraq, he said. But he added that the latest development is positive for DNO and that the company is hopeful of a resolution over exports.
The KRG's Minister for Natural Resources, Ashti Hawrami, said he was pleased with the outcome of the license review. "With very promising well testing in recent months, DNO are ready to export oil from the region and we will ensure that they are able to do so," he said.
The spat between the KRG and the federal government in Baghdad means DNO is unable to ship crude through Iraq's northern export pipeline that runs from Kirkuk to Ceyhan on Turkey's coast.
Analyst Gunnar Holen of Corporate Advise and Research said that was positive news for DNO, export being the big obstacle to its plans in the region. Holen, who rates DNO buy with a target price of NOK16, said the Hawler 1 result "is really good news."