| 2007: DNO ramps up Iraqi oil in Q3, exports unclear |
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November 15, 2007 Norwegian oil producer DNO ramped up oil production in Iraq in the third quarter, helping boost operating results, but its prospects for quickly tapping an export pipeline to Turkey appeared to have faded. Earnings before interest and tax at DNO, the first foreign firm to drill for oil in post-war Iraq, rose 42 percent to 125 million crowns ($23.14 million) in July-September, against an average forecast of 127 million in a Reuters poll of nine analysts. Its net profits sank 22 percent to 36 million crowns due to high exploration costs, missing an average forecast of 51 million. Shares in DNO, a group worth $1.5 billion, were off 2.3 percent at 9.87 crowns at 1243 GMT, on a rising Oslo bourse. Production from DNO's Tawke field in northern Iraq amounted to 6,863 barrels of oil equivalent (boed) in the third quarter, although already completed wells give the field a total initial production capacity of 67,000 barrels of oil per day, it said. "Continuous production from the Tawke field... contributed to a strong cash flow but more importantly it manifested DNO's position as a fast track and cost effective operator," Chief Executive Helge Eide told a presentation. But Eide told Reuters that it was impossible to say when DNO would gain access to the export pipeline, which would allow it to reap full benefits of record prices on international oil markets. DNO sells Iraqi oil locally now at undisclosed prices. Eide said pressure on Iraqi authorities to facilitate an export solution would build as more and more international oil companies sign production agreements in Iraq's Kurdish north. "The regional export solution will be developed in close cooperation with the authorities and other operators," DNO said. DNO had previously hoped to tap Iraq's Northern pipeline in November or January, depending on whether third-party gas would be flowing through it. "Exports are crucial for profitability," said Carl Christian Bachke, analyst at brokerage Fondsfinans in Oslo. "The local market is limited and they are not able to sell all their oil." REGIONAL TENSIONS DNO said it continued to deliver oil from Tawke to local markets by truck, with volumes dictated by local demand. It played down the impact of high tensions between Iraq's Kurdish north and neighbouring Turkey. "Neither the past nor the recent geopolitical events in the region has to date affected any of the company's operations," DNO ASA said in a statement. The semi-autonomous Kurdish region, wedged between Syria to the west, Turkey to the north and Iran to the east, is among the most stable in Iraq because it has been spared much of the sectarian violence ripping the country apart. DNO has repeatedly voiced confidence about the validity of its oil production agreement with Kurdish authorities despite a mandatory review, whose results have not yet been published. Under its agreement with Kurdish authorities, DNO is entitled to all produced volumes from Tawke until its project costs, seen around 1.2 billion crowns, have been recovered. Afterwards, revenues will be shared according to the production-sharing agreement in which DNO holds a 55 percent interest, it said. DNO declined to specify its production costs in Iraq but said that the group's overall lifting costs, including operations in Yemen and offshore Norway, fell to $7.4 per barrel in the third quarter from $10.4 in the second quarter due to lower production costs at Tawke. DNO maintained its view that average 2007 production would be at 15,000-17,000 barrels of oil equivalent per day. |