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Kurdistan explorers slump as militants seize local oilfields

SALEHA MOHSIN

LONDON and OSLO (Bloomberg) -- Explorers of oil in Iraqi Kurdistan region slumped in Oslo and London trading after Islamic militants seized two oilfields in the region.

DNO International ASA, which gets most of its output from the Kurdish region, fell as much as 9.2%, the biggest drop in more than six months. Genel Energy Plc sank as much as 6.6% and Gulf Keystone Petroleum Ltd. 2.2%.

The Ain Zala and Batma oilfields, together producing about 30,000 bpd, are under the control of the Islamic State, a breakaway al-Qaeda group, according to the state-run Northern Oil Co. The Sunni Islamist militants last month occupied the Qayyara oilfield north of Baghdad.

DNO, producing about two-thirds of its oil in Kurdistan, fell 6.9% to 19.55 kroner by 11:39 a.m. in Oslo. Almost 8.3 million shares had traded, one and a half times the average daily volume in the past three months. Genel dropped 4.9% to 952 pence in London, and GKP slid to 78.5 pence.

Genel declined to comment when contacted by Bloomberg News.

Islamic State, previously known as Islamic State in Iraq and Levant, has seized territory in northern and western Iraq, taking over oil wells and fighting for control of refineries. Fighters continued their advance August 3, taking over the village of Wana, south of the Mosul dam, according to Hisham al-Brefkani, a member of the provincial council of Nineveh.

A retreat by Kurdish fighters from the village was tactical to protect the Mosul dam, Al-Brefkani, said by phone. He denied reports the reservoir had fallen into the hands of militants.

Sectarian Conflict

The flare ups raise the prospect of a resurgence of sectarian conflict in Iraq, the second-biggest producer of the Organization of Petroleum Exporting Countries, as Prime Minister Nouri al-Maliki’s Shiite-led government struggles to control Sunni-majority regions.

DNO, the first foreign company to drill for oil in Iraq after the U.S.-led invasion in 2003, has operations at the Dohuk and Erbil licenses in northern Iraq, as well as at Tawke, its biggest field. DNO wasn’t immediately able to comment, spokesman Henrik Schwabe said in an emailed response to questions.

“One should always be concerned when there’s a war going on but I don’t believe that the Tawke field and the Kurdish heartland is the main target for the Islamists,” Kjetil Bakken, an analyst at Carnegie AS, said by phone from Oslo. “The fact that ISIS is progressing towards Kurdish areas is creating fear amongst investors.”

The conflict in northern Iraq has increased the risk for the “DNO investment case in the short-term,” Swedbank First Securities analyst Teodor Sveen Nilsen said by email. “In an absolute worst case scenario, with no production from DNO’s Iraqi assets, we see 70% to 80% downside risk to our cash flow and earnings estimates.”

08/04/2014

 

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