DNO shares drop on IS advance

Key producer: pipework at Tawke oilfield in Kurdistan

Oslo-listed DNO saw its share price plummet by nearly 9% earlier on Monday amid investor fears the further advance of Islamic militants in northern Iraq could threaten the company’s operations in Kurdistan.

Islamic State (IS) fighters were reported to have captured the northern towns of Sinjar and Tumar, as well as two nearby oilfields, after overpowering Kurdish forces at the weekend.

The latest attacks have resulted in the jihadist group tightening its grip on the northern region where it already controls a large swathe of territory, having captured the main city of Mosul and areas near the key oilfield town of Kirkuk that is still under the protection of Kurdistan’s Peshmerga army.

IS, which already controls a number of oil installations in the region that are believed to be being used to fund its offensive, was also reported by Iraqi state television to have taken Mosul Dam that provides the city with most of its electricity as well as the Ain Zalah oilfield.

DNO, with its key Tawke oilfield in Iraqi Kurdistan located about 150 kilometres north-west of Mosul, has seen about 20% wiped off the value of its shares on the Oslo bourse over the past month since IS launched its offensive in June, with its stock currently trading at around Nkr19 per share.

Analyst Teodor Sveen Nilsen of Swedbank First Securities warned in a note of a “worst-case scenario” where DNO may be forced to shut in its entire Iraqi production, citing a 70% to 80% downside risk for the company’s cash flow and its earnings estimates for 2015 to 2016, though added this was “very unlikely”.

“We see increased risk for the DNO investment case in the short-term,” Nilsen stated, adding the turmoil in northern Iraq is likely to put continued pressure on DNO’s shares.

DNO's chief executive Bjorn Dale said in a statement: "We continue to conduct operations at all DNO sites throughout Kurdistan within our established security protocols.

"Needless to say, we are in regular contact with the authorities and closely monitor developments. As in every country in which we operate, the safety and security of DNO's local and expatriate employees is our first priority."

DNO has been exporting crude from Tawke via an independent pipeline from Kurdistan to the Turkish port of Ceyhan, where several tanker shipments have been carried out for export to international markets in defiance of Baghdad’s objections that such exports are illegal.

Analyst Oyvind Hagen of ABG Sundal Collier told Norwegian news service TDN Finans events at the weekend marked the first time that Kurdish forces had been defeated by IS.

“People are now starting to fear what will happen if IS begins to advance eastwards into Kurdistan. Will the Peshmerga be strong enough to defend key cities such as Dohuk and Erbil?” he was quoted as saying.

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