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UPDATE 1-DNO shares seen hit by Kurdish suspension-analysts

Published 09/22/2009, 07:54 AM
Updated 09/22/2009, 07:57 AM
DNO
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* DNO shares suspended by bourse, to resume Thursday

* Kurdish officials suspend DNO activities for 6 weeks

* Shares in other Kurdish oil operators hit

(Adds background, DNO spokesman)

By Wojciech Moskwa

OSLO, Sept 22 (Reuters) - Shares in Norwegian oil producer DNO are likely to fall sharply when a trading suspension is lifted, analysts said on Tuesday, after Kurdish officials suspended DNO's Iraqi operations for six weeks.

The spat over the sale of 44 million DNO shares to the Kurdish Regional Government (KRG), which later ended up in the hands of a privately-held Turkish company, risks costing DNO its licences in the semi-autonomous region and knocking investors' already shaky confidence in Kurdish oil contracts.

The Oslo Stock Exchange (OSE) halted trading in DNO shares on Monday and trade will restart on Thursday morning at the request of DNO, which the stock exchange says asked for time "to clarify the situation in Iraq".

The KRG said on Monday that it had suspended DNO's licences after an OSE statement and subsequent newspaper reports surrounding the share sale had done it "unjustifiable and incalculable harm".

Kurdish Energy Minister Ashti Hawrami said in a letter published on DNO's website that if DNO failed to remedy the damages it "may consider termination of DNO's involvement in the Kurdistan region with or without compensation".

The situation has highlighted the risks of doing business in the region, Al Stanton, oil analyst at RBC Capital Markets, said.

"It is unclear how the situation can be rectified," he added.

Shares in Kurdistan-focused peer Heritage Oil dropped over 4 percent before recovering to trade down 1.4 percent at 1,052 pence, against a 1.7 percent rise in the DJ Stoxx European oil and gas sector index.

Gulf Keystone Petroleum, which also operates in Kurdistan, were down 7.3 percent.

SHARE SALE

The dispute follows an OSE probe which accused DNO of not providing adequate information to the exchange and the market about the share sale last October.

DNO said on Oct. 10 that it had sold the shares, which represented 4.8 percent of the company, to raise funds, at a time when banks were reluctant to lend.

The shares were sold for 4.00 Norwegian Crowns each, raising about $30 million. The shares closed that day at 2.96 Norwegian crowns.

DNO did not say who the purchaser was at the time because it was unaware of their identity, a company spokesman said on Tuesday.

In April, after DNO's share price had doubled, as Baghdad and the KRG made progress toward allowing the export of crude from the region into Iraq, DNO told the market it had been informed that Turkey's Genel Energy was the owner of the shares.

An OSE investigation concluded that the KRG was the buyer of the shares in October and imposed a fine on DNO for not providing enough information on the sale.

DNO appealed the decision and the Appeal Committee agreed it had not breached its obligations in relation to market disclosure.

However, the Committee upheld the breach of obligation to release information to the exchange, DNO said.

The release of documentation surrounding the probes, which state that Hawrami placed the order for the shares, was embarrassing for the KRG.

In his letter to DNO, Hawrami said the OSE's publications were "misleading and incomplete," although he did not deny involvement in the transaction.

"The internal dispute between DNO and OSE should not have targeted the KRG Minister by selectively releasing such misleading information," the letter said.

Hawrami was unavailable for comment on Tuesday.

DNO has criticised the release of the documentation and has threatened to sue the OSE for damages.

Kurdistan-focussed Genel is a unit of Cukurova, one of Turkey's largest conglomerates and controlled by Mehmet Emin Karamehmet, one of Turkey's richest men.

In June, Genel agreed to merge with London-listed Heritage.

However, in August Heritage said it had been made aware of an investigation by the UK's stockmarket regulator that could affect the ability of certain Genel managers to assume their proposed roles in the combined entity.

The merger remains on track a Heritage spokesman said on Tuesday, and is unaffected by the DNO-KRG dispute.

DNO was the first western company to drill for oil in Iraq following the U.S.-led invasion.

Its discovery of large reserves propelled its market capitalisation to above $1 billion, in spite of an ongoing dispute between Baghdad and the KRG over oil revenue sharing which means DNO is not yet being paid for the oil it pumps. (Writing by Tom Bergin in London, additional reporting by Tom Bergin; editing by Simon Jessop)

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