November 11, 2010 / 7:50 AM / 9 years ago

UPDATE 2-DNO says new Iraq govt to boost its oil export push

* DNO’s Iraqi oil output dwindles in Nov, export timing hazy

* Q3 operating loss 124 mln crowns vs 173 mln forecast

* Makes $55 mln Q3 provision for ex-U.S. diplomat lawsuit

* DNO shares flat on slightly higher Oslo bourse

(Adds details, quotes)

By Mikael Holter

OSLO, Nov 11 (Reuters) - Norway’s DNO International (DNO.OL) said on Thursday a new government in Baghdad would be a big step forward in the oil firm’s attempts to export oil from Iraq and increase sagging output from its Kurdish field.

DNO was the first western firm to drill for oil in Iraq after the U.S.-led invasion in 2003 but has struggled to export from the oil-rich state as its partner, the Kurdish regional government, bickers with Baghdad over sharing oil revenues.

Iraqi politicians on Thursday appeared to have broken an eight-month impasse on a new government. [ID:nLDE6A92F1]

“A new government would be an important milestone for the process of getting back to exports,” DNO boss Helge Eide told a news conference on its third quarter results.

“But it’s difficult to give a timing on that. We have avoided to give timing, and it will stay like that,” he added, regarding DNO’s long-awaited Iraq oil export license.

DNO reported a smaller-than-expected third quarter operating loss on the back of a sharp rise in revenues. But its third quarter was hit by 322 million Norwegian crown ($55 million) provision related to an arbitration process with former partners including ex-U.S. diplomat Peter Galbraith. [ID:nLDE6950CA]

Some analysts say that without an export license or clarity about when it could gain one, DNO is a takeover target.

Emirates-based RAK Petroleum, which already has a 30 percent stake in DNO, has been seen as a possible suitor but Eide revealed little when asked about the subject. [ID:nLDE66C1C7],

“Our job is to develop the company, not to sell it,” Eide told Reuters on Thursday. “But if a situation arises where someone is bidding we would have to handle that the usual way. There has been speculation, but we will not comment.”

FLOODED LOCAL MARKET

Resuming exports is crucial for DNO, as production from its key Tawke oilfield in Kurdish north Iraq is now dependent on demand from the local market, which has seen a flood of new supplies and where prices are a third of global crude levels.

DNO said Tawke was producing at a gross rate of 4,000 barrels per day so far in November, down from 16,000-18,0000 bpd in October, and that it expected local prices to remain around $25-30 per barrel.

DNO produced oil for export from Tawke from June 1 to Sept. 22, 2009, reaching peak production of 50,000 barrels per day and said it could quickly return to that level when given a license.

“DNO is currently working together with the Kurdistan Regional government to secure arrangements to again increase deliveries to the local market,” DNO said in a statement.

“One factor that may help here is if there is less supply from the south, which would open up the market for us,” said Eide.

DNO’s July-September operating losses widened to 124 million Norwegian crowns ($21 million) from 29 million a year ago, and compared with a forecast for 173 million in a Reuters poll.

Its revenues surged 72 percent to 407 million crowns, meeting forecasts, but its bottom line was heavily affected by the provision related to the arbitration process that DNO said it “continues to dispute”.

DNO said it had cut investment plans to 150-200 million crowns for the second half, from an earlier 250-300 million.

Shares in DNO were off 0.2 percent at 9.09 crowns at 1016 GMT, lagging a 0.4 percent rise on Oslo’s .OSEBX index.

Editing by Dan Lalor and Jane Merriman

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