February 15, 2012 / 1:01 PM / 7 years ago

UPDATE 1-DNO seen as bid target after Kurdish field upgrade

* Tawke field seen some 25 pct bigger than thought

* Yemen working-interest output of 4,000 b/d down due strike

* CEO says takes buyout target speculation as “a compliment” (Adds CEO, Tawke upgrade, Yemen production cut, background, share)

By Walter Gibbs

OSLO, Feb 15 (Reuters) - Norwegian oil company DNO upped the estimated size of its prize Tawke field in Iraqi Kurdistan by about a quarter on Wednesday, increasing its appeal as major oil companies look to build a presence in the Kurdish oil sector.

Seismic data suggested the Tawke field contains 150 to 160 million recoverable barrels of oil beyond DNO’s previous estimate of 636 million, chief executive Helge Eide said of the asset that represents most of his company’s market value.

A drilling team on Tawke’s north flank is trying to confirm the extra oil, he said, and is “just approaching the target zone”.

“If it turns out (as indicated), my shareholders and I will be very happy,” Eide told Reuters after presenting a fourth-quarter 2011 net profit of 203 million Norwegian crowns ($35 million), in line with preliminary figures given last week.

The upgrade came after several analysts jacked up share-price targets for DNO, calling the firm a buyout target in the wake of Exxon Mobil’s reported purchase of six Kurdish exploration blocks.

DNO shares jumped 3.5 percent after Wednesday’s results before reversing to trade down 2.5 percent at 10.14 crowns after the company said it had to halt its modest production in Yemen earlier this week due to a strike of state oil employees.

“In the worst case you have lost perhaps 4,000 barrels of production (on a working-interest basis) for a short period of time, so I think the drop is an overreaction,” said Swedbank First Securities analyst Teodor Sveen Nilsen.

Arctic Securities analyst Trond Omdal, who has a 16-crown price target for DNO, told Reuters he thought the company’s Iraqi Kurdish field would eventually top 1 billion barrels and added: “It could be up to 2 billion.”

DNO said the new barrels would come from a previously unexplored flank now seen containing 500 million barrels of “oil in place”, most of it unrecoverable.

Iraq’s central government called the Exxon deal illegal, insisting Kurdish authorities have no contracting authority and threatening to eject Exxon from its West Qurna-1 oilfield in the south of the country.

Omdal said it was likely the start of an oil rush to Iraq’s northern region.

“Exxon’s move into Kurdistan is likely to be followed by other majors - some of them through acquisitions - with DNO a prime target,” he wrote in a research note.

Total said last week it too was considering investments in Kurdistan because service contracts on offer in southern Iraq were less attractive.

“We have seen a lot of analysts suggesting that we are a target,” DNO’s Eide said. “I think that is a compliment.”

He declined to say how soon, or even if, he thought Iraq’s central and regional governments would thrash out an oil law validating DNO’s Kurdish export contracts, which Baghdad has refused to recognize.

For now the company sells much of its Kurdish oil to local buyers at a discount. Still, fourth-quarter revenues included a “cash advance” of 353 million crowns received as part of an erratic interim payment system for exports.

DNO repeated its goal of boosting production capacity at Tawke from the current 70,000 barrels per day to 100,000 by the end of 2012 and later to 200,000 barrels a day. ($1 = 5.7343 Norwegian crowns) (Editing by Mark Potter)

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