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Mon 28 Sep 2009 10:05 PM

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DNO shares jump as Kurds seek to calm shares row

UPDATE 3: Row with Norwegian oil firm had threatened business-friendly image of Kurds.

Norwegian oil company DNO International's shares surged 10 percent on Monday on growing hopes of a solution to a share trading row with Kurdish authorities that risk DNO's core operations in northern Iraq.A representative from the Kurdistan Regional Government (KRG) said he was "extremely positive" after a meeting with the Oslo Stock Exchange on Monday to clarify Kurdish transactions in DNO shares that triggered an investigation by the Oslo bourse.

The row threatens to taint the KRG's business-friendly image at a time when they need to attract foreign capital to develop oil resources and battle Baghdad officials over oil policy.

"The meeting (with Oslo bourse officials) has cleared the air properly; I am very happy with the result," said Khaled Salih, a senior aide to the KRG's prime minister and energy minister.

"It confirms that we have been acting legally. We have done nothing wrong," Salih told Reuters in a telephone interview.

Salih said he was "not in a position to say" how the development would influence DNO's situation in Kurdistan.

A week ago, the largely autonomous KRG suspended DNO's Kurdistan operations for six weeks and said it might kick DNO out for good after details of the 2008 stock deal were released.

DNO lost half of its value the next day its shares traded.

"In our opinion, (there are) clear signals that the Kurdish government wants to push the process with DNO in a more positive direction," DnB NOR analysts said in a research note. "This improves the probability of the situation normalising."

The KRG and DNO both say the Oslo Stock Exchange published confidential information and DNO has said it may sue the bourse.

The Oslo bourse maintains it has done nothing wrong and after meeting Salih, Oslo Stock Exchange chief executive Bente Landsnes struck a conciliatory tone.

"We don't have any issues with the KRG and ... the KRG has not, at any time, been the subject of investigations by the exchange," she told Reuters. "The meeting was helpful, and I feel afterwards it was also very helpful for the KRG."

Shares in DNO ended up 10 percent at 4.73 crowns, with the Oslo bourse rising 1.1 percent on the day. DNO shares are still down 29 percent since the row erupted last Monday.

DNO Chief Executive Helge Eide declined to speculate about possible ejection from Kurdistan, saying: "I'm looking for a positive solution... and I think we should be able do that."

But he told a news conference the row with the Oslo bourse might accelerate DNO plans to move its listing elsewhere.

As part of the suspension, KRG handed responsibility for day-to-day running of DNO's prized Kurdish asset, the Tawke oilfield, to minority field partner Genel Energy, a private Turkish company. It also stopped oil exports from Tawke.

Eide said Tawke was currently producing some 6,000-8,000 barrels per day to sell on the local market. Before the suspension its output was 50,000 barrels, mostly for export.

The dispute centres on nearly 44 million DNO shares sold to the KRG in October 2008, which ended up in the hands of Genel Energy. Genel is in the process of merging with Heritage Oil, a London-listed oil company active in Kurdistan.

The KRG has said it bought the DNO shares on behalf of Genel, to help both firms at a time when financing was tough and they did not have export permits.

At a news conference in Oslo on Sunday, Salih presented bank documents and emails that he said proved the KRG did not use its potential knowledge of regulatory developments for DNO when trading its shares. Norway's financial watchdog has asked for an investigation of the deals by the Norwegian police.

"The positive was that the Kurds could document their side of the transactions and confirm that it was designed to help DNO and Genel. The meeting with the Oslo bourse helps as well," said Trond Omdal, an analyst at Arctic Securities. (Reuters)

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