OSLO: Norwegian group DNO is cash-strong and ready to pursue acquisitions while boosting oil exploration and output across the Middle East and North Africa, as it integrates the Persian Gulf assets of Dubai-based RAK Petroleum.
"We will take an active part in acquisitions and other transactions that will grow the company further," chief executive Helge Eide told Reuters after posting better-than-expected third-quarter results on Wednesday.
He said a $60 million payment for Iraqi exports brought DNO’s cash pile to 1.97 billion Norwegian crowns ($352 million) at quarter’s end, giving DNO a menu of growth options a week after shareholders approved its all-shares purchase of RAK for $250 million.
"We have a lot of things on our plate to go ahead and start investing in," Eide said, citing plans to revive sagging production in Yemen and upgrade capacity at its prize Tawke field in Iraqi Kurdistan if and when authorities there resolve a political dispute hampering revenue flows.
DNO said it swung to a third-quarter operating profit of 17.4 million crowns, from a 124 million crown loss a year ago. That compared with a forecast for a 1 million crown loss in a Reuters poll and DNO’s second-quarter operating profit of 355 million crowns, which included a special $104 million payment under erratic Iraqi export terms.
DNO said the exact nature of the $60 million it banked from Iraqi exports was unclear, preventing it from booking the amount as revenue yet.
Classified as a "cash advance", the money nonetheless helped swell DNO’s net profit line to 299 million crowns from 216 million last quarter and a net loss of 145 million crowns in the same period last year.
Also flattering the bottom line was a 255-million-crown gain from the sale of shares in Det Norske Oljeselskap.
After rising more than 2 percent in early trading DNO’s shares backtracked to 6.88 crowns at 1114 GMT, down 1.64 percent on the day on an Oslo bourse off 1.85 percent.
Anders Holte, an analyst at ABG Sundal Collier, said he saw nothing in the report to move the stock since investors care more about DNO’s outlook in Iraq — which was largely unchanged — than quarterly performance.
Wednesday’s share decline came largely from investors realizing that a tender offer for DNO shares announced on Monday had little credibility, he said.
"I think the share price is just reverting back to where it was before the offer as people came to realize it’s not likely to obtain any meaningful momentum," Holte said.
A small drilling firm run by a former DNO chairman had said it would buy up to a third of DNO shares at 10 crowns per share payable in the drilling firm’s relatively illiquid shares. That briefly sent DNO shares as high as 7.39 crowns on Monday.
Eide said RAK, which operates modest fields off the United Arab Emirates and Oman, should bring a measure of stability to DNO’s rollercoaster earnings after the deal closes in early January.
"Through the merger we will get a regular production, cash flow and revenue stream from (RAK’s) Bukha and West Bhuka fields," he said, pointing to RAK’s $30 million operating profit on $48.5 million in revenue through the first half of 2011.
The legal framework of DNO’s Iraqi operations remains uncertain as the central government challenges the validity of the Kurdish regional government’s contracts with DNO and dozens of other companies.
Baghdad has said it wants to replace those production-sharing contracts with leaner "service contracts" in a dispute that has hampered revenue flows.
DNO said output at its key Kurdish Tawke field slowed in the third quarter due partly to pipeline problems, and said production would likely "continue at current levels" ahead.
The field produced 52,000 barrels per day(bpd) on average in the third quarter. DNO said it would seek to upgrade capacity at Tawke to 100,000 bpd from the current 70,000 bpd if its contract terms were clarified.
Eide said a field development that was key to reversing DNO’s production slide in Yemen had been delayed by a year to mid-2013 "essentially because of the political unrest" in the Middle Eastern country.
He also said a long-planned share listing for the company in London could be realized in mid-2012.
