DNO looks to expand in Kurdish region with Gulf Keystone offer

OSLO (Reuters) – Norwegian energy firm DNO ASA, hoping to expand its presence in Iraqi Kurdistan, offered to buy rival Gulf Keystone Petroleum Ltd for $300 million, following the latter’s junk bond deal this month.

A deal would make DNO by far the largest foreign oil producer in the Kurdish-run region.

DNO said it would offer $120 million in cash and 170 million of its shares. It said its per-share offer represented a 20-percent premium to the price of 1.09 cents at which Gulf Keystone issued shares earlier this month as part of a $500 million equity-for-debt swap deal with bondholders.

The offer also represents a 20 percent premium to the price at which Gulf Keystone plans to issue further shares as part of its restructuring.

Gulf Keystone, which operates the Shaikan oilfield in Iraqi Kurdistan and produces about 40,000 barrels per day, said the proposal was conditional upon the completion of its restructuring and that it had responded to DNO accordingly.

Gulf Keystone’s shares, which lost a third of their value after the debt-swap deal earlier this month, closed up 25 percent at 4.88 pence on Friday.

DNO operates the Tawke field in Iraqi Kurdistan. The field produces about 120,000 bpd.

International operators in Kurdistan, which is estimated to hold 45 billion barrels of oil reserves, have faced delayed payments, falling oil prices and a worsening geopolitical situation in areas run by the Kurdistan Regional Government.

Iraq’s Kurds have said they are ready to strike an agreement with the central government to increase oil exports if Baghdad guarantees them monthly revenue of $1 billion, more than double what they make currently from selling oil.

DNO’s move could offer a way out for those note and bond holders who may be unable or unwilling to hold Gulf Keystone equity for an extended period.

DNO shares closed up 2.93 percent on the Oslo Exchange on Friday.