CORRECTED-UPDATE 2-Iraqi Kurdistan-focused oil shares hit by IS advance

Thu Aug 7, 2014 2:04pm EDT

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(Corrects units to barrels per day in paragraph 8)

* Islamic State advance raises fears for Kurdistan oilfields

* DNO Petroleum shares down as much as 24 percent

* Gulf Keystone Petroleum down as much as 13 percent

By David Sheppard

LONDON, Aug 7 (Reuters) - Shares in energy companies operating in Iraqi Kurdistan plummeted on Thursday after Islamic State militants advanced closer to oilfields in the semi-autonomous region.

Oil producers, including Oslo-listed DNO Petroleum and London-listed Gulf Keystone Petroleum saw double-digit declines in their share prices as the radical Sunni militants seized at least three more towns near Kurdish-controlled territory.

While the firms said their Kurdish fields continued to operate, there are growing concerns about the security risks faced by firms active in Iraqi Kurdistan, seen as a beacon of relative stability in the region.

Shares in Oslo-listed oil producer DNO fell up to 24 percent and London-listed Gulf Keystone Petroleum was down 13 percent at their lowest point on Thursday, before paring losses.

Kurdistan oil producer Genel Energy also saw a 6 percent fall in its shares traded in London.

"Investors are now taking into account the risk," ABG Sundal Collier analyst Oeyvind Hagen said, adding it remained difficult to judge how far into the Kurdish region the islamists could penetrate.

Gulf Keystone said it had increased security at its flagship Shaikan field, Iraqi Kurdistan's largest, but added that production and trucking operations were continuing safely.

DNO operates the Tawke field, in which Genel is also a partner, which produces around 120,000 barrels of oil per day.

Other Kurdistan oil producers including London-listed Afren and Toronto-listed Oryx Petroleum - which operates the fields closest to the militants advance - declined to comment.

Two car bombs killed nine people in the Kurdish-held Iraqi oil city of Kirkuk on Thursday, police and medical sources said.

PESHMERGA PULL BACK

Energy companies have flocked to Iraqi Kurdistan in recent years, hoping to access what is believed to be one of the world's last huge conventional onshore oil deposits.

The regional capital Arbil houses many western oil workers and executives, and has seen an investment boom despite tensions with Baghdad over the control of oil sales and revenues.

Most worrying for investors this week has been the pullback of the Kurdistan Regional Government's peshmerga soldiers.

Facing militants freshly armed with U.S.-made heavy weapons seized from the Iraqi army, the peshmergas have given up several towns since Sunday.

Witnesses on Thursday said the militants had seized the town of Makhmur, around 40 km from the regional capital Arbil, but Kurdish officials told local media their forces remained in control there and television channels broadcast footage of peshmerga fighters driving around the town.

The militant group said in a statement on its Twitter account that its fighters had seized 15 towns, the strategic Mosul dam on the Tigris River and a military base.

DNO, which describes its prospects in Iraqi Kurdistan as 'the jewel in the crown' on its website, was the first international energy company to enter the Iraqi Kurdistan region in 2004.

Production from the region accounted for 55 percent of its revenue last year. (Additional reporting by Karolin Schaps and Sarah Young in London, Ole Petter Skonnord, Terje Solsvik and Balazs Koranyi in Oslo; editing by David Sheppard and William Hardy)

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