Norwegian group ready to start producing oil in Iraq

DNO has made a significant find in the country's northern Kurdish area, where it has a deal with the regional government. The move could feed fears about the break-up of Iraq, as it adds to the Kurdish area's capacity to be financially self-sufficient.

Some campaigners also question whether Western oil companies should be allowed to operate in Iraq, with many arguing the war was motivated by the West's desire to access the country's vast oil reserves, the third largest in the world.

DNO announced yesterday test drilling at a field in the Tawke area "showed the presence of oil in five reservoir intervals". Analysts estimatethe field could contain up to 500 million recoverable barrels of oil.

DNO's chief executive, Helge Eide, said: "It's too early to say anything about the size. We need more test results."

The oil majors have not made any overt moves in Iraq so far, as a result of the dangerous security situation and fear of courting controversy. That has left the way open to independent operators.

Among those working in Iraq is the AIM-listed Gulfsands Petroleum, which is drilling in the south of the country. The Kurdish authorities have a deal with Canada's Western Oil Sands to survey its Garmain region.

The biggest problem in Iraq is not discovering the oil but getting it out of the country. Insurgent attacks have crippled exports from Iraq's northern field, which is around Kirkuk, just south of Kurdistan.