Citing two documents it had prepared in its defence, DNO said that the agreement had been confirmed before Kurdistan's status was altered by Transitional Administrative Law. It also pointed to clauses in the new draft constitution, which allows the federal government to manage with regional governments oil and gas extracted from existing fields, but does not include production rights for future discoveries. DNO specifically points to one clause validating all laws and contracts made by the KRG since 1992.

On 23 December, the Oslo-based firm said it had struck oil at the top of the first of three prospective reservoirs it had begun drilling with the Tawke 1 well on 28 November. The exploration was the first to be carried out by a foreign company in Iraq since the fall of Saddam Hussein's regime in 2003.

The PSA programme covers an area of 4,000 square kilometres and is for four years from June 2004. 'Although the first drilling results released to the market were encouraging, further drilling, data acquisition and evaluations are required before it can be concluded if there is a commercial oil discovery,' said the company statement on 11 January. 'DNO will continue the exploration work in accordance with the PSA.'