DNO Offers Shares in Exchange for RAK Petroleum Oil and Gas Operating Subsidiaries in Heads of Agreement

04 Jul 2011

Dubai, 4 July 2011-- RAK Petroleum Public Company Limited, (RAK Petroleum), the oil and gas exploration and production company, and Norway’s DNO International ASA (DNO) and have signed a heads of agreement to merge RAK Petroleum’s Middle East and North Africa (MENA) operating subsidiaries into DNO in exchange for DNO shares to be issued to RAK Petroleum. The consideration shares will be issued at a minimum DNO share price of NOK 8.25 and a maximum share price of NOK 10.00 against a value of the RAK Petroleum MENA assets between USD 250 and 300 million.

The heads of agreement provides the basis of negotiation of definitive merger documents, including an integration agreement. It is intended that the transaction will be structured as a merger of two Norwegian subsidiaries of DNO and RAK Petroleum in accordance with Chapter 13 of the Norwegian Public Companies Act.

The merger terms were proposed by DNO management last week and endorsed by the boards of directors of both companies on Sunday, with the RAK Petroleum directors of DNO abstaining from discussion and voting during the DNO deliberations. Definitive agreements, once reached, will be presented to the shareholders of DNO and RAK Petroleum at separate extraordinary general meetings for final approval.

“There is a compelling logic in combining the DNO and RAK Petroleum operating assets to build a first rank independent MENA upstream operator,” said Bijan Mossavar-Rahmani, Chairman of the Board of Directors and Chief Executive Officer of RAK Petroleum Public Company Limited. Mr. Mossavar-Rahmani was also voted in as Chairman of the Board of DNO at the June 9, 2011 annual shareholders’ meeting of that company.
 
“The opportunities for growth for MENA oil and gas companies with regional experience, strong assets and geographic diversity have never been better,” he added.

The headquarters of the enlarged company will remain in Oslo, Norway; operations offices will be located in the Kurdistan Region of Iraq, Yemen, the United Arab Emirates, Tunisia and Oman.

DNO is considering listing the merged company on the London Stock Exchange in addition to the Oslo listing. A listing in London is expected to contribute to extended coverage of the company’s shares, attract interest from a broader range of MENA focused investors and provide a solid platform for follow on merger and acquisition activity.

It is expected that, on merger closing, RAK Petroleum will hold a total ownership interest in DNO of approximately 40 percent. RAK Petroleum currently holds a 30 percent share in DNO.The number of shares to be issued by DNO to RAK Petroleum in consideration for the RAK MENA subsidiaries will be set by the parties based on relative valuations of DNO and the RAK MENA business. Final consideration will be negotiated and agreed between the parties and their advisors based on an evaluation of one or more competent person reports to be prepared by one or more independent, appropriate and reputable experts.

Pro forma key figures

	Q1 2011			Full year 2010
USD million	DNO		RAK	Combined	DNO	RAK	Combined
Sales1)	50		17	67	224	109	333
Gross profit	25		8	33	113	43	156
Operating profit	13		5	18	28	26	54
WI Production (BOEPD) 2)	39,945		7,510	47,455	17,381	7,225	24,606
WI Reserves (BOE mill) 3)	293		33.5	326.5	194	34.2	228.2
EBITDA	26		12	38	85	91	176
Netback	21		12	33	68	81	149
Workforce	570		59	629	565	54	619

1) Revenue from DNO export sales in Kurdistan not included
2) The RAK WI production consists of 60-65% oil and liquid and 35-40% gas.
3) Oil and oil equivalents. (The DNO Tawke P50 reserves are based on our current estimates of the gross ultimate P50 recoverable reserves for Tawke of more than 500 million barrels as reported to the market on 14 June 2011.) The remaining reserves in the RAK portfolio consists of around 40-45% oil and liquid, and the balance is gas. DNO´s contingent resources (based on 2010 ASR) is 17 million barrels of oil. The contingent resources in the RAK Petroleum portfolio is 32 million BOE where around 40% is oil and liquid.

 

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About RAK Petroleum

RAK Petroleum Public Company Limited (www.rakpetroleum.ae) is registered in the Free Trade Zone of the Emirate of Ras Al Khaimah and is operator of seven blocks in the Sultanate of Oman and the United Arab Emirates, of which one is in the production phase, three are in the exploration phase and three are undergoing appraisal for possible development/redevelopment.

RAK Petroleum also has a non-operating 30 percent interest in the Hammamet offshore license in the Republic of Tunisia and a 30 percent shareholding in the publicly-traded Norwegian oil and gas company DNO International ASA (www.dno.no), whose principal producing properties are located in the Kurdistan Region of Iraq and the Republic of Yemen.

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For more information, please contact:
Ms. Katherine Darcy
Corporate Affairs Manager
Rak Petroleum Technical Services Limited
Dubai, UAE
Tel: +971-4-293 2000
Katherine.darcy@rakpetroleum.ae