DNO ASA — Interim / Quarterly Report 2014

May 8, 2014

Interim Report 2014 First quarter

Q1 2014 and year-to-date highlights

• • Q1 company working interest (CWI) production of 45,744 boepd (78,917 boepd gross)
• • Q1 CWI sales volumes of 37,909 boepd (66,279 boepd gross)
• • Q1 operating revenue of USD 113 million and operating cash flow of USD 89 million
• • Notwithstanding quarterly investments of USD 85 million, maintained strong financial position with free cash balance of USD 242 million at end Q1
• • In addition to cash, held USD 95 million in financial assets, including a 4.2 percent stake in RAK Petroleum PCL, with balance held in DNO treasury shares
• • Drilling and completing back-to-back, high deliverability horizontal wells at Tawke
• • Initiating first sales of Benenan field oil and first flows of gas from the Summail field

Key figures

	Quarter		Full year
USD million	Q1 2014	Q1 2013	2013	2012
Key financials
Sales 1)	112.8	103.3	503.0	524.5
Gross profit	41.8	53.4	294.7	316.1
Profit/-loss from operating activities	29.7	47.1	67.9	270.0
Net profit/-loss	23.7	30.1	27.0	198.1
EBITDA	69.6	71.6	348.1	360.8
Netback	59.6	55.0	285.9	297.0
Acquisition and development costs	85.4	65.2	288.3	197.2
Exploration costs expensed	5.3	1.9	10.3	13.4
Key performance indicators 2)
Lifting costs (USD/boe)	7.66	10.11	7.96	7.48
Netback (USD/boe)	14.86	22.03	20.76	23.84

1) Sales in 2012 include USD 116 million related to export volumes from the Tawke field.

2) Key performance indicators include export volumes from the Tawke field.

Operational review

Production

Quarterly production per country (CWI)

Company working interest production during the first quarter averaged 45,744 boepd (78,917 boepd gross). The increase in volumes compared to the previous quarter (35,896 boepd CWI) and corresponding period last year (29,061 boepd CWI) is primarily due to the production of 7,835 bopd CWI from the Tawke field to storage tank at Ceyhan, Turkey and higher local deliveries. Sales production during the first quarter, excluding those volumes stored at Ceyhan, averaged 37,909 boepd on a CWI basis (66,279 boepd gross).

CWI production at the Tawke field increased to 35,642 barrels of oil per day (bopd) during the first quarter (57,487 bopd gross) from 23,765 bopd (38,207 bopd gross) in the previous quarter and 11,332 bopd (18,218 bopd gross) during the corresponding period in 2013.

In Oman, CWI production from Block 8 was 7,597 boepd (15,194 boepd gross) during the first quarter compared to 8,610 boepd (17,219 boepd gross) in the previous quarter and 13,374 boepd (26,748 boepd gross) during the corresponding period in 2013.

Production in Yemen was 2,505 bopd CWI (6,236 bopd gross) during the first quarter.

Net entitlement production during the first quarter was 22,063 boepd compared to 21,738 boepd in the previous quarter and 17,435 boepd during the corresponding period in 2013.

Gross production

	Quarter		Full year
boepd	Q1 2014	Q1 2013	2013	2012
Kurdistan	57,487	18,218	39,433	45,477
Oman	15,194	26,748	21,473	11,490
Yemen	6,236	10,673	9,708	10,271
Total	78,917	55,639	70,614	67,238

The table above reflects gross production from the fields. Kurdistan figures include both local sales and exported volumes.

Company Working Interest (CWI) production

	Quarter			Full year
boepd	Q1 2014	Q1 2013	2013	2012
Kurdistan	35,642	11,332	24,527	28,466
Oman	7,597	13,374	10,736	5,745
Yemen	2,505	4,355	3,907	4,143
Total	45,744	29,061	39,170	38,354

The table above reflects DNO's total working interest production including diesel. Kurdistan figures include both local sales and exported volumes.

Net entitlement production

	Quarter		Full year
boepd	Q1 2014	Q1 2013	2013	2012
Kurdistan	15,810	7,232	12,679	14,563
Oman	4,455	7,601	5,733	3,628
Yemen	1,797	2,601	2,543	2,442
Total	22,063	17,435	20,956	20,633

The table above reflects DNO's net entitlement production including diesel. Net entitlement from past exports from Tawke has been estimated based on the PSC, but the Company has not received payments for the full net entitlement production.

Activity overview

The Company continued with high levels of drilling across the portfolio in the first quarter. A total of three wells were completed and two were drilling at the end of the quarter.

Annual statement of reserves

DNO delivered growth in reserves for the fourth consecutive year with a reserve replacement ratio of 152 percent in 2013. The Company's Annual Statement of Reserves, published in April, set total remaining proved and probable (2P/P50) reserves at 541.9 million barrels of oil equivalent (MMboe) on a CWI basis as at yearend 2013. The comparable figures for year-end 2012, year-end 2011, year-end 2010 and year-end 2009 were 520.3 MMboe, 371.9 Mmboe, 194.2 Mmboe and 149.4 MMboe, respectively.

The increase in 2013 was driven principally by the addition of new reserves associated with the Summail gas field and the Peshkabir oil field combined with an upward revision at the Benenan oil field, all located in Kurdistan. The first two horizontal wells at the Tawke field were completed too late in the year to incorporate performance data into the field reservoir model and allow for a full field reserves revision which will be undertaken in 2014 with additional results from another four to six horizontal wells. In addition to its class 2P CWI reserves, the Company held 99.4 MMboe in 2C contingent resources on a CWI basis. The 2013 Annual Statement of Reserves is available on the Company's website www.dno.no.

Appraisal and field development

KURDISTAN REGION OF IRAQ

Tawke license

Two horizontal production wells were completed and brought onstream in the first quarter as part of the Company's ongoing field development program. In the Tawke-21 well, eight productive fracture corridors penetrated by a 980-meter horizontal section in the main Cretaceous reservoir interval flowed an average rate of 9,700 bopd each. In the Tawke-22 well, located six kilometers away, seven productive fracture corridors penetrated by an 800-meter horizontal section flowed an average rate of 8,800 bopd each. Production was initiated from the wells at a combined rate of 37,000 bopd. Both wells are subject to wellbore and surface facilities limitations. Including the first two horizontal wells, Tawke-20 and Tawke-23, brought onstream in the second half of 2013, there are now four horizontal production wells completed and onstream at the field. Drilling operations at the Tawke-24 and Tawke-26 horizontal wells continued throughout the first quarter and were completed in April. Preparations are underway to commence testing of both wells. A further three horizontal wells will be drilled in 2014, bringing the total number of horizontal wells at the field to nine by year-end. The Company also plans to drill two production wells in the shallower Tertiary reservoir in 2014.

Work is continuing to raise capacity of the Tawke production facilities to 200,000 bopd by year-end. Success with the 2014 drilling program could lead to further expansion of production facilities capacity in the future. To transport the increased field output, a new 24 inch pipeline will be installed along the same route as the existing 12 inch pipeline that runs from the central processing facility at the field to the Fishkabur export facility. On 5 March, the Company set a new production record of 129,000 bopd at the field, a rate close to the limit of what can presently be delivered by pipeline and road tanker.

Following the submission of a field development plan (FDP) for the Peshkabir oil discovery during the fourth quarter of 2013, the Company plans to drill the high impact Peshkabir-2 well in 2014 to further explore the Peshkabir structure and test upside potential.

Dohuk license

At the Summail gas field, the Company is pressuring up the pipelines to commence deliveries from the Summail-1 well. The gas will help displace diesel currently used to generate electricity in a 500 MW power plant in the city of Dohuk located 40 kilometers from the field. Gas will be sold on a take-or-pay basis for the duration of the Production Sharing Contract or until deliveries reach one trillion cubic feet. Initial deliveries are expected to be up to 50 million cubic feet per day (MMcfd) from the Summail-1 well, increasing to 100 to 120 MMcfd with the Summail-2 and Summail-3 wells and addition of new processing capacity. The price of gas will range between USD 3 and USD 4 per thousand cubic feet over the life of the contract. The Gas Sales and Purchase Agreement (GSPA) is the first such agreement to be signed with a state buyer in Kurdistan. Gas will be transported by a new 36-inch pipeline to what is intended to become the regional gas gathering and distribution network. Following the fast-track development of the Summail field, the Company will shift its focus to appraisal of the Dohuk license oil potential.

Erbil license

At the Benenan-3 well, temporary production facilities have been installed and first sales of Benenan oil made as part of the Company's early production program. Rates of up to 1,500 bopd have been achieved from one zone in the Najmeh reservoir with several other zones to be tested. The Benenan-3 well was drilled in 2012 to appraise the Najmeh formation, but also encountered moveable oil in the Bekhme formation and proved an additional 210 meter oil column in the Lower Najmeh reservoir. The Company intends to also test the Benenan-4 well and incorporate it into the early production program. The Benenan-4 well was drilled to test an undrilled part of the Benanan structure and encountered strong oil shows and good porosity across several intervals in the Najmeh formation in late 2013, proving oil outside the previously mapped closure confirming significant upside to oil in place volumes. This early production program is designed to gather information on fluid and reservoir properties, long-term productivity, vertical and lateral communication in reservoir intervals. Longer term, the Company has initiated studies to determine the full field development options for both the Benenan and Bastora fields.

OMAN

Reprocessing of West Bukha 3D seismic data and a review of the reservoir model are underway to evaluate possible new drilling targets and additional exploration opportunities in Block 8.

RAS AL KHAIMAH

The Saleh-8 well is tied into existing infrastructure to enable production and pressure monitoring. Artificial lift studies are being undertaken on the partially depleted upper Wasia reservoir.

YEMEN

At Block 47, the Company expects to commence production at the Yaalen field from one well in 2014. Following production start up, the Company will gather well, reservoir and fluid properties data to assist in subsequent development activities.

TUNISIA

The Sfax Offshore Exploration Permit and the Ras El Besh Concession are located in the prolific Gulf of Gabes and cover 3,296 km2 , mostly offshore in shallow waters. To date, three discoveries have been made. These assets also offer significant exploration potential. The work program in 2014 is focused on commercialization of the existing resources and the drilling of one exploration well to test upside potential at the Jawhara discovery.

Exploration

KURDISTAN REGION OF IRAQ

Tawke license

The Company is planning new data acquisition to evaluate the Jurassic oil discovery made in June 2013, with the Tawke-17 (Deep) exploration well, ahead of further drilling. At the Peshkabir oil discovery, the Company intends to drill the Peshkabir-2 well to explore a larger target area in an undrilled part of the structure.

OMAN

Block 36 is located in the prolific Rub Al Khali basin and covers a surface area of approximately 18,000 km2 . Two of the three exploration wells previously drilled on the block have confirmed the presence of source rock in the basal Silurian hot shale, an organic rich shale that has sourced the majority of the oil and gas fields discovered in the Arabian Peninsula and North Africa. All three wells had hydrocarbon shows. Multiple stacked reservoir units have been identified and mapped on the existing seismic data comprising approximately 10,000 km of 2D seismic complemented by high resolution gravity and aeromagnetic surveys. The Company has commenced reprocessing and interpretation of the existing seismic data and is planning the acquisition of new 2D and 3D seismic data over areas of identified prospectivity the spudding of an exploration well in late 2014.

YEMEN

In October, the Salsala-1 exploration well led to a new oil discovery on the Meshgha structure. The well was directionally drilled to a total depth of 4,147 meters and encountered oil shows in the Shuqra formation which was perforated over a 32 meter interval, acidized and tested. The well flowed naturally at a rate of 5,900 bopd of 36º API oil before being choked back to 3,400 bopd due to limited surface storage capacity. The Company plans to appraise the Meshgha discovery in 2014 and evaluate fast-track development options.

TUNISIA

The Company plans to drill the Jawhara-3 exploration well in 2014 to test additional upside potential in a separate, undrilled fault block approximately four kilometers north of the Jawhara-1 discovery well that flowed 1,500 bopd. The well is expected to spud and complete during the third quarter.

At the Fkirine license onshore Tunisia, reprocessing and interpretation of 2D seismic data is ongoing. At the Hammamet offshore license, a 2D seismic acquisition is planned to better define three identified prospects.

RAS AL KHAIMAH

The Company has farmed down its interest in the RAK Onshore license from 100 percent to 70 percent.

SOMALILAND

Block SL18 onshore Somaliland covers a surface area of 12,000 km2 and adds substantial exploration acreage to the Company's portfolio in a high potential area that is both prospective and undrilled. Having been active across the Gulf of Aden in Yemen since the late 1990's, the opportunity falls within the Company's geographical and geological sphere of expertise. The Company has completed a study of remote data over the block that will guide the acquisition of new seismic and gravity/aeromagnetic data and farmed down its interest from 100 percent to 60 percent.

Health, safety, security and environment

In the first quarter the Company's HSSE performance remained within satisfactory levels with no major cases recorded.

Financial review

New presentation currency

The Company has changed its presentation currency from NOK to USD with effect from 1 January 2014. This change has been implemented to better reflect the profile of an industry with revenues, costs and cash flows primarily generated in USD. Restated condensed financial statements, as if the change in the group presentation currency were effective since 1 January 2005 (IFRS transition), are presented in this report.

Revenues, profits and cash flow

Sales revenues in the first quarter were USD 112.8 million, compared to USD 133.6 million in the previous quarter.

A portion of oil produced from the Tawke field in the Kurdistan region of Iraq was delivered to Ceyhan in Turkey where it was held in storage. No revenues have been recorded for these volumes, which amounted to approximately 700,000 barrels of oil net to DNO on a CWI basis at the end of the quarter. However, the Company continued to sell production from the field into the local market throughout the quarter. Domestic sales contributed revenues of USD 68.7 million in the quarter.

Revenues from oil and gas production at Block 8 offshore Oman amounted to USD 28.0 million in the first quarter, and revenues from the Company's producing assets onshore Yemen amounted to USD 16.1 million.

Operating profit during the first quarter was USD 29.7 million and net profit USD 23.7 million. Total investments made during the first quarter (excluding the purchase of financial assets) were USD 85.4 million.

The Company has continued to maintain a conservative capital structure. At the end of the first quarter the Company's free cash position was USD 242.2 million. Gross debt as at 31 March was USD 232.0 million, representing a net cash position of USD 10.2 million.

Cost of goods sold

In the first quarter, cost of goods sold were USD 71.1 million compared with USD 49.9 million in the corresponding period last year.

LIFTING COSTS

Lifting costs were USD 30.7 million in the first quarter, compared with USD 25.4 million in the corresponding period last year. The increase is related to workovers, maintenance and higher production during the period. Total and unit lifting costs per country are presented in the accompanying table.

Lifting cost

	Quarter			Full year
USD million	Q1 2014	Q1 2013	2013	2012
Kurdistan	14.9	9.2	46.9	30.2
Oman	3.8	4.5	19.0	33.5
Yemen	12.0	11.7	44.7	38.6
Total	30.7	25.4	110.6	102.3
Including export volumes
USD million	Q1 2014	Q1 2013	2013	2012
Kurdistan	4.68	9.15	5.29	2.92
Oman	6.14	3.95	5.17	17.32
Yemen	58.33	32.13	33.74	27.21
Average	7.66	10.11	7.96	7.48

DEPRECIATION, DEPLETION AND AMORTIZATION (DD&A)

DD&A amounted to USD 40.0 million in the first quarter compared to USD 24.3 million in the corresponding period last year. The higher charge is due to a combination of increased production volumes and the revision and reclassification of certain reserves following the most recent independent review by DeGolyer & MacNaughton.

DD&A

	Quarter		Full year
USD million	Q1 2014	Q1 2013	2013	2012
Kurdistan	16.0	5.0	35.5	54.1
Oman	19.9	14.0	41.0	35.1
Yemen	4.1	5.2	20.2	16.4
Total DD&A	40.0	24.3	96.8	105.6
Including export volumes
USD/boe	Q1 2014	Q1 2013	2013	2012
Kurdistan	11.34	7.70	7.79	10.28
Oman	49.68	20.57	19.48	26.02
Yemen	27.57	24.20	23.67	19.57
Average DD&A	20.40	15.72	12.83	14.90

Exploration and capital expenditure

EXPLORATION COSTS EXPENSED

Expensed exploration costs in the first quarter were USD 5.3 million, and relate mainly to Block 36 in Oman and the Sfax permit in Tunisia.

Exploration costs expensed

	Quarter			Full year
USD million	Q1 2014	Q1 2013	2013	2012
Kurdistan	0.1	-	0.4	4.1
Oman	1.1	0.4	1.6	1.2
Yemen	-0.2	0.1	0.6	1.1
UAE	0.1	0.1	0.4	0.4
Tunisia	2.6	1.2	6.3	6.5
Other	1.4	0.2	0.9	-
Total	5.3	1.9	10.3	13.4

ACQUISITION AND DEVELOPMENT COSTS (INCL. INTANGIBLE ASSETS)

Capital expenditures in the first quarter were USD 85 million compared with USD 65 million in the corresponding period last year. Costs associated with development projects at the Tawke field amounted to USD 25 million. Costs associated with the Summail field development amounted to USD 30 million and costs associated with appraisal and development work at the Erbil license amounted to USD 3 million. In Yemen, capitalized costs in Block 32 amounted to USD 0.5 million in the quarter. Investments in Block 53 amounted to USD 0.6 million and in Block 43 to USD 1 million. Development costs associated with the Yaalen field in Block 47 amounted to USD 4 million. Costs associated with the West Bukha-5 workover offshore Oman amounted to USD 14 million in the quarter. Investments related to the Sfax permit in Tunisia amounted to USD 6 million.

Acqusition and development cost

	Quarter			Full year
USD million	Q1 2014	Q1 2013	2013	2012
Kurdistan	59.0	39.1	167.8	103.7
Oman	14.0	19.4	31.7	75.0
Yemen	6.1	5.7	26.7	17.0
UAE	-0.4	0.8	59.9	1.2
Tunisia	6.0	-	-	-
Other	0.6	0.2	2.2	0.3
Total	85.4	65.2	288.3	197.2

Consolidated statements of comprehensive income

		Quarter		Full year
USD million	Note	Q1 2014	Q1 2013	2013
Sales	2, 3	112.8	103.3	503.0
Cost of goods sold	4	-71.1	-49.9	-208.3
Gross profit		41.8	53.4	294.7
Other operating income		0.1	0.2	0.3
Tariffs and transportation		-0.3	-0.9	-4.2
Administrative expense/Other operating expenses		-7.1	-3.6	-30.2
Impairment/Reversal impairment oil and gas assets	7	-	-	-182.3
Exploration cost expensed	5	-5.3	-1.9	-10.3
Net gain/-loss from sale of PP&E	7	0.4	-	-0.1
Profit/-loss from operating activities		29.7	47.1	67.9
Financial income		2.7	0.7	2.6
Financial expenses		-6.2	-3.9	-12.3
Profit/-loss before income tax		26.2	43.9	58.2
Income tax expense	6	-2.5	-13.8	-31.3
Net profit/-loss		23.7	30.1	27.0
Other comprehensive income
Currency translation differences		-	5.6	-
Fair value changes available-for-sale financial assets		5.8	-	10.6
Other comprehensive income that may be reclassified to profit or loss in subsequent periods		5.8	5.6	10.6
Other comprehensive income that will not be reclassified to profit or loss in subsequent periods		-	-	-
Total other comprehensive income, net of tax	6	5.8	5.6	10.6
Total comprehensive income, net of tax		29.5	35.7	37.6
Net profit/-loss attributable to:
Equity holders of the parent		23.7	30.1	27.0
Total comprehensive income attributable to:
Equity holders of the parent		29.5	35.7	37.6
Earnings per share, basic		0.02	0.03	0.03
Earnings per share, diluted		0.02	0.03	0.03

Condensed consolidated statements of financial position

ASSETS		Quarter	Full year
USD million Note	Q1 2014	Q1 2013	2013
Non-current assets
Goodwill	-	46.4	-
Deferred income tax assets 6	7.7	7.7	7.7
Other intangible assets 7	163.2	144.6	158.3
Property, plant and equipment 7	764.9	725.1	725.2
Available for sale investments 8	45.2	0.3	10.8
Other non-current assets	5.1	-	2.4
Total non-current assets	986.1	924.2	904.4
Current assets
Inventories 4	56.0	39.7	50.8
Trade and other receivables	102.2	74.4	114.0
Cash and cash equivalents	242.2	301.3	265.9
Total current assets	400.4	415.3	430.7
TOTAL ASSETS	1,386.5	1,339.5	1,335.1
EQUITY AND LIABILITIES			Full year
USD million Note	Q1 2014	Q1 2013	2013
Equity
Share capital	33.6	33.6	33.6
Other reserves	180.5	169.8	174.7
Retained earnings	573.9	553.4	550.2
Total equity	788.0	756.7	758.5
Non-current liabilities
Interest-bearing liabilities 9	232.0	233.8	230.4
Deferred income tax liabilities 6	96.6	134.0	101.5
Provisions for other liabilities and charges 10	103.0	32.6	93.0
Total non-current liabilities	431.7	400.5	424.9
Current liabilities
Trade and other payables	76.3	34.2	56.5
Income taxes payable 6	12.8	11.1	15.5
Provisions for other liabilities and charges 10	77.7	137.1	79.7
Total current liabilities	166.8	182.4	151.7
TOTAL EQUITY AND LIABILITIES	1,386.5	1,339.5	1,335.1

Condensed consolidated cash flow statements

		Quarter		Full year
USD million	Note	Q1 2014	Q1 2013	2013
Operating activities
Profit/-loss before income tax		26.2	43.9	58.2
Adjustments to add (deduct) non-cash items:
+/- Net interest expense (-income)		1.9	2.3	7.2
Previously capitalized exploration and evaluation expenses		-	-	-
Depreciation of PP&E	4	40.4	24.5	97.8
Impairment loss/Reversal of impairment on PP&E	7	-	-	182.3
Gain/loss on PPE	7	-0.4	-	0.1
Other *		14.7	-7.9	52.3
Changes in working capital:
- Inventories		-5.2	1.2	-9.9
- Trade and other receivables		9.0	49.4	7.4
- Trade and other payables		19.8	-5.8	16.5
- Provisions for other liabilities and charges		-2.0	-1.6	-59.1
Cash generated from operations		104.3	105.8	352.8
Income taxes paid		-10.1	-16.5	-62.1
Interest paid		-5.1	-5.2	-20.3
Net cash from operating activities		89.1	84.1	270.4
Investing activities
Purchases of intangible assets	7	-6.1	-13.7	-35.9
Proceeds from sale of intangible assets		0.3	-	-
Purchases of tangible assets	7	-79.3	-51.5	-252.5
Proceeds from sale of tangible assets		0.5	-	-
Purchases of available-for-sale financial assets		-28.5	-	-10.8
Proceeds from sale of available-for-sale financial assets		-	-	0.5
Interest received		0.1	0.1	0.6
Net cash from/-used in investing activities		-112.9	-65.1	-298.1
Financing activities
Repayment of borrowings		-	-	-
Purchase of treasury shares, including options		-	-	-
Net cash from/-used financing activities		-	-	-
Net increase/-decrease in cash and cash equivalents		-23.8	19.0	-27.7
Cash and cash equivalents at beginning of the period		265.9	270.9	270.9
Exchange gain/-losses on cash and cash equivalents		-	11.3	22.7
Cash and cash equivalents at end of the period		242.2	301.3	265.9

* Included in the line Other under Operating activities are foreign currency effects related to interest-bearing loans and equity, acquisition/ disposals of PP&E with non-cash effect, change in accruals of long-term liabilities with non-cash effect and other non-cash items from investing and financing activities.

Condensed consolidated statements of changes in equity

USD million	Share capital	Other reserves	Retained earnings	Total equity
Balance at 1 January 2013	33.6	164.2	523.2	721.0
Fair value gains, net of tax:
- available-for-sale financial assets	-	-	-	-
Currency translation differences	-	5.6	-	5.6
Other comprehensive income/-loss	-	5.6	-	5.6
Profit for the period	-	-	30.1	30.1
Total comprehensive income	-	5.6	30.1	35.7
Issue of share capital	-	-	-	-
Purchase of treasury shares	-	-	-	-
Sale of treasury shares	-	-	-	-
	-	-	-	-
Balance at 31 March 2013	33.6	169.8	553.4	756.7

USD million	Share capital	Other reserves	Retained earnings	Total equity
Balance at 1 January 2014	33.6	174.7	550.2	758.5
Fair value gains, net of tax:
- available-for-sale financial assets	-	5.8	-	5.8
Currency translation differences	-	-	-	-
Other comprehensive income/-loss	-	5.8	-	5.8
Profit for the period	-	-	23.7	23.7
Total comprehensive income	-	5.8	23.7	29.5
Issue of share capital	-	-	-	-
Purchase of treasury shares	-	-	-	-
Sale of treasury shares	-	-	-	-
	-	-	-	-
Balance at 31 March 2014	33.6	180.5	573.9	788.0

Notes to the interim condensed consolidated financial accounts

Note 1 || Basis of preparation and accounting policies

The condensed consolidated financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting and IFRS standards issued and effective at date of reporting as adopted by the EU. The interim report has also been prepared in accordance with Stock Exchange regulations.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the group's annual financial statements as at 31 December 2013. The interim financial information for 2014 and 2013 is unaudited.

The condensed consolidated financial statements have been prepared on a historical cost basis, with the following exception:

* All derivatives, all financial assets and liabilities held for trading, liabilities related to share-based payments and all financial assets that are classified as available-for-sale, are recognized at fair value.

A detailed description of the accounting policies applied is included in the DNO annual financial statements for 2013. The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the group's annual financial statements for the year ended 31 December 2013. For information about the standards and interpretations effective from 1 January 2014, please refer to Note 1 in the group's annual financial statements for 2013. The group has adopted the following new standards with effect from 1 January 2014:

IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities

The implementation of these standards has no effect on the group's financial position or performance.

DNO has changed the presentation currency for the consolidated accounts from NOK to USD with effect from 1 January 2014. See Note 11 for restated historical figures.

Note 2 || Segment information

DNO is reporting five (5) operating segments; Yemen (YEM), Kurdistan (KUR), Oman (OMAN), Ras Al Khaimah (UAE) and Tunisia (TUN). The operating segments equal the reportable segments.

Three months ended 31 March 2014 USD million	Note	TUN	YEM	KUR	OMAN	UAE	OTHER	Total report. segm.	Unalloc./ elimin.	GROUP
Income statement information
External sales	3	-	16.1	68.7	28.0	-	-	112.8	-	112.8
Inter-segment sales		-	0.6	0.7	2.3	0.1	0.1	3.8	-3.8	-
Cost of goods sold	4	-	-16.0	-31.1	-23.8	-	-	-70.9	-0.2	-71.1
Gross profit		-	0.6	38.4	6.5	0.1	0.1	45.7	-3.9	41.8
Segment operating result		-2.6	-1.0	35.3	3.6	-0.2	-1.3	33.8	-5.7	28.1
Interest - net										-1.9
Gain/-loss on sale of shares										-
Income tax expense		-	-	-	-2.5	-	-	-2.5	-	-2.5
Net profit/-loss										23.7
Segment assets		9.7	123.4	725.4	186.2	47.3	0.9	1,092.9	293.5	1,386.5

Note 2 || Segment information continues

Three months ended 31 March 2013 USD million	Note	TUN	YEM	KUR	OMAN	UAE	OTHER	Total report. segm.	Unalloc./ elimin.	GROUP
Income statement information
External sales	3	-	24.0	40.6	38.7	-	-	103.3	-	103.3
Inter-segment sales		0.3	0.7	0.9	1.1	0.1	-	3.0	-3.0	-
Cost of goods sold	4	-	-17.0	-14.2	-18.6	-	-	-49.8	-0.1	-49.9
Gross profit		0.3	7.7	27.2	21.2	0.1	-	56.4	-3.1	53.4
Segment operating result		-1.0	5.4	25.7	20.1	-0.2	-0.2	49.7	-3.5	46.2
Interest - net										-2.3
Gain/-loss on sale of shares										-
Income tax expense		-	-2.4	-	-11.3	-	-	-13.8	-	-13.8
Net profit/-loss										30.1
Segment assets		3.4	123.3	526.3	299.5	88.5	3.5	1,044.7	294.9	1,339.5
Twelve months ended 31 December 2013 USD million	Note	TUN	YEM	KUR	OMAN	UAE	OTHER	Total report. segm.	Unalloc./ elimin.	GROUP
Income statement information
External sales	3	-	93.5	274.8	134.7	-	-	503.0	-	503.0
Inter-segment sales		1.5	1.8	3.6	5.6	2.5	0.4	15.4	-15.4	-
Cost of goods sold	4	-	-64.9	-82.8	-60.0	-	-0.1	-207.9	-0.5	-208.3
Gross profit		1.5	30.4	195.7	80.2	2.5	0.3	310.6	-15.9	294.7
Segment operating result		-5.1	19.0	183.4	-14.3	-96.3	-0.4	86.3	-20.9	65.4
Interest - net										-7.2
Gain/-loss on sale of shares										0.0
Income tax expense		-	-8.8	-	-22.4	-	-	-31.3	-	-31.3
Net profit/-loss										27.0
Segment assets		47.9	118.4	686.0	266.2	49.3	-35.9	1,132.0	203.1	1,335.1

Note 3 || Sales

DNO reports its operations governed by Production Sharing Agreements/Production Sharing Contracts (PSA/PSC) according to the net entitlement method.

	Quarter	Full year
USD million	Q1 2014	Q1 2013	2013
Sale of petroleum products	112.8	103.3	503.0
Total sales	112.8	103.3	503.0

There were no export sales from the Tawke field in the Kurdistan region of Iraq in Q1 2014, only local sales.

Note 4 || Cost of goods sold/inventory

	Quarter		Full year
USD million	Q1 2014	Q1 2013	2013
Lifting costs *	-30.7	-25.4	-110.6
Depreciation, depletion and amortization	-40.4	-24.5	-97.8
Total cost of goods sold	-71.1	-49.9	-208.3

* Lifting costs consist of expenses relating to the production of oil and gas, including operation and maintenance of installations, well intervention and workover activities, insurance and costs in own organization.

	Quarter	Full year
USD million	Q1 2014	Q1 2013	2013
Spare parts	43.9	18.5	36.9
Other inventory	12.1	21.3	14.0
Total inventory	56.0	39.7	50.8

Spare parts relate mainly to the Tawke field in the Kurdistan region of Iraq. Other inventory relates to drilling and completion materials for the offshore blocks in Oman and UAE.

Note 5 || Exploration cost

		Quarter
USD million	Q1 2014	Q1 2013	2013
Exploration expenses (G&G and field surveys)	-3.1	-0.4	-3.4
Seismic costs	-0.2	-0.1	-0.4
Exploration costs capitalized in previous years carried to cost	-	-	-
Exploration costs capitalized this year carried to cost	-	-	-
Other exploration cost expensed	-2.1	-1.4	-6.6
Total exploration cost expensed *	-5.3	-1.9	-10.3

* For details on geographic spread of exploration cost expensed, see the Financial review section.

Note 6 || Income taxes

		Quarter
USD million	Q1 2014	Q1 2013	2013
Deferred taxes	4.8	6.4	39.0
Income taxes payable related to Production Sharing Agreements (PSAs) in Yemen and Oman	-7.3	-20.1	-70.2
Total income tax expense	-2.5	-13.8	-31.3

Income taxes payable amounting to USD 12.8 million relates entirely to the company tax element in our Production Sharing Agreements in Yemen and Oman. The taxes payable will be settled in kind.

The interim period income tax expense relates to the Yemen and Oman operations and is calculated by applying the tax rate appliccable to the expected total annual earnings. According to the net entitlement method, income taxes payable related to PSAs consist of the corporate tax rate applicable under the agreements. No tax is applicable to the operations in the Kurdistan region of Iraq as there is currently no established tax regime.

There are no tax consequences attached to items recorded in other comprehensive income.

		Quarter
USD million	Q1 2014	Q1 2013	2013
Acquisitions of PP&E *	79.3	51.5	252.5
Acquisitions of intangible assets **	6.1	13.7	35.9
Net book amount PP&E	764.9	725.1	725.2
Net book amount intangible assets	163.2	144.6	158.3
Sale of PP&E
Proceeds	0.8	-	0.7
Carrying value	0.4	-	0.8
Net gain/-loss	0.4	-	-0.1
Impairment/reversal of impairment of PP&E	-	-	182.3

* Acquisitions related to development assets, assets in operation and other PP&E

** Acquisitions related to capitalized exploration costs and license interests

Impairment charge of USD 182.3 million in 2013 was related to the assets in UAE (Saleh and RAK B) and Block 8 and Block 31 in Oman.

Note 8 || Available-for-sale financial assets

Available-for-sale financial assets are revalued at fair value (market price, where available) at the end of each period, with changes charged to other comprehensive income. Impairment will be charged to profit or loss, while reversal of impairment will be taken through other comprehensive income.

		Quarter
USD million	Q1 2014	Q1 2013	2013
Beginning of the period	10.8	0.5	0.5
Additions	28.5	-	10.9
Sales	-	-0.2	-0.5
Revaluation surplus/deficit transfer to equity	5.8	0.1	-
Impairment	-	-	-
Exchange differences	-	-	-0.1
End of the period 1)	45.2	0.3	10.8
Non-current portion	45.2	0.3	10.8
Current portion	-	-	-

1) Available-for-sale financial assets include the following:

		Quarter
USD million	Q1 2014	Q1 2013	2013
Listed securities:
- Other securities	-	0.3	-
Unlisted securities:
- RAK Petroleum PCL	45.2	-	10.8
1) Total available-for-sale financial assets	45.2	0.3	10.8

In the fourth quarter 2013, DNO acquired 39,996,708 shares in RAK Petroleum PCL. In the first quarter of 2014, DNO has acquired further 88,936,408 shares and now has a total of 128,933,116 shares (3.9 percent of outstanding shares). All shares have been acquired in open market transactions.

		Quarter
USD million	Q1 2014	Q1 2013	2013
Non-current
Bonds	232.0	233.8	230.4
Total non-current interest-bearing liabilities	232.0	233.8	230.4
Current
Current portion of bonds	-	-	-
Total current interest-bearing liabilities	-	-
Total interest-bearing liabilities	232.0	233.8	230.4

					Balance
USD million	Currency	Amount	Interest	Maturity	Q1 2014	Q4 2013
Non-current
Bond loan (ISIN NO0010606197)	NOK	560.0	Nibor + 7.5%	11/04/2016	93.5	92.0
Bond loan (ISIN NO0010606189)	USD	140.0	Libor + 7.5%	11/04/2016	140.0	140.0
Borrowing issue costs					-1.5	-1.7
Total interest-bearing liabilities					232.0	230.4

Note 10 || Provisions for other liabilities and charges

		Quarter
USD million	Q1 2014	Q1 2013	2013
Non-current
Asset retirement obligations	2.2	3.3	3.6
Other long-term obligations	100.9	29.3	89.5
Total non-current provisions for other liabilities and charges	103.0	32.6	93.0
Current
Other provisions and charges	77.7	137.1	79.7
Total current provisions for other liabilities and charges	77.7	137.1	79.7
Total provisions for other liabilities and charges	180.7	169.7	172.7

Included in provison for other liabilities and charges is provision for the Water Purification Project (WPP) in the Kurdistan region of Iraq. The WPP was capitalized in 2009 and is depreciated over the period of production. The WPP liability will not be payable until a payment mechanism is in place and proceeds from export sale are received on a regular basis. The monthly installments are contingent on defined gross revenue levels and will be fully recovered through cost oil. The WPP liability is recorded at net present value, where the unwinding of interest is charged to profit or loss. Part of the WPP liability has been classified as short-term at 31 March 2014 and included in other provisions and charges (current).

Provision for production bonuses for the Tawke and Erbil licenses in the Kurdistan region of Iraq is also included in provision for other liabilities and charges. Production bonuses relate to payments based on different production levels.

With effect from 1 January 2014, DNO has changed its presentation currency from Norwegian kroner (NOK) to US Dollars (USD) for the consolidated financial statements. The change have been made to better reflect the profile of an industry with revenues, costs and cash flows primarily generated in USD.

The tables below show restated condensed financial statements for the DNO group as if the change were effective since 1 January 2005 (IFRS transition):

Consolidated statements of comprehensive income

						Full year
USD million	Q4 2013	Q3 2013	Q2 2013	Q1 2013	2013	2012
Sales	133.6	135.2	130.9	103.3	503.0	524.5
Cost of goods sold	-48.4	-53.1	-57.0	-49.9	-208.3	-208.4
Gross profit	85.1	82.2	74.0	53.4	294.7	316.1
Other operating income	0.1	0.1	0.1	0.2	0.3	1.7
Tariffs and transportation	-0.6	-1.2	-1.5	-0.9	-4.2	-2.7
Administrative expense/Other operating expenses	-9.3	-10.1	-7.2	-3.6	-30.2	-27.0
Impairment/Reversal of impairment oil and gas assets	-177.2	-5.1	-	-	-182.3	-
Exploration cost expensed	-3.9	-2.0	-2.4	-1.9	-10.3	-13.4
Net gain/-loss from sale of PP&E	-	-0.1	-	-	-0.1	-4.8
Profit/-loss from operations	-105.7	63.6	62.9	47.1	67.9	270.0
Financial income	0.2	0.4	1.1	0.9	2.6	2.8
Financial expenses	-1.4	-2.9	-3.9	-4.1	-12.3	-24.8
Profit/-loss before income tax	-106.9	61.1	60.1	43.9	58.2	248.0
Income tax expense	8.8	-14.2	-12.1	-13.8	-31.3	-49.9
Net profit/-loss	-98.1	47.0	48.0	30.1	27.0	198.1
Net profit/-loss attributable to:
Equity holders of the parent	-98.1	47.0	48.0	30.1	27.0	198.1
Earnings per share	0.10	0.05	0.05	0.03	0.03	0.20

Note 11 || Change of presentation currency continues

Condensed consolidated statements of financial position

USD million	2013	2012
Non-current assets
Goodwill	-	46.4
Deferred income tax assets	7.7	7.7
Other intangible assets	158.3	130.9
Property, plant and equipment	725.2	698.1
Available for sale investments	10.8	0.4
Other non-current assets	2.4	-
Total non-current assets	904.4	883.6
Current assets
Inventories	50.8	40.9
Trade and other receivables	114.0	123.7
Cash and cash equivalents	265.9	270.9
Total current assets	430.7	435.6
TOTAL ASSETS	1,335.1	1,319.2
EQUITY AND LIABILITIES
USD million	2013	2012
Equity
Share capital	33.6	33.6
Other reserves Retained earnings	174.7 550.2	164.2 523.2
Total equity	758.5	721.0
Non-current liabilities
Interest-bearing liabilities	230.4	238.0
Deferred income tax liabilities	101.5	140.4
Retirement benefit obligations	0.5	0.5
Provisions for other liabilities and charges	92.5	33.1
Total non-current liabilities	424.9	412.0
Current liabilities
Trade and other payables	56.5	40.0
Income taxes payable	15.5	7.4
Provisions for other liabilities and charges	79.7	138.7
Total current liabilities	151.7	186.2
TOTAL EQUITY AND LIABILITIES	1,335.1	1,319.2

Note 11 || Change of presentation currency continues

Condensed consolidated cash flow statements

					Full year
USD million	Q4 2013	Q3 2013	Q2 2013	Q1 2013	2013
Operating activities
Profit/-loss before income tax	-106.9	61.1	60.1	43.9	58.2
Adjustments to add (deduct) non-cash items:
+/- Net interest expense (-income) Previously capitalized exploration and evaluation expenses	0.6 -	2.6 -	1.6 -	2.3 -	7.2 -
Depreciation of PP&E	23.4	24.9	25.0	24.5	97.8
Impairment loss/Reversal of impairment on PP&E	177.2	5.1	-	-	182.3
(Gain)/loss on PPE	-	0.1	-	-	0.1
(Gain)/loss on shares	-	-	-	-	-
Other	58.4	3.3	-1.5	-7.9	52.3
Changes in working capital:
- Inventories	-12.8	3.5	-1.8	1.2	-9.9
- Trade and other receivables	-20.8	4.7	-26.0	49.4	7.4
- Trade and other payables	35.3	-22.1	9.2	-5.8	16.5
- Provisions for other liabilities and charges	-53.1	1.4	-5.8	-1.6	-59.1
Cash generated from operations	101.3	84.8	60.8	105.8	352.8
Income taxes paid	-14.8	-16.7	-14.1	-16.5	-62.1
Interest paid	-5.0	-5.1	-5.0	-5.2	-20.3
Net cash from operating activities	81.5	63.0	41.7	84.1	270.4
Investing activities
Purchases of intangible assets	-4.9	-3.0	-14.2	-13.7	-35.9
Proceeds from sale of intangible assets	-	-	-	-	-
Purchases of tangible assets	-65.2	-70.0	-65.7	-51.5	-252.5
Proceeds from sale of tangible assets	-	-	-	-	-
Purchases of available-for-sale financial assets	-10.8	-	-	-	-10.8
Proceeds from sale of available-for-sale financial assets	-	-	0.5	-	0.5
Interest received	0.2	0.2	0.1	0.1	0.6
Other investing activities	-	-	-	-	-
Net cash from/-used in investing activities	-80.9	-72.8	-79.3	-65.1	-298.1
Financing activities
Repayment of borrowings	-	-	-	-	-
Purchase of treasury shares, including options	-	-	-	-	-
Net cash from/-used financing activities	-	-	-	-	-
Net increase/-decrease in cash and cash equivalents	0.7	-9.8	-37.6	19.0	-27.7
Cash and cash equivalents at beginning of the period	262.1	273.2	301.2	270.9	270.9
Exchange gain/-losses on cash and cash equivalents	3.0	-1.2	9.8	11.3	22.7
Cash and cash equivalents at end of the period	265.9	262.1	273.2	301.2	265.9

Note 12 || Events after the balance sheet date

ANNUAL STATEMENT OF RESERVES

On 30 April, DNO released its Annual Statement of Reserves (ASR) reporting the Company's year-end 2013 proved and probable (CWI) reserves of 541.9 MMboe comprised of 507.1 million barrels (MMbbls) of oil (including condensate and other liquids) and 195.4 billion cubic feet (Bcf) of gas. These volumes represent the Company's commercial reserves, class 1-3, under the Norwegian Petroleum Directorate classification. In addition to its class 1-3 2P CWI reserves, the Company held 99.4 MMboe in 2C contingent resources, class 4-7 on a CWI basis. International petroleum consultants DeGolyer and MacNaughton conducted an independent assessment of the majority of the Company's assets; those assets with minor or no change in reserves and resources since 31 December 2012 were assessed by the Company.

www.dno.no

DNO International ASA Bryggegata 9, Aker Brygge N-0250 Oslo Norway

Phone: (+47) 23 23 84 80 Fax: (+47) 23 23 84 81