DNO ASA — Interim / Quarterly Report 2015

Nov 5, 2015

Interim Report Third Quarter 2015

Key figures

	Quarterly Results		Year to date		Full year
USD million	Q3 2015	Q3 2014	2015	2014	2014	2013
Key financials
Sales 1)	52.1	115.7	132.9	371.9	452.0	503.0
Gross profit	9.3	30.8	-37.4	137.0	135.5	294.7
Profit/loss from operating activities	-0.1	-40.7	-92.6	43.6	-243.2	67.9
Net profit/loss	-14.9	-41.6	-129.0	26.4	-226.1	27.0
EBITDA	26.7	58.1	6.5	238.2	254.1	348.1
Netback	23.9	42.4	-3.0	202.8	203.6	285.9
Acquisition and development costs	1.3	52.1	49.9	234.8	297.3	288.3
Exploration costs expensed	4.7	13.9	19.4	23.1	50.6	10.3
Key performance indicators 2)
Lifting costs (USD/boe)	1.9	4.9	3.5	4.7	4.8	8.0
Netback (USD/boe)	2.8	6.7	-0.1	11.3	8.3	20.8

1) Sales in 2014 include USD 20.6 million for oil exported from the Tawke field.

2) Key performance indicators include exports from the Tawke field.

Corporate overview

• Robust operational metrics with year-to-date production up nearly 30 percent
• This performance achieved despite early and aggressive measures to reduce costs
• Worst of oil price crisis behind us
• Small but steady improvement in financial metrics in last two quarters
• Recent Kurdistan export payments welcome step
• Aggregate value of Tawke production around USD 2 billion per year
• DNO focused on monetizing its share of this production, including through new marketing arrangements
• Regular export payments and a timetable for recovery of receivables key to resuming Tawke investment
• Leaner and stronger organization following staffing reductions and tactical recruitments
• Repositioned for growth

Q3 2015 operational highlights

• Gross production in Q3 2015 of 152,507 boepd, of which company working interest (CWI) production was 93,676 boepd
• Tawke output in Q3 2015 averaged 145,184 bopd, of which 120,633 bopd was delivered for pipeline export through Turkey
• Another 21,082 bopd sold into Kurdistan local market and balance processed in our refinery
• Production in Yemen suspended but monitoring security conditions to gauge whether and when operations can resume
• Continue to pursue new venture opportunities

Q3 2015 financial highlights

• Gross revenues of USD 52 million in Q3, just shy of USD 55 million in Q2 but double USD 26 million in Q1
• Reversed operating losses of the previous four quarters
• Tawke export payment of USD 30 million (USD 22 million net to DNO) in September
• Generated an additional USD 24 million net to DNO from local sales of oil and refined products for total of USD 46 million in Kurdistan revenues in Q3
• Ended the quarter with a cash balance of USD 247 million

Operational review

Production

Quarterly production

Quarterly CWI production

Company working interest production (CWI) during the third quarter averaged 93,676 barrels of oil equivalent per day (boepd), compared to 99,613 boepd during the second quarter of 2015. Although volumes were down in Q3, production was up considerably from the corresponding period last year, when CWI production stood at 72,609 boepd, due to increased production from the Tawke field in the Kurdistan region of Iraq. In Kurdistan, CWI production totaled 90,014 barrels of oil per day (bopd) during the third quarter, down from 95,075 bopd during the second quarter.

In Oman, CWI production totaled 3,662 boepd during the third quarter compared to 4,538 boepd in the previous quarter.

Net entitlement production totaled 28,599 boepd during the third quarter compared to 39,006 boepd in the previous quarter.

Gross production

	Quarter		Year to date		Full year
boepd	Q3 2015	Q3 2014	2015	2014	2014	2013
Kurdistan	145,184	100,055	134,958	91,374	95,011	39,433
Oman	7,323	17,211	9,295	15,936	15,678	21,473
Yemen	-	7,130	1,181	6,858	6,793	9,708
Total	152,507	124,396	145,434	114,168	117,482	70,614

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

Company working interest (CWI) production

	Quarter		Year to date		Full year
boepd	Q3 2015	Q3 2014	2015	2014	2014	2013
Kurdistan	90,014	61,140	83,635	56,092	58,414	24,527
Oman	3,662	8,605	4,647	7,968	7,839	10,736
Yemen	-	2,864	518	2,712	2,705	3,907
Total	93,676	72,609	88,800	66,772	68,958	39,170

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

Net entitlement production

boepd	Quarter Q3 2015	Q3 2014	Year to date 2015 014		Full year 2014 2013
Kurdistan	26,831	27,009	28,840	23,708	23,746	12,679
Oman	1,768	4,331	2,439	4,240	4,160	5,733
Yemen	-	1,924	305	1,848	1,876	2,543
Total	28,599	33,264	31,584	29,796	29,782	20,956

The table above reflects the company'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 entitlement production.

Activity overview

Appraisal and field development

Kurdistan region of Iraq

Tawke license

Gross output at the Tawke field averaged 145,184 bopd in the third quarter, including 120,633 bopd delivered by the Kurdistan Regional Government for pipeline export through Turkey, 21,082 bopd sold into the local market and the balance used in the Tawke refinery.

Total investment at Tawke stands at more than USD 1 billion, covering 30 wells, 200,000 bopd of processing capacity, two pipelines with combined capacity over 300,000 bopd, a major pipeline export hub and 125,000 bopd of road tanker loading capacity.

New drilling and other investments are necessary at Tawke to reverse natural field decline and sustain production in 2016, though the timing and extent of new investments are tied to a sustained and regular revenue stream. With improved payments, the company will drill the Peshkabir appraisal well and fast track development of this field, also located in the Tawke license.

Erbil license

Testing has shown higher volumes of oil-in-place for the Benenan heavy oil field, currently estimated to hold more than two billion barrels. An appraisal of commercialization is ongoing, although a development of these heavy oil resources is contingent on payment normalization.

Oman

Offshore at Block 8, the Bukha and West Bukha fields produced a gross average of 7,323 boepd in the third quarter of 2015. An additional development well remains under consideration to increase West Bukha oil and gas output.

United Arab Emirates

Saleh field continues to produce small volumes of gas and liquids on an intermittent basis.

Yemen

Production from Block 32 and Block 43 remained suspended, but the company is monitoring security conditions to gauge whether and when operations can resume.

Exploration

Oman

At the onshore Block 36, DNO is planning an exploration well in 2016.

Tunisia

3D seismic activity is planned for 2016 at the Sfax Offshore Exploration Permit in preparation for drilling a well in 2017.

United Arab Emirates

The company continues work on reprocessing existing seismic data and an associated basin study on the RAK Onshore license.

Somaliland

At Block SL 18 onshore Somaliland, a field geological survey and an environmental impact assessment have been conducted. The government is in the process of creating an oil security force to support seismic acquisitions.

Financial review

Revenues, profits and cash flow

Sales revenue in the third quarter decreased to USD 52.1 million from USD 54.8 million in the previous quarter. This was mainly due to lower local sales and lower realized oil prices in Kurdistan.

Total revenues from Kurdistan, including local sales, contributed revenues of USD 46.1 million in the third quarter. Revenue from production at offshore Block 8 in Oman amounted to USD 6.0 million, while there was no revenue from Yemen. DNO reported an operating loss of USD 0.1 million during the third quarter.

The company ended the quarter with USD 247.2 million in cash and USD 17.5 million in marketable securities.

Cost of goods sold

In the third quarter, the cost of goods sold was USD 42.8 million compared to USD 84.9 million in the corresponding period in 2014.

Lifting costs

Lifting costs were down to USD 15.9 million in the third quarter from USD 30.6 million in the same period in 2014. Total and unit lifting costs per country are presented in the accompanying table.

Lifting costs

USD million	Quarter Q3 2015	Q3 2014	Year to date 2015 2014		Full year 2014 2013
Kurdistan	10.7	17.0	57.0	40.7	66.5	46.9
Oman	3.2	3.9	11.4	13.7	14.2	19.0
Yemen	2.0	9.6	15.6	29.9	37.2	44.7
Total	15.9	30.6	84.1	84.3	117.9	110.6

Including export volumes

	Quarter		Year to date		Full year
USD/boe	Q3 2015	Q3 2014	2015	2014	2014	2013
Kurdistan	1.3	3.2	2.5	2.7	3.1	5.3
Oman	12.3	5.5	10.9	7.0	5.5	5.2
Yemen	-	40.2	157.5	44.8	42.0	33.7
Average	1.9	4.9	3.5	4.7	4.8	8.0

Depreciation, depletion and amortization (DD&A)

DD&A amounted to USD 25.6 million in the third quarter compared to USD 53.8 million in the corresponding period in 2014.

DD&A

USD million	Q3 2015	Quarter Q3 2014	2015	Year to date 2014	Full year 2014	2013
Kurdistan	22.7	33.0	71.2	84.4	112.7	35.5
Oman	2.9	16.5	11.0	52.5	67.3	41.0
Yemen	-	4.3	0.3	12.4	16.6	20.2
Total	25.6	53.8	82.4	149.3	196.5	96.8

Including export volumes

	Quarter		Year to date		Full year
USD/boe	Q3 2015	Q3 2014	2015	2014	2014	2013
Kurdistan	9.2	14.7	9.1	14.1	13.9	7.7
Oman	17.8	41.5	16.5	45.4	44.3	19.6
Yemen	-	27.1	3.6	27.4	27.2	23.7
Average	9.8	19.0	9.6	18.5	18.2	12.8

Exploration costs expensed

Expensed exploration costs of USD 4.7 million in the third quarter were mainly related to activities in Tunisia.

Exploration costs expensed

	Quarter			Year to date		Full year
USD million	Q3 2015	Q3 2014	2015	2014	2014	2013
Kurdistan	-	-	-	0.2	0.2	0.4
Oman	1.5	4.4	4.3	6.5	14.6	1.6
Yemen	-	0.4	5.4	0.3	6.4	0.6
UAE	0.2	0.2	0.7	0.5	0.7	0.4
Tunisia	2.8	10.0	8.7	15.0	28.0	6.3
Other	0.1	-1.0	0.3	0.6	0.6	0.9
Total	4.7	13.9	19.4	23.1	50.6	10.3

Acquisition and development costs

(including intangible assets)

Capital expenditures through the first three quarters of 2015 totaled USD 49.9 million compared to USD 234.8 million in the corresponding period in 2014.

Acqusition and development costs

		Quarter		Year to date				Full year
USD million	Q3 2015	Q3 2014	2015	2014	2014	2013
Kurdistan	0.7	44.7	46.2	200.2	254.6	167.8
Oman	-	-0.4	0.4	14.8	18.6	31.7
Yemen	-	2.5	0.5	6.8	7.8	26.7
UAE	-0.1	0.2	0.2	-0.3	-0.3	59.9
Tunisia	-	2.4	0.1	8.9	7.0	-
Other	0.7	2.7	2.6	4.4	9.6	2.2
Total	1.3	52.1	49.9	234.8	297.3	288.3

Consolidated statements of comprehensive income

		Quarter		Year to date		Full year
USD million	Note	Q3 2015	Q3 2014	Q3 2015	Q3 2014	2014
Sales	2, 3	52.1	115.7	132.9	371.9	452.0
Cost of goods sold	4	-42.8	-84.9	-170.3	-234.9	-316.5
Gross profit		9.3	30.8	-37.4	137.0	135.5
Other operating income		-	-	0.9	2.6	2.6
Tariffs and transportation		-0.1	-1.7	-0.8	-3.0	-4.2
Administrative expense/Other operating expenses		-4.6	-11.4	-22.7	-25.8	-30.2
Impairment oil and gas assets	7	-	-44.5	-13.2	-44.5	-296.7
Exploration costs expensed	5	-4.7	-13.9	-19.4	-23.1	-50.6
Net gain/loss from sale of PP&E	7	-	-	-	0.4	0.4
Profit/-loss from operating activities		-0.1	-40.7	-92.6	43.6	-243.2
Financial income		3.1	1.6	15.0	7.9	21.5
Financial expenses		-18.0	-1.1	-49.7	-18.9	-30.1
Profit/-loss before income tax		-14.9	-40.2	-127.3	32.6	-251.8
Income tax expense	6	0.1	-1.4	-1.7	-6.1	25.8
Net profit/-loss		-14.9	-41.6	-129.0	26.4	-226.1
Other comprehensive income
Currency translation differences		0.7	0.4	0.2	0.2	0.4
Fair value changes available-for-sale financial assets		-	0.2	-	6.6	-
Other comprehensive income that may be reclassified to profit or loss in subsequent periods		0.7	0.6	0.2	6.8	0.4
Other comprehensive income that will not be reclassified
to profit or loss in subsequent periods		-	-	-	-	-
Total other comprehensive income, net of tax	6	0.7	0.6	0.2	6.8	0.4
Total comprehensive income, net of tax		-14.2	-41.0	-128.8	33.2	-225.7
Net profit/-loss attributable to:
Equity holders of the parent		-14.9	-41.6	-129.0	26.4	-226.1
Total comprehensive income attributable to:
Equity holders of the parent		-14.2	-41.0	-128.8	33.2	-225.7
Earnings per share, basic Earnings per share, diluted		-0.01 -0.01	- -	-0.12 -0.12	0.07 0.07	-0.23 -0.23

Condensed consolidated statements of financial position

ASSETS	30 September		Full year
USD million Note	2015	2014	2014
Non-current assets
Deferred income tax assets 6	-	7.7	3.3
Other intangible assets 7	140.4	161.0	150.5
Property, plant and equipment 7	486.4	761.8	528.9
Available for sale investments 8	17.5	56.3	35.0
Other non-current assets	4.5	4.9	4.8
Total non-current assets	648.7	991.8	722.5
Current assets
Inventories 4	70.8	71.1	77.7
Trade and other receivables	180.0	152.5	187.3
Cash and cash equivalents	247.2	165.7	113.8
Total current assets	498.1	389.2	378.8
TOTAL ASSETS	1,146.8	1,381.0	1,101.3
EQUITY AND LIABILITIES	30 September		Full year
USD million Note	2015	2014	2014
Equity
Share capital	36.0	33.6	33.6
Other reserves	291.1	181.4	175.1
Retained earnings	195.1	576.7	324.1
Total equity	522.2	791.7	532.8
Non-current liabilities
Interest-bearing liabilities 9	347.9	225.8	214.7
Deferred income tax liabilities 6	26.2	77.0	34.4
Provisions for other liabilities and charges 10	98.3	105.8	100.1
Total non-current liabilities	472.3	408.6	349.2
Current liabilities
Trade and other payables	69.5	90.2	139.7
Income taxes payable	2.3	10.8	1.9
Provisions for other liabilities and charges 10	80.3	79.7	77.6
Total current liabilities	152.2	180.7	219.2
TOTAL EQUITY AND LIABILITIES	1,146.8	1,381.0	1,101.3

Condensed consolidated cash flow statements

			Quarter		Year to date
USD million	Note	Q3 2015	Q3 2014	Q3 2015	Q3 2014	Full year 2014
Operating activities
Profit/-loss before income tax		-14.9	-40.2	-127.3	32.6	-251.8
Adjustments to add (deduct) non-cash items:
+/- Net interest expense (-income)		10.1	3.8	16.9	16.5	12.6
Previously capitalized exploration and evaluation expenses	5	-	-	5.1	-	5.9
Depreciation of PP&E	4	26.8	54.3	86.0	150.5	198.5
Impairment loss/Reversal of impairment on PP&E	7	-	44.5	13.2	44.5	296.7
Gain/loss on PP&E	7	0.2	-	0.2	-0.4	-0.4
Impairment/Reversal of impairment of financial assets		4.7	-	17.5	-	14.8
Other *		0.4	-12.8	-0.9	5.5	-4.2
Changes in working capital:
- Inventories		-1.9	-4.8	5.0	-20.3	-26.9
- Trade and other receivables		8.3	-26.3	7.7	-41.0	-75.7
- Trade and other payables		-51.5	27.0	-70.2	33.6	83.1
- Provisions for other liabilities and charges		2.9	-	2.7	0.1	-2.0
Cash generated from operations		-15.0	45.4	-44.2	221.6	250.5
Income taxes paid		-2.8	-15.8	-9.5	-35.4	-50.5
Interest paid		-4.5	-4.6	-14.1	-14.5	-18.6
Net cash from operating activities		-22.3	25.0	-67.8	171.7	181.4
Investing activities
Purchases of intangible assets	7	-	-2.4	0.1	-7.4	-6.6
Proceeds from sale of intangible assets		-	-	-	0.3	0.3
Purchases of tangible assets	7	-1.3	-49.7	-50.0	-227.4	-290.7
Proceeds from sale of tangible assets		-	0.1	-	0.6	0.9
Purchases of available-for-sale financial assets		-	-2.6	-	-38.9	-38.9
Proceeds from sale of available-for-sale financial assets		-	-	-	-	-
Interest received		0.2	0.1	1.0	0.3	0.4
Net cash used in/from investing activities		-1.1	-54.5	-48.9	-272.4	-334.5
Financing activities
Proceeds from borrowings	9	0.4	-	344.8	-	-
Repayment of borrowings		-178.0	-	-211.4	-	-
Proceeds from sale of treasury shares		-	-	21.4	-	-
Proceeds from issuance of shares		-	-	96.9	-	-
Net cash used in/from financing activities		-177.6	-	251.7	-	-
Net increase/-decrease in cash and cash equivalents		-200.9	-29.4	134.8	-100.8	-153.1
Cash and cash equivalents at beginning of the period		450.2	195.1	113.8	265.9	265.9
Exchange gain/-losses on cash and cash equivalents		-2.0	-	-1.3	0.5	1.0
Cash and cash equivalents at end of the period		247.2	165.7	247.2	165.7	113.8

* Included in category 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 statement of changes in equity

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	-	6.6	-	6.6
Currency translation differences	-	0.2	-	0.2
Other comprehensive income/-loss	-	6.7	-	6.7
Profit for the period	-	-	26.4	26.4
Total comprehensive income	-	6.7	26.4	33.2
Issue of share capital	-	-	-	-
Purchase of treasury shares	-	-	-	-
Sale of treasury shares	-	-	-	-
	-	-	-	-
Balance at 30 September 2014	33.6	181.4	576.7	791.7

USD million	Share capital	Other reserves	Retained earnings	Total equity
Balance at 1 January 2015	33.6	175.1	324.1	532.8
Fair value gains. net of tax:
- available-for-sale financial assets	-	-	-	-
Currency translation differences	-	0.2	-	0.2
Other comprehensive income/loss	-	0.2	-	0.2
Loss for the period	-	-	-129.0	-129.0
Total comprehensive income	-	0.2	-129.0	-128.8
Issue of share capital	1.9	95.0	-	96.9
Purchase of treasury shares	-	-	-	-
Sale of treasury shares	0.6	20.8	-	21.4
	2.4	115.8	-	118.2
Balance at 30 September 2015	36.0	291.1	195.1	522.2

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 Oslo 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 of 31 December 2014. The interim financial information for 2015 and 2014 is unaudited.

The condensed consolidated financial statements have been prepared on a historical cost basis, with the following exemption: * All derivatives, all financial assets and liabilities held for trading, all 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 2014. 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 2014.

DNO changed the presentation currency for the consolidated accounts from NOK to USD with effect from 1 January 2014.

Note 2 | Segment information

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

Note	KUR	OMAN	YEM	UAE	TUN	Other	Total report. segm.	Unalloc./ elimin.	GROUP
3	46.1	6.0	-	-	-	-	52.1	-	52.1
	-	-	-	-	-	-	-	-	-
4	-33.5	-6.1	-2.0	-	-0.1	-	-41.7	-1.1	-42.8
	12.6	-0.2	-2.0	-	-0.1	-	10.4	-1.1	9.3
	11.9	-2.0	-0.9	-0.2	-3.1	-0.1	5.6	-10.5	-4.9
									-10.1
									-
	-	-	-	-	-	-	0.1	-	0.1
									-14.9
									1,146.8
		753.2	176.6	6.2	3.9	82.3	1.1	1,023.3	123.5

Note 2 | Segment information continues

Three months ending 30 September 2014 USD million	Note	KUR	OMAN	YEM	UAE	TUN	Other	report. segm.	Unalloc./ elimin.	GROUP
Income statement information
External sales	3	77.5	22.9	15.3	-	-	-	115.7	-	115.7
Inter-segment sales		0.4	1.4	0.3	0.1	0.1	-	2.4	-2.4	-
Cost of goods sold	4	-50.1	-20.5	-13.9	-	-	-	-84.6	-0.3	-84.9
Gross profit		27.8	3.8	1.7	0.1	0.1	-	33.5	-2.7	30.8
Segment operating result		26.8	-3.7	-2.0	-44.7	-10.1	0.4	-33.3	-3.7	-37.0
Interest - net										-3.2
Gain/loss on sale of shares										-
Income tax expense		-	-1.4	-	-	-	-	-1.4	-	-1.4
Net profit/loss										-41.6
Segment assets		871.5	158.5	111.9	3.9	47.6	2.0	1,195.3	185.7	1,381.0
Nine months ending 30 September 2015 USD million	Note	KUR	OMAN	YEM	UAE	TUN	Other	Total report. segm.	Unalloc./ elimin.	GROUP
Income statement information
External sales	3	106.3	23.3	3.2	-	-	-	132.9	-	132.9
Inter-segment sales		-	-	-	-	-	-	-	-	-
Cost of goods sold	4	-128.5	-22.5	-15.9	-	-0.2	-	-167.2	-3.1	-170.3
Gross profit		-22.2	0.8	-12.7	-	-0.2	-	-34.3	-3.1	-37.4
Segment operating result		-32.6	-3.9	-39.7	-0.7	-8.9	-0.4	-86.1	-34.1	-120.3
Interest - net										-7.1
Gain/loss on sale of shares										-
Income tax expense		-	-0.5	-1.2	-	-	-	-1.7	-	-1.7
Net profit/loss										-129.0
Segment assets		753.2	176.6	6.2	3.9	82.3	1.1	1,023.3	123.5	1,146.8
Nine months ending 30 September 2014 USD million	Note	KUR	OMAN	YEM	UAE	TUN	OTHER	Total report. segm.	Unalloc./ elimin.	GROUP
Income statement information
External sales	3	249.3	74.6	48.0	-	-	-	371.9	-	371.9
Inter-segment sales		2.2	5.7	1.0	0.3	0.4	0.3	10.0	-10.0	-
Cost of goods sold	4	-125.5	-66.4	-42.3	-	-0.1	-0.1	-234.2	-0.7	-234.9
Gross profit		126.0	14.0	6.7	0.3	0.3	0.3	147.7	-10.7	137.0
Segment operating result		119.3	0.7	-0.7	-42.8	-14.9	-2.0	59.7	-11.2	48.4
Interest - net										-15.9
Gain/loss on sale of shares										-
Income tax expense		-	-4.8	-1.3	-	-	-	-6.1	-	-6.1
Net profit/loss										26.4
Segment assets		871.5	158.5	111.9	3.9	47.6	2.0	1,195.3	185.7	1,381.0

Total

Note 3 | Sales

DNO's operations governed by Production Sharing Agreements/Production Sharing Contracts (PSA/PSC) are reported according to the net entitlement method.

	Quarter		Year to date		Full year
USD million	Q3 2015	Q3 2014	Q3 2015	Q3 2014	2014
Sale of petroleum products	52.1	115.7	132.9	371.9	452.0
Total sales	52.1	115.7	132.9	371.9	452.0

In December 2014 the Kurdistan Regional Government made a partial payment of USD 20.6 million to DNO for oil exported from the Tawke field. According to DNO's accounting policies on revenue recognition, this amount was recorded as revenue in 2014. In September 2015, DNO received a payment for export from the Tawke field of gross USD 30 million (USD 22 million net to DNO).

There has been a combination of export and local sales from the Tawke field in the third quarter. Export revenues are not recognized until receipt of payment, meaning that DNO's contractual share of gross export deliveries from Tawke of 11.1 million barrels in Q3 is not reflected in the revenues.

Note 4 | Cost of goods sold/inventory

	Quarter		Year to date		Full year
USD million	Q3 2015	Q3 2014	Q3 2015	Q3 2014	2014
Lifting costs*	-15.9	-30.6	-84.1	-84.3	-117.9
Depreciation, depletion and amortization	-26.8	-54.3	-86.2	-150.6	-198.5
Other cost of goods sold	-	-	-	-	-0.2
Total cost of goods sold	-42.8	-84.9	-170.3	-234.9	-316.5

* 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. Lifting costs in Q3 low due to estimate changes from Q4 for Tawke.

	30 September		Full year
USD million	2015	2014	2014
Spare parts	60.4	58.9	65.5
Other inventory	10.4	12.2	12.2
Total inventory	70.8	71.1	77.7

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 costs

USD million	Quarter Q3 2015 Q3 2014		Year to date Q3 2015 Q3 2014		Full year 2014
Exploration expenses (G&G and field surveys)	-1.7	-3.5	-6.0	-8.7	-12.9
Seismic costs	-	-9.6	-0.5	-9.8	-14.8
Exploration costs capitalized in previous years carried to cost	-	-	-5.1	-	-5.9
Exploration costs capitalized this year carried to cost	-1.7	-	-3.5	0.1	-10.3
Other exploration costs expensed	-1.3	-0.8	-4.2	-4.7	-6.7
Total exploration costs expensed *	-4.7	-13.9	-19.4	-23.1	-50.6

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

Exploration costs capitalized this year carried to cost include adjustment of previous estimates and demobilization costs at the Sfax Offshore Permit in Tunisia.

Note 6 | Income taxes

	Quarter		Year to date		Full year
USD million	Q3 2015	Q3 2014	2015	2014	2014
Deferred taxes	4.9	10.6	8.3	24.5	62.6
Income taxes payable related to Production Sharing Agreements (PSAs) in Yemen and Oman	-4.8	-12.0	-9.9	-30.6	-36.8
Total income tax expense	0.1	-1.4	-1.7	-6.1	25.8

The interim period income tax expense relates to the Yemen and Oman operations and is calculated by applying the tax rate applicable 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.

Note 7 | Property, plant and equipment/intangible assets

USD million	Quarter Q3 2015 Q3 2014		30 September 2015 2014		Full year 2014
Acquisitions of PP&E *	1.3	49.7	50.0	227.4	290.7
Acquisitions of Intangible assets **	-	2.4	-0.1	7.4	6.6
Net book amount PP&E	486.4	761.8	486.4	761.8	528.9
Net book amount Intangible assets	140.4	161.0	140.4	161.0	150.5
Sale of PP&E
Proceeds	-	-	-	0.8	1.2
Carrying value	-	-	-	0.4	0.8
Net gain/-loss	-	-	-	0.4	0.4
			-	-
Impairment of PP&E	-	44.4	13.2	44.4	296.7

* 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 13.2 million is related to assets in Yemen and was expensed in Q1 2015. Impairment charge of USD 296.7 million in 2014 was related to assets in Yemen, Oman and UAE.

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 accounted for in other comprehensive income.

	Quarter		30 September		Full year
USD million	Q3 2015	Q3 2014	2015	2014	2014
Beginning of the period	22.2	53.5	35.0	10.8	10.8
Additions	-	2.6	-	38.9	38.9
Sales	-	-	-	-	-
Revaluation surplus/deficit transfer to equity	-	0.2	-	6.6	-
Impairment	-4.7	-	-17.5	-	-14.8
Exchange differences	-	-	-	-	-
End of the period 1)	17.5	56.3	17.5	56.3	35.0
Non-current portion	17.5	56.3	17.5	56.3	35.0
Current portion	-	-	-	-	-

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

	30 September		Full year
USD million	2015	2014	2014
Listed securities:
- RAK Petroleum plc	17.5	56.3	35.0
Total available-for-sale financial assets	17.5	56.3	35.0

DNO has a total of 15,849,737 shares in RAK Petroleum plc. All shares were acquired in open market transactions. RAK Petroleum plc was listed on the Oslo Stock Exchange on 7 November 2014.

An impairment of USD 14.8 million was recorded in 2014 due to lower market value. An impairment of USD 17.5 million was recorded in year to date 2015 due to further decline in market value.

Note 9 | Interest-bearing liabilities

	30 September		Full year
USD million	2015	2014
Non-current
Bonds	400.0	226.8	215.3
Capitalized borrowing issue costs	-52.1	-1.0	-0.6
Total non-current interest-bearing liabilities	347.9	225.8	214.7
Current
Current portion of bonds	-	-	-
Total current interest-bearing liabilities	-	-	-
Total interest-bearing liabilities	347.9	225.8	214.7

Interest-bearing liabilities:

					Balance
USD million	Currency	Amount	Interest	Maturity	Q3 2015	Q2 2015
Non-current
Bond loan (ISIN NO0010606197)	USD	400.0	8.75%	18.06.20	400.0	400.0
Borrowing issue costs					-52.1	-55.3
Current
Bond loan (ISIN NO0010606197)	NOK	421.0	Nibor + 7.5%	11.04.16	-	54.4
Bond loan (ISIN NO0010606189)	USD	124.6	Libor + 7.5%	11.04.16	-	126.5
Total interest-bearing liabilities					347.9	525.6

On 19 June 2015, DNO completed the placement of USD 400 million of new, five-year senior unsecured bonds with a fixed coupon rate of 8.75 percent and an issue price of 87.5 percent of par value. In connection with the issuance, DNO repurchased portions of the USD and NOK tranches of its previous bond. The company repurchased USD 15.4 million of the USD tranche with ticker DNO13 and ISIN NO0010606189, leaving USD 124.6 million outstanding. Additionally, DNO repurchased NOK 139 million of the NOK tranche with ticker DNO14 and ISIN NO0010606197, leaving NOK 421 million outstanding.

On 6 August 2015, DNO made a settlement of its call of all outstanding bonds including the USD tranche with ticker DNO13 and ISIN NO0010606189 and the NOK tranche with ticker DNO14 and ISIN NO0010606197. The bonds were redeemed at a price of 101.5 percent of par value as provided for under Clause 10.2.2 of the Bond Agreement. The settlement follows the company's exercise of its option to call outstanding bonds on 24 June 2015. Through exercise of the call option, USD 124.6 million in the USD tranche of the bonds and NOK 421 million in the NOK tranche were redeemed on 6 August 2015.

Note 10 | Provisions for other liabilities and charges

	30 September		Full year
USD million	Q3 2015	Q3 2014	2014
Non-current
Asset retirement obligations	4.9	3.7	3.7
Other long-term obligations	93.4	102.2	96.3
Total non-current provisions for other liabilities and charges	98.3	105.8	100.1
Current
Other provisions and charges	80.3	79.7	77.6
Total current provisions for other liabilities and charges	80.3	79.7	77.6
Total provisions for other liabilities and charges	178.6	185.6	177.7

Included in provison for other liabilities and charges is a 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 sales 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 as of 30 September 2015 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.

Note 11 | Events after the balance sheet date

On 23 October 2015 DNO confirmed receipt of USD 30 million as gross payment for oil exported from the Tawke field by the Kurdistan Regional Government.

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