DNO ASA — Interim / Quarterly Report 2016

Nov 10, 2016

Interim Report Third Quarter 2016

Key figures

	Quarter		Year to date		Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015	2014
Key financials
Revenues	48.8	52.1	159.6	132.9	187.4	452.0
Gross profit	19.8	9.3	67.9	-37.4	-9.5	135.5
Profit/-loss from operating activities	9.1	-0.1	33.3	-92.6	-174.0	-243.2
Net profit/-loss	-3.2	-14.9	-4.1	-129.0	-212.3	-226.1
EBITDA	26.9	26.7	80.0	6.5	29.4	254.1
Netback	26.0	23.9	77.4	-3.0	22.2	203.6
Acquisition and development costs	12.8	1.3	18.1	49.9	50.7	297.3
Exploration costs expensed	-0.6	4.7	19.0	19.4	23.5	50.6
Key performance indicators 1)
Lifting costs (USD/boe)	2.1	1.9	2.2	3.5	2.7	4.8
Netback (USD/boe)	4.0	3.2	4.2	-0.1	0.8	8.2

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

Corporate overview

• ⦁ Third consecutive quarter of operating profits underscores DNO's financial recovery
• ⦁ Stepped up investments in Kurdistan in 2016 with drilling of four wells at flagship Tawke field, adding 10,000 barrels of oil per day (bopd) of new production
• ⦁ At 118,000 bopd, Tawke currently exceeds the combined production of fields operated by all other international oil companies in Kurdistan
• ⦁ Recent export payments by Kurdistan Regional Government for Tawke have been irregular and delayed; notwithstanding, Tawke payments year-to-date (YTD) have totalled 255 million, of which USD 184 million net to DNO
• ⦁ DNO continues to respond to challenging oil market environment by focusing on low-risk, low-cost drilling and further rationalization of portfolio by shedding non-core assets

Q3 2016 operational highlights

• ⦁ Operated production in Q3 2016 averaged 114,500 barrels of oil equivalent per day (boepd)
• ⦁ Of which Tawke represented 109,200 bopd
• ⦁ Tawke production periodically constrained by pipeline closures in Turkey
• ⦁ Average wellhead sales price for Tawke crude of USD 34 per barrel in Q3 2016, unchanged from previous quarter
• ⦁ Oman production averaged 5,300 boepd during the quarter
• ⦁ Total Q3 Company Working Interest (CWI) production averaged 70,300 boepd

Q3 2016 financial highlights

• ⦁ Q3 2016 revenues of USD 49 million
• ⦁ Q3 operating profit of USD 9 million, resulting in YTD operating profit of USD 33 million
• ⦁ Projected 2016 capital investments of 70 million, funded by cash from operations, against previous guidance of USD 100 million
• ⦁ Continue to strengthen our balance sheet
• ⦁ Exited the quarter with cash of USD 266 million, up from USD 238 million at end-2015

Operational review

Production

Quarterly production (boepd)

Company Working Interest (CWI) production during the third quarter averaged 70,330 boepd, down from 75,497 boepd during the second quarter.

In Kurdistan, CWI production totalled 67,678 boepd during the third quarter, down from 72,557 boepd in the previous quarter. In Oman, CWI production totalled 2,652 boepd during the second quarter, down from 2,940 boepd in the previous quarter.

Net entitlement production totalled 25,995 boepd during the third quarter, down from 33,901 boepd in the previous quarter.

Gross production

	Quarter		Year to date		Full year
boepd	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015	2014
Kurdistan	109,159	145,184	105,979	134,958	135,416	95,011
Oman	5,307	7,323	5,493	9,295	8,193	15,678
Yemen	-	-	-	1,181	621	6,793
Total	114,466	152,507	111,472	145,434	144,230	117,482

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 2016	Q3 2015	Q3 2016	Q3 2015	2015	2014
Kurdistan	67,678	90,014	65,707	83,635	83,928	58,414
Oman	2,652	3,662	2,746	4,647	4,139	7,839
Yemen	-	-	-	518	304	2,705
Total	70,330	93,676	68,453	88,800	88,371	68,958

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

	Quarter		Year to date		Full year
boepd	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015	2014
Kurdistan	24,615	26,831	26,974	28,840	28,147	23,746
Oman	1,380	1,768	1,474	2,439	2,190	4,160
Yemen	-	-	-	305	228	1,876
Total	25,995	28,599	28,448	31,584	30,564	29,782

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 production.

Activity overview

Appraisal and field development

Kurdistan region of Iraq

Tawke license

Gross production from the Tawke field averaged 109,200 bopd during the third quarter of 2016, of which 108,800 bopd was delivered for pipeline export through Turkey.

Four production wells have been completed year-to-date, comprising three shallow Jeribe wells and one deeper Cretaceous well, utilizing two rigs.

The Tawke-31 Cretaceous well was completed at a cost of USD 7 million and is currently producing around 4,000 bopd.

The three Jeribe wells, Tawke-33, Tawke-34 and Tawke-37, were completed at a combined cost of USD 6 million and together are currently producing 6,000 bopd.

The company spudded the Peshkabir-2 well in early October to appraise the previous Jurassic discovery and explore the Cretaceous horizon on a previous discovery west of the main Tawke field. The company is drilling ahead at 2,000 meters and is expected to reach target depth of 3,500 meters in January 2017.

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.

Oman

Offshore at Block 8, the Bukha and West Bukha fields produced an average of 5,300 boepd during the third quarter of 2016, of which output was roughly split equally between oil and gas. The company plans to re-drill and restore oil production at the West Bukha-5 well in December.

Yemen

Production from Block 32 and Block 43 remains suspended due to the continuing deterioration in security conditions.

Exploration

Oman

The Hayah-1 exploration well in Oman's onshore Block 36 failed to encounter hydrocarbons other than minor gas shows and has been plugged and abandoned. The well, drilled in the Rub al-Khali basin in the southwestern part of the country, reached a total depth of 3,010 meters and penetrated the three target reservoirs, of which two had good reservoir quality.

Tunisia

The company's exploration and appraisal program is continuing in Tunisia, with 3D seismic activity planned ahead of drilling a well in 2017 at the Sfax Offshore Exploration Permit.

United Arab Emirates

The company is working to finalize a geological and geophysical survey prepared following the reprocessing of seismic lines from the RAK Onshore license.

Somaliland

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

Financial review

Revenues, profits and cash flow

Revenues in the third quarter amounted to USD 48.8 million compared to USD 61.2 million in the previous quarter.

Kurdistan contributed revenues of USD 45.4 million, with Oman contributing USD 3.4 million. DNO reported an operating profit of USD 9.1 million during the third quarter, down from USD 16.2 million in the second quarter.

The company ended the quarter with USD 266.3 million in cash and USD 22.4 million in marketable securities. This was up from USD 237.6 million in cash and USD 13.5 million in marketable securities at end-2015.

Cost of goods sold

In the third quarter, the cost of goods sold was USD 29.1 million compared to USD 32.0 million in the previous quarter.

Lifting costs

Lifting costs stood at USD 13.4 million in the third quarter, up from USD 12.6 million in the second quarter. In Kurdistan, the average lifting cost during the third quarter stood at USD 1.5 per barrel of oil equivalent (boe). In Oman, the average lifting cost during the third quarter stood at USD 11.6 per boe.

Lifting costs

	Quarter			Year to date	Full year
USD million			Q3 2016 Q3 2015 Q3 2016 Q3 2015		2015	2014
Kurdistan	10.0	10.7	34.4	57.0	69.5	66.5
Oman	2.8	3.2	6.0	11.4	13.9	14.2
Other	0.5	2.0	0.7	15.6	2.9	37.2
Total	13.4	15.9	41.1	84.1	86.3	117.9

Including export volumes

	Quarter			Year to date	Full year
(USD/boe)			Q3 2016 Q3 2015 Q3 2016 Q3 2015		2015	2014
Kurdistan	1.5	1.3	1.9	2.5	2.3	3.1
Oman	11.6	12.3	8.0	10.9	11.3	5.5
Other	-	-	-	157.5	26.1	42.0
Average	2.1	1.9	2.3	3.5	2.7	4.8

Depreciation, depletion and amortization (DD&A)

DD&A amounted to USD 14.8 million in the third quarter compared to USD 18.5 million in the previous quarter. The depreciation method for the Tawke PSC was changed from a proven and probable reserves (2P) basis to a proven reserves (1P) basis from January 2016.

DD&A

	Quarter Year to date		Full year
USD million		Q3 2016 Q3 2015 Q3 2016 Q3 2015			2015	2014
Kurdistan	14.8	22.7	47.5	71.2	93.2	112.7
Oman	-	2.9	-	11.0	13.5	67.3
Yemen	-	-	-	0.3	0.3	16.6
Total	14.8	25.6	47.5	82.4	107.0	196.5

Including export volumes

	Quarter Year to date				Full year
(USD/boe)		Q3 2016 Q3 2015 Q3 2016 Q3 2015			2015	2014
Kurdistan	6.5	9.2	6.6	9.1	9.1	13.9
Oman	-	17.8	-	16.5	16.9	44.3
Yemen	-	-	-	3.6	3.6	27.2
Average	5.4	9.8	6.2	9.6	9.6	18.2

Exploration costs expensed

Exploration costs were positive with USD 0.6 million in the third quarter compared to USD 16.1 million in the previous quarter, which were mainly related to the expensed dry well at Block 36 in Oman.

Exploration costs expensed

	Quarter		Year to date		Full year
USD million			Q3 2016 Q3 2015 Q3 2016 Q3 2015		2015	2014
Kurdistan	-	-	-	-	-	0.2
Oman	-2.4	1.5	11.8	4.3	5.9	14.6
Yemen	-	-	-	5.4	5.4	6.4
UAE	0.1	0.2	0.5	0.7	1.0	0.7
Tunisia	1.3	2.8	4.7	8.7	10.7	28.0
Other	0.4	0.1	2.0	0.3	0.5	0.6
Total	-0.6	4.7	19.0	19.4	23.5	50.6

Acquisition and development costs

(including intangible assets)

Capital expenditures were USD 12.8 million in the third quarter, resulting in capital expenditures of USD 18.1 million year-to-date.

Acquisition and development costs

	Quarter		Year to date		Full year
USD million			Q3 2016 Q3 2015 Q3 2016 Q3 2015		2015	2014
Kurdistan	12.4	0.7	17.5	46.2	46.5	254.6
Oman	-	-	-	0.4	0.4	18.6
Yemen	-	-	-	0.5	0.5	7.8
UAE	-	-0.1	-	0.2	-	-0.3
Tunisia	-	-	-	0.1	0.1	7.0
Other	0.4	0.7	0.6	2.6	3.1	9.6
Total	12.8	1.3	18.1	49.9	50.7	297.3

Consolidated statements of comprehensive income

		Quarter		Year to date		Full year
USD million	Note	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Revenues	2, 3	48.8	52.1	159.6	132.9	187.4
Cost of goods sold	4	-29.1	-42.8	-91.8	-170.3	-197.0
Gross profit		19.8	9.3	67.9	-37.4	-9.5
Other operating income		-	-	5.4	0.9	2.0
Tariffs and transportation		-	-0.1	-	-0.8	-1.8
Administrative expenses		-6.9	-3.9	-21.6	-12.9	-19.0
Other operating expenses		-2.3	-0.7	-3.3	-9.8	-29.3
Impairment oil and gas assets	7	-2.0	-	4.0	-13.2	-92.9
Exploration costs expensed	5	0.6	-4.7	-19.0	-19.4	-23.5
Net gain/-loss from sale of PP&E	7	-	-	-	-	-
Profit/-loss from operating activities		9.1	-0.1	33.3	-92.6	-174.0
Financial income		0.4	3.1	1.6	15.0	15.8
Financial expenses		-11.9	-18.0	-36.5	-49.7	-78.3
Profit/-loss before income tax		-2.4	-14.9	-1.6	-127.3	-236.5
Income tax expenses	6	-0.8	0.1	-2.5	-1.7	24.1
Net profit/-loss		-3.2	-14.9	-4.1	-129.0	-212.3
Other comprehensive income
Currency conversion differences		-	0.7	-	0.2	0.3
Impairment -/Reversal of impairment in available-for-sale financial assets		-1.8	-	3.9	-	-
Other comprehensive income that may be reclassified to profit or loss in subsequent periods		-1.8	0.7	3.9	0.2	0.3
Other comprehensive income that will not be reclassified to profit or loss in
subsequent periods		-	-	-	-	-
Total other comprehensive income, net of tax	6	-1.8	0.7	3.9	0.2	0.3
Total comprehensive income, net of tax		-5.0	-14.2	-0.3	-128.8	-212.0
Net profit/-loss attributable to:
Equity holders of the parent		-3.2	-14.9	-4.1	-129.0	-212.3
Total comprehensive income attributable to:
Equity holders of the parent		-5.0	-14.2	-0.3	-128.8	-212.0
Earnings per share, basic		-0.00	-0.01	-0.00	-0.12	-0.20
Earnings per share, diluted		-0.00	-0.01	-0.00	-0.12	-0.20

Condensed consolidated statements of financial position

ASSETS		As of 30 September		Full year
USD million	Note	2016	2015	2015
Non-current assets
Other intangible assets	7	82.9	140.4	133.2
Property, plant and equipment	7	410.1	486.4	396.6
Available-for-sale investments	8	14.7	17.5	10.8
Other non-current assets		-	4.5	12.5
Total non-current assets		507.6	648.7	553.1
Current assets
Inventories	4	69.5	70.8	62.0
Trade and other receivables	9	156.5	180.0	155.5
Cash and cash equivalents		266.3	247.2	237.6
Total current assets		492.3	498.1	455.1
TOTAL ASSETS		999.9	1,146.8	1,008.2
EQUITY AND LIABILITIES		As of 30 September		Full year
USD million	Note	2016	2015	2015
Equity
Share capital		35.8	36.0	35.9
Other reserves		286.5	291.1	288.4
Retained earnings		111.6	195.1	111.8
Total equity		433.9	522.2	436.2
Non-current liabilities
Interest-bearing liabilities	10	359.0	347.9	350.7
Deferred income tax liabilities	6	-	26.2	-
Provisions for other liabilities and charges	11	98.1	98.3	97.1
Total non-current liabilities		457.1	472.3	447.8
Current liabilities
Trade and other payables		28.7	69.5	52.5
Income taxes payable		3.0	2.3	1.7
Provisions for other liabilities and charges	11	77.2	80.3	70.0
Total current liabilities		108.9	152.2	124.2
TOTAL EQUITY AND LIABILITIES		999.9	1,146.8	1,008.2

Condensed consolidated cash flow statements

		Quarter		Year to date		Full year
USD million	Note	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Operating activities
Profit/-loss before income tax		-2.4	-14.9	-1.6	-127.3	-236.5
Adjustments to add (deduct) non-cash items:
+/- Net interest expense (-income)		10.2	10.1	26.6	16.9	28.4
Previously capitalized exploration and evaluation expenses	5	-	-	-	5.1	5.1
Depreciation of PP&E	4	15.7	26.8	50.7	86.0	110.5
Impairment loss on oil and gas assets	7	2.0	-	-4.0	13.2	92.9
Loss/-gain on PP&E	7	-	0.2	-	0.2	0.2
Impairment/reversal of impairment of financial assets		-	4.7	-	17.5	34.1
Other*		1.2	0.4	1.1	-0.9	-18.0
Changes in working capital:
- Inventories		1.0	-1.9	0.6	5.0	13.8
- Trade and other receivables		1.8	8.3	11.5	7.7	14.3
- Trade and other payables		-1.8	-51.5	-23.8	-70.2	-87.2
- Provisions for other liabilities and charges		2.5	2.9	7.4	2.7	7.1
Cash generated from operations		30.2	-15.0	68.6	-44.2	-35.4
Income taxes paid		-0.0	-2.8	-2.5	-9.5	-7.2
Interest paid		-0.1	-4.5	-17.6	-14.1	-31.6
Net cash from/- used in operating activities		30.0	-22.3	48.4	-67.8	-74.1
Investing activities
Purchases of intangible assets	7	-0.8	-	-	0.1	-0.1
Purchases of tangible assets	7	-12.1	-1.3	-18.1	-50.0	-50.6
Interest received		-	0.2	0.4	1.0	1.1
Net cash from/- used in investing activities		-12.8	-1.1	-17.7	-48.9	-49.5
Financing activities
Proceeds from borrowing	10	-	0.4	-	344.8	344.8
Repayment of borrowings		-	-178.0	-	-211.4	-211.4
Purchase of treasury shares, including options		-	-	-2.1	-	-3.0
Proceeds from sale of treasury shares		-	-	-	21.4	21.4
Proceeds from issuance of shares, net		-	-	-	96.9	96.9
Net cash from/- used in financing activities		-	-177.6	-2.1	251.7	248.8
Net increase/-decrease in cash and cash equivalents		17.2	-200.9	28.6	134.8	124.9
Cash and cash equivalents at beginning of the period		249.1	450.2	237.6	113.8	113.8
Exchange gain/-losses on cash and cash equivalents		-	-2.0	0.1	-1.3	-1.1
Cash and cash equivalents at the end of the period		266.3	247.2	266.3	247.2	237.6

* 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 statement of changes in equity

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

USD million	Share capital	Other reserves	Retained earnings	Total equity
Balance at 1 January 2016	35.9	288.4	111.8	436.2
Fair value gains, net of tax:
- available-for-sale financial assets	-	-	3.9	3.9
Currency translation differences	-	-	-	-
Other comprehensive income/-loss	-	-	3.9	3.9
Loss for the period	-	-	-4.1	-4.1
Total comprehensive income	-	-	-0.2	-0.2
Issue of share capital	-	-	-	-
Purchase of treasury shares	-0.1	-2.0	-	-2.1
Sale of treasury shares	-	-	-	-
	-0.1	-2.0	-	-2.1
Balance at 30 September 2016	35.8	286.4	111.6	433.9

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 of 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 2015. The interim financial information for 2016 and 2015 is unaudited.

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

* All financial assets and liabilities held for trading, all liabilities related to share-based payments and all financial assets 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 2015. 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 ending on 31 December 2015.

Note 2 | Segment information

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

Three months ending 30 September 2016 USD million	Note	KUR	OMAN	YEM	UAE	TUN	Other	Total reporting segment	Unallocated/ eliminated	GROUP
Income statement information
External sales	3	45.4	3.4	-	-	-	-	48.8	-	48.8
Inter-segment sales		-	-	-	-	-	-	-	-	-
Cost of goods sold	4	-24.8	-2.8	-	-0.5	-0.1	-	-28.2	-0.8	-29.1
Gross profit		20.6	0.6	-	-0.5	-	-	20.6	-0.8	19.8
Segment operating result		20.2	-3.1	-1.8	-2.7	-1.4	-	10.8	-1.6	9.1
Financial - net										-11.5
Gain/-loss on sale of shares										-
Income tax expense		-	-0.8	-	-	-	-	-0.8	-	-0.8
Net profit/-loss										-3.2
Segment assets		665.1	23.3	2.0	0.3	19.9	0.7	711.3	288.6	999.9

Note 2 | Segment information continues

Three months ending 30 September 2015 USD million	Note	KUR	OMAN	YEM	UAE	TUN	Other	Total reporting segment	Unallocated/ eliminated	GROUP
Income statement information
External sales	3	46.1	6.0	-	-	-	-	52.1	-	52.1
Inter-segment sales		-1.4	-3.9	-0.7	-0.1	-	-	-6.3	6.3	-
Cost of goods sold	4	-33.5	-6.1	-2.0	-	-0.1	-	-41.7	-1.1	-42.8
Gross profit		11.2	-4.0	-2.6	-0.1	-	-	4.0	5.2	9.3
Segment operating result		12.1	-1.7	-2.1	-0.2	-3.0	-0.1	5.2	-5.3	-0.1
Financial - net										-14.8
Gain/-loss on sale of shares										-
Income tax expense		-0.0	0.1	-	-	-	-	0.1	-	0.1
Net profit/-loss										-14.9
Segment assets		752.5	61.2	6.2	3.8	47.7	1.1	872.5	274.2	1,146.8
								Total
Nine months ending 30 September 2016 USD million	Note	KUR	OMAN	YEM	UAE	TUN	Other	reporting segment	Unallocated/ eliminated	GROUP
Income statement information
External sales	3	148.0	11.6	-	-	-	-	159.6	-	159.6
Inter-segment sales		-	-	-	-	-	-	-	-	-
Cost of goods sold	4	-82.0	-6.1	-	-1.0	-0.2	-	-88.9	-2.9	-91.8
Gross profit		66.1	5.6	-	-0.7	-	-	70.8	-2.9	67.9
Segment operating result		71.8	-8.4	-3.0	-1.3	-5.0	-2.1	52.2	-16.9	33.3
Financial - net										-34.8
Income tax expense		-	-2.5	-	-	-	-	-2.5	-	-2.5
Net profit/-loss										-4.1
Segment assets		665.1	23.3	2.0	0.3	19.9	0.7	711.3	288.6	999.9
Nine months ending 30 September 2015 USD million	Note	KUR	OMAN	YEM	UAE	TUN	Other	Total reporting segment	Unallocated/ eliminated	GROUP
Income statement information
External sales	3	106.3	23.3	3.2	-	-	-	132.9	-	132.9
Inter-segment sales		-	-	-	-	-	-	-	-	-
Cost of goods sold Gross profit	4	-128.5 -22.2	-22.5 0.8	-15.9 -12.7	- -0.0	-0.2 -0.2	- -	-167.2 -34.3	-3.1 -3.1	-170.3 -37.4
Segment operating result		-21.8	-2.9	-39.3	-0.7	-8.6	-0.4	-73.6	-19.0	-92.6
Financial - net										-34.7
Gain/-loss on sale of shares										-
Income tax expense Net profit/-loss		-	-0.5	-1.2	-	-	-	-1.7	-	-1.7 -129.0
Segment assets		752.5	61.2	6.2	3.8	47.7	1.1	872.5	274.2	1,146.8

Note 3 | Revenues

DNO presents its operations governed by PSCs according to the net entitlement method, except for export sales from Kurdistan (see below).

	Quarter		Year to date		Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Sale of petroleum products	48.8	52.1	159.6	132.9	187.4
Total sales	48.8	52.1	159.6	132.9	187.4

During the third quarter of 2016, DNO received two payments from the Kurdistan Regional Government for Tawke deliveries totalling USD 67.4 million, of which USD 49.6 million was net to DNO. Of the net, USD 45.4 million is recognized as revenue and USD 4.2 million as a reduction in the booked local sales receivable.

Note 4 | Cost of goods sold/inventory

		Quarter	Year to date	Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Lifting costs*	-13.4	-15.9	-41.1	-84.1	-86.3
Depreciation, depletion and amortization**	-15.7	-26.8	-50.7	-86.2	-110.7
Other cost of goods sold	-	-	-	-	-
Total cost of goods sold	-29.1	-42.8	-91.8	-170.3	-197.0

* Lifting costs consist of expenses related to the production of oil and gas, including operation and maintenance of installations, well intervention

workover activities, insurances, CO2 taxes, royalties to the state and internal costs.

** Depreciation method for Tawke PSC changed from 2P to 1P from January 2016, which resulted in reduced depreciation.

	As of 30 September		Full year
USD million	2016	2015	2015
Spare parts	64.8	60.4	55.2
Other inventory	4.7	10.4	6.8
Total inventory	69.5	70.8	62.0

Of the total inventory of USD 69.5 million, USD 61.6 million is related to Kurdistan, USD 4.7 million is related to Oman and USD 3.3 million is related to Tunisia.

Note 5 | Exploration expenses

	Quarter		Year to date		Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Exploration expenses (G&G and field surveys)	0.2	-1.7	-4.6	-6.0	-8.4
Seismic costs	-	-	-	-0.5	-0.5
Exploration costs capitalized in previous years carried to cost	-	-	-	-5.1	-5.1
Exploration costs capitalized this year carried to cost	2.1	-1.7	-9.7	-3.5	-3.8
Other exploration cost expensed	-1.6	-1.3	-4.7	-4.2	-5.7
Total exploration cost expensed*	0.6	-4.7	-19.0	-19.4	-23.5

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

Note 6 | Income taxes

	Quarter		Year to date		Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Deferred taxes	-	4.9	-	8.3	31.1
Income taxes payable related to Production Sharing Contracts (PSCs) in Yemen and Oman	-0.8	-4.8	-2.5	-9.9	-7.0
Total income tax expense	-0.8	0.1	-2.5	-1.7	24.1

The interim period income tax expense relates to the 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 PSCs 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

		Quarter	Year to date		Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Acquisitions of PP&E *	11.9	1.3	17.3	50.0	50.6
Acquisitions of Intangible assets **	0.9	-	0.8	-0.1	0.1
Net book amount PP&E	410.1	486.4	410.1	486.4	396.6
Net book amount Intangible assets	82.9	140.4	82.9	140.4	133.2
Sale of PP&E
Proceeds	-	-	-	-	-
Carrying value	-	-	-	-	-
Net gain/-loss	-	-	-	-	-
Impairment of PP&E	-2.0	-	6.0	-13.2	-92.9

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

** Acquisitions related to capitalized exploration costs and license interests.

The impairment of USD 2 million in the third quarter is mainly related to spare parts in the RAK licenses.

The USD 6 million impairment reversal is related to equipment and spare parts booked under the Dohuk PSC. The value of these materials were impaired in 2014; however, the material can be used at the Tawke field and was transferred to the Tawke PSC at cost in Q2 2016, leading to a reversal of the impairment.

In 2015, the impairment charge of USD 92.9 million was related to operations in Oman (USD 42.3 million), Kurdistan (USD 29.3 million), Yemen (USD 13.2 million), Tunisia (USD 6.0 million) and UAE (2.1 million).

Note 7 | Impairments

Impairment tests of individual cash-generating units are performed when impairment triggers are identified. In Q3 2016, the only impairment trigger identified was the reduction in fair value of spare parts in the Saleh license in the United Arab Emirates.

USD million	As of 30 September 2016 Impairment/ Recoverable/ reversal carrying amount		Full year 2015 Impairment/ reversal	Recoverable/ carrying amount
Erbil, Kurdistan	-	101.1	-25.0	101.6
Dohuk, Kurdistan	6.0	-0.0	-4.3	6.2
Block 8, Oman	-	2.9	-41.2	3.0
Oman Ltd, Oman	-	1.7	-1.1	1.8
Sfax Offshore Exploration Permit, Tunisia	-	-	-6.0	-
Assets in United Arab Emirates	-2.0	0.0	-2.1	2.0
Assets in Yemen	-	-	-13.2	-
Total	4.0	105.7	-92.9	114.7

The table shows the recoverable(value in use)/carrying amount for the cash generating units which have been impaired in 2015 and 2016. The recoverable amounts/carrying amounts have changed due to consumption of spare parts.

For explanations of impairment, see previous table.

Note 8 | Available-for-sale financial assets

Available-for-sale financial assets are recorded at fair value (market price, where available) at the end of each period. Changes in fair value are included in other comprehensive income and are presented as valuation reserve under equity. Impairments will be charged to profit or loss, while reversal of impairments will be taken through other comprehensive income.

	Quarter		Year to date		Full year
USD million	Q3 2016	Q3 2015	Q3 2016	Q3 2015	2015
Beginning of the period	16.4	22.2	10.8	35.0	35.0
Revaluation surplus/deficit transfer to equity	-1.7	-	-	-	-
Impairment	-	-4.7	-	-17.5	-24.2
Reversal of impairment of available-for-sale assets	-	-	3.9	-	-
End of the period 1)	14.7	17.5	14.7	17.5	10.8
Non-current portion	14.7	17.5	14.7	17.5	10.8
Current portion	-	-	-	-	-

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

	Quarter		Full year
USD million	Q3 2016	Q3 2015	2015
Listed securities:
- RAK Petroleum plc	14.7	17.5	10.8
Total available-for-sale financial assets	14.7	17.5	10.8

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

Note 9 | Trade and other short-term receivables

USD million	As of 30 September 2016 2015		Full year 2015
Trade debtors	6.6	5.9	7.1
Underlift, entitlement method	112.0	128.4	121.4
Other short-term receivables	37.9	45.6	27.0
Total trade and other short-term receivables	156.5	180.0	155.5

The underlift mainly relates to the arrangement for local sales in Kurdistan put into place in 2014 under which the PSC terms for the contractor entitlement were not followed. In 2015, this temporary arrangement was revised to more closely align with the PSC terms. USD 88.5 million of the underlift is related to production in 2014, USD 11.3 million to production in 2015 and USD 12.2 million to production in 2016.

As of 30 September, all trade debtors are less than 30 days past the due date.

Other short-term receivables include the receivable related to the farm down in Tunisia (Sfax Offshore Exploration Permit) and working capital in oil and gas licenses, including cash deposits amounting to USD 4.4 million for the Tawke license in a local bank in Kurdistan.

Note 10 | Interest-bearing liabilities

USD million	As of 30 September 2016 2015		Full year 2015
Non-current
Bonds	400.0	400.0	400.0
Capitalized borrowing issue costs	-41.0	-52.1	-49.3
Total non-current interest-bearing liabilities	359.0	347.9	350.7
Current
Current portion of bonds	-	-	-
Total current interest-bearing liabilities	-	-	-
Total interest-bearing liabilities	359.0	347.9	350.7

Interest-bearing liabilities:

					Balance
USD million	Currency	Amount	Interest	Maturity	Q3 2016	Q2 2016
Non-current
Bond loan (ISIN NO0010740392)	USD	400.0	8.75%	18.06.20	400.0	400.0
Borrowing issue costs					-41.0	-46.6
Total interest-bearing liabilities					359.0	353.4

Note 11 | Provisions for other liabilities and charges

		As of 30 September
USD million	2016	2015	2015
Non-current
Asset retirement obligations	4.8	4.9	4.5
Other long-term provision and charges	93.4	93.4	92.6
Total non-current provisions for other liabilities and charges	98.1	98.3	97.1
Current
Other provisions and charges	77.2	80.3	70.0
Total current provisions for other liabilities and charges	77.2	80.3	70.0
Total provisions for other liabilities and charges	175.3	178.6	167.1

Provisions for a water purification capacity building project in the Kurdistan region of Iraq are included in other long-term provision and charges for the Tawke license. The water purification project (WPP) is capitalized and depreciated over the life of the Tawke field. The WPP liability is not currently payable and eventual payments will be contingent on defined gross revenue levels and will be fully recoverable through cost oil.

Changes in the timing of these payments may change the net present value of the liability and the calculated interest. 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 2016 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 12 | Events after the reporting period

The company reported on 2 November 2016 receipt of USD 31.33 million from the Kurdistan Regional Government as payment towards August crude oil deliveries to the export market from the Tawke field. The funds, shared pro-rata by DNO and partner Genel Energy plc, include USD 26.27 million toward the monthly entitlement for August deliveries and USD 5.05 million toward the recovery of outstanding receivables for past deliveries.

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