DNO ASA — Interim / Quarterly Report 2018

Aug 16, 2018

Key figures

	Quarters First Half-Year				Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Key financials
Revenues	147.0	81.7	289.3	158.4	347.4
Gross profit	72.9	45.9	139.8	92.6	145.2
Profit/-loss from operating activities	51.2	-1.2	76.2	26.6	521.1
Net profit/-loss	42.5	-12.9	60.9	1.8	495.0
EBITDA	105.2	55.7	191.3	111.1	735.6
Netback	105.2	55.3	191.3	110.4	231.8
Acquisition and development costs	31.7	41.1	50.1	72.9	130.4
Exploration costs expensed	11.0	1.5	37.8	3.0	33.0
Key performance indicators
Lifting costs (USD/boe)	3.0	2.5	2.6	2.3	3.6
Netback (USD/boe)	15.5	8.8	13.8	8.7	8.6

For more information about key figures, please see alternative performance measures.

Corporate overview: Foot on accelerator in Kurdistan

• ⦁ DNO leading international oil company in Kurdistan operating two largest producing fields with 75 percent interest
• ⦁ At 120,000 barrels of oil per day (bopd), Tawke and Peshkabir together represent onehalf of total production by international operators and one-third of all Kurdistan exports
• ⦁ Successful fast track appraisal and development of Peshkabir will add another 15,000 bopd by yearend
• ⦁ Restarting development drilling at Tawke with two Cretaceous and two Jeribe wells to reverse natural field decline
• ⦁ Commencing operations at Baeshiqa license in Kurdistan
• ⦁ Seven monthly Kurdistan export payments received through July, totaling USD 330 million net to DNO year-to-date, up 60 percent from same period last year
• ⦁ With reliable revenue stream and strong growth prospects, DNO plans annual dividend distribution to shareholders of USD 50 million equivalent, subject to shareholder approval next month

H1 2018 operational highlights

• ⦁ Operated production in H1 2018 averaged 110,600 barrels of oil equivalent per day (boepd)
• ⦁ Of which Kurdistan represented 106,000 bopd and Oman 4,600 boepd
• ⦁ Company Working Interest (CWI) production averaged 76,800 boepd in H1 2018 and entitlement production averaged 29,000 boepd
• ⦁ Projected 2018 operational spend across portfolio of USD 310 million, of which 75 percent in Kurdistan
• ⦁ Including 13 wells in 2018, of which six at Peshkabir, five at Tawke and two at Baeshiqa
• ⦁ Three drilling rigs active in Kurdistan with another to be added next month

H1 2018 financial highlights

• ⦁ H1 2018 revenues of USD 289 million, up from USD 158 million in H1 2017
• ⦁ Of which Kurdistan export payments represented USD 278 million in H1 2018, up from USD 181 million in H1 2017
• ⦁ Exited H1 2018 with cash balance of USD 584 million (USD 430 million at year-end 2017)
• ⦁ Plus USD 288 million in marketable securities and treasury shares (USD 58 million at year-end 2017)
• ⦁ Outstanding bond debt of USD 600 million

Operational review

Production

Quarterly production (boepd)

Gross production averaged 107,180 boepd during the second quarter, of which 102,535 bopd was in Kurdistan and 4,645 boepd in Oman.

Company Working Interest (CWI) production during the second quarter stood at 74,470 boepd, down from 79,146 boepd in the previous quarter. In Kurdistan, CWI production averaged 72,216 bopd, down from 77,146 bopd in the previous quarter. In Oman, CWI production averaged 2,254 boepd, up from 2,000 boepd in the previous quarter.

The Company's entitlement production averaged 27,346 boepd during the second quarter, down from 30,516 in the previous quarter.

Gross production

	Quarters		First Half-Year	Full-Year
boepd	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	102,535	108,434	105,962	109,701	109,047
Oman	4,645	3,780	4,607	4,346	4,484
Total	107,180	112,215	110,569	114,047	113,530

Company Working Interest (CWI) production

	Quarters		First Half-Year	Full-Year
boepd	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	72,216	67,229	74,667	68,015	71,436
Oman	2,254	1,891	2,128	2,173	2,243
Total	74,470	69,121	76,795	70,188	73,679

Entitlement production

	Quarters		First Half-Year	Full-Year
boepd	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	26,567	24,058	28,206	23,148	27,033
Oman	779	1,726	762	1,656	1,675
Total	27,346	25,784	28,968	24,805	28,708

Activity overview

Appraisal and field development

Kurdistan region of Iraq

Tawke license

Gross production from the Tawke license averaged 105,771 bopd during the first half of 2018.

Currently at about 120,000 bopd, the Tawke and Peshkabir fields together represent one-half of total production by international operators and one-third of all Kurdistan exports. A successful fast track appraisal and development of Peshkabir will add another 15,000 bopd by yearend.

The Company more than doubled Peshkabir production to 35,000 bopd following the startup of the Peshkabir-4 and Peshkabir-5 wells. Peshkabir-6 and Peshkabir-7, completed in August, are about to undergo rigless test production lasting several weeks. Two more wells are scheduled in 2018 with Peshkabir-8 to spud in 10 days and Peshkabir-9 to spud in October. The Company has set a new Peshkabir production target of 50,000 bopd by yearend.

With Peshkabir successfully launched, the Company is resuming development drilling at the flagship Tawke field. Workovers of existing wells since July have stabilized Tawke production above 85,000 bopd. Production is to climb further depending on the success of the new wells. During the second half of 2018, two wells will be drilled in the main Cretaceous reservoir and two in the shallow Jeribe reservoir. The Company has also launched engineering work for a Tawke enhanced oil recovery project based on injection of Peshkabir gas.

Erbil license

Testing is ongoing at the Hawler-1A well at the Benenan heavy oil field in the Erbil license. Estimates of oil-in-place at Benenan stand at more than two billion barrels.

Baeshiqa license

The Baeshiqa license contains two large undrilled structures with multiple independent stacked target reservoirs, including in the Cretaceous, Jurassic and Triassic. An extensive three-well exploration program has been initiated for fast-track execution at Baeshiqa. The first well will spud in September to test the shallow Cretaceous horizon. A second well to test the deeper Jurassic and Triassic will spud on the same structure in November and a third well will test the Jurassic and Triassic on a separate structure in 2019. DNO acquired a 32 percent interest and operatorship of the Baeshiqa license in 2017. Partners include ExxonMobil with 32 percent, Turkish Energy Company with 16 percent and the Kurdistan Regional Government with 20 percent.

Oman

Offshore at Block 8, the Bukha and West Bukha fields produced an average of 4,607 boepd during the first half of 2018. The Company plans to relinquish the asset prior to expiry of the license on 3 January 2019.

Yemen

Production start-up at the Yaalen field at Block 47, currently under force majeure, remains on hold.

Exploration

Tunisia

DNO completed the sale of Tunisia subsidiary, DNO Tunisia AS, to Panoro Energy ASA as the Company continues to divest noncore assets and focus on expanding operations in Kurdistan and offshore Norway. Panoro has assumed all existing permit interests, rights and remaining work obligations at the Sfax Offshore Exploration Permit, Ras El Besh Concession and Hammamet Offshore Exploration Permit.

Norway

DNO plans to participate in one exploration well in the fall, followed by at least five wells next year. The Company recently added six new exploration licenses offshore Norway, including four in a license swap with Lundin Petroleum. Subject to government approval, DNO will then hold 21 Norway licenses.

United Kingdom

The Company currently holds interests in three offshore exploration licenses in the United Kingdom.

Somaliland

DNO exited Block SL18 in Somaliland in July 2018.

Financial review

Revenues, profits and cash flow

Revenues in the second quarter stood at USD 147.0 million, compared to USD 142.3 million in the previous quarter. Kurdistan contributed revenues of USD 139.9 million, with Oman contributing USD 7.1 million.

DNO reported an operating profit of USD 51.2 million in the second quarter, up from USD 25.0 million in the previous quarter.

The Company ended the quarter with USD 584.0 million in cash and cash equivalent and USD 287.9 million in market value of treasury shares and marketable securities. This was up from USD 430.2 million in cash and USD 58.0 million in market value of treasury shares and marketable securities at yearend 2017.

Cost of goods sold

In the second quarter, the cost of goods sold was USD 74.1 million, compared to USD 75.4 million in the previous quarter.

Lifting costs

Lifting costs stood at USD 20.5 million in the second quarter, up from USD 15.9 million in the previous quarter. In Kurdistan, the average lifting cost during the second quarter stood at USD 2.8 per barrel of oil equivalent (boe). In Oman, the average lifting cost during the second quarter stood at USD 8.5 per boe.

Lifting costs

		Quarters	First Half-Year	Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	18.7	13.9	31.1	24.2	72.4
Oman	1.7	2.2	5.0	4.8	23.7
Other	0.1	-0.1	0.3	-	-
Total	20.5	16.0	36.4	29.0	96.1

		Quarters	First Half-Year	Full-Year
(USD/boe)	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	2.8	2.3	2.3	2.0	2.8
Oman	8.5	12.9	13.1	12.3	29.0
Other	-	-	-	-	-
Average	3.0	2.5	2.6	2.3	3.6

Depreciation, depletion and amortization (DD&A)

DD&A for assets in operation amounted to USD 53.2 million in the second quarter compared to USD 58.9 million in the previous quarter.

DD&A

		Quarters	First Half-Year	Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	53.2	18.8	112.1	35.0	102.9
Oman	-	-	-	-	-
Total	53.2	18.8	112.1	35.0	102.9

	Quarters		First Half-Year	Full-Year
(USD/boe)	Q2 2018	Q2 2017	Q2 2018	Q2 2017	2017
Kurdistan	22.0	8.6	22.0	8.4	10.4
Oman	-	-	-	-	-
Average	21.4	8.4	21.4	8.1	10.1

Exploration costs expensed

Expensed exploration costs of USD 11.0 million in the second quarter were mainly related to exploration activities in Norway.

Exploration costs expensed

	Quarters			First Half-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	0.3	-	0.3	-	-
Oman	-0.3	-0.1	0.1	0.3	-0.4
Tunisia	0.8	1.3	16.6	2.2	5.5
Norway	9.6	-	14.2	-	22.9
Other	0.6	0.2	6.6	0.4	5.0
Total	11.0	1.5	37.8	3.0	33.0

Acquisition and development costs

Capital expenditures were USD 31.7 million in the second quarter.

Acquisition and development costs

	Quarters	First Half-Year			Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Kurdistan	31.4	17.0	49.5	30.9	87.3
Oman	-	24.0	-	41.8	41.8
Norway	0.2	-	0.2	-	-
Other	0.1	0.1	0.4	0.2	1.3
Total	31.7	41.1	50.1	72.9	130.4

Risks and uncertainty

DNO is subject to a range of risks and uncertainties which may affect its business operations and financial condition. The description of key risks and uncertainties in the Annual Report and Board of Directors' Report 2017 gives a fair description of key risks and uncertainties that may affect DNO in the second half of 2018 and the Company is not aware of any significant new risks or uncertainties or significant changes to those risks or uncertainties, except for those described herein.

Responsibility statement

We confirm to the best of our knowledge that the condensed set of financial statements for the period 1 January to 30 June 2018 has been prepared in accordance with IAS 34 Interim Financial Reporting and gives a fair view of DNO's and the Group's assets, liabilities, financial position and result for the period viewed in their entirety, and that the interim management report

includes a fair review of any significant events that arose during the six-month period and their effect on the half-yearly financial report, any significant related-party transactions, and a description of the significant risks and uncertainties for the remaining six months of the year.

Oslo, 15 August 2018

Bijan Mossavar-Rahmani Executive Chairman

Lars A. Takla Deputy Chairman Elin Karfjell Director

Gunnar Hirsti Director

Shelley Watson Director

Bjørn Dale Managing Director

Consolidated statements of comprehensive income

		Quarters		First Half-Year		Full-Year
(unaudited, in USD million)	Note	Q2 2018	Q2 2017	2018	2017	2017
Revenues	2,3	147.0	81.7	289.3	158.4	347.4
Cost of goods sold	4	-74.1	-35.7	-149.5	-65.7	-202.2
Gross profit		72.9	45.9	139.8	92.6	145.2
Other operating income	3	-	1.5	-1.4	1.5	1.5
Other income past oil sales		-	-	-	-	556.0
Administrative expenses		-5.7	-6.9	-15.6	-11.9	-33.2
Other operating expenses		-4.6	-3.1	-6.9	-4.8	-7.0
Impairment oil and gas assets	7	-0.4	-37.2	-1.9	-47.8	-108.4
Exploration costs expensed	5	-11.0	-1.5	-37.8	-3.0	-33.0
Profit/-loss from operating activities		51.2	-1.2	76.2	26.6	521.1
Financial income		1.7	2.9	4.2	6.2	11.8
Financial expenses	10	-17.1	-14.8	-30.1	-30.2	-57.9
Profit/-loss before income tax		35.7	-13.2	50.4	2.5	475.1
Tax income/-expense	6	6.8	0.3	10.6	-0.7	20.0
Net profit/-loss		42.5	-12.9	60.9	1.8	495.0
Other comprehensive income
Currency translation differences		-	-	-	-	-0.4
Items that may be reclassified to profit or loss in later periods		-	-	-	-	-0.4
Net fair value changes from financial instruments	8	16.5	-0.2	19.0	-0.8	3.4
Items that are not reclassified to profit or loss in later periods		16.5	-0.2	19.0	-0.8	3.4
Total other comprehensive income, net of tax		16.5	-0.2	19.0	-0.8	3.0
Total comprehensive income, net of tax		59.0	-13.1	80.0	1.0	498.0
Net profit/-loss attributable to:
Equity holders of the parent		42.5	-12.9	60.9	1.8	495.0
Total comprehensive income attributable to:
Equity holders of the parent		59.0	-13.1	80.0	1.0	498.0
Earnings per share, basic		0.04	-0.01	0.06	0.00	0.47
Earnings per share, diluted		0.04	-0.01	0.06	0.00	0.47

Consolidated statements of financial position

ASSETS		At 30 Jun		At 31 Dec
(unaudited, USD million)	Note	2018	2017	2017
Non-current assets
Deferred tax assets	6	6.2	3.4	3.5
Other intangible assets	7	27.7	83.2	31.4
Property, plant and equipment	7	803.5	399.1	863.3
Financial investments	8	223.1	13.2	17.4
Other non-current assets	9	0.5	-	0.5
Tax receivables	6	9.2	11.3	-
Total non-current assets		1,070.1	510.3	916.0
Current assets
Inventories	4	6.1	51.7	7.4
Trade and other receivables	9	30.4	103.4	27.8
Tax receivables	6	33.9	32.3	33.7
Cash and cash equivalents		584.0	380.5	430.2
Total current assets		654.4	567.8	499.1
TOTAL ASSETS		1,724.5	1,078.1	1,415.1
EQUITY AND LIABILITIES		At 30 Jun		At 31 Dec
(unaudited, USD million)	Note	2018	2017	2017
Equity
Share capital		35.0	35.0	35.0
Other reserves		262.7	265.2	262.7
Retained earnings
		658.6	81.0	578.2
Total equity		956.2	381.2	875.9
Non-current liabilities
Interest-bearing liabilities	10	579.7	370.7	372.8
Provisions for other liabilities and charges	11	48.8	175.3	45.7
Total non-current liabilities		628.5	545.9	418.5
Current liabilities
Trade and other payables		88.2	116.5	99.6
Income tax payable	6	0.7	0.0	0.7
Current interest-bearing liabilities	10	32.2	30.6	17.6
Provisions for other liabilities and charges	11	18.6	3.8	2.7
Total current liabilities		139.8	150.9	120.7

Consolidated cash flow statement

			Quarters First Half-Year			Full-Year
(unaudited, in USD million)	Note	Q2 2018	Q2 2017	2018	2017	2017
Operating activities
Profit/-loss before income tax		35.7	-13.2	50.4	2.5	475.1
Adjustments to add/-deduct non-cash items:				-
Depreciation, depletion and amortization	4	53.6	19.7	113.1	36.8	106.1
Impairment oil and gas assets	7	0.4	37.2	1.9	47.8	108.4
Non-cash Kurdistan Receivables Settlement Agreement		-	-	-	-	-556.0
Other *		21.4	14.7	24.8	45.5	64.4
Change in working capital items and provisions:
- Inventories		0.3	2.9	-0.2	5.7	5.9
- Trade and other receivables		-0.9	-30.9	-2.6	-29.6	72.4
- Trade and other payables		-3.7	35.3	-11.4	83.4	54.1
- Provisions for other liabilities and charges		-7.4	27.1	15.9	38.0	8.4
Cash generated from operations		99.5	92.8	191.9	230.1	338.8
Income taxes received/-paid		-	-0.3	-	-1.1	-2.4
Tax refund received		-	-	-	-	33.2
Net interests received/-paid		-14.6	-17.5	-15.3	-17.5	-32.3
Net cash from/-used in operating activities		84.9	75.0	176.6	211.5	337.3
Investing activities
Purchases of intangible assets	7	-	-	-	-	-1.3
Purchases of tangible assets	7	-31.7	-41.1	-50.1	-72.9	-129.1
Acquisition of subsidiary net of cash acquired		-	2.6	-	2.6	2.6
Acquisition of financial investments	8	-186.0	-	-186.0	-	-
Net cash from/-used in investing activities		-217.6	-38.5	-236.1	-70.3	-127.8
Financing activities
Proceeds from borrowings net of issue costs	10	198.3	-	213.4	-	14.5
Repayment of borrowings	10	-	-	-	-	-30.9
Purchase of treasury shares, including options		-	-19.0	-	-21.9	-24.1
Net cash from/-used in financing activities		198.3	-19.0	213.4	-21.9	-40.5
Net increase/-decrease in cash and cash equivalents		65.6	17.5	153.8	119.3	169.1
Cash and cash equivalents at beginning of the period		518.4	362.9	430.2	261.1	261.1
Cash and cash equivalents at the end of the period		584.0	380.5	584.0	380.5	430.2
Of which restricted cash		2.9	3.5	2.9	3.5	3.9

* Net interest income/-expense and amortization of bond issue costs are included in the line Other.

Consolidated statement of changes in equity

	Share	Other	Retained	Total
(unaudited, in USD million)	capital	reserves	earnings	equity
Total equity at 1 January 2017	35.8	286.4	79.8	401.9
Fair value changes from equity instruments	-	-	-0.8	-0.8
Currency translation differences	-	-	-	-
Other comprehensive income/-loss	-	-	-0.8	-0.8
Profit/-loss for the period	-	-	1.8	1.8
Total comprehensive income	-	-	1.0	1.0
Issue of share capital	-	-	-	-
Purchase of treasury shares	-0.7	-21.1	-	-21.9
Sale of treasury shares	-	-	-	-
	-0.7	-21.1	-	-21.9
Total equity at 30 June 2017	35.0	265.2	81.0	381.2
	Share	Other	Retained	Total
(unaudited, in USD million)	capital	reserves	earnings	equity
Total equity at 1 January 2018	35.0	262.7	578.2	875.9
Fair value changes from equity instruments	-	-	19.0	19.0
Currency translation differences	-	-	-	-
Other comprehensive income/-loss	-	-	19.0	19.0
Profit/-loss for the period	-	-	60.9	60.9
Total comprehensive income	-	-	80.0	80.0
Issue of share capital	-	-	-	-
Purchase of treasury shares	-	-	-	-
Sale of treasury shares	-	-	-	-
	-	-	-	-
Total equity at 30 June 2018	35.0	262.7	658.6	956.2

Notes to the interim consolidated financial statements

Note 1 | Basis of preparation and accounting policies

The interim 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 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 Report and Accounts for 2017. The interim financial information for 2018 and 2017 is unaudited.

The interim consolidated financial statements have been prepared on a historical cost basis, with the following exception: liabilities related to share-based payments and financial assets classified as equity instruments are recognized at fair value.

A detailed description of the accounting policies applied is included in the DNO Annual Report and Accounts for 2017. 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 accounts for 2017.

The subtotals and totals in some of the tables may not equal the sum of the amounts shown due to rounding.

IFRS 15 Revenue from contracts with customers

IFRS 15 covers the recognition of revenue in the financial statements and related disclosure, and has replaced existing revenue recognition guidance, including IAS 18 Revenue. DNO has applied the modified retrospective transition approach when implementing IFRS 15 with no restatement of prior reporting periods as allowed by the standard. Revenue from contracts with customers in the scope of IFRS 15 is recognized when the customer obtains control of the oil and gas, which normally will be when title passes at point of delivery. Adjustments for imbalances between oil and gas production and sales previously included in revenues under the entitlement method do not qualify as revenue from contracts with customers and is presented as other revenue. DNO combines "Revenues from contracts with customers" and "Other revenues" into a single line item (i.e. "Revenues") in the consolidated statement of comprehensive income with details provided in the note disclosures. The transition to IFRS 15 will not affect the revenues from Kurdistan as these revenues are currently recognized upon cash receipt.

IFRS 9 Financial instruments

IFRS 9 replaced IAS 39 Financial Instruments: Recognition and Measurement. DNO has implemented the IFRS 9 retrospective with no restatement of comparative information in accordance with the standard. The group has not identified any significant impacts on the measurement of its financial assets and financial liabilities as a result of the classification and measurement requirements of the new standard when reclassifying financial instruments into the new categories. However, for existing equity instruments classified as available-for-sale under IAS 39 Financial Instruments, the group has chosen to continue recognizing the fair value changes through other comprehensive income (FVTOCI). Prospectively, fair value changes on new equity instruments may be recognized either through profit and loss or through other comprehensive income as an election on an instrument-by-instrument basis on initial recognition.

IFRS 16 Leases

IFRS 16 replaces IAS 17 Leases and provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard should be applied for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted if IFRS 15 has also been applied. The Company is not considering early application of the standard. An assessment of the effects of the new standard is included in the DNO Annual Report and Accounts for 2017.

Note 2 | Segment information

From the first quarter of 2018, DNO is reporting the following three operating segments: Kurdistan (KUR), Oman (OMAN) and Norway (NOR). The operating segments Yemen (YEM), Ras Al Khaimah (UAE), Tunisia (TUN) and United Kingdom (UK) are included in the reporting segment Other based on a materiality assessment. For the operating segment UAE, all licenses have previously been relinquished. The segment assets do not include internal receivables.

						Total	Un
Second quarter ending 30 June 2018 USD million	Note	KUR	OMAN	NOR	Other	reporting	allocated/ segments eliminated	Total Group
Income statement information
Revenues*	3	139.9	7.1	-	-	147.0	-	147.0
Inter-segment revenues		-	-	-	0.3	0.3	-0.3	-
Cost of goods sold	4	-71.8	-1.7	-	-0.1	-73.6	-0.4	-74.1
Gross profit		68.1	5.4	-	0.3	73.7	-0.7	72.9
Profit/-loss from operating activities		66.2	4.7	-10.2	-5.5	55.2	-4.0	51.2
Financial income/-expense (net)								-15.4
Tax income/-expense		-	-1.0	8.2	-0.1	7.0	-0.2	6.8
Net profit/-loss								42.5
Total assets		1,045.6	14.4	58.5	3.8	1,122.3	602.2	1,724.5
* For more information, see Note 1 and 3.
						Total	Un
Second quarter ending 30 June 2017						reporting	allocated/	Total
USD million	Note	KUR	OMAN	NOR	Other		segment eliminated	Group
Income statement information
Revenues	3	77.1	4.6	-	-	81.7	-	81.7
Inter-segment revenues		-	0.3	-	0.0	0.3	-0.3	0.0

Total assets		619.2	20.8	51.0	23.3	714.4	363.8	1,078.1
Net profit/-loss								-12.9
Tax income/-expense		-	0.3	-	-	0.3	-0.0	0.3
Financial income/-expense (net)								-11.9
Profit/-loss from operating activities		42.7	-35.9	1.5	-4.1	4.3	-5.6	-1.2
Gross profit		44.4	2.6	-	0.0	47.0	-1.1	45.9
Cost of goods sold	4	-32.7	-2.2	-	0.0	-34.9	-0.8	-35.7

Note 2 | Segment information (continued)

First half-year ending 30 June 2018 USD million	Note	KUR	OMAN	NOR	Other	Total reporting	Un allocated/ segment eliminated	Total Group
Income statement information
Revenues*	3	277.5	11.8	-	-	289.3	-	289.3
Inter-segment sales		-	-	0.1	0.5	0.5	-0.5	-
Cost of goods sold	4	-143.2	-5.1	-0.1	-0.1	-148.4	-1.1	-149.5
Gross profit		134.4	6.7	-0.0	0.3	141.4	-1.6	139.8
Profit/-loss from operating activities		130.7	5.4	-16.7	-31.2	88.3	-12.0	76.2
Financial income/-expense (net)								-25.8
Tax income/-expense		-	-1.3	12.2	-	10.9	-0.3	10.6
Net profit/-loss								60.9
Total assets		1,045.6	14.4	58.5	3.8	1,122.3	602.2	1,724.5

						Total	Un
First half-year ending 30 June 2017						reporting	allocated/	Total
USD million	Note	KUR	OMAN	NOR	Other		segment eliminated	Group
Income statement information
Revenues	3	148.8	9.6	-	-	158.4	-	158.4
Inter-segment sales		-	0.3	-	-	0.3	-0.3	-
Cost of goods sold	4	-59.1	-4.9	-	-0.1	-64.1	-1.6	-65.7
Gross profit		89.6	5.0	-	-0.1	94.5	-1.9	92.6
Profit/-loss from operating activities		87.6	-45.4	1.5	-6.6	37.1	-10.5	26.6
Financial income/-expense (net)								-24.0
Tax income/-expense		-	-0.5	-	-	-0.5	-0.2	-0.7
Net profit/-loss								1.8
Total assets		619.2	20.8	51.0	23.3	714.4	363.8	1,078.1

Note 3 | Revenues

	Quarters		First Half-Year		Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Sale of petroleum products	149.6	81.7	287.3	158.4	347.4
Revenue from contracts with customers	149.6	81.7	287.3	158.4	347.4
Other revenues	-2.5	-	2.0	-	-
Total revenues	147.0	81.7	289.3	158.4	347.4

During the second quarter of 2018, DNO received a total of USD 181.2 million from the Kurdistan Regional Government as payment for crude oil deliveries to the export market from the Tawke license, of which USD 139.9 million was net to DNO.

Other revenues reflect revenue adjustments for imbalances between oil and gas production and sales related to Oman Block 8 following implementation of IFRS 15. See Note 1 for more information.

Note 4 | Cost of goods sold/ inventory

	Quarters		First Half-Year		Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Lifting costs	-20.5	-16.0	-36.4	-29.0	-96.1
Depreciation, depletion and amortization	-53.6	-19.7	-113.1	-36.9	-106.1
Total cost of goods sold	-74.1	-35.7	-149.5	-65.7	-202.2

Lifting costs consist of expenses related to the production of oil and gas, including operation and maintenance of installations, well intervention workover activities and insurances. The lifting costs in the full-year 2017 included a provision for obsolete inventory of USD 19.0 million related to Kurdistan.

	At 30 Jun		At 31 Dec
USD million	2018	2017	2017
Spare parts	6.1	51.7	7.4
Total inventory	6.1	51.7	7.4

Total inventory of USD 6.1 million is entirely related to Kurdistan. During the second quarter of 2018 spare parts of USD 3.9 million were reclassified to Property, Plant and Equipment (PP&E) in Kurdistan. At yearend 2017, spare parts of USD 19.6 million were reclassified to PP&E in Kurdistan.

Note 5 | Exploration expenses

	Quarters		First Half-Year	Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Exploration expenses (G&G and field surveys)	-4.1	-0.3	-7.5	-0.8	-3.1
Seismic costs	-4.5	-	-5.5	-	-19.7
Exploration costs capitalized this year carried to cost	-	-	-4.5	-0.0	-3.6
Other exploration cost expensed	-2.4	-1.1	-20.4	-2.2	-6.6
Total exploration cost expensed	-11.0	-1.5	-37.8	-3.0	-33.0

For details on geographic spread of exploration costs expensed, see the Financial review section. In 2018, the Company presents its administrative and other expenses related to the Norwegian and UK activities based on the functions in exploration, development and production activities respectively.

Note 6 | Income taxes

	Quarters		First Half-Year		Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Tax income/-expense
Change in deferred taxes	1.4	-	2.5	-	2.3
Income tax receivable/-payable	5.4	0.3	8.1	-0.7	17.7
Total tax income/-expense	6.8	0.3	10.6	-0.7	20.0

	At 30 Jun		At 31 Dec
USD million	2018	2017	2017
Income tax receivable/-payable
Tax receivables (non-current) 9.171 11.326	9.2	11.3	-
Tax receivables (current) 33.92 32.251	33.9	32.3	33.7
Income tax payable -0.741 0	-0.7	-	-0.7
Net tax receivable/-payable 42.35 43.577	42.4	43.6	33.1
Deferred tax asset/-liability
Deferred tax asset on losses carried forward NCS 6.167 3.425	6.2	3.4	3.5
Total deferred tax asset/-liability 6.167 3.425	6.2	3.4	3.5

The tax income, tax receivable and deferred tax asset mainly relate to activity on the Norwegian Continental Shelf (NCS) subject to the Norwegian Petroleum Taxation Act. DNO Norge AS is not yet in a tax payable position and can claim a 78 percent refund of the exploration costs limited to taxable losses for the year. The refund is usually paid out in November-December in the subsequent year.

Under the terms of the Production Sharing Contracts in the Kurdistan region of Iraq, the Company is not required to pay any taxes. The share of profit oil of which the government is entitled to is deemed to include a portion representing the notional corporate income tax paid by the government on behalf of DNO. No tax has been presented in relation to operations in Kurdistan as it is considered there is currently no established tax regime for international oil companies.

From 2013, Norway introduced new rules for upstream petroleum activities abroad which exempt Norwegian entities conducting such activities abroad from taxation except for financial items which will still be taxable in accordance with the ordinary tax rules.

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

Note 7 | Property, plant and equipment/ Other intangible assets

	Quarters		First Half-Year		Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Additions of PP&E*	31.5	41.1	50.0	73.3	593.8
Additions of Other intangible assets**	0.1	-	0.1	-	1.1
Impairment oil and gas assets	-0.4	-37.2	-1.9	-47.8	-108.4

	At 30 June		At 31 Dec
USD million	2018	2017	2017
PP&E 803.5 399.072	803.5	399.1	863.3
Other intangible assets 27.7 83.2	27.7	83.2	31.4

* Additions of PP&E are related to development assets, assets in operation and other PP&E. For additions during the full-year 2017, see DNO's Annual Report and Accounts for 2017.

** Additions of Other intangible assets are related to capitalized exploration costs and license interests.

In the second quarter of 2018, the total impairment charge of USD 0.4 million relates to the SL18 exploration license in Somaliland. In the first quarter of 2018, the total impairment charge of USD 1.5 million was related to the Sfax Offshore Exploration Permit in Tunisia. In the first half-year 2017, the total impairment charge of USD 47.6 million was related to Block 8 in Oman.

In the full-year 2017, the total impairment charge of USD 108.4 million was related to Oman Block 8 (47.8 million), the Erbil license in Kurdistan (USD 59.1 million) and the Sfax Offshore Exploration Permit in Tunisia (USD 1.6 million).

Note 7 | Property, plant and equipment/ Other intangible assets (continued)

Impairments

Impairment tests of individual cash-generating units are performed when impairment triggers are identified. During the first half-year 2018, a total impairment charge of USD 1.9 million was recognized and related to the Sfax Offshore Exploration Permit in Tunisia (USD 1.5 million) and SL18 exploration license in Somaliland (USD 0.4 million).

	First half-year ending 30 June 2018			Full-Year ending 31 December 2017
	Impairment	Recoverable/	Impairment	Recoverable/
	charge (-)/	carrying	charge (-)/	carrying
USD million	reversal (+)	amount	reversal (+)	amount
Erbil, Kurdistan	-	22.8	-59.1	20.7
Block 8, Oman	-	-	-47.8	-
Somaliland	-0.4	-	-	0.4
Sfax Offshore Exploration Permit, Tunisia	-1.5	-	-1.6	1.5
Total	-1.9	22.8	-108.4	22.6

The table shows the recoverable/carrying amount for the cash generating units which have been impaired in 2017 and 2018. Of the impairment charge of USD 1.9 million in first half-year 2018, USD 1.5 million was recognized on inventories.

Note 8 | Financial investments

Financial investments are related to equity instruments and are recorded at fair value (market price, where available) at the end of each period. Fair value changes are included in other comprehensive income (FVTOCI). See Note 1 for more details. Impairments will be charged to profit or loss, while

	Quarters		First Half-Year		Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Beginning of the period	20.0	13.4	17.4	14.0	14.0
Additions	186.7	-	186.7	-	-
Fair value changes through OCI	16.5	-0.2	19.0	-0.8	3.4
Total financial investments end of the period	223.1	13.2	223.1	13.2	17.4
Non-current portion	223.1	13.2	223.1	13.2	17.4
Current portion	-	-	-	-	-

Financial investments include the following:

	At 30 Jun		At 31 Dec
USD million	2018	2017	2017
Listed securities:
- RAK Petroleum plc	20.1	13.2	17.4
- Faroe Petroleum plc	203.0	-	-
Total financial investments	223.1	13.2	17.4

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 is listed on the Oslo Stock Exchange. Through its subsidiary, RAK Petroleum Holdings B.V., RAK Petroleum plc is the largest shareholder in DNO with 40.45 percent of the total issued shares. DNO's Executive Chairman Bijan Mossavar-Rahmani, the largest shareholder in RAK Petroleum plc, also serves as Executive Chairman of RAK Petroleum plc.

During April 2018 DNO ASA acquired 105,247,866 shares in Faroe Petroleum plc which represent 28.23 per cent of the outstanding shares. Total acquisition price for the shares was USD 186.7 million. Faroe Petroleum is an independent oil and gas company listed on the UK`s Alternative Investment Market (AIM) of London Stock Exchange and focuses on exploration, appraisal and production activities in Norway and the United Kingdom.

Note 9 | Trade and other short-term receivables

	At 30 Jun		At 31 Dec
USD million	2018	2017	2017
Underlift	8.6	66.4	7.8
Other short-term receivables	21.7	37.0	20.0
Total trade and other short-term receivables	30.4	103.4	27.8

The outstanding underlift receivable at 30 June 2018 relates to Block 8 in Oman. Other short-term receivables relate mainly to items of working capital in oil and gas licenses and prepayments in DNO ASA.

Note 10 | Interest-bearing liabilities

Interest-bearing liabilities

		Facility	Facility			At 30 Jun		At 31 Dec
USD million	Ticker	currency	amount	Interest	Maturity	2018	2017	2017
Non-current
Bond loan (ISIN NO0010740392)	DNO01	USD	200.0	8.75%	18/06/20	200.0	400.0	400.0
Bond loan (ISIN NO0010823347)		USD	400.0	8.75%	31/05/23	400.0	-	-
Borrowing issue costs related to bonds						-28.9	-32.8	-27.2
Exploration financing facility		NOK	500.0	see below	see below	8.6	3.4	-
Total non-current interest-bearing liabilities						579.7	370.7	372.8
Current
Exploration financing facility		NOK	500.0	see below	see below	32.2	30.6	17.6
Total current interest-bearing liabilities						32.2	30.6	17.6
Total interest-bearing liabilities						611.9	401.3	390.4

Security and pledges

	At 31 Jun		At 31 Dec
USD million	2018	2017	2017
Exploration tax refund	43.1	43.6	33.7
Restricted cash	0.9	0.7	0.7
Total book value of assets pledged	44.0	44.3	34.4

Changes in liabilities arising from financing activities split on cash and non-cash changes

	At 1 Jan	Cash	Non-cash changes	At 30 Jun
USD million	2018		flows Amortization	Currency	Acquisition	2018
Bond loan	400.0	200.0	-	-	-	600.0
Borrowing issue costs	-27.2	-10.5	8.8	-	-	-28.9
Exploration financing facility (non-current)	-	8.8	-	-0.2	-	8.6
Exploration financing facility (current)	17.6	15.0	-	-0.4	-	32.2
Total	390.4	213.3	8.8	-0.6	-	611.9

	At 1 Jan	Cash		Non-cash changes		At 30 Jun
USD million	2017		flows Amortization	Currency	Acquisition	2017
Bond loan	400.0	-	-	-	-	400.0
Borrowing issue costs	-38.3	-	5.5	-	-	-32.8
Exploration financing facility (non-current)	-	-	-	-	3.4	3.4
Exploration financing facility (current)	-	-	-	-	30.6	30.6
Total	361.7	-	5.5	-	34.1	401.3

Note 10 | Interest-bearing liabilities (continued)

DNO Norge AS has available a revolving exploration facility in an aggregate amount of NOK 500 million (equivalent to USD 61.3 million as of 30 June 2018). Utilization requests need to be delivered for each proposed loan. The aggregate of the proposed loan shall not exceed 95 percent of the tax value of eligible costs which have not already been refunded by the tax authorities. The Company shall repay each loan when the tax refunds have been received. The interest rate equals three months NIBOR plus a 1.2 percent margin. The current portion of the exploration financing facility is scheduled to be repaid by the end of 2018 when the exploration tax refund is received.

On 31 May 2018, DNO ASA completed the placement of USD 400 million of a new, five-year senior unsecured bond issued at 100 percent of par with a coupon rate of 8.75 percent. In connection with the bond placement, the Company rolled over USD 200 million in nominal value of DNO01 bonds into the new bond. The rolled over bonds were cancelled and USD 200 million of outstanding DNO01 bonds remain. The financial covenants of the bonds require minimum USD 40 million of liquidity, and that the group maintains either an equity ratio of 30 percent or a total equity of a minimum of USD 600 million.

Note 11 | Provisions for other liabilities and charges

		At 30 Jun
USD million	2018	2017	2017
Non-current
Asset retirement obligations	32.6	22.0	31.9
Other long-term provisions and charges	16.2	153.3	13.8
Total non-current provisions for other liabilities and charges	48.8	175.3	45.7
Current
Other provisions and charges	18.6	3.8	2.7
Total current provisions for other liabilities and charges	18.6	3.8	2.7
Total provisions for other liabilities and charges	67.5	179.1	48.4

In the third quarter of 2017, provisions for a water purification project in the Kurdistan region of Iraq and provision for production bonuses for the Tawke license previously included in other long-term provisions and charges were derecognized as part of the Kurdistan Receivables Settlement Agreement of August 2017.

Note 12 | Events after the reporting period

DNO subscribes to shares in Panoro Energy and completes sale of Tunisia subsidiary

On 30 July 2018, the Company subscribed to 2,641,465 shares in Oslo-listed Panoro Energy ASA, representing 5.65 percent of the outstanding shares, at a price of NOK 12.82 per share. The share subscription follows completion of a transaction in which DNO sold its Tunisia subsidiary, DNO Tunisia AS, to Panoro. Panoro has assumed all existing permit interests, rights and remaining work obligations at the Sfax Offshore Exploration Permit, Ras El Besh Concession and Hammamet Offshore Exploration Permit. Panoro has retained a cash balance of USD 8.6 million in DNO Tunisia AS. Through its shareholding in Panoro, DNO maintains upside exposure to the Tunisian permits and will in addition receive a deferred consideration of up to USD 13.2 million paid through future production from the Sfax Offshore Exploration Permit. The financial impact related to the transaction will be recognized in the third quarter.

DNO reports payment for Tawke deliveries

On 20 July 2018, the Company reported receipt of USD 62.33 million from the Kurdistan Regional Government as payment for April 2018 crude oil deliveries to the export market from the Tawke license. The funds will be shared by DNO and partner Genel Energy plc pro-rata to the companies' interests in the license. Separately, a payment of USD 5.41 million from the Kurdistan Regional Government was received net to DNO, representing three percent of gross Tawke license revenues during April, as provided for under the Receivables Settlement Agreement of August 2017.

DNO exits Somaliland

The Company exited Block SL18 in Somaliland in July 2018.

DNO acquires new Norway licenses

The Company recently added six new exploration licenses offshore Norway, including four in a license swap with Lundin Petroleum. Subject to government approval, DNO will then hold 21 Norway licenses.

Alternative performance measures

DNO ASA discloses alternative performance measures as a supplement to the financial statements prepared in accordance with IFRS. Such performance measures are frequently used by securities analysts, investors and other interested parties and are meant to provide insight into the operation, financing and future prospects of the Company.

EBITDA

	Quarters		First Half-Year		Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Revenues	147.0	81.7	289.3	158.4	347.4
Lifting costs	-20.5	-16.0	-36.4	-29.0	-96.1
Exploration expenses	-11.0	-1.5	-37.8	-3.0	-33.0
Administrative expenses	-5.7	-6.9	-15.6	-11.9	-33.2
Other income past oil sales	-	-	-	-	556.0
Other operating income/expenses	-4.6	-1.6	-8.3	-3.3	-5.4
EBITDA	105.2	55.7	191.3	111.1	735.6
Netback	Q2 2018	Q2 2017	2018	2017	2017
USD million
EBITDA	105.2	55.7	191.3	111.1	735.6
Provision for obsolete inventory	-	-	-	-	19.0
Other income past oil sales	-	-	-	-	-556.0
Taxes received/-paid	-	-0.4	-	-0.7	33.2
Netback	105.2	55.3	191.3	110.4	231.8
	Q2 2018	Q2 2017	2018	2017	2017
Netback (USD million)	105.2	55.3	191.3	110.4	231.8
Company Working Interest production (MMboe)	6.8	6.3	13.9	12.7	26.9
Netback (USD/boe)	15.5	8.8	13.8	8.7	8.6
Lifting costs	Q2 2018	Q2 2017	2018	2017	2017
Lifting costs (USD million)	-20.5	-16.0	-36.4	-29.0	-96.1
Company Working Interest production (MMboe)	6.8	6.3	13.9	12.7	26.9
Lifting costs (USD/boe)	3.0	2.5	2.6	2.3	3.6
Operational spend
USD million	Q2 2018	Q2 2017	2018	2017	2017
Lifting costs	-20.5	-16.0	-36.4	-29.0	-96.1
Exploration expenses	-11.0	-1.5	-37.8	-3.0	-33.0
Acquisition and development costs*	-31.7	-41.1	-50.1	-72.9	-130.4
Operational spend	-63.1	-58.6	-124.3	-104.9	-259.5
* Acquisition and development costs exclude estimate changes on asset retirement obligations. Equity ratio

Free cash flow

	Quarters First Half-Year			Full-Year
USD million	Q2 2018	Q2 2017	2018	2017	2017
Cash generated from operations	99.5	92.8	191.9	230.1	338.8
Purchases of intangible assets	-	-	-	-	-1.3
Purchases of tangible assets	-31.7	-41.1	-50.1	-72.9	-129.1
Free cash flow	67.8	51.7	141.8	157.2	208.4
Net debt
USD million	Q2 2018	Q2 2017	2018	2017	2017
Cash and cash equivalents	584.0	380.5	584.0	380.5	430.2
Bond loan	600.0	400.0	600.0	400.0	400.0
Net cash/-debt	-16.0	-19.5	-16.0	-19.5	30.2

Exploration financing facility has been excluded as it is covered by the exploration tax refund booked as an asset in the statement of financial position. See Note 6 and 10.

		NOTES
--	--	-------

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