DNO ASA — M&A Activity 2016

Jul 29, 2016

DNO launches offer to acquire Gulf Keystone

DNO launches offer to acquire Gulf Keystone

Oslo, 29 July 2016 - DNO ASA, the Norwegian oil and gas operator, today unveiled

a proposal to acquire for USD 300 million all of the enlarged share capital in

Gulf Keystone Petroleum Ltd following the latter's contemplated financial

restructuring announced earlier this month.

The terms of the DNO proposal, which would comprise cash and shares, reflect a

20 percent premium to the share price of USD 0.0109 at which, on 14 July 2016,

Gulf Keystone issued shares representing 5.6 percent of its share capital, and

also reflect a 20 percent premium to the price at which Gulf Keystone intends to

issue further shares in its restructuring. In addition, for the Gulf Keystone

guaranteed noteholders the DNO terms reflect 111 percent of par value compared

to 99 percent under the contemplated restructuring, and for the convertible

bondholders the DNO terms reflect 18 percent of par value compared to 15 percent

under the contemplated restructuring.

By offering USD 120 million in cash (approximately 40 percent of the

consideration), DNO would provide an early exit for those noteholders and

bondholders who may be unable or unwilling to hold equity for an extended

period. The additional offer of 170 million DNO shares (approximately 13.6

percent of the post transaction DNO share capital) would provide Gulf Keystone

investors with continued exposure to the Shaikan field in addition to DNO's

wider portfolio of assets, significantly larger market capitalization, more

robust cash flow, stronger balance sheet and proven operating and management

capabilities.

DNO has been active in the Kurdistan region of Iraq since 2004 and ranks number

one among the international oil companies in oil production (50 percent), oil

exports (60 percent) and proven oil reserves (50 percent). DNO holds a 55

percent stake in and operates the Tawke oil field at a current production level

of around 120,000 barrels of oil per day (bopd) of 27 degree API crude. Gulf

Keystone holds a 58 percent stake in and operates the Shaikan oil field at a

current level of around 40,000 bopd of 17 degree API crude. Production from

Shaikan is transported daily by road tanker to DNO's unloading and storage hub

at Fish Khabur for onward pipeline transport to export markets.

"Combining these two companies will create further scale and unlock operational

synergies that will reinforce DNO's already formidable presence in Kurdistan,"

said Bijan Mossavar-Rahmani, DNO's Executive Chairman. "We understand Shaikan's

challenges and opportunities and we are well positioned to focus financial,

technical, commercial and logistical support to maintain and then grow

production at this field to the benefit of both Kurdistan and our investors," he

added.

Gulf Keystone, a Bermuda incorporated and London listed company, has called a

special general meeting for 5 August 2016 to consider its contemplated financial

restructuring. DNO has written to the board of directors of Gulf Keystone to

present its proposal and to facilitate immediate engagement with Gulf Keystone's

investors ahead of the meeting to ensure sufficient time for these investors to

carefully consider the enhanced terms proposed by DNO.

DNO has retained Pareto Securities AS as financial adviser and Freshfields

Bruckhaus Deringer LLP, Advokatfirmaet Thommessen AS and Conyers Dill & Pearman

Limited as legal counsel in connection with the transaction.

For information relating to DNO's proposed offer, please see the attached

announcement.

Media enquiries: media@dno.no

Investor enquiries: investor.relations@dno.no

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DNO ASA is a Norwegian oil and gas operator focused on the Middle East and North

Africa. Founded in 1971 and listed on the Oslo Stock Exchange, the company holds

stakes in onshore and offshore licenses at various stages of exploration,

development and production in the Kurdistan region of Iraq, Yemen, Oman, the

United Arab Emirates, Tunisia and Somaliland.

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This information is subject to the disclosure requirements pursuant to section

5-12 of the Norwegian Securities Trading Act.

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NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR

INDIRECTLY, IN OR INTO ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A

VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION. THIS ANNOUNCEMENT IS NOT AN

ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER AND THERE CAN BE NO CERTAINTY

THAT AN OFFER WILL BE MADE NOR AS TO THE TERMS ON WHICH ANY OFFER WILL BE MADE.

Proposed Offer to acquire Gulf Keystone

DNO ASA ("DNO" or the "Company") has put forward a proposal (the "Proposed

Offer") to the board of directors of Gulf Keystone Petroleum Ltd ("Gulf

Keystone") to acquire 100 percent of the enlarged share capital in Gulf Keystone

that will result from the contemplated restructuring recently announced by Gulf

Keystone (the "Restructuring"). As described below, the Proposed Offer

represents an attractive premium to the value in the Restructuring.

On 14 July 2016, Gulf Keystone announced the Restructuring which is supported by

its largest shareholder, the committee representing a majority of its

noteholders and bondholders and its board of directors. The Restructuring, if

implemented, will result in the issue of new common shares to Gulf Keystone's

noteholders and bondholders against conversion of their debt to equity and new

common shares through an open offer to existing shareholders (together the "New

Shares"). DNO's Proposed Offer would be to acquire Gulf Keystone's existing

common shares and the New Shares issued following completion of the

Restructuring.

DNO's valuation of Gulf Keystone following the Restructuring is USD 300 million,

equivalent to GBP 0.99 pence per common share in issue following completion of

the Restructuring, calculated on the basis of 22,942,956,717 Gulf Keystone

shares following issue of the New Shares, an exchange rate of USD/GBP 0.7571 and

an average DNO share price over 30 days. The consideration is intended to be

delivered in the form of:

* USD 120 million in cash, provided out of DNO's existing cash resources; and

* 170 million DNO shares listed or to be listed on the Oslo Stock Exchange, of

which 162.3 million would be new DNO shares and the balance would be

treasury shares. This represents an exchange ratio of approximately 0.00741

DNO shares per Gulf Keystone common share.

The new DNO shares would be issued pursuant to the authority given to the board

of directors of DNO at the annual general meeting held on 2 June 2016.

DNO also proposes to exchange the proposed USD 100 million reinstated notes to

be issued in the Restructuring for USD 100 million senior unsecured bonds in

DNO, having a five year maturity and otherwise subject to substantially the same

terms and conditions as DNO's existing 8.75 percent bonds (the "Exchange

Offer").

The Proposed Offer is expected to be implemented by means of an amalgamation

under Bermuda law. This would require the board of directors of Gulf Keystone to

convene an EGM of Gulf Keystone's shareholders to approve the amalgamation.

The Proposed Offer would be conditional upon the Restructuring being implemented

as publicly announced by Gulf Keystone; acceptance by Gulf Keystone's Guaranteed

Noteholders of the Exchange Offer; an irrevocable undertaking by the largest

noteholders and bondholders to support the Proposed Offer and, in the case of

the noteholders, the Exchange Offer; and approvals from the Kurdistan Regional

Government.

DNO strongly believes that the Proposed Offer provides a compelling opportunity

for Gulf Keystone's investors:

* For shareholders, it would represent a premium of 20 percent to the share

price of USD 0.0109 at which, on 14 July 2016, Gulf Keystone issued shares

representing 5.6 percent of its share capital, and also represent a 20

percent premium to the price at which Gulf Keystone intends to issue further

shares under the Restructuring.

* For Guaranteed Noteholders, it would represent 111 percent of par value

based on the reported outstanding amounts of the Guaranteed Notes compared

to 99 percent of par value under the Restructuring.

* For Convertible Bondholders, it would represent 18 percent of par value

based on the reported outstanding amounts of the Convertible Bonds compared

to 15 percent of par value under the Restructuring.

* Cash consideration. DNO's offer to provide approximately 40 percent of the

consideration in cash would be a valuable feature for Gulf Keystone's

investors who convert debt to equity, and who may be unwilling or unable to

hold equity for an extended period.

* Future value creation. The Proposed Offer would provide an opportunity for

Gulf Keystone's investors to share in the prospects of the enlarged group

through the acquisition of shares in DNO.

* Improved liquidity. The Proposed Offer would provide an opportunity for Gulf

Keystone's investors to benefit from the strong liquidity provided by the

DNO shares, which have traded more than 9x in aggregate value compared to

Gulf Keystone's shares in 2016 to date.

* Attractive Exchange Offer. The DNO bonds would be issued in a company with a

wider group of assets, a significantly larger market capitalization, a

stronger cash flow and a stronger balance sheet than Gulf Keystone.

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Further announcements will be made as appropriate.

There can be no certainty that a transaction will be concluded. DNO reserves the

right to amend the terms of the Proposed Offer at any time and to implement it

through an offer or alternative structure.

The UK City Code on Takeovers and Mergers

By virtue of its status as a company incorporated in Bermuda, the UK City Code

on Takeovers and Mergers (the "City Code") does not apply to Gulf Keystone.

Whilst Gulf Keystone has incorporated certain takeover-related provisions into

its by-laws, these do not provide shareholders with the full protections offered

by the City Code and do not give rise to any consequences as a result of this

announcement. Enforcement of such provisions is the responsibility of Gulf

Keystone, not the Panel on Takeovers and Mergers (the "Panel"). Accordingly,

shareholders are reminded that the Panel does not have responsibility, in

relation to Gulf Keystone, for ensuring compliance with the City Code and is not

able to answer shareholders' queries. In particular, public disclosures

consistent with the provisions of Rule 8.3 of the City Code (as if it applied)

should not be emailed to the Panel.

Important information

Pareto Securities AS, Freshfields Bruckhaus Deringer LLP, Advokatfirmaet

Thommessen AS and Conyers Dill & Pearman Limited are acting exclusively for the

Company and no one else in connection with the contents of this announcement,

and will not be responsible for providing protections or advice to anyone other

than the Company in relation to or in connection with the matters referred to in

this announcement.

Neither this announcement nor any copy of it may be taken or transmitted in

whole or in part, directly or indirectly, into any jurisdiction where to do so

would constitute a violation of the relevant laws of such jurisdiction.  This

announcement is not intended to, and does not, constitute, represent or form

part of any offer, invitation or solicitation of an offer to purchase, otherwise

acquire, subscribe for, sell or otherwise dispose of, any securities whether

pursuant to this announcement or otherwise. This announcement is not an offer of

securities in the United States. The securities to which this announcement

relates have not been and will not be registered under the U.S. Securities Act

of 1933, as amended (the "Securities Act") or with any regulating authority or

under any applicable securities laws of any state or other jurisdiction of the

United States, and may not be offered or sold within the United States unless

registered under the Securities Act or pursuant to an exemption from, or in a

transaction not subject to, the registration requirements of the Securities Act

and in compliance with applicable state law.

Matters discussed in this announcement may constitute forward-looking

statements. Forward-looking statements are statements that are not historical

facts and may be identified by words such as "anticipate", "believe",

"continue", "estimate", "expect", "intends", "may", "should", "will" and similar

expressions. The forward-looking statements in this announcement are based upon

various assumptions, many of which are based, in turn, upon further assumptions.

Although DNO believes that these assumptions were reasonable when made, these

assumptions are inherently subject to significant known and unknown risks,

uncertainties, contingencies and other important factors which are difficult or

impossible to predict and are beyond its control. Such risks, uncertainties,

contingencies and other important factors could cause actual events to differ

materially from the expectations expressed or implied in this announcement by

such forward-looking statements.

The information, opinions and forward-looking statements contained in this

announcement speak only as at its date, and are subject to change without

notice.

[HUG#2031737]