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.

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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.

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This announcement is distributed by NASDAQ OMX Corporate Solutions on behalf of NASDAQ OMX Corporate Solutions clients.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.
Source: DNO ASA via Globenewswire

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