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DNO launches offer to acquire Gulf Keystone

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Oilfield Technology,

DNO ASA, has unveiled a proposal to acquire for US$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% premium to the share price of US$0.0109 at which, on 14 July 2016, Gulf Keystone issued shares representing 5.6% of its share capital, and also reflect a 20% 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% of par value compared to 99% under the contemplated restructuring, and for the convertible bondholders the DNO terms reflect 18% of par value compared to 15% under the contemplated restructuring.

By offering US$120 million in cash (approximately 40% 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% 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 capitalisation, 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%), oil exports (60%) and proven oil reserves (50%). DNO holds a 55% stake in and operates the Tawke oilfield at a current production level of around 120 000 bpd of 27 degree API crude. Gulf Keystone holds a 58% stake in and operates the Shaikan oilfield 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.

Adapted from a press release by Louise Mulhall

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