Dno Ord Regulatory News (0MHP)

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FOR IMMEDIATE RELEASE

27 December 2018

QUESTIONS FOR FAROE PETROLEUM PLC SHAREHOLDERS TO CONSIDER PRIOR TO THE CLOSING DATE FOR DNO ASA'S OFFER ON 2 JANUARY 2019

Oslo, 27 December 2018 - DNO ASA ("DNO"), the Norwegian oil and gas operator, today provides the following statement in relation to its cash offer for the entire issued and to be issued share capital of Faroe Petroleum plc ("Faroe") at 152 pence per share (the "Offer"), as Faroe shareholders prepare to make their decision prior to the 2 January 2019 closing date.

DNO's Offer reflects a 44.8 percent premium over the unaffected Faroe share price of 105 pence as at 3 April 2018 -- the day before DNO announced its first acquisition of Faroe shares triggering takeover speculation -- and is full and fair, even generous. It is doubly so in an increasingly uncertain oil and equities market.

While Faroe's share price has been underpinned by the DNO Offer at 152 pence, the peer group has fallen by 34 percent1 over the past three months. If Faroe's share price had performed in line with its peers, it would now stand at 106 pence2, or possibly lower still if measured against pre-takeover speculation levels.

Faroe shareholders are encouraged to accept the DNO Offer by 1 pm London time on 2 January 2019. If DNO does not receive sufficient acceptances for its Offer to be unconditional, DNO has the choice either to lapse the Offer or to extend it. If DNO elects to lapse the Offer, it cannot make a new offer for another 12 months (subject to exceptions in the Code) and there can be no assurances as to DNO's longer-term ambitions.

Is it sensible -- or self-serving -- for the Faroe board of directors to continue to claim that the DNO Offer is "opportunistic" and to advise shareholders to do nothing when provided the certainty of a cash offer of 152 pence in these depressed market conditions?

In weighing the advice of the Faroe board of directors, shareholders should consider four questions:

1. If Faroe genuinely believes the company is worth more than 152 pence per share, why does it not publish a robust valuation report and provide important updates on financial and operational matters, including the status of the Brasse East well, to support this claim?

2. If Faroe is delivering "transformational growth", why, among other setbacks, has first oil from the flagship Brasse field been delayed by two to three years in the past two years? And why does Faroe persist on calling on DNO to revise its Offer to reflect the "significant benefits created by" the Equinor swap when Faroe itself announced on 5 December 2018 that this swap is value neutral?

3. If Faroe has "a proven track record of delivering value to all shareholders", why has the company provided a negative return on invested equity?

4. If Faroe's remuneration is in line with oil and gas peers, why is the dilution to shareholders from the various Faroe option schemes significantly greater than its peers in the North Sea and Norway (as measured against Enquest, Premier Oil, Cairn, Lundin and AkerBP)?

To shed further light on these points:

If Faroe genuinely believes the company is worth more than 152 pence per share, why does it not publish a robust valuation report and provide important updates on financial and operational matters, including the status of the Brasse East well, to support this claim?

· Instead of publishing a Competent Persons Report in response to DNO's Offer, Faroe has relied on incomplete analysis provided in consultants' reports commissioned by its board of directors. Incidentally, one of those reports indicates that approximately one-half of all the exploration value generated in the Faroe portfolio was made eight years ago with the discovery of the Maria field3.

· Faroe has not disclosed the results of its critical "step change" Brasse East well (so described in Faroe's 29 October 2018 investor presentation), despite Norwegian Petroleum Directorate information indicating that this exploration well has been completed, generating questions about drilling outcomes. In the previous drilling campaigns at Brasse, the company announced preliminary results from the main bore, prior to results from the sidetrack, and this morning they promptly announced the disappointing result of the Cassidy well.

· On the back of the failure of the other recent "step change" Rungne exploration well (again so described in the same Faroe investor presentation) in the Brasse area, should Faroe not update shareholders with regards to the Brasse project's reserves, given that this project is fundamental to the absolute value of Faroe?

· Faroe continues to refer to its cash balance from 30 June 2018, ignoring cash outflow since that date.

· Faroe continues to refer to its outdated reserves and resources from 31 December 2017, ignoring 2018 production which DNO estimates at 4.4 million barrels of oil equivalent (boe)4, based on the company's latest 2018 production guidance of 12,000 boe/d (incidentally the bottom end of the previously guided range of 12,000-14,000 boe/d) and the impact of the Equinor swap (an estimated 0.8 million boe reduction5).

· Faroe has not updated on plans for decommissioning of its two main UK Schooner and Ketch fields. DNO notes from the decommissioning programmes published on the UK Oil and Gas Authority website that the company has not been able to identify any viable solution for continued production from the fields. Is Faroe's current provision of £56.3 million for decommissioning liabilities a sufficient sum?

If Faroe is delivering "transformational growth", why, among other setbacks, has first oil from the flagship Brasse field been delayed by two to three years in the past two years? And why does Faroe persist on calling on DNO to revise its Offer to reflect the "significant benefits created by" the Equinor swap when Faroe itself announced on 5 December 2018 that this swap is value neutral?

· On 20 September 2016, Faroe anticipated first oil from Brasse in 2019; by 21 March 2017 this had become 2020; and by 29 October 2018 this had further shifted to 2021/2022.

· In its 5 December 2018 announcement Faroe indicated that the Equinor swap was value neutral, trading short term gain for longer term loss. In its defence document, Faroe emphasised the short term gain aspect of the swap with a claim that it will create additional cash flow of £96 million for the critical years of 2019 and 2020. But such calculations are based on a per barrel Brent oil price prediction of $65 for 2019 and $67.5 for 2020, significantly above current Brent oil price futures, putting to the test Faroe's value neutrality proposition.

If Faroe has "a proven track record of delivering value to all shareholders", why has the company provided a negative return on invested equity?

· Total equity raised by Faroe from public markets (since and including its Initial Public Offering ("IPO")) of £362 million compares to an unaffected market capitalisation of £385 million on the issued share capital as at 3 April 2018, the day before DNO announced its first acquisition of Faroe shares.

· Total equity from public markets accounted for approximately 91 percent of issued share capital as at that date. Hence, the £362 million had become £348 million (91 percent of market capitalization) and once adjusted for inflation, the value destruction would be significantly greater.

· Since its IPO, Faroe's aggregate cash generation from its operations has been approximately £600 million while its aggregate capital spend has been approximately £870 million. The difference between the two has been financed through dilutive share issues and a recent bond issue.

If Faroe's remuneration is in line with oil and gas peers, why is the dilution to shareholders from the various Faroe option schemes significantly greater than its peers in the North Sea and Norway (as measured against Enquest, Premier Oil, Cairn, Lundin and AkerBP)?

· It is difficult for shareholders, including DNO, to judge from publicly available sources the Faroe board of directors' defence claim that its remuneration of executive directors is in line with oil and gas peers. However, it is clear that Faroe's option and matching share scheme elements of remuneration are not!

· Options and awards held by Faroe's executive directors contribute approximately 4.0 percent dilution relative to the current issued share capital (on the basis of full vesting) which is significantly more generous than options and awards held by directors at peer group companies6.

· In setting its 152 pence price, DNO has taken into account options and awards over 28,148,753 Faroe shares (on the basis of full vesting) set aside under the company's various schemes. Approximately £50 million of the £445 million value (fully diluted basis, other than shares held by DNO and the Faroe Employee Benefit Trust) of DNO's Offer is the sum due in respect of these options, matching share schemes (on the basis of full vesting) and ordinary shares held by directors.

Enquiries:

DNO ASA

Media: media@dno.no

Investors: ir@dno.no

Tel: +47 911 57 197

Brunswick

Patrick Handley

Charles Pretzlik

William Medvei

Tel: +44 20 7404 5959

Lambert Energy Advisory Limited

Philip Lambert

David Anderson

Tel: +44 20 7491 4473

Pareto Securities AS

Petter Sagfossen

Tel: +47 22 87 87 48

Footnotes:

1. Based on the average share price performance of the following peers from 24 September 2018 to 24 December 2018 weighted by market capitalisation: Enquest, Premier Oil, Cairn, Lundin and AkerBP.

2. Implied closing price of Faroe share price on 24 December 2018 using the average share price change since 24 September 2018 based on the following peers weighted by market capitalisation: Enquest, Premier Oil, Cairn, Lundin and AkerBP.

3. Source: The Witteman Report published by Faroe, page 11.

4. Based on the Faroe 2018 guidance from the Faroe Equinor Swap Press Release (5 December 2018) of approximately 12,000 boe/d, which equates to approximately 4.4 mmboe for 2018.

5. Difference between estimated net 2P reserves of the acquired assets of 17.6 mmboe and the net 2P reserves of the divested assets of 18.4 mmboe (as at 31 December 2017) from the Faroe Equinor Swap Press Release (5 December 2018).

6. Based on the reported number of options held by Executive Directors and the issued share capital as at 31 December 2017 taken from the 2017 Annual Reports. Peers are Enquest, Premier Oil, Cairn, Lundin and AkerBP.

Further information

The terms and conditions of DNO's cash offer for the entire issued and to be issued share capital of Faroe not already owned by DNO at 152 pence per share are set out in the offer document dated 12 December 2018 (the "Offer Document") and accompanying Form of Acceptance. Defined terms used but not defined in this announcement have the meanings given in the Offer Document unless the context requires otherwise.

This announcement is not intended to and does not constitute, or form part of, an offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to the Offer or otherwise, nor shall there be any sale, issuance or transfer of securities of Faroe in any jurisdiction in contravention of applicable law. The Offer will be made solely by means of the Offer Document and (in respect of Faroe Shares held in certificated form) the Form of Acceptance accompanying the Offer Document, which will, together, contain the full terms and conditions of the Offer including details of how it may be accepted.

Please be aware that addresses, electronic addresses and certain other information provided by Faroe Shareholders, persons with information rights and other relevant persons for the receipt of communications from Faroe may be provided to DNO during the offer period as required under Section 4 of Appendix 4 of the Code to comply with Rule 2.11 of the Code.

Lambert Energy Advisory Limited, which is authorised and regulated in the UK by the FCA, is acting exclusively for DNO and no-one else in connection with the Offer and will not be responsible to anyone other than DNO for providing the protections afforded to clients of Lambert Energy Advisory Limited nor for providing advice in relation to the Offer or any other matters referred to in the Offer Document, this announcement or otherwise.

Pareto Securities AS is acting exclusively for DNO and no-one else in connection with the Offer and will not be responsible to anyone other than DNO for providing the protections afforded to clients of Pareto Securities AS nor for providing advice in relation to the Offer or any other matters referred to in the Offer Document, this announcement or otherwise.

Overseas jurisdictions

The availability of the Offer to Faroe Shareholders who are not resident in and citizens of the UK or the US may be affected by the laws of the relevant jurisdictions in which they are located or of which they are citizens. Persons who are not resident in the UK or the US should inform themselves of, and observe, any applicable legal or regulatory requirements of their jurisdictions. Further details in relation to Overseas Shareholders are contained in the Offer Document.

The release, publication or distribution of this announcement in or into jurisdictions other than the UK or the US may be restricted by law and therefore any persons who are subject to the law of any jurisdiction other than the UK or the US should inform themselves about, and observe, any applicable requirements. Any failure to comply with the applicable restrictions may constitute a violation of the securities laws of any such jurisdiction. To the fullest extent permitted by applicable law, the companies and persons involved in the Offer disclaim any responsibility or liability for the violation of such restrictions by any person. This announcement has been prepared for the purposes of complying with English law and the Code and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws of jurisdictions outside of England.

The Offer is not being made, directly or indirectly, in, into or from any jurisdiction where to do so would violate the laws in that jurisdiction. Accordingly, copies of this announcement and formal documentation relating to the Offer will not be and must not be, mailed or otherwise forwarded, distributed or sent in, into or from any jurisdiction where to do so would violate the laws of that jurisdiction.

Notice to US Faroe Shareholders

The Offer is being made for the securities of an English company and is subject to UK disclosure requirements, which are different from those of the US. The financial information included in the Offer Document has been prepared in accordance with IFRS and thus may not be comparable to financial information of US companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the US.

The Offer will be made in the US pursuant to an exemption from US tender offer rules provided by Rule l4d-1I under the US Exchange Act and otherwise in accordance with the requirements of the Code. Accordingly, the Offer will be subject to disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments, that are different from those applicable under US domestic tender offer procedures and law. If the Offer is instead implemented by means of a scheme of arrangement as provided for under English law it will not be subject to the tender offer rules of the US Exchange Act. Accordingly, the Offer would be subject to disclosure requirements and practices applicable in the UK to schemes of arrangement which differ from the disclosure requirements of US tender offer rules.

The receipt of cash pursuant to the Offer by a US Faroe Shareholder will likely be a taxable transaction for US federal income tax purposes and under applicable state and local, as well as foreign and other tax laws. Each holder of Faroe Shares is urged to consult his/her independent professional advisor immediately regarding the tax consequences of acceptance of the Offer.

It may be difficult for US Faroe Shareholders to enforce their rights and any claim arising out of the US federal securities laws, since DNO is located in a country other than the US, and some or all of their officers and directors may be residents of countries other than the US. US Faroe Shareholders may not be able to sue a non-US company or its officers or directors in a non-US court for violations of the US securities laws. Further, it may be difficult to compel a non-US company and its affiliates to subject themselves to a US court's judgement.

In accordance with normal UK practice, DNO or its nominees, or its brokers (acting as agents), may from time to time make certain purchases of, or arrangements to purchase, Faroe Shares outside the US, other than pursuant to the Offer, before or during the period in which the Offer remains open for acceptance. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Any information about such purchases will be disclosed as required in the UK, will be reported to a Regulatory Information Service and will be available on the London Stock Exchange website, www.londonstockexchange.com.

Forward looking statements

This announcement (including information incorporated by reference in this announcement), oral statements made regarding the Offer, and other information published by DNO contain statements which are, or may be deemed to be, "forward-looking statements". Forward-looking statements are prospective in nature and are not based on historical facts, but rather on current expectations and projections of the management of DNO about future events, and are therefore subject to risks and uncertainties which could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements. The forward-looking statements contained in this announcement include statements relating to the expected effects of the Offer on DNO and Faroe, the expected timing and scope of the Offer and other statements other than historical facts.

Often, but not always, forward-looking statements can be identified by the use of forward-looking words such as "plans", "expects" or "does not expect", "is expected", "is subject to", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Although DNO believes that the expectations reflected in such forward-looking statements are reasonable, DNO can give no assurance that such expectations will prove to be correct. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include the satisfaction of the Conditions, as well as additional factors, for example, oil and gas operations, particularly those relating to development stage assets which are subject to varying inputs that may impact timing, including, inter alia, permitting; environmental regulation; changes to regulators and regulation; third party manufacturers and service providers; the weather and asset partner and operator actions. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements. Such forward-looking statements should therefore be construed in the light of such factors. DNO, its associates, directors, officers and advisers provide no representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements. Other than in accordance with its legal or regulatory obligations DNO is under no obligation, and DNO expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No profit forecasts or quantified benefits statement

No statement in this announcement is intended as a profit forecast, profit estimate or qualified benefits statement and no statement in this announcement should be interpreted to mean that earnings per Faroe Share or DNO share for the current or future financial years would necessarily match or exceed the respective historical published earning per Faroe Share or DNO share or to mean that the enlarged group's earnings in the first 12 months following the Offer, or in any subsequent period, would necessarily match or be greater than those of Faroe or DNO for the relevant preceding financial period or any other period.

Dealing disclosure requirements

Under Rule 8.3(a) of the Code, any person who is interested in 1 percent or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 p.m. (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 p.m. (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1 percent or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s), save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 p.m. (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at http://www.thetakeoverpanel.org.uk/, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website and hard copies

A copy of this announcement and the documents required to be published by Rule 26 of the Code is and will be available, subject to certain restrictions relating to persons resident in Restricted Jurisdictions, on DNO's website https://www.dno.no/en/investor-relations/offer_announcement_26November. For the avoidance of doubt, the contents of such website are not incorporated into and do not form part of this announcement.

You may request a hard copy of this announcement by contacting Equiniti Limited on 0333 207 6399 or +44 121 415 0973 (if calling from outside the UK) or by submitting a request in writing to Equiniti Limited, Corporate Actions, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. Lines are open from 8.30 a.m. to 5.30 p.m. (London time) Monday to Friday (excluding English and Welsh public holidays). Calls to the helpline from outside the UK will be charged at applicable international rates. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. Please note that Equiniti Limited cannot provide advice on the merits of the Offer nor give financial, tax, investment or legal advice. If you have received this announcement in electronic form, copies of this announcement and any document or information incorporated by reference into this announcement will not be provided unless such a request is made.

About DNO

DNO is a Norwegian oil and gas operator focused on the Middle East and North Sea. Founded in 1971 and listed on the Oslo Stock Exchange, DNO holds stakes in onshore and offshore licences at various stages of exploration, development and production in the Kurdistan region of Iraq, Norway, Oman, the UK and Yemen.