DNO Iraq AS, a subsidiary of DNO International ASA (DNO), is involved in arbitration proceedings related to certain third party interests in The Kurdistan Region of Iraq. The London Court of International Arbitration has disclosed the award in these proceedings.
The award, which is conditional, does not specify any figure of damages to be paid by DNO, but rather the method and assumptions to be applied by the parties to calculate and agree on a final figure. Due to the complexity of the calculation model, some time is needed in order to agree on a final figure. Our very early and preliminary estimates indicate the damages to be in the range of USD 55-75 million.
DNO recorded a provision for arbitration claims of USD 12 million in its year-end accounts for 2009, in line with the Company's submission based on third party experts used by DNO. The claimants' submission for damages was USD 144 million.
"We note that this award deviates from both the claimants' and our submissions. Assuming a final award in line with our preliminary calculations, we are able to fully cover the estimated range of damages from our cash reserves. Furthermore, this should not have any effect on our current investment plan which includes the drilling of at least five exploration wells and completion of a new development in Yemen", says Helge Eide, Managing Director and President of DNO International ASA.
Based on the preliminary calculation, the award is expected to imply additional loss of USD 45-65 million in the Company's accounts for the third quarter of 2010. This will affect the Company's income statement and equity, but DNO will remain in full compliance with its financial covenants.
DNO reported a total cash position of NOK 822 million for the second quarter of 2010. As a result of increased production and cash flow, the Company's cash position has increased to around NOK 940 million (USD 160 million) by end of the third quarter. Consequently, the Company is in a position to fully cover the estimated range of damages from its cash reserves.
Oslo, 6 October 2010
DNO International ASA
Communication Director Tom Bratlie
Phone: +47 905 21 904
CFO Haakon Sandborg
Phone: +47 23 23 84 80