DNO ASA - Information for the market

After being revitalised in 1996, DNO has shown an ability to deliver substantial growth and value creation. The company's market capitalisation has risen from approximately NOK 40 million to the current level of nearly NOK 2.4 billion. The return on the share has been over 1800%, yielding an average annual return of about 200%.
Portions of this value creation that has taken place have now been realised, and since autumn 2003 the company has paid approximately NOK 500 million in dividends to its shareholders. DNO is now facing a new era. However, the company's position is considerably better than in 1996, and DNO is well positioned for further growth and value creation over time in the years to come.
Despite this success, the company has lately been receiving enquiries from representatives of the press in which they refer to various persons, among them the former Chairman of the Board, who was not re-elected in 2002, as well as a former adviser, who are helping to spread an unfounded and erroneous account of internal company matters, which they are using to damage the reputation of the company, its Board of Directors and management.
In this connection the company would like to point out the following to the market:
In 1996 the company got a new principal shareholder, a new strategy for the company was adopted, and the company got a new Board and new management. The strategy was to focus on mature and smaller petroleum fields. Cost-effective solutions combined with increased petroleum extraction were to ensure extended production (tail-end production) from mature fields and help to develop fields not deemed profitable by the larger oil companies. In the eight years that followed, the company showed robust, profitable growth and value creation through such projects. The company's oil production has risen from 800 to 27 000 barrels per day, and its oil reserves have grown from 3 million to 144 million barrels.
One of the pillars of the new strategy introduced in 1996 was the company's network model, which has contributed greatly to the company's success. According to the network model DNO collaborates with companies and/or persons possessing special expertise or a key network of contacts, which are used for evaluating, acquiring or carrying out projects.
Investments in the offshore and oil service sectors to support petroleum activities were also a crucial element of the new strategy.
In 1996 DNO had only a few smaller licence interests on the British continental shelf. With oil production of only 800 barrels per day and oil reserves of 3 million barrels, the company faced major challenges with regard to access to capital.
The company's first significant investment was the acquisition of interests in drilling rigs. In the course of less than one year, the company was able to realise considerable value creation from these investments, which provided DNO with approximately NOK 100 million in cash. It was companies controlled by the principal shareholder that made it possible for DNO to make these investments, which thus provided a substantial injection of capital into the company.
It was this injection of capital that laid the groundwork for DNO being able to invest in oil and gas projects. The first investment was taking over the operatorship of the Heather field on the British continental shelf. Furthermore, in the following two years there were investments in projects in Yemen and north-west Russia (Timan Pechora).
Of these three principal investments, the project in north-west Russia was the one deemed to have the greatest potential, but also the highest risk. The main reason why the project did not succeed was the drop in the oil price and in financial markets worldwide in the second half of 1998, which impacted Russia particularly severely.
However, the investments in Great Britain and Yemen were a success, which meant that the company succeeded with two of its three principal investments. This also enabled the company to re-enter Norway in 2000, and the company today enjoys a strong position on the Norwegian continental shelf, with 13 licences and 5 operatorships.
The company's principal shareholder and network companies have contributed substantially to bringing investment opportunities and projects to DNO; and the network has also helped to make the projects a success.
All transactions in the company have been thoroughly accounted for in annual reports and company disclosures. DNO vouches fully for all information about matters connected with the company's transactions, which have also been reviewed and approved by an auditor.
Following a period of robust growth, the company conducted a strategic review of its licence portfolio. This resulted in DNO realising a substantial portion of its value in autumn 2003 through a sale of licence interests to Lundin Petroleum AB. This also enabled the company to pay approximately NOK 500 million in dividends since autumn 2003. Thanks to the company's solid financial position, the Board of DNO has also recently proposed to pay out further value to shareholders through an ordinary dividend of approximately NOK 130 million for 2004.
DNO endeavours to provide accurate and relevant information about all matters deemed to be of importance to the company's shareholders, the financial markets and other parties. It is regrettable that certain players and individuals choose to overlook the actual situation described in the company's information for the market and the success and value creation that have taken place in the company since 1996 and still seek to damage the reputation of the company, its Board and management by coming out with unfounded and erroneous information.
7 April 2005
Helge Eide
Managing Director