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Boards of Directors approve merger of RAK Petroleum’s MENA operating subsidiaries into DNO International

United Arab Emirates: Monday, September 05 - 2011 @ 17:15

The transaction values DNO International at $1.64bn corresponding to NOK 9.50 per share and RAK Petroleum’s subsidiaries at $250m.

As consideration, RAK Petroleum will receive 153,422,343 shares of DNO International of which 9,500,000 will be in treasury shares and the remaining 143,922,343 in new shares to be issued through an increase of the share capital of DNO International. Upon completion of the merger, RAK Petroleum will own 40% of the share capital of DNO International up from 30% currently. The transaction is contingent upon government approvals and affirmative votes by shareholders of both companies, with closing expected around yearend.

The number of shares to be issued was determined through a relative valuation process based on an independent assessment of the two companies’ oil and gas assets by international petroleum consultants DeGolyer & MacNaughton and preparation of Competent Person’s Reports. Based on June 30, 2011 working interest basis figures provided by DeGolyer & MacNaughton, DNO International´s net remaining proven and probable reserves consisted of 355 million barrels of oil equivalent in Iraq and Yemen, while RAK Petroleum’s net remaining proven and probable reserves consisted of 52 million barrels of oil equivalent in Oman and the United Arab Emirates. The calculation of shares to be issued includes a positive working capital balance of $15m in the RAK Petroleum subsidiaries as at the June 30, 2011 economic date.

“For RAK Petroleum shareholders, this is an important first step towards building more transparency in the share value. The merger will also provide exposure to a more diversified portfolio of MENA oil and gas assets — including world class reserves in the Kurdistan Region of Iraq — through the ownership of the 40% stake in the enlarged DNO International entity,” said Bijan Mossavar-Rahmani, Chairman of the Board of Directors and Chief Executive Officer of RAK Petroleum.

“An eventual London listing anticipated in 2012 by DNO International in addition to the Oslo listing should offer greater access to global investors and capital, which in turn, should provide opportunities for additional investment and growth,” he added.

Mr Mossavar-Rahmani, who since 9 June has also served as Executive Chairman of DNO International, added that the combined organisation will form a highly skilled, competent and experienced operating group. And importantly, one with regional roots and regional relationships, unlike most independent exploration and production operators active in this part of the world, he noted. The combined entity will have approximately 630 staff and offices in Oslo, London, Erbil, Sana’a, Dubai, Ras Al Khaimah and Muscat, with plans for a Tunis presence in 2012.

The transaction will be structured as the merger of two Norwegian companies in accordance with Chapter 13 of the Norwegian Public Companies Act. NORAK Holding AS, containing all RAK Petroleum’s oil and gas assets, will merge into DNO MENA AS, a subsidiary of DNO International. This structure was anticipated in the July 4, 2011 heads of agreement entered into by the Boards of Directors of DNO International and RAK Petroleum. The heads of agreement set a value range for RAK Petroleum assets at $250m to $300m and the DNO International consideration shares at NOK 8.25 to NOK 10.00 per share.

The Board of Directors of RAK Petroleum has received a fairness opinion on the transaction from Macquarie Capital (Europe) Limited and a legal due diligence investigation of DNO International conducted by Thommessen AS.

The two RAK Petroleum executives on the DNO International board, including Mr. Mossavar-Rahmani and Shelley Watson, abstained from involvement in the valuation considerations and related discussions on the DNO International side and the final approval of the merger plan was unanimously taken in a DNO International board meeting in which only the three independent Norwegian directors deliberated and voted.

A prospectus equivalent document will be filed with the Financial Supervisory Authority of Norway (FSA), by DNO International. Immediately following the approval by the FSA, DNO International and RAK Petroleum will submit notices of extraordinary general meetings to seek their respective shareholders’ approvals of the merger. Following the normal creditor notification period of two months and on successful completion of the transaction, the consideration shares transferred and issued by DNO International to RAK Petroleum will be listed and tradable on the Oslo Stock Exchange.

DNO International will continue to be headquartered in Oslo. Post merger, RAK Petroleum expects to maintain small administrative offices in Ras Al Khaimah and Dubai to manage its portfolio of investments.

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Monday, September 5- 2011 @ 17:15 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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