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Tue 1 Nov 2011 09:09 PM

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DNO International, RAK Petroleum merger approved

Shareholders back plan to create company with ops in Iraq, Yemen, the UAE, Oman

DNO International, RAK Petroleum merger approved

DNO International’s
shareholders on Tuesday approved a proposal to merge the company with RAK Petroleum’s oil and gas units in the Middle East and North Africa after two
months of wrangling over the issue.

Seventy-seven percent of shareholders voted in favour of DNO merging with
majority shareholder RAK in exchange for DNO shares at an extraordinary
general meeting in Oslo.

transaction values DNO at $1.64bn, corresponding to 9.50 kroner
per share, and RAK’s operating subsidiaries at $250m. Criticism
of the move prompted RAK to enter an agreement with a group of minority
shareholders on Monday.

The deal will create a company with operations
in northern Iraq, Yemen, the UAE, Tunisia and Oman.

ambition is to become a significant exploration and production company
in the Middle East and North Africa region,” CEO
Helge Eide said at the EGM. “This merger creates a stronger
platform for further growth. Growth will be done through transactions
and acquisitions.”

Berge Gerdt
Larsen, the former chairman of DNO who was voted off the board in June,
worked to prevent the merger, saying the deal undervalued DNO and
blocked a possible higher bid from other interested parties.

DNO rose 2.1
percent to 6.705 kroner at the close in Oslo. The stock is down 26
percent this year, valuing the Oslo-based oil producer at 6.4bn
kroner ($1.1bn).

RAK, which
will get about 43 percent control of DNO through the deal, yesterday
committed to reducing its stake to 30 percent by the end of 2012.

agreement with the shareholders’ group also states that an independent
committee including smaller owners will be set up to propose a member
for the board.

RAK would support such a candidate, DNO chairman Bijan
Mossavar-Rahmani said. RAK agreed to accept as many as 80 million
treasury shares as partial settlement of the 153.4 million consideration
shares it will receive, to reduce the dilution of shareholders’
ownership as a result of the merger.

DNO today
said it had completed its open market partial tender offer for as many
as 54.5 million common shares, which resulted in the company buying back
42.6 million shares at 7.50 kroner each. The company’s stock of
treasury shares after the transaction is 68 million shares.

The board’s
request for authorisation to increase DNO’s share capital by as many as
100 million shares was not approved at Tuesday’s EGM.

RAK as part of the
deal with minority shareholder group the DNO Initiative agreed to
postpone the capital increase until the details for a secondary listing
in London in 2012 had been established. The listing process would be
accelerated, Mossavar-Rahmani said on Monday.

DNO, the
first foreign company to begin pumping oil in Iraq since the 1970s, is
awaiting outstanding payments for its exports from the Kurdish region
after receiving two payments earlier in the year.

Iraq’s central
government agreed in February to resume exports from the semi-autonomous
region and pay foreigners while it sought to resolve a dispute over oil
contracts with the regional government. The Kurdish region accounted
for 88 percent of DNO’s output last quarter.

DNO said in
September that merging with RAK would add 7,500 barrels of oil
equivalent a day to its average working interest output of 45,000

RAK’s contribution would rise to about 15,000 barrels a day
within a year after the redevelopment of Saleh field off the UAE
sheikhdom Ras Al Khaimah, the companies said. The company’s reserves
would rise 15 percent to 406.6 million barrels, according to DNO.

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