Slide 1: Second Quarter Interim Presentation 2006
SECOND QUARTER INTERIM PRESENTATION Helge Eide 2006 President and Managing Director Haakon Sandborg Chief Financial Officer
Slide 2: Disclaimer
DISCLAIMER This Presentation includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ. These statements and this Presentation are based on current expectations, estimates and projections abo
Slide 3: YTD Highlights
YTD HIGHLIGHTS • 100 % increase in 2P reserves • Further improvement in Reserve Economics (FD&A USD 2.00 per barrel) • Increased production by 14 % • Solid financial performance from producing assets © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 3
Slide 4: Second Quarter Key Figures
NET ENTITLEMENT SECOND QUARTER KEY FIGURES Sales (NOK million) EBITDA (NOK million) Net Profit (NOK million) +120%* +290%* 400 180 80 350 160 168 60 75 359 140 300 120 40 250 100 200 20 80 150 0 163 60 100 40 -22 -20 50 20 43 0 0 -40 Q205 Q206 Q205 Q206 Q205 Q206 * Change from Q2 2005 • Strong impro
Slide 5: Year to Date Key Figures
NET ENTITLEMENT YEAR TO DATE KEY FIGURES Sales (NOK million) EBITDA (NOK million) Net Profit (NOK million) +141%* +90%* -64%* * Change from YTD 2005 • Strong YTD financial results in view of increased exploration activity • YTD exploration costs expensed increased by NOK 262 million - in line with D
Slide 6: Production
PRODUCTION Working Interest BOPD YTD: 15,675 Q2: 14,470 2006E: 15,000 20 000 Tasour Sharyoof Nabrajah Glitne 15 000 10 000 5 000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2005 2006 © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 6
Slide 7: Reserve Development
WORKING INTEREST RESERVE DEVELOPMENT WI Reserves P+P (MBOE) Strong organic reserve growth Last 18 months • Discoveries at Goliat (NCS) and 160 Tawke (N. Iraq) adds 70 million barrels in P+P reserves (WI) to 140 DNO 120 Taw ke 100 • Reserves have increased by 100 Goliath 80 percent YTD 60 40 • Reserv
Slide 8: Operational Review
OPERATIONAL REVIEW © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 8
Slide 9: Operational Highlights
SECOND QUARTER AND FIRST SIX MONTHS OPERATIONAL HIGHLIGHTS • YTD production increased by 14 % • Yemen (Nabrajah) production below plan – Glitne production in line with plan • Strong achievements in Northern Iraq – oil discovery at first well • Goliat gross P50 reserves increased from 50 to 250 milli
Slide 10: Production Update Yemen
YEMEN PRODUCTION UPDATE 20 000 Tasour Sharyoof Nabrajah • 2006 YTD production from Yemen increased by 21 percent • Nabrajah production below plan 15 000 • Godah Field will add new production • Infill & appraisal wells at Tasour and 10 000 Sharyoof aimed at arresting the Production (WI) decline 5 000
Slide 11: Yemen Block Current Activities
YEMEN BLOCK 32 CURRENT ACTIVITIES • Tasour 22ST on TD. Logs indicate oil bearing Qishn S1A and Tasour 22ST Godah Field the well will be brought on stream for test production. • Next well to be drilled is a basement prospect within Tasour area. • Installation of early production facilities will allow
Slide 12: Yemen Block Current Activities
YEMEN BLOCK 43 CURRENT ACTIVITIES Nabrajah # 11 test from Kohlan /upper basement • Flowed 270 BOPD after clean up with jet pump • ESP installed to increase flow Planned activities 2H 2006 • Commissioning of water handling and gas injection facilities ongoing • 3-D seismic within Nabrajah area comple
Slide 13: Nabrajah Update
YEMEN BLOCK 43 NABRAJAH UPDATE © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 13
Slide 14: Nabrajah Reserves Estimates
YEMEN BLOCK 43 NABRAJAH RESERVES ESTIMATES • Following Nabrajah # 5 results the gross combined P+P reserves for Nabrajah Field was estimated at 68 million barrels, which is 44 million barrels net to DNO on WI basis. • Main input to the above reserve estimates were:Area: 10 sq. km, Oil column: 400 me
Slide 15: Yemen Block Current Activities
YEMEN: BLOCK 53 CURRENT ACTIVITIES Prospective area close to Sharyoof Field Basement and overlaying carbonates: • Bayoot SW # 1: currently testing carbonates overlaying basement with smaller rig. • Bayoot SW # 2: Drilled to a total depth of 3488 meter (MD) some 436 meters into basement. • Bayoot SW
Slide 16: Continued High Drilling Activity
YEMEN CONTINUED HIGH DRILLING ACTIVITY Yemen drilling plan next 18 monts - > 30 wells: • Operated by DNO • BL32, 43, 44, 47, 72 • 12 Exploration wells • 12 appraisal / development wells • Operated by others • BL 53 • 6 exploration wells plus development wells (plan yet to be finalised) © Copyright 2
Slide 17: Northern Iraq Exploration Update
NORTHERN IRAQ EXPLORATION UPDATE Operations to date • Acquisition of 440 km 2D seismic Tawke • Drilled and tested Tawke # 1 • Drilled Tawke # 1A, currently testing • Aqcuired 3-D seismic accross Tawke • Commenced drilling Kanke # 1 with second drilling rig in July Forward plan • Complete Tawke # 1A
Slide 18: Tawke #1 Early Production Plan
Tawke Early Production Plan TAWKE #1 Plan is based on test production of 5.000 BOPD acieved from both Tawke # 1 and repeated in Tawke # 1A (open hole) Early production plan from this reservoir scheduled for Q1 2007 Investments in facilities and pipeline has been made – production capacity yet
Slide 19: Tawke Exploration & Appraisal Strategy
Short to medium term Exploration & Appraisal Strategy TAWKE #1 Tawke Area Finalise open hole testing of additional intervals in Tawke # 1A (< 1000 meters) Testing of deeper level(s) in Tawke # 1 (> 2000 meters) Drilling Tawke # 2 appraisal well Evaluate 3D seismic and locate new wells Dril
Slide 20: Tawke #1 & 1A Tested 5,000 BOPD
NORTHERN IRAQ TAWKE #1 & 1A TESTED 5,000 BOPD Collecting oil for local use Flaring oil at well site © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 20
Slide 21: Northern Europe: Exploration and Production Update
NORTHERN EUROPE: 2006 EXPLORATION AND PRODUCTION UPDATE
Slide 22: Goliat Oil Discovery
GOLIAT OIL DISCOVERY Potential for increased reserves Adding 30 million new barrels to DNO • Recoverable P50 reserves substantially higher than initially anticipated • 250 million barrels (P50) - 37,5 million barrels net to DNO • First of two wells program to commence in September 2006 • Western pro
Slide 23: Zita Prospect
ZITA PROSPECT Exciting potential PL 263/263B Zita (30%) • One exploration well planned to commence in October 2006 (Norsk Hydro is Operator) • P50 unrisked prospect resource potential is approc. 200 million barrels – 60 million barrels net to DNO © Copyright 2006 DNO ASA August 23rd, 2006 Second Q
Slide 24: High Potential Prospects
NORTHERN EUROPE HIGH POTENTIAL PROSPECTS 7+ wells to be drilled on NCS next 18 months: Operated by DNO • Lie, Torkildsen, Draupne • 3 exploration wells (commencing Q1 2007) Operated by others • Goliat, Zita, Ragnarrock • 4 exploration wells • Plus additional drilling at Goliat in 2007 © Copyright 20
Slide 25: 18 Months Drilling Plan
18 MONTHS DRILLING PLAN Participate in > 40 wells NORWAY 7+ exploration wells N. IRAQ Continuous drilling with two rigs EQ. GUINEA 2 exploration / appraisal wells YEMEN Approiximately 30 wells – of which 15 is expected to be exploration wells © Copyright 2006 DNO ASA August 23rd, 2006 Second Quart
Slide 26: Exciting and Demanding Next Months
NEXT 18 MONTHS EXCITING AND DEMANDING Substantial upside potential 2500 Adding value through 2000 2000 • Increased exploration drilling • Continue to transfer 1500 resources to reserves at low costs 1000 • Maximise production from current assets 500 • Achieving first oil production from N.Iraq in Q1
Slide 27: Financial Review
FINANCIAL REVIEW © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 27
Slide 28: Building on DNO's Business Model
FINANCIAL SUMMARY BUILDING ON DNO’S BUSINESS MODEL Quarterly Key Figures (NOK Million) Adding value through exploration led strategy... • Confirming resource potential through 40% reserve growth in Q2 • High investments in seismic data acquisition • Extensive exploration and appraisal drilling ...wh
Slide 29: EBIT and EBITDAX
FINANCIAL SUMMARY EBIT AND EBITDAX Producing assets (NOK Million) Increasing cash flow and operating profit • Strong increase (286% YTD) in cash flow before exploration and tax (EBITDAX) • Production growth • Higher achieved oil prices • Low cost base • Increasing operating profit, after coverage of
Slide 30: Net Entitlement Netback
FINANCIAL SUMMARY NET ENTITLEMENT NETBACK Netback (NOK Million) Stronger post-tax cash flow • Cash flow after exploration and tax (netback) up by 46 percent YTD • Netback YTD NOK 157 million after expensed exploration of NOK 328 million YTD © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter
Slide 31: Key Figures
FINANCIAL SUMMARY KEY FIGURES Q2 2006 Q2 2005 YTD 2006 YTD 2005 Last 12M 2005 WI Production (mmboe) 1,317 1,212 2,837 2,479 5,739 5,380 WI Production per day (noe) 14 470 13 322 15 675 13 694 15 726 14 741 WI Reserves (mmboe) 139,0 74,7 139,0 74,7 139,0 71,8 NOK Million Q2 2006 Q2 2005 YTD 2006 YTD
Slide 32: Solid Operations - Results of Operations
RESULTS OF OPERATIONS (RoO) SOLID OPERATIONS Quarterly figures Year to date Twelve months NOK Million Q2 06 Q1 06 Q4 05 Q3 05 Q2 05 2006 2005 LTM 2005 Sale of petroleum products 566,9 610,8 551,1 513,4 377,4 1 177,6 726,0 2 242,1 1 790,5 Lifting costs -62,5 -79,2 -74,1 -72,3 -44,9 -141,7 -96,6 -288,
Slide 33: Sale of Petroleum Variance
RESULT OF OPERATIONS SALE OF PETROLEUM VARIANCE Q1 2006 versus Q2 2006 Q2 2006 versus Q2 2005 700 700 611 -82 78 -40 600 567 600 171 -14 567 500 500 33 400 377 400 300 300 200 200 100 100 0 0 Sale of Change in Change in Change in Sale of Sale of Change in Change in Change in Sale of petroleum produc
Slide 34: Netback Variance
RESULT OF OPERATIONS NETBACK VARIANCE Q1 2006 versus Q2 2006 Q2 2005 versus Q2 2006 350 350 171 -14 -21 300 300 279 -82 78 -40 -57 17 -35 250 250 217 217 200 200 150 150 33 106 100 100 50 50 0 0 Netback Prod. Price FX OPEX Tax Netback Netback Prod. Price FX OPEX Tax Netback Q106 Q206 Q205 Q206 © Cop
Slide 35: Lifting Costs
RESULT OF OPERATIONS LIFTING COSTS Quarterly lifting cost (NOK million) Quarterly lifting cost (USD/bbl) • Lower production • Lower lease costs • Stable unit cost © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 35
Slide 36: Netback to Investment Coverage
RESULT OF OPERATIONS NETBACK TO INVESTMENT COVERAGE Netback (RoO) to Total Investments (NOK million) Increasing investments 400 Netback producing activities • YTD increase of 250 percent Acquisition and development cost 350 Strong netback coverage Exploration cost expensed • YTD netback coverage to
Slide 37: Income Statement
FINANCIAL RESULTS INCOME STATEMENT Quarterly figures Strong profit in Q2 NOK Million Q2 06 Q1 06 Q4 05 Q3 05 Q2 05 Sales 359,0 415,1 242,6 229,5 162,8 • Net profit of NOK Cost of goods sold -98,3 -122,0 -119,6 -107,5 -76,0 75 million after Gross profit 260,6 293,1 123,0 122,0 86,9 NOK 111 million ex
Slide 38: Income Statement
FINANCIAL RESULTS INCOME STATEMENT Year to date Twelve months Solid YTD/LTM NOK Million 2006 2005 LTM 2005 Sales 774,0 320,6 1 246,1 792,7 performance Cost of goods sold -220,3 -159,2 -447,3 -386,2 • YTD net profit of NOK Gross profit 553,8 161,4 798,8 406,5 46 million after exploration expensed Tar
Slide 39: Total Cost Variance
FINANCIAL RESULTS TOTAL COST VARIANCE Q1 2006 vs Q2 2006 Q2 2005 vs Q2 2006 400 300 44 -150 350 -17 350 -7 250 16 -13 50 227 300 200 250 7 227 5 18 151 200 150 150 100 100 50 50 0 0 OPEX Lifting DD&A Expl. Dry well Other OPEX OPEX Lifting DD&A Expl. Dry well Other OPEX Q106 Q206 Q205 Q206 © Copyrigh
Slide 40: Exploration Activity
FINANCIAL RESULTS EXPLORATION ACTIVITY Expensed and capitalized exploration (NOK Million) High level of 300 exploration 237 investments in Q2 250 • Expensing of NOK 200 57 mill. acquisition cost 150 115 for several Expensed 100 seismic surveys 41 59 149 50 • Dry well of NOK 16 million 0 Capitalized
Slide 41: Exploration by Segment
FINANCIAL RESULTS EXPLORATION BY SEGMENT Exploration Expensed (NOK Million) Middle East • NOK 34 million for seismic surveys expensed in Q2 • Dry well costs NOK 13 million in Q2 Northern Europe • NOK 23 million for seismic surveys expensed in Q2 • NOK 166 million in pre-tax dry well costs in Q1 © Co
Slide 42: Capital Structure
FINANCIAL RESULTS CAPITAL STRUCTURE Net interest bearing debt (NOK million) Balance Sheets (NOK Million) © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarter 2006 42
Slide 43: Outstanding Reserve Economics
INVESTMENTS OUTSTANDING RESERVE ECONOMICS FDA (P+P) Recycle Ratio (P+P) Reserve Replacement (P+P) 2.0 USD/bbl 8.2 times 10.4 times Low cost reserve High netback - funding Building higher reserves additions exploration 3 years rolling average © Copyright 2006 DNO ASA August 23rd, 2006 Second Quarte
Slide 44: Summary
SECOND QUARTER SUMMARY Successful Exploration Strategy • 40 percent organic reserve growth • Low FD&A costs, further strengthening of reserve economics • Funded by strong cash flows Adding Value Through Growth Investments • Exploration spending in line with forecasts • Fast-track Iraq development ad
Slide 45: Outlook Second Half 2006
SECOND HALF 2006 OUTLOOK Continuing Investments • Exploration spending near forecast NOK 650 mill. in 2006 • Development CAPEX above 2006 forecast due to added Iraq investment • DNO participation in 28 wells of which 17 exploration wells in 2006 Production Estimates • Revised 2006 production guidanc
Slide 46: Our mission is to be a leading exploration and production company
OUR MISSION IS TO BE A LEADING EXPLORATION AND PRODUCTION COMPANY FOCUSED ON TRANSFORMING RESOURCES TO RESERVES AT LOW COST, 2006 GENERATING SUBSTANTIAL AND CONSISTENT VALUE FOR OUR SHAREHOLDERS