DNO Enters Farm-In Agreement for Heather Satellites

DNO has entered into a farm-in agreement with new partners Challenger Minerals and Palace Exploration Company. The new farm-in partners will acquire a 45% interest in P.242 (Block 2/5 non-Heather) and P.902 (Block 2/4a).

The area includes the West Heather and North Terrace Satellites adjacent to the Heather Field on the UKCS as well as other potential hydrocarbon accumulations. The new partners will contribute up to US $23 million to the cost of drilling two wells on the West Heather Satellite, which represent a substantial part of the well costs. Drilling of the second well, as well as the contribution from the new partners to this well is however, contingent on the results from the first well.

The remaining portion of the consideration will be paid as future tariff on produced oil from the farm-out area. The additional development costs for the West Heather and North Terrace Satellites will be paid on equity basis i.e. 45 % will be paid by the new partners and 55 % by DNO.

DNO will retain the operatorship and 55 % interest of the farm-out area as well as 100% interest and operatorship of the Heather Main Field.

The total P50 recoverable oil reserves of the West Heather and North Terrace Satellites are estimated by DNO to 40 million barrels, of which the New Partners will earn 45 %, equaling to some 18 million barrels.

The drilling of the first well on the West Heather Satellite will be undertaken through a turnkey drilling contract with Global Santa Fe Inc. utilizing the semisubmersible "Glomar Artic IV". The mobilization of the rig is planned on August 19th, which will allow for spudding the well in the near future. Subject to the results of the first well, the second well is planned to spud during 1st half of 2003.

DNO is very pleased to conclude the farm-in Agreement with Challenger Minerals Inc. and Palace Exploration Company who have worked together on several similar projects in the Gulf of Mexico.

As previously reported by DNO, the development of the West Heather and North Terrace Satellites provides for implementation of projects for additional oil to be recovered from the Heather Main Field, which in sum could secure oil production from the Heather Platform until 2012.

DNO's share of the total remaining P50 recoverable oil resources within the Heather Area (Heather Main Field plus Satellites) after concluding the farm-in agreement, is estimated at some 42 million barrels.


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