This bug was fixed in the package cloud-init -
0.7.9-113-g513e99e0-0ubuntu1~16.04.1

---------------
cloud-init (0.7.9-113-g513e99e0-0ubuntu1~16.04.1) xenial-proposed; 
urgency=medium

  * debian/update-grub-legacy-ec2: fix early exit failure no /etc/fstab
    file. (LP: #1682160)
  * New upstream snapshot.
    - nova-lxd: read product_name from environment, not platform.
      (LP: #1685810)
    - Fix yum repo config where keys contain array values [Dylan Perry]
    - template: Update debian backports template [Joshua Powers]
    - rsyslog: replace ~ with stop [Joshua Powers] (LP: #1367899)
    - Doc: add additional RTD examples [Joshua Powers]
    - Fix growpart for some cases when booted with root=PARTUUID.
      (LP: #1684869)
    - pylint: update output style to parseable [Joshua Powers]
    - pylint: fix all logging warnings [Joshua Powers]
    - CloudStack: Add NetworkManager to list of supported DHCP lease dirs.
      [Syed Mushtaq Ahmed]
    - net: kernel lies about vlans not stealing mac addresses, when they do
      [Dimitri John Ledkov] (LP: #1682871)
    - ds-identify: Check correct path for "latest" config drive
      [Daniel Watkins] (LP: #1673637)
    - doc: Fix example for resolv.conf configuration.  [Jon Grimm]
    - Fix examples that reference upstream chef repository.  [Jon Grimm]
    - doc: correct grammar and improve clarity in merging documentation.
      [David Tagatac]
    - doc: Add missing doc link to snap-config module. [Ryan Harper]
    - snap: allows for creating cloud-init snap [Joshua Powers]
    - DigitalOcean: assign IPv4ll address to lowest indexed interface.
      [Ben Howard] (LP: #1676908)
    - DigitalOcean: configure all NICs presented in meta-data.
      [Ben Howard] (LP: #1676908)
    - Remove (and/or fix) URL shortener references [Jon Grimm]
    - HACKING.rst: more info on filling out contributors agreement.
    - util: teach write_file about copy_mode option
      [Lars Kellogg-Stedman] (LP: #1644064)
    - DigitalOcean: bind resolvers to loopback interface.
      [Ben Howard] (LP: #1676908)
    - tests: fix AltCloud tests to not rely on blkid (LP: #1636531)

 -- Scott Moser <smo...@ubuntu.com>  Thu, 27 Apr 2017 12:51:04 -0400

** Changed in: cloud-init (Ubuntu Xenial)
       Status: Fix Committed => Fix Released

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https://bugs.launchpad.net/bugs/1676908

Title:
  DigitalOcean network improvements

Status in cloud-init:
  Fix Committed
Status in cloud-init package in Ubuntu:
  Fix Released
Status in cloud-init source package in Xenial:
  Fix Released
Status in cloud-init source package in Yakkety:
  Fix Committed
Status in cloud-init source package in Zesty:
  Fix Committed
Status in cloud-init source package in Artful:
  Fix Released

Bug description:
  [Impact]

  Due to the new rendering of /etc/network/interfaces, clients upgrading
  to newer Cloud-init versions will not get /etc/resolv.conf rendered
  correctly due to LP: #1657940 (which changed the rendering of
  /etc/network/interfaces), trigginer LP: #1675571.

  With out this update, users upgrading on DigitalOcean will not get DNS
  resolution.

  [Regression Potential]

  Low. This change is scope to DigitalOcean only. DigitalOcean has
  tested this Datasource exhaustively.

  [TEST Cases]
  - provision on DigitalOcean without a private IP
  - provision on DigitalOcean with a private IP
  - provision on DigitalOCean with IPV6 and private IP
  - provision on DigitalOcean with IPV6

  In all cases, interfaces should be configured and DNS resolution
  should work.

  [ORIGINAL REPORT]

  This is a request to merge the improvements to the linked PR that
  improves the DigitalOcean datasource.

  The changes:
  - No longer bind the nameservers to a specific interface to bring it inline 
with the other DataSources like OpenStack and SmartOS.
  - Fix mis-binding the IPV4all address to a secondary interface by considering 
'eth0' or 'ens3' first
  - Consider all network definitions, not just 'public' or 'private'.

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