(the "Company" or together with its subsidiaries "Dragon Oil" or the "Group")
Dragon Oil plc (Ticker: DGO), an international oil and gas exploration, production and development company, today issues the following trading statement, which includes an operational update and financial highlights for the six months' period ended 30 June 2012. All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2012 Interim financial results on 14 August 2012.
Key operational highlights
· 10.7% increase in average daily production rate at approximately 64,200 barrels of oil per day ("bopd") in 1H 2012 compared to 58,000 bopd in 1H 2011;
· 12 wells, including two sidetracks, completed from 1 January 2012 to-date.
Key corporate highlights
· A consortium of companies, including Dragon Oil, has been awarded an exploration, development and production contract for Block 9 in Iraq's fourth bidding round;
· US$200 million share buyback programme commenced in June 2012 to purchase up to a maximum of 5% of the issued share capital of the Company, with approx. 11.5 million shares bought back.
Key financial highlights
· Capital expenditure on infrastructure and drilling amounted to US$208 million for 1H 2012 (1H 2011: US$151 million);
· Group's cash balance (net of abandonment and decommissioning funds) as at 30 June 2012 was US$1,667 million (31 December 2011: US$1,527 million).
Dr Abdul Jaleel Al Khalifa, CEO, commented:
"The first half of the year was an eventful time for Dragon Oil on a number of fronts. We have continued to deliver on our goal to grow the Group into a multi-asset company as shown by the recent award, in a consortium, of an exploration, development and production contract for Block 9 in Iraq. To this end, we also continue to build our expertise. We have hired an experienced Exploration Manager to build a team to enhance our exploration capabilities. Furthermore, we have strengthened the Board by adding another Independent Non-executive Director with strong oilfield services-related experience.
"In the second quarter, gross production was impacted due to the choking down of certain wells to control sand production. We are close to restoring field production to 70,000 bopd after resolving the sand production issue. Given the pace of the drilling programme so far this year, we have optimised the schedule to complete up to 16 wells, including two sidetracks, in total by the end of 2012. We also anticipate production growth for 2012 to be in the range of 10-15%. We remain on target to reach the 100,000 bopd gross production level in 2015.
"While diversification remains on top of our agenda, we also commenced a US$200 million share buyback programme to return some of the cash generated through solid growth of our asset in Turkmenistan to our shareholders."
Production and Entitlement
The average gross field production for 1H 2012 reached 64,200 bopd (1H 2011: 58,000 bopd) at observed temperature. The increase over the comparable period was 10.7%. As indicated earlier this year, in 2Q 2012, a number of producing wells were choked down to minimise production of sand; that had an impact on the oil flow from these wells. We continue to bring the wells back to normal levels of flow by installing sand screens in some of those affected older wells as well as installing desander equipment on certain platforms in areas prone to sand production.
The entitlement production for 1H 2012 was approximately 49% (1H 2011: 52%) of the gross production. Entitlement barrels are finalised in arrears and are dependent on, amongst other factors, operating and development expenditure in the period and the realised crude oil price. Lower entitlement barrels in 1H 2012 arise from operation of fiscal terms of the Production Sharing Agreement and are marginally lower due primarily to higher realised crude oil prices offset by higher development expenditure.
Dragon Oil sold 5.8 million barrels of crude oil in 1H 2012 (1H 2011: 4.9 million barrels). The 18% increase in the volume sold over the previous year is due to higher production and change in the lifting position.
In 1H 2012, Dragon Oil exported 100% (1H 2011: 100%) of its crude oil production through Baku, Azerbaijan.
Since the beginning of 2012, Dragon Oil has completed 12 wells, including two sidetracks, in the Dzheitune (Lam) field. The following table summarises the results of this drilling programme:
Under further testing and optimisation
We are currently adding intervals on the Dzheitune (Lam) 13/171 well and drilling the Dzheitune (Lam) C/175 development well. The leased platform-based rig is currently undergoing scheduled maintenance; we have secured an extension to the contract for use of this rig to drill a further three wells.
The delivery of the new build Caspian Driller jack-up rig is expected towards the end of 2012 and the rig is scheduled to be ready for drilling in 1Q 2013.
The tendering process to secure two land rigs is ongoing with an aim to deploy them onto the Dzhygalybeg (Zhdanov) A and B platforms when these platforms are ready for drilling.
The tendering process to secure another jack-up rig is ongoing. The construction phase is expected to take between two to three years after the contract award. We anticipate being able to award this contract in early 2013.
The Dzhygalybeg (Zhdanov) A platform is expected for delivery by the end of this year and we expect it to be ready for drilling in 1Q 2013. Work on the Dzhygalybeg (Zhdanov) B platform is progressing as planned and the platform is expected to be delivered and ready for drilling in 1H 2013.
Completion of the Dzhygalybeg (Zhdanov) Block-4 gathering platform and installation of the associated in-field pipelines are almost finalised.
The bids from contractors to build and install the Dzheitune (Lam) D and E platforms and associated pipelines are under evaluation and we expect contracts to be awarded by the end of 2012. These platforms will be suitable for drilling with a jack-up rig with eight slots each initially and slots may be added in the future depending on drilling results from these areas.
As stated earlier this year, we intend to start tendering processes to award contracts for the construction and installation of another three platforms in the Dzheitune (Lam) field, namely F, G and H platforms and associated pipelines. Subject to the timing of the tendering process, we envisage being able to award contracts for the construction of these platforms in 2013.
Capital expenditure for 1H 2012 was approximately US$208 million (1H 2011: US$151 million). Of the total capital expenditure, approximately 54% (1H 2011: 45%) was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during the period included construction of the Dzhygalybeg (Zhdanov) A and B platforms, Block 4 gathering station and structural upgrades of the Dzheitune (Lam) A platform.
The average realised crude oil price during the first half of 2011 was approximately US$102/bbl (1H 2011: US$100/bbl), at a 10% (1H 2010: 10%) discount to Brent. In 2012, the discount to Brent is expected to range between 10% and 13%, depending on the level of the oil price.
A consortium of companies, comprising Kuwait Energy (40%), the Turkish Petroleum Corporation (TPAO) (30%) and Dragon Oil (30%) has been awarded an exploration, development and production contract for Block 9 in Iraq's fourth bidding round. Block 9 is located in the Basra province. The consortium's bid for Block 9 was awarded on the basis of a remuneration fee of US$ 6.24 per barrel of oil equivalent. The initialling of the contract took place in Baghdad, Iraq on 16 July 2012.
Our partner in the Bargou Exploration Permit, offshore Tunisia Cooper Energy has entered into a legally binding Letter of Intent with Grup Servicii Petroliere SA (GSP) with respect to the rig contract for the jack-up rig "GPS Jupiter" to drill the Hammamet West-3 well, offshore Tunisia. Drilling is scheduled to commence between December 2012 and March 2013 depending on when the rig is released from previous commitments.
Further details on plans and progress on exploration assets in Tunisia and Iraq will be provided in the 2012 Interim statement in August.
Share Buyback Programme
On 6 June 2012, Dragon Oil commenced a US$200 million share buyback programme to purchase up to a maximum of 5% of the issued share capital of the Company. The Board of Directors of Dragon Oil recommended the share buyback programme in recognition of the Group's strong financial position and significant cash generating abilities.
The share buyback programme will run until the requisite number of shares has been acquired or, in any event, no later than 31 December 2012. As of 20 July 2012, 11,518,278 shares have been purchased for cancellation at a weighted average price of GBP 5.56 per share.
For 2012, the updated target is to put into production up to 16 development wells, including two sidetracks of existing wells. This represents an upgrade from the 13 wells target stated at the beginning of the year. Twelve wells have been competed to-date with up to four more wells to be put into production by the end of the year.
The extra three wells will be drilled and completed by the jack-up rig (one extra well) and by the leased platform-based rig (two more wells).
Taking into account the current steps to improve production from the field following the choking of certain wells to control sand production, forecasts have been revised for the remainder of the year. As a result, we expect the gross production growth rate for the full year in 2012 to range between 10% and 15%.
We maintain our medium-term guidance over the 2012-15 period of average gross production growth of 10% to 15% per annum, taking our gross field production to the target level of 100,000 bopd in 2015 and maintaining this plateau for a minimum period of five years.
An overview of infrastructure projects and drilling rigs, exploration assets, as well as gas monetisation will be provided in the 2012 Interim financial results statement. The Group expects to report its 2012 Interim financial results on 14 August 2012.
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Dragon Oil plc (+44 (0)20 7647 7804)
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About Dragon Oil
Dragon Oil plc is an international oil and gas exploration, development and production company, quoted on the London and Irish Stock exchanges (Ticker symbol: DGO). Its principal producing asset is in the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan.
Dragon Oil (Turkmenistan) Ltd., a wholly owned subsidiary of Dragon Oil plc, holds 100% interest in and is the operator of the Production Sharing Agreement for the Cheleken Contract Area. The operational focus is on the re-development of two oil-producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).
This news release may contain forward-looking statements concerning the financial condition and results of operations of Dragon Oil. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. Dragon Oil does not undertake any obligation to update publicly or revise any forward-looking statement as a result of new information, future events or other information.
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