DGO.L Regulatory News (DGO)

22 Jan 2010 07:00



22 January 2010 

Dragon Oil plc

(the "Company" or together with its subsidiaries "Dragon Oil" or the "Group")

Trading Statement

Dragon Oil plc (Ticker: DGO), an international oil and gas exploration and production company, today issues the following trading statement, which includes an operational update and financial highlights for 2009. All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2009 preliminary financial results on 23 February 2010.

Key highlights

Eight development wells put into production in 2009;

9% increase in average daily production rate to 44,765 barrels of oil per day ("bopd") in 2009 compared to 40,992 bopd in 2008;

Capital expenditure on infrastructure and drilling amounted to US$317 million for 2009 (2008: US$287 million);

The Group's cash and cash equivalents and term deposits as at 31 December 2009 were US$1,138 million (31 December 2008: US$876 million), including US$126 million (31 December 2008: US$92 million) in abandonment and decommissioning funds. 

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"Dragon Oil delivered good performance on the back of a very volatile market in 2009 while ensuring safe and reliable operations. At the turn of 2009, production hit the landmark level of 50,000 bopd.

We completed eight development wells, the Dzheitune (Lam) B platform was installed and three rigs were contracted for in addition to Dragon Oil's owned Rig 40. The operational momentum gained during the year was underpinned by stronger organisation driven by a new management team. Our principal focus over the past year has been on streamlining our operations and enforcing policies and procedures in line with international best practices. 

We look forward to the years ahead of us and will continue to invest for growth and to increase production. We are well positioned in both drilling and facilities contracts for stronger growth in 2010. Furthermore, we will continue to pursue growth opportunities leveraging off the strength of our balance sheet through our diversification programme and by unlocking further the value of our asset in Turkmenistan through gas monetisation." 

OPERATIONAL UPDATE

Production 

The average daily production rate on a working interest basis was 44,765 bopd for 2009. This represents a 9% increase over the comparable period in 2008 when the average daily production rate reached 40,992 bopd. The increase in the average daily production in 2009 was determined by the number of wells drilled. Because the last two wells came on stream at the end of the year, they will primarily contribute to average production growth in 2010 rather than 2009.

Dragon Oil hit the landmark production level of 50,000 bopd at the turn of 2009.  

The entitlement production in 2009 was approximately 58% of the gross production compared to about 60% in 2008. Entitlement barrels are dependant, amongst other factors, on fiscal terms of the PSA, operating and development expenditure in the period and the realised crude oil price.

Marketing

Dragon Oil sold 10.5 million barrels of crude oil in 2009 (2008: 7.5 million barrels). This is 40% higher than the volume sold during the previous year. The higher sales were on account of increased production, changes in the lifting position and movement in inventory, despite lower entitlement production. 

In 2009, approximately 90% (2008: 80%) of crude oil was exported under the swap agreement with Iran. The balance of crude oil was exported via Baku, Azerbaijan. Dragon Oil continues to assess additional marketing opportunities for its crude. 

The Group was in an overlift position of approximately 0.2 million (31 December 2008: underlift 0.6 million) barrels of crude oil at the end of 2009. 

Drilling and operations

During 2009, Dragon Oil put into production eight wells in the Dzheitune (Lam) field. The following table summarises the results of the drilling programme for the year:

During 2009, our workover programme included a rigless workover operation conducted on Dzheitune (Lam) 13/96 well that resulted in incremental production of 783 bopd. 

The installation of the Dzheitune (Lam) B platform was completed in December 2009 and the Astra jack-up rig spudded the Dzheitune (Lam) B/141 development well from the platform. The contract to hire the Astra jack-up rig for six months was signed with BKE Shelf Limited. The Group plans to use this jack-up rig to drill two wells during the contract term. 

The Dzheitune (Lam) B platform was installed in the Western part of the Dzheitune (Lam) field. This is the second new platform built and installed in the field since Dragon Oil became the operator in the Cheleken Contract Area in 2000. We expect to drill eight wells from this platform.

In December 2009, Dragon Oil awarded a two-year contract to Naftna Industrija Srbije (NIS) Naftagas for the lease and management of a land rig (the "NIS Rig") in the Cheleken Contract Area. The Group currently has plans to drill seven wells using the NIS Rig during its contract term. The rig is being rigged up on the Dzheitune (Lam) 28 platform and is expected to spud its first well from this platform during Q1 2010. The Dzheitune (Lam) 28 platform was recently revamped to handle this land rig.

FINANCIAL UPDATE 

Cash and cash equivalents

The cash and cash equivalents and term deposits as at 31 December 2009 was US$1,138 million (31 December 2008: US$876 million), including US$126 million (31 December 2008: US$92 million) set aside for abandonment and decommissioning activities. 

Capital expenditure

Capital expenditure for 2009 was approximately US$317 million (2008: US$287 million). Of the total capital expenditure, approximately 50% (2008: 40%) was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during the year included construction and installation of the Dzheitune (Lam) B platform, the 30" 40km trunkline project and the Phase 2 expansion of the Central Processing Facility, as well as the upgrade of the Dzheitune (Lam) 63 platform and Phase 2 of the Aladja Jetty. 

Dragon Oil has mobilised internal and external resources to deal with the delays that we have experienced in execution of the two key projects, the 30" 40km trunkline and the Phase 2 expansion of the Central Processing Facility. While these two projects move towards completion, the existing infrastructure is sufficient to accommodate the production growth in 2010. The completion of both projects will enable delivery of gas from offshore to onshore facilities where it can be separated and made available for potential monetisation.

Realised prices 

The average realised crude oil price during 2009 was approximately US$62/bbl (2008: US$91/bbl), which was 32% lower than the price realised in the previous year. The Group's realised crude oil prices were almost at par with Brent (2008: a discount of 6% to Brent). 

MATERIAL EVENTS

Investigation

On 26 February 2009, Dragon Oil announced that the Group had identified, via its Internal Audit Department, possible irregularities within the Marketing Department and Contracts Department and, subsequently, had engaged KPMG (Dubai) to conduct an investigation. On 24 March 2009, the Company updated the market on the progress with the investigation and confirmed that there was no material impact on the Group's financial position. The Group has a strong and diligent management team who are working in line with the highest ethical standards. 

Corporate restructuring

On 27 March 2009, the Board of Dragon Oil plc announced the proposed restructuring of the Company by means of a scheme of arrangement by putting in place a Bermuda-incorporated company as the new ultimate holding company of the Group. Following the restructuring, the Company was planning to apply for a primary listing on the London Stock Exchange and a secondary listing on the Irish Stock Exchange. Following the approach received from ENOC, the corporate restructuring was put on hold. The Board's intention is to continue with a corporate restructuring and the Board is currently reviewing options.

CURRENT OPERATIONS AND OUTLOOK

Currently, three rigs - the Astra jack-up rig, the Iran Khazar jack-up rig and the platform-based Rig 40 - are drilling development wells in the Dzheitune (Lam) field, namely wells B/141, A/142 and 13/143, respectively. All three wells are expected to be put into production around the end of Q1 2010.

Rig 40 is scheduled to complete two wells during the first half of 2010 and will be engaged in the workover programme after that to enhance production from existing wells on the Dzheitune (Lam) 13 platform.

Once rigged up on the Dzheitune (Lam) 28 platform, the NIS Rig will commence drilling the first in a series of development wells in Q1 2010. 

In total, Dragon Oil expects to complete 11 wells in 2010. More detailed guidance on production growth and infrastructure projects, as well as a strategy update, will be provided in the preliminary results statement.

The Group is scheduled to report its preliminary financial results on 23 February 2010.

- end -

For further information please contact: 

Media enquiries:

Citigate Dewe Rogerson (+44 20 7638 9571)

Martin Jackson 

George Cazenove

Investor and analyst enquiries:

Dragon Oil plc (+ 44 20 7647 7804)

Anna Gavrilova, Investor Relations 

About Dragon Oil

Dragon Oil plc is an innovative international oil and gas 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. The Company acquired interests in Blocks 35, 49 and R2 (10%) in the Republic of Yemen in December 2007. 

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). 

www.dragonoil.com

Note

This statement 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.