7th Mar 2007 07:00
Dragon Oil PLC07 March 2007 2006 PRELIMINARY RESULTS Dragon Oil plc, an international oil and gas company, today announced itspreliminary results for the year ended 31 December 2006. Dragon Oil's producingasset is in the Cheleken Contract Area, in the eastern section of the CaspianSea, offshore Turkmenistan. These preliminary results are prepared inaccordance with the International Financial Reporting Standards ("IFRS"). HIGHLIGHTS • Operating profit for the year of US$212m (2005: US$163m), a 30% improvement over 2005. • Profit for the year of US$180m, a 70% improvement over 2005. • Net cash generated from operating activities of US$222m, a 17% improvement over 2005. • Basic earnings per share for the year of US Cents 35.4, a 57% improvement over 2005. • Cash balance of US$296m and no debt at 31 December 2006. • Average gross production of 20,514 bopd during the year, 6% higher than in 2005 (2005: 19,426 bopd), of which 15,115 bopd (2005: 14,008 bopd) was attributable to Dragon. • Four development wells drilled and completed and thirteen wells successfully worked over during 2006. Mr Hussain M. Sultan, Chairman, commented: "Dragon has had another year of good financial and operational performance.The Company has made improvements during the year on many fronts and thecontinuous development programme, including the workover programme, is nowshowing results. Our infrastructure upgrade plans are progressing well and thecommissioning of the new LAM A platform and the completion of the New ProcessingFacility are significant achievements. Successful delivery of these projectsdemonstrate Dragon Oil's ability to deliver large projects in circumstanceswhich are logistically and operationally challenging. The New ProcessingFacility is a particularly significant development for the Company because thisgives the Company improved control over the quality and quantity of crudeexports. During 2007, Dragon Oil will continue its accelerated field developmentprogramme with a view to sustaining and improving production levels and broadenits horizons into other, new business ventures." MAJOR EVENTS • January-April 2006: the Company suffers the effects of a blocked, in-field pipeline, resulting in a temporary, reduced production capacity. • February 2006: repayment of the European Bank for Reconstruction and Development loan facility. • September 2006: the Astra jack-up rig commences drilling with the result that, for the first time, Dragon Oil has two rigs operating concurrently. • November 2006: Dragon Oil contracts a third rig to drill in the Cheleken Contract Area, the platform-based CIS-1 rig, and the rig is moved to the Cheleken Contract Area. • December 2006: the Company announces the commissioning of its first, new wellhead platform, LAM A. • March 2007: the New Processing Facility is commissioned and the first oil flows into this processing facility. • March 2007: the contract for the Iran Khazar jack-up drilling rig is extended for at least a further two years. CURRENT OPERATIONS AND OUTLOOK • The Company will embark on a three-rig development programme, which will include deployment of one jack-up rig and two platform-based rigs, which will commence drilling at different times in 2007. In addition, during the first quarter of 2007, the Astra jack-up rig has drilled a development well, well 13/118, and is drilling an appraisal well, well 28/120, on the LAM West structure, prior to its departure from the region. • The Company's field development plan envisages the drilling of up to 25 development and appraisal wells between 2007 and 2009, subject to rig availability. The Company anticipates for this to result in an approximate 25% year-on-year increase in daily crude oil production. • The Company expects to spend in the region of US$500m between 2007 and 2009 on infrastructure development, which includes several new production platforms, upgrade of offshore facilities, new pipelines and enhanced export capability. • The Iran Khazar jack-up rig will drill a series of development wells from the LAM A platform in the current year. • Mobilisation of the platform-based CIS-1 drilling rig is under way and the rig is expected to commence drilling in the second quarter of 2007. • Dragon Oil's own platform-based Rig 40 drilling rig is also in the process of refurbishment and it is planned to commence drilling in the second half of 2007. • The workover programme will continue throughout 2007, using the snubbing unit and the wireline units. Enquiries: Dragon Oil plc (+971 4 305 3600) Citigate Dewe Rogerson (+44 20 7638 9571) Hussain M. Sultan, Chairman & Media enquiries:Martin Jackson,George CazenoveChief Executive Officer Analyst enquiries: Nina Soon NOTE This statement may contain forward-looking statements concerning the financialcondition and results of operations of Dragon. Forward-looking statements arestatements of future expectations that are based on management's currentexpectations and assumptions and involve known and unknown risks anduncertainties that could cause actual results, performance or events to differmaterially from those expressed or implied in these statements. No assurancescan be given as to future results, levels of activity and achievements andactual results, levels of activity and achievements may differ materially fromthose expressed or implied by any forward-looking statements contained in thisreport. Dragon does not undertake any obligation to publicly update or reviseany forward-looking statement as a result of new information, future events orother information. Glossary/definitions:- bopd barrels of oil per day Cents United States cents M million US$ United States dollars Dear Shareholders, Dragon Oil has just completed another good year, financially and operationally.Strong earnings, robust cash flows and a healthy balance sheet with zero debtat the year-end enable the Dragon Oil group of companies to implement ourplanned increase in development expenditure and to review new businessopportunities that can add real value. Operationally, we have accelerated our field development programme, deployingtwo rigs, to deliver sustainable growth in production and have embarked onsignificant infrastructure developments. These are critical to enable us todeliver and sustain increased production levels. Financial and operating performance It has been an exceptional year in terms of financial performance, with profitsafter tax increasing to US$180 million, a 70% improvement over 2005. Basicearnings per share improved by 57% to 35.4 cents. Gross production in 2006reached a record 7.5 million barrels and average realised crude prices duringthe year were US$ 61.3 per barrel compared to US$ 48.6 last year, resulting in a27% improvement in gross profit over the previous year. Despite increased capital expenditure and operating costs as compared to 2005and an early repayment of the European Bank for Reconstruction and Development("EBRD") loan, we had built a substantial cash balance by the year-end, which wewill use in our ambitious development plan for 2007 and beyond. Investment inthe development plan is vital to Dragon Oil's long-term growth. In February 2007, the Company has hedged 2.6 million barrels of 2007 productionusing a zero cost collar, which will provide a protection against a materialdownturn in oil prices during the year Average gross production for 2006 improved 6% over the previous year andproduction peaked at the end of the year at 27,353 bopd. Since then, Dragon Oilhas pushed on and achieved an even higher peak production. While new wells showa tendency for a steep decline in the first year of production, decreasing infuture years, Dragon Oil's continuous drilling programme attempts to ensure thatfield development more than offsets such expected well declines. The increasedlevels of production are underpinned by our drilling programme, which saw forthe first time, the deployment of two jack-up rigs during the last quarter of2006. Alongside our successful development programme, we have operated asuccessful workover programme, which will continue in 2007. While the upgrading of our infrastructure remains a priority, we have alreadymade significant strides forward in 2006. The successful commissioning beforethe year end of Dragon Oil's first new-built production platform, LAM A, and thecommissioning of the New Processing Facility in 2007 are testament to this. Underlying data in respect of proved and probable reserves remains encouraging.Several undrilled structures have been identified from the 3D seismic study,which will be targeted by appraisal drilling in 2007. A full completion of theinterpretation of the 3D seismic data later in 2007 will support a re-evaluationof oil and gas reserves and the updating of our field development plan. Challenges We have significant challenges ahead of us but we can and will resolve them.Strong oil prices and the acceleration of global exploration and developmentactivity have meant across-the-board cost increases and shortages in highquality materials and service providers. Dragon Oil continues to address thesefactors in a way so as to minimise any adverse impact on the company. Our top priority is to secure the long-term supply of drilling rigs, which isconstrained by the lack of availability of high quality rigs in the Caspian Searegion and is further exacerbated by a global shortage in rig supply. Dragon Oilis working hard to secure long-term rig supply to support its long term fielddevelopment. Our other short-term challenges for 2007 are to accelerate our developmentprogramme, upgrade our pipeline network and remove any bottlenecks to exportingour crude entitlement. Plans are in hand to address these issues. In order to achieve our stated goals, we must have dedicated personnel of thehighest calibre. We are constantly looking to improve our talent pool and wehave recently recruited people with extensive industry experience in key roles. Strategy Statement Dragon Oil's primary objective is to create shareholder value, through thedevelopment, production and sale of hydrocarbons, and it must do so whileensuring a safe working environment and competitive compensation for ourpersonnel. It is a truism to say that Dragon Oil works in a challengingenvironment. The success in meeting our objectives is due entirely to ourdedicated and talented workforce, who work hard, often under difficultconditions. I would like to thank them for their continuing efforts. Greater communication and interaction with the company's shareholders andanalysts has been on my agenda in 2006. I am keen to engage both in regular andconstructive dialogue, to ensure that Dragon Oil's business and prospects arefully understood and appreciated. We have recently developed an investorrelations strategy and implementation plan in order to achieve this. A new President of Turkmenistan has been elected following the death ofPresident Niyazov just before the year-end. Dragon Oil continues to maintain astrong working relationship with the authorities in Turkmenistan and we willcontinue to fulfil our commitments to the Government and to the people ofTurkmenistan. Commercialisation of our gas resources is a key priority and we are talking tothe Government and with other operators to move this process forward. We willlook to make greater progress on this issue during 2007. I have allocateddedicated resources to finding an appropriate solution this coming year. Equally, it is essential that Dragon Oil diversifies its asset base, whetherthrough acquisitions or by way of new concession blocks where genuine value canbe added. Outlook The coming year will no doubt hold challenges to test our abilities to perform.Our primary focus must and will be on our Turkmenistan operations. Subject torig availability, we are planning to drill up to 25 wells between 2007 and 2009,during which time we expect to achieve our stated goal of 40,000 bopd by 2008. Equally, it is important for Dragon Oil to develop new areas in the ChelekenContract Area. A jack-up rig is already drilling Dragon Oil's first appraisalwell, on the LAM West structure, which will provide invaluable data about thatarea of the LAM field. Later in the year, we are planning to drill an appraisalwell in the Zhdanov field. This field is as yet relatively undeveloped byDragon Oil. Our 2007 work programme includes an ambitious development programme for ourfields in Turkmenistan, as well as significant infrastructure renovation, and wewill have the largest capital expenditure budget in Dragon's history to increaseand sustain our growth going forward. Hussain M. SultanChairman and CEODragon Oil plc Group income statement Year ended Year ended 31 December 31 December 2006 2005 US$'000 US$'000 Revenue 320,061 248,813 Cost of salesOperating and production costs (40,667) (33,981)Depletion (61,348) (43,610) --------------- ---------------Gross profit 218,046 171,222 Administrative expenses (6,353) (9,726)Other income 528 1,371 --------------- --------------- Operating profit 212,221 162,867 Finance costs (1,107) (8,557)Finance income 13,107 5,005 --------------- ---------------Profit before income tax 224,221 159,315 Income tax expense (43,745) (52,894) -------------- --------------Profit attributable to equity holders of the Company 180,476 106,421 ============== ==============Earnings per shareBasic 35.37c 22.58cDiluted 35.25c 22.46c ============== ============== Abbreviated Group balance sheet As at As at 31 December 31 December 2006 2005 US$'000 US$'000ASSETSNon-current assetsProperty, plant and equipment 512,843 398,731 Current assets 380,904 277,554 --------------- ---------------Total assets 893,747 676,285 ============== ============== EQUITYCapital and reserves attributable to the Company's equity shareholdersShare capital 79,969 79,937Share premium account 216,942 216,928Other reserves 80,059 79,659Retained earnings 364,964 184,488 --------------- ---------------Total equity 741,934 561,012 --------------- ---------------LIABILITIES Non-current liabilities 51,246 47,628Current liabilities 100,567 67,645 --------------- ---------------Total liabilities 151,813 115,273 --------------- ---------------Total equity and liabilities 893,747 676,285 ============== ============== Group statement of changes in shareholders' equity Capital Share Share redemption Other Retained capital Premium reserve reserve earnings Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 At 1 January 2005 66,335 72,688 77,150 - 78,067 294,240Shares issued during 13,602 154,016 - - - 167,618the yearShare issue expenses - (9,776) - - - (9,776)Profit for the year - - - - 106,421 106,421Employee share optionscheme:- value of services - - - 2,509 - 2,509provided ------------ ------------ ------------ ------------ ------------ ------------- At 31 December 2005 79,937 216,928 77,150 2,509 184,488 561,012Shares issued during 32 14 - - - 46the yearProfit for the year - - - - 180,476 180,476Employee share optionscheme:- value of services - - - 400 - 400provided ------------ ------------ ------------ ------------ ------------ -------------At 31 December 2006 79,969 216,942 77,150 2,909 364,964 741,934 ============ ============= ============ ============ ============ ============ Abbreviated Group cash flow statement Year ended Year ended 31 December 31 December 2006 2005 US$'000 US$'000 Profit before income tax 224,221 159,315Non-cash adjustments 49,702 44,833 -------------- -------------Operating cash flow before changes in working capital 273,923 204,148Changes in working capital: (45,947) (9,511) -------------- -------------Cash generated from operations 227,976 194,637 - Interest paid (573) (5,404) - Income tax paid (5,266) - -------------- -------------Net cash generated from operating activities 222,137 189,233 Net cash used in investing activities (136,825) (96,822) Net cash (used in)/provided by financing activities (27,554) 111,942 -------------- -------------Net increase in cash and cash equivalents 57,758 204,353 Cash and cash equivalents at the beginning of the year 238,450 34,097 -------------- -------------Cash and cash equivalents at the end of the year 296,208 238,450 ============== ============= Selected notes to the financial information 1 General information Dragon Oil plc ("the Company") and its subsidiaries ("the Group") are engaged inupstream oil and gas development and production activities, in Turkmenistan andits head office is based in Dubai, United Arab Emirates. The Company is incorporated in Ireland and the address of its registered officeis as stated in the 2005 Annual Report. The Company's ordinary shares are listed on the official lists of the Irish andLondon Stock Exchanges. These consolidated financial statements have been approved for issue by theBoard of Directors on 7 March 2007. 2 Basis of preparation The consolidated financial statements of Dragon Oil plc have been prepared inaccordance with EU endorsed International Financial Reporting Standards ("IFRS"), International Financial Reporting Interpretations Committee ("IFRIC")interpretations and those parts of the Irish Companies Act, 1963 to 2006applicable to companies reporting under IFRS and Article 4 of the IASRegulation. The consolidated financial statements have been prepared under thehistorical cost convention as modified for financial assets carried at fairvalue. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise its judgement in the process of applying the Group's accountingpolicies. The areas involving a higher degree of judgement or complexity, orareas where assumptions and estimates are significant to the consolidatedfinancial statements, are disclosed in note 4. 3 Accounting policies The accounting policies used are consistent with those set out in the auditedAnnual Report for the year ended 31 December 2005 which is available on theCompany's website, www.dragonoil.com 4 Critical accounting estimates and assumptions The preparation of financial statements in conformity with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities as well as contingent assets and liabilities at the date of thebalance sheet, and the reported amounts of revenues and expenses during areporting period. The resulting accounting estimates may differ from actualresults. The estimates and assumptions that could result in material adjustments to theincome statement and the carrying amounts of assets and liabilities arediscussed below: Oil and gas interests: a) Depletion The Group's share of proven and probable oil reserves, at 31 December 2006 is301 million barrels (2005: 323 million barrels) of total field reserves of 643million barrels (2005: 651 million barrels). In arriving at the Group's share ofreserves and, consequently, the depletion charge, significant assumptions havebeen made. These significant assumptions include estimates of oil reserves,future oil prices, future development costs including the cost of drilling,associated production facilities and other capital and operating costs. The Group revised its long-term view of oil prices from US$35 per barrel toUS$40 per barrel from 1 January 2006. The effect of an upward revision in thelong-term oil price is to lower the number of reserves attributable to the Groupand to increase the depletion charge per barrel. If the estimate of the long-term oil price had been $5 per barrel higher, thereserves attributable to the Group would have decreased to 290 million barrels,with a consequent increase in the depletion charge of $2.4 million. If the estimate of the long-term oil price had been $5 per barrel lower, thereserves attributable to the Group would have increased to 317 million barrels,with a consequent decrease in the depletion charge of $3.1 million barrels. b) Impairment The recoverability of amounts recorded as assets for oil and gas interests isdependent upon the satisfactory completion of the development of the oilreserves in Turkmenistan which is subject to operational and geo-politicalissues in Turkmenistan. The results of the ceiling test indicates that the anticipated discounted futurenet cash flows to be derived from the estimated remaining reserves are higherthan the carrying value of the oil and gas interests. The ceiling test assumesthat the Production Sharing Agreement ("PSA"), which is valid up to 2025, willbe extended up to 2035 under an exclusive right to negotiate for an extensionperiod of not less than ten years, provided for in the PSA. 5 Revenue The Group's operations are located in one area in Central Asia. The Groupreports its segment information primarily on the basis of geography. 6 Dividends The Directors do not recommend the payment of a dividend in respect of the yearended 31 December 2006 (2005: nil). 7 Earnings per share 31 December 2006 31 December 2005 US$'000 US$'000The calculations of earnings per share are based on thefollowing profit and numbers of shares: Profit attributable to equity holders of the Company 180,476 106,421 Weighted average number of shares:Basic 510,206,959 471,211,553Diluted 512,054,174 473,898,102 Earnings per share:Basic 35.37c 22.58cDiluted 35.25c 22.46c Basic earnings per share is calculated by dividing the profit attributable toequity shareholders of the Company by the weighted average number of ordinaryshares in issue during the year. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all potential dilutive options overordinary shares. 8 Borrowings The EBRD loan facility had a term of 7 years commencing from 29 December 2000.This loan was repaid in full on 6 February 2006 under the terms of the loanfacility. 9. Capital Number of shares Ordinary shares ('000) US$'000 At 1 January 2005 404,278 66,335Issue of shares:- Private placement and open offer 99,565 12,799- Share option scheme 6,245 803 ---------------- ----------------At 31 December 2005 510,088 79,937Issue of shares:- Share option scheme 250 32 ---------------- ----------------At 31 December 2006 510,338 79,969 ================ ================ 10. Further information is available on the Company's website, www.dragonoil.com This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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