5th Mar 2008 07:00
Dragon Oil PLC05 March 2008 FOR IMMEDIATE RELEASE5 March 2008 DRAGON OIL PLC ("Dragon Oil" or the "Company" or collectively the "Group") 2007 Preliminary Results Another record set of results and a strong growth outlook for 2008 Dragon Oil plc (DGO), an international oil and gas exploration and productioncompany, today announced its preliminary results for the year ended 31 December2007. These preliminary results are prepared in accordance with theInternational Financial Reporting Standards ("IFRS"). Key Highlights 2007 2007 2006 Change(US$ millions, unless stated) RestatedRevenue 597 325 +84%Operating Profit 365 221 +65%Profit for the year 304 187 +63%Cash balance 543 296 +83%Basic EPS (US cents) 59.5 36.6 +63% Impressive performance: • 56% increase in average gross production to 31,997 (2006: 20,514 bopd) of which 21,739 bopd (2006: 15,115 bopd) was attributable to Dragon Oil• Six development wells and one appraisal/development well drilled and completed, and six wells successfully worked over• Remaining recoverable proven and probable reserves stand at 651m barrels of which the Group's entitlement was 324m barrels of oil and condensate as at the year end• Estimated contingent gross gas resources of approximately 3.4 trillion cubic feet• Purchased interests in Blocks 35 (10%), 49 (up to 10%) and R2 (10%) in Yemen• Staff capacity increased across the Group by 15% to 878 employees at the year end• Cash balance of US$543 million and no debt at year-end Favourable outlook supports long-term growth and profitability objectives: • Increase the production and reserves base through the diversification of the asset portfolio• Execute the planned capital expenditure programme• Spend approximately US$400m over the next two years on its infrastructure renewal programme until the end of 2009.• Deploy its own, platform-based Rig 40 in 2008• Drill between eight and ten development and appraisal wells per year for the next two years• Grow annual daily average production by 25% year-on-year until the end of 2009• Commercialise the gas resources in the Cheleken Contract Area• Plug and abandon at least two wells within 2008 as part of its long-term abandonment and decommissioning plans Mr Hussain M. Sultan, Executive Chairman of Dragon Oil, commented: "The Group had another excellent year, achieving a number of significantstrategic and operational milestones and benefitting from the favourable oilpricing environment. Dragon Oil's producing asset in the Cheleken Contract Area,in the eastern section of the Caspian Sea, continues to perform strongly withour employees in the field demonstrating commitment and hard work, often indifficult operating conditions. These solid financial results underpinnedongoing investment in the development programme, and helped to secure the firststep towards greater portfolio diversification. "I am confident that Dragon Oil will capitalise on this strong positioning andcontinue to deliver on its promises." Background Note Dragon Oil Plc is an innovative international oil and gas development andproduction company, quoted on the London and Irish Stock exchanges (Tickersymbol: DGO). Its principal producing asset is in the Cheleken Contract Area, inthe eastern section of the Caspian Sea, offshore Turkmenistan and recentlyacquired interests in Blocks 35, 49 and R2 (10%) in the Republic of Yemen. Dragon Oil (Turkmenistan) Ltd., a wholly owned subsidiary of Dragon Oil plc,holds 100% interest in and is the operator of the Production Sharing Agreementfor the Cheleken Contract Area in the Caspian Sea, offshore Turkmenistan.Operational focus is on the re-development of two oil producing fields,Dzheitune (Lam) and Dzhygalybeg (Zhdanov). www.dragonoil.com For further information please contact: Media enquiriesCitigate Dewe Rogerson (+44 20 7638 9571)Martin JacksonGeorge Cazenove Investor and Analyst enquiriesDragon Oil Plc (+971 4 305 3600)Leanne Denman, Investor Relations Officer 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 US Cents United States cents m million US$ United States dollars DRAGON OIL PLC ("Dragon Oil" or the "Company") 2007 Preliminary Results Dragon Oil completed another successful year having reached a number ofsignificant milestones in the Group's ongoing growth strategy. The Group'sfinancial and operational performance has once again been outstanding as aresult of the continuous hard work and dedication demonstrated by our employeesthroughout the year. There was a major Board re-structuring in 2007. I would like to welcome the newDirectors to the Board and to thank Mirza Al Sayegh for his many years ofservice to the Group. I would also like to express my sadness at the passing ofBrent Kinney in 2007, not long after his retirement from the Board. Brent was avalued member of the Board and his input to the business will be missed. Delivering on our promises Once again, we have achieved a record set of financial results with profitsafter tax rising by 63% to US$304 million and basic earnings per share haveimproved by 63% to 59.5 cents. Gross production in 2007 reached a new record11.7 million barrels and average realised crude prices during the year wereUS$70.9 per barrel compared to US$61.4 in 2006, contributing to a 75% rise ingross profit over the previous year. In January of this year, the Group reported that it had achieved a peak exitrate of 40,038 barrels of oil per day at the end of 2007. In March 2007, theGroup committed to increase its average daily crude oil production by 25%year-on-year for the subsequent three years, and we have performed very wellwith a 56% increase in the daily average for 2007. Underlying data in respect of proved and probable reserves remains encouraging.Horizon mapping of the reservoir levels has been completed and reservoircharacterization studies are ongoing, with a view to locating future wells moreprecisely. Dragon Oil is on course to complete the recertification of thereserves in Turkmenistan later in 2008 and the fully-revised field developmentplan will be finalised by the middle of 2009. In line with our commitment to diversify geographically, Dragon Oil purchasedinterests in Blocks 35, 49 and R2 in the Republic of Yemen from Virgin ResourcesLimited. We continue to study new assets and opportunities to increase ourproduction and reserves. We see our investment in Yemen as an importantstrategic first step towards greater portfolio diversification in the years tocome. As promised previously, we are making a concerted effort to improve ourcommunications with our shareholders and the wider financial community. We havetaken active steps to effect this change including the appointment of anInvestor Relations Executive and ongoing improvement to Dragon Oil's website(www.dragonoil.com). Impressive Performance The significantly increased production result is largely due to an accelerateddrilling programme where we completed six development wells and one appraisal/development well during the year. This is in line with the Group's plan to drillup to 25 development and appraisal wells between 2007 and 2009, subject to rigavailability. In addition, despite a competitive recruitment market, staffnumbers increased by 15% across the Group, this has been crucial in enabling theGroup to achieve its targets and manage the production growth effectively. Capital expenditure has risen substantially over the year due to theacceleration in the field development plan for the Cheleken Contract Area. Wehave continued to build a substantial cash balance, which will enable us todrive the development programme forward, acquire new assets and put plans inplace for the commercialisation of the gas resources in the Cheleken ContractArea. Last year, I was pleased to be honoured with several meetings with HisExcellency, the President of Turkmenistan, during which we discussed all ofthese issues in some detail. Refurbishment and replacement of existing infrastructure remains a top priorityfor the management team. The New Processing Facility is well into phase 2 ofplanning; development plans for the additional wellhead platforms and expansionof the crude oil export jetty are also continuing at a good pace. Anothersignificant achievement has been the Dzheitune (LAM) A production platformdrilling programme, with results from the platform's wells exceeding initialexpectations. Honouring our commitments We continue to strive to achieve the highest possible industry standards ofhealth and safety for our employees. We have purchased and refurbished onshoreand offshore HS&E facilities and equipment in Turkmenistan, as well as investingin additional staff training programmes. Furthermore, the HS&E and medical teamswere expanded in line with the accelerated development programme to provideadequate support. As a result, we are pleased to report that our accident losttime rate has improved. Dragon Oil continues to be mindful of its impact on the local communities of theareas in which it operates. We actively work to recruit local talent whereverpossible, which is demonstrated by a 14% increase over the previous year in thenumber of Turkmeni staff that Dragon Oil employs. A challenging environment We continue to operate in an environment with significant challenges, which iswhy management has to be proactive and forward-thinking in its approach tooperations. There has been an unusually cold winter in the Cheleken ContractArea resulting in some extremely difficult conditions for our staff in thefield. We are continuously looking for ways to mitigate the impact of suchadverse weather on production and on our employees. In view of its large capex programme, the Company hedged 3.7 million barrels of2007 production and 3.8 million barrels of 2008 production on a zero cost basis,by using collars, with a view to securing its financial position. We have metour obligations for the November and December 2007 hedged quantities and theBoard will continue to review the hedging strategy on an ongoing basis. As with all operators in the Caspian Sea region, we continue to face problemssuch as the scarcity of equipment and high quality contractors, and morespecifically a lack of drilling rigs. The procurement of additional rigsremains a key focus for us as this is a fundamental element of our developmentstrategy for Turkmenistan. We are assessing a range of options for thedeployment of new rigs and we are in discussions with a number of rig operatorsthat are experienced in this area. In 2007, Dragon Oil benefited greatly fromhaving multiple rigs drilling simultaneously, with firstly the 'Astra' rig andthen the 'CIS-1' rig drilling at the same time as our long-serving drilling rig,the 'Iran Khazar' rig. Strong growth platform In 2008, we aim to capitalise on the successes of 2007 to boost Dragon Oil'sgrowth potential and to drive the business forward. We will focus onstrengthening the Group's infrastructure in Turkmenistan even further as well asdeveloping our initial portfolio diversification. The Group remains committedto increasing the average annual daily production in line with targets. We areaware of potential market challenges on the horizon and the management team isconfident that it has planned sufficiently well to mitigate these risks. Dragon Oil's track record over the last few years has proven that the Group candeliver on its promises and build a solid foundation for future expansion andasset diversification. We are looking to build on this strong positioning andthe management team will press on with its plans to maximise shareholder valuethrough a long-term, growth-focused strategy. Hussain M. SultanChairman and CEODragon Oil plc Group income statementYear ended 31 December 2007 2006 US$'000 US$'000 Restated Revenue 596,614 325,125 Cost of sales (198,659) (97,985) ---------- ----------Gross profit 397,955 227,140 Administrative expenses (18,247) (6,353)Other income 636 528Other losses (15,256) - ---------- ----------Operating profit 365,088 221,315 Finance costs (198) (1,107)Finance income 19,370 13,107 ---------- ----------Profit before income tax 384,260 233,315 Income tax expense (80,346) (46,443) ---------- ----------Profit attributable to equity holders of the Company 303,914 186,872 ========== ==========Earnings per shareBasic 59.50c 36.63cDiluted 59.25c 36.49c ========== ========== Group balance sheetAs at 31 December 2007 2006 US$'000 US$'000 Restated ASSETSNon-current assetsProperty, plant and equipment 639,213 512,843Intangible assets 833 - ---------- ---------- 640,046 512,843 ---------- ----------Current assetsInventories 34,655 40,330Trade and other receivables 100,232 61,459Cash at bank and in hand 543,241 296,208 ---------- ---------- 678,128 397,997 ---------- ----------Total assets 1,318,174 910,840 ========== ==========EQUITYCapital and reserves attributable to the Company's equity shareholdersShare capital 80,075 79,969Share premium 217,706 216,942Capital redemption reserve 77,150 77,150Other reserve 3,827 2,909Retained earnings 681,669 377,301 ---------- ----------Total equity 1,060,427 754,271 ---------- ----------LIABILITIESNon-current liabilitiesDeferred income tax liabilities 51,055 56,002 ---------- ----------Current liabilitiesTrade and other payables 110,785 60,440Derivative financial instruments 10,614 -Current income tax liability 85,293 40,127 ---------- ---------- 206,692 100,567 ---------- ----------Total liabilities 257,747 156,569 ---------- ----------Total equity and liabilities 1,318,174 910,840 ========== ========== Group cash flow statementYear ended 31 December 2007 2006 US$'000 US$'000 Restated Cash generated from operating activities (Note 9) 507,172 227,976 - Interest paid (198) (573) - Income tax paid (39,730) (5,266) ---------- ----------Net cash generated from operating activities 467,244 222,137 ---------- ----------Cash flows from investing activitiesAdditions to property, plant and equipment (231,520) (155,837)Addition to intangible assets (4,933) -Interest received on bank deposits 15,372 11,295Amounts placed on deposit for terms over three months (170,375) -Amounts withdrawn from interest collateral account - 6,569Proceeds from sale of held for trading financial asset - 1,148 ---------- ----------Net cash used in investing activities (391,456) (136,825) ---------- ----------Cash flows from financing activitiesProceeds from issue of share capital 870 46Repayment of borrowings - (27,600) ---------- ----------Net cash provided by/(used in) financing activities 870 (27,554) ---------- ----------Net increase in cash and cash equivalents 76,658 57,758 Cash and cash equivalents at the beginning of the year 296,208 238,450 ---------- ----------Cash and cash equivalents at the end of the year 372,866 296,208 ========== ========== Group statement of changes in equity Capital Share Share redemption Other Retained capital premium reserve reserve earnings Total US$'000 US$'000 US$'000 US$'000 US$'000 US$'000Group At 1 January 2006 (aspreviously reported) 79,937 216,928 77,150 2,509 184,488 561,012Change in accountingpolicy with respectto the valuation of crude oil underlifts - - - - 5,941 5,941 --------- --------- --------- --------- --------- ---------At 1 January 2006 (as restated) 79,937 216,928 77,150 2,509 190,429 566,953Shares issued during the year 32 14 - - - 46Profit for the year (as previously reported) - - - - 180,476 180,476Employee share optionscheme:- value of services provided - - - 400 - 400 Change in accountingpolicy with respectto the valuation of crude oil underlifts - - - - 6,396 6,396 --------- --------- --------- --------- --------- ---------At 31 December 2006 (as restated) 79,969 216,942 77,150 2,909 377,301 754,271Shares issued during the year 106 764 - - - 870Profit for the year - - - - 303,914 303,914Employee share optionscheme:- value of services provided - - - 1,372 - 1,372Transfer on exercise of share options - - - (454) 454 - --------- --------- --------- --------- --------- ---------At 31 December 2007 80,075 217,706 77,150 3,827 681,669 1,060,427 ========= ========= ========= ========= ========= ========= 1 General information Dragon Oil plc ("the Company") and its subsidiaries ("the Group") are engaged inupstream oil and gas exploration, development and production activitiesprimarily in Turkmenistan and its head office is based in Dubai, United ArabEmirates. The Company's ordinary shares are listed on the official lists of the Irish andLondon Stock Exchanges. The Group financial statements have been approved for issue by the Board ofDirectors on 5 March 2008. 2 Basis of preparation This financial information comprises the Group balance sheets as of 31 December2007 and 31 December 2006 and related group income statements, cash flows,statement of changes in equity and related notes for the twelve months thenended, of Dragon Oil plc. The financial information has been prepared in accordance with EU adoptedInternational Financial Reporting Standards ("IFRS"), International FinancialReporting Interpretations Committee ("IFRIC") interpretations and those parts ofthe Irish Companies Act, 1963 to 2006 applicable to companies reporting underIFRS. This financial information has been prepared under the historical costconvention except for the measurement at fair value of share options andderivative financial instruments. The preparation of financial information in conformity with IFRS requires theuse of 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 Group financialinformation are disclosed in Note 4. 3 Accounting policies The accounting policies used are consistent with those set out in the auditedfinancial statements for the year ended 31 December 2006 which is available onthe Company's website, www.dragonoil.com, except for the following newaccounting policy for exploration and evaluation assets and the change ofaccounting policy for crude oil underlifts: 3.1 Exploration and evaluation assets Exploration and Evaluation ("E&E") costs are initially capitalised within 'Intangible assets'. Such E&E costs may include costs of licence acquisition,technical services and studies, seismic acquisition, exploration drilling andtesting. Pre-license costs incurred prior to having obtained the legal rights toexplore an area are expensed directly to the income statement as they areincurred. Tangible assets acquired for use in E&E activities are classified as property,plant and equipment. However, to the extent that such a tangible asset isconsumed in developing an intangible E&E asset, the amount reflecting thatconsumption is recorded as part of the cost of the intangible asset. Intangible E&E assets related to each exploration licence/prospect are notamortised and are carried forward until the existence (or otherwise) ofcommercial reserves has been determined. The Group's definition of commercialreserves is proven and probable reserves on an entitlement basis. If commercialreserves have been discovered, the related E&E assets are assessed forimpairment and any loss is recognised in the income statement. The carryingvalue, after any impairment loss, of the relevant E&E assets is thenreclassified as development and production assets within property, plant andequipment. 3.2 Crude oil overlifts and underlifts The crude oil overlifts and underlifts arise on differences in quantitiesbetween the Group's entitlement production and the production either exported orheld as inventory. Underlifts and overlifts of entitlement to crude oilproduction are recorded as a receivable and payable respectively and aremeasured at market value with the corresponding entry to revenue or cost ofsales, respectively. Further details on the change in accounting policy withrespect to the valuation of crude oil underlifts are set out in Note 5. 4 Critical accounting estimates, assumptions and judgments 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: Development and production assets - depletion and Group's share of proven andprobable oil reserves The Group's share of proven and probable oil reserves, at 31 December 2007 is324 million barrels (2006: 301 million barrels) of total field reserves of 651million barrels (2006: 643 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$40 per barrel toUS$50 per barrel from 1 July 2007. The effect of an upward revision in thelong-term oil price is to lower the level of reserves attributable to the Groupand to increase the depletion charge per barrel. If the estimate of the long-term oil price had been $10 per barrel higher atUS$60 from 1 July 2007, the reserves attributable to the Group would havedecreased to 307 million barrels, with a consequent increase in the depletioncharge of US$4.4 million for the year. If the estimate of the long-term oil price had been $10 per barrel lower atUS$40 from 1 July 2007, the reserves attributable to the Group would haveincreased to 360 million barrels, with a consequent decrease in the depletioncharge of US$5 million. The depletion computation assumes that the PSA, which is valid up to 2025, willbe extended on similar terms up to 2035 under an exclusive right to negotiatefor an extension period of not less than ten years, provided for in the PSA. 5 Restatement of prior year comparative figures During the year, the Group has voluntarily changed its policy for the valuationof crude oil underlifts in line with current industry practice. Previously,crude oil underlifts were classified as crude oil inventory and measured atlower of cost or net realisable value. The policy has since been amended inorder to keep in line with developments within the industry and the crude oilunderlifts are recognised as a part of trade and other receivables and measuredat market value. In accordance with IAS 8, 'Accounting Policies, Changes inAccounting Estimates and Errors', the change has been applied retrospectivelyand the prior year comparatives and opening reserves for 2006 have beenrestated. The restatement resulted in an increase in retained earnings as at 1January 2006 by US$5,941,000. In addition, the impact of the change in accounting policy on the incomestatement for each of the years ended 31 December 2007 and 2006 and the balancesheet as at 31 December 2007 and 2006 are summarised below: 2006 2007 2007 2006 US$'000 US$'000 US$'000 US$'000 With change in the Without change in accounting policy the accounting Previously policy Restated reported Income statementRevenue* 596,614 620,393 325,125 311,633Cost of sales* (198,659) (205,345) (97,985) (93,587)Gross profit 397,955 415,048 227,140 218,046Operating profit 365,088 382,181 221,315 212,221Income tax expense (80,346) (85,102) (46,443) (43,745)Profit attributable to equity holders of the Company 303,914 316,251 186,872 180,476 Earnings per shareBasic 59.50c 61.92c 36.63c 35.37cDiluted 59.25c 61.65c 36.49c 35.27c Balance sheet Inventories 34,655 34,655 40,330 47,016Trade and other receivables 100,232 100,232 61,459 37,680Retained earnings 681,669 681,669 377,301 364,964Deferred income tax liabilities 51,055 51,055 56,002 51,246 * Excludes sale proceeds from abandonment and decommissioning crude oil ofUS$24.8 million (2006: US$8.4 million). 6 Segmental reporting The Group reports its segment information primarily on the basis of geography.The Group's operations are primarily located in Turkmenistan in the Caspianregion. 7 Dividends The Directors do not recommend the payment of a dividend in respect of the yearended 31 December 2007 (2006: nil). 8 Earnings per share 2007 2006 US$'000 US$'000 RestatedThe calculations of earnings per share are based on thefollowing profit and numbers of shares: Profit attributable to equity holders of the Company 303,914 186,872 ----------------- ----------------- Weighted average number of shares: Number '000 Number '000 Basic 510,771 510,207Assumed conversion of potential dilutive share options 2,174 1,847 ----------------- -----------------Diluted 512,945 512,054 ----------------- -----------------Earnings per share:Basic 59.50c 36.63cDiluted 59.25c 36.49c Basic earnings per share is calculated by dividing the profit attributable toequity shareholders of the Company by the weighted average number of ordinaryshares in issue during the year. For diluted earnings per share, the weighted average number of ordinary sharesin issue is adjusted to assume conversion of all potential dilutive options overordinary shares. 9. Cash generated from operating activities Year ended Year ended 31 December 31 December 2007 2006Group US$'000 US$'000 Restated Profit before income tax 384,260 233,315Adjustments for: - Depletion and depreciation 101,930 61,512 - Crude oil underlifts 23,779 (13,492) - Crude oil overlifts 24,263 - - Employee share options - value of services provided 1,372 400 - Fair value loss on derivative financial instruments 10,614 - - Write-off of intangible assets 4,100 - - Gain on disposal of held for trading financial asset - (253) - Finance cost 198 1,107 - Interest on bank deposits (18,955) (13,064)- Excess provision written back (397) - ----------------- -----------------Operating cash flow before changes in working capital 531,164 269,525Changes in working capital: - Inventories 5,675 (32,887) - Trade and other receivables (58,969) (14,002) - Trade and other payables 29,302 5,340 ----------------- -----------------Cash generated from operating activities 507,172 227,976 ================= ================= 10. Statutory Accounts This financial information is not the statutory accounts of the Company and theGroup, a copy of which is required to be annexed to the Company's annual returnto the Companies Registration Office in Ireland. A copy of the statutoryaccounts in respect of the year ended 31 December 2007 will be annexed to theCompany's annual return for 2007. Consistent with prior years, the fullfinancial statements for the year ended 31 December 2007 and the audit reportthereon will be finalised and circulated to shareholders at least 20 workingdays before the AGM. A copy of the statutory accounts required to be annexed tothe Company's annual return in respect of the year ended 31 December 2006 hasbeen annexed to the Company's annual return for 2006 to the CompaniesRegistration Office. 11. 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:
DGO.L