2008 Interim Results

22nd Aug 2008 07:00



22 August 2008

DRAGON OIL PLC

("Dragon Oil" or the "Company" or collectively the "Group")

2008 Interim Results

Another record set of results and a positive outlook

Dragon Oil plc (DGO), an international oil and gas exploration and production company, today announces its interim results for the period ended 30th June 2008. These interim results are prepared in accordance with the Transparency Regulations 2007, the Transparency Rules of the Irish Financial Services Regulatory Authority and IAS 34, "Interim Financial Reporting" as adopted by the European Union.

Key Highlights

	H1 2008	H1 2007	Change
		Restated
(US$ millions, unless stated otherwise)
Revenue	373.5	229.4	+63%
Operating Profit	200.2	148.5	+35%
Net cash generated from operating activities	231.0	123.5	+87%
Profit for the period	166.9	124.1	+34%
Capital expenditure	154.5	110.8	+39%
Basic EPS (US cents)	32.54	24.32	+34%

Another Strong Operational Performance:

Average gross production increased by 36% over the period to 38,482 bopd (H1/07: 28,321 bopd), of which 20,850 bopd (H1/07: 21,062 bopd) was attributable to the Company. Attributable barrels decreased due to full recovery of capital expenditure

Peak production rate of 43,227 bopd achieved on 1st June 2008

Four wells completed successfully in H1/08, with a fifth well and a sixth well completing in July and August 2008 respectively

Capital expenditure of US$154.5 million included US$89.5 on drilling activities and US$65 million on infrastructure projects

US$170 million, 15 month contract awarded in July for a new 30-inch, 39.4 km trunkline to bring all the oil and gas produced in the Cheleken Contract Area onshore to the Company's processing facility

Cash and term deposits of US$659 million and no debt at period-end

A Positive Outlook

On course to achieve drilling targets and deliver significant production growth for 2008

Execution of the US$400 million infrastructure refurbishment and development programme prior to the end of 2009

Tendering for up to four new rigs and for phase 2 of the processing facility

Deploy its own, refurbished platform-based Rig 40 in Q4 2008

The Front End Engineering Design study planned for the onshore processing facility and associated infrastructure for the gas development project

Geophysical and geological studies ongoing in Dragon Oil's non-operated blocks in Yemen

Pursue value-adding acquisitions, further diversifying Dragon Oil's portfolio

 

Mr. Hussain M. Sultan, Executive Chairman, commented:

"Dragon Oil continues to make strong progress towards achieving its targets. The drilling programme is on schedule having drilled six wells to date and an additional two wells scheduled for completion in H2 2008. This will enable the Group to achieve its average daily production rate target of 40,000 bopd for the year by the end of 2008.

"Our finances have strengthened further over the period which will fund Dragon Oil's infrastructure investment programme and will place us in a strong position to diversify our asset portfolio. Key projects are progressing well with the signing of a contract for the new 30-inch trunkline and the tendering process for a number of additional important projects nearing the completion phase.

"We are confident that Dragon Oil will deliver on its promises for 2008 and will continue to execute its projects in Turkmenistan in such way as to progress our development plan and to achieve continuous, improved results. We are working hard to ensure a bright and positive outlook for 2008 and beyond."

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 (+971 4 305 3600)

Leanne Denman, Investor Relations Officer

Executive Chairman's Statement

Dragon Oil continues to focus on securing long-term returns for its shareholders by investing in field development in the Cheleken Contract Area and portfolio diversification.

A strong financial performance

Net cash generated from operating activities in H1/08 of US$231 million was 87% higher than the corresponding period in the prior year (H1/07 US$123.5 million). The robust balance sheet reflecting zero debt, cash and term deposits of US$659 million at 30th June 2008 is expected to adequately support the planned capital expenditure for field development and asset diversification.

The cost of sales increased by US$0.2 million to US$73.5 million (H1/07: US$73.3 million). The increase in the cost of sales was primarily due to a 46% increase in depletion charge, an increase of 16% in operating and production costs, offset by reversal of the year-end crude oil overlift position of US$24.3 million. The depletion charge for the period was US$61.7 million (H1/07: US$42.4 million). This increase is due to the impact of higher assumed long-term oil prices applied in the estimation of entitlement reserves.

Dragon Oil hedged 3.8 million barrels of oil comprising approximately 45% of our 2008 entitlement barrels using zero cost collars, with oil price floors at US$45 per barrel and a ceiling price averaging US$102 per barrel. The Group's derivative instruments do not qualify for hedge accounting as prescribed by IAS 39 and the fair value movements are recorded in the income statement as "Other losses". The fair value charge in the income statement of US$91 million resulted from crude oil prices trading significantly above the ceiling prices. The Company continues to review its hedging strategy in light of market conditions. No hedges have been undertaken for the period beyond December 2008. 

Basic earnings per share of 32.54 US cents were 34% higher than the corresponding period in the previous year (H1/07: 24.32 US cents).

Production and marketing

The H1/08 gross field production from the Cheleken Contract Area was an average of 38,482 bopd, a 36% increase over the H1/07 production average of 28,321 bopd. Of this, Dragon Oil's entitlement was 20,850 bopd (H1/07: 21,062 bopd). Dragon Oil's entitlement barrels are dependent amongst other factors on operating and development expenditures and realised crude oil prices. As a result of the fiscal terms of the Production Sharing Agreement, Dragon Oil's entitlement barrels in the current period was 54% (H1/07: 74%) of the gross field production.

Dragon Oil sold 3.5 million barrels of oil in H1/08 (H1/07: 3.7 million barrels) and held low crude oil inventory at period end having resolved logistical constraints. The average realised price in H1/08 was approximately US$108 per barrel (H1/07: US$62 per barrel).

The Company continues to market approximately 80% of its crude oil through Neka in Iran as it is stable and continues to offer Dragon Oil the highest netback on its crude. In addition, the Company markets the balance of its crude through Baku, Azerbaijan in order to maintain a good level of marketing flexibility.

Drilling

Four development wells were completed during H1/08. Wells 22/124, L22/126, LA/125 and LA/127 yielded initial production rates of 2,414 bopd, 2,795 bopd, 4,082 bopd and 3,674 bopd respectively. 

Two additional wells have been completed since the period end including Dzheitune (Lam) 22/128 on 16th July 2008, which yielded a combined rate of 2,600 bopd and Dzheitune (Lam) A/129 on 20th August 2008, which yielded a combined rate of 2,213 bopd. 

The CIS-1 rig continues to drill a further development well, Dzheitune (Lam) 22/130, which is scheduled for completion in October 2008. Thereafter, the CIS-1 platform-based rig will be moved to the Dzheitune (Lam) 28 platform for the next phase of its drilling programme. In addition, the Iran Khazar jack-up rig will spud a further development well from the Dzheitune (Lam) A platform, which is expected to be completed in November 2008. Once this well has completed, the Iran Khazar rig will relocate for planned maintenance works.

In addition, the Company is continuing to refurbish its own platform-based Rig 40 for commencement of drilling operations from the refurbished Dzheitune (Lam) 13 Platform from Q4/08.

YemenGeological and geophysical evaluations are currently underway on all three blocks (R2, 49 and 35) in our non-operated acreage in Yemen. Drilling will commence on additional prospects in Block 35 in 2009. 

Principal risks and uncertainties

In accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, a description of the principal risks and uncertainties facing the Group in the six months to 31 December 2008 is set out below: 

Oil export routes

Opportunities exist to sell crude production out of the Caspian to international markets either via Iran, Azerbaijan or Russia. The present conflict between Russia and Georgia could potentially impact the Group's exports. However, should the current arrangements experience interruption, the Group will seek alternative arrangements.

Oil prices

The financial performance of the Company may be negatively affected by adverse movements in the price of oil. The Group actively monitors its exposure to oil prices.

Other

The other principal risks and uncertainties facing the Group are disclosed in the 2007 Annual Report available on Dragon Oil plc's website. These include operations and assets, uncertainty of estimates of resources/reserves and future net revenues, infrastructure adequacy and integrity, insurance cover, licences, financial and exchange rates, human resources and internal controls. 

Investing in the future

Dragon Oil's extensive investment plan will enable it to achieve its core objectives to continuously increase production, to commercialise the gas resource and to evaluate opportunities for expansion to diversify the portfolio 

Capital expenditure in the first six months of the current year increased by 39% over the corresponding period to US$154.5 million (H1/07: US$110.8 million). Of this figure, US$89.5 million went towards drilling activities and US$65 million was spent on infrastructure projects.

The infrastructure investment plan is expected to pick up pace in the second half of the year, with a number of key projects currently in the tendering phase. 

Outlook

Once again Dragon Oil has performed strongly both operationally and financially, allowing us to strengthen our financial position and put a solid infrastructure framework in place to enable the Company to achieve its increased production goals and acquire new assets. 

I am very confident that Dragon Oil will achieve both its drilling and its production targets.

We believe that the decisions we are making now will stand the Company in good stead over the coming years.

Hussain M. Sultan

Executive Chairman

Dragon Oil plc 

Background Note

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 and recently acquired 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 a 100% interest in and is the operator of the Production Sharing Agreement for 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

Disclaimer

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 publicly update or revise any forward-looking statement as a result of new information, future events or other information.

Glossary of terms:

bopd	barrels of oil per day
US cents	United States cents
US$	United States dollars

Group income statement

		Unaudited	Unaudited
	Note	6 months ended 30 June 2008	6 months ended 30 June 2007 Restated
		US$'000	US$'000
Revenue	6	373,452	229,439
Cost of sales	7	(73,535)	(73,286)
		-------------------	-------------------
Gross profit		299,917	156,153
Administrative expenses		(8,327)	(4,453)
Other income		36	95
Other losses	8	(91,439)	(3,338)
		-------------------	-------------------
Operating profit		200,187	148,457
Finance costs		(293)	(46)
Finance income		11,697	7,978
		-------------------	-------------------
Profit before income tax		211,591	156,389
Income tax expense	14	(44,729)	(32,252)
		--------------------	--------------------
Profit attributable to equity holders of the Company		166,862	124,137
		=========	=========
Earnings per share		Cents per share	Cents per share
Basic	10	32.54c	24.32c
Diluted	10	32.34c	24.25c
		=========	=========

Group balance sheet

		Unaudited	Audited
	Note	30 June 2008	31 December 2007
		US$'000	US$'000
ASSETS
Non-current assets
Property, plant and equipment	11	731,867	639,213
Intangible assets		833	833
		-----------------------	----------------------
		732,700	640,046
		-----------------------	----------------------
Current assets
Inventories		29,755	34,655
Trade and other receivables	12	147,546	94,880
Term deposits		484,019	173,338
Cash and cash equivalents	13a	174,764	375,255
		-----------------------	----------------------
		836,084	678,128
		-----------------------	----------------------
Total assets		1,568,784	1,318,174
		==========	==========
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital	15	80,685	80,075
Share premium	15	228,764	217,706
Capital redemption reserve		77,150	77,150
Other reserve		1,002	3,827
Retained earnings		851,864	681,669
		-----------------------	----------------------
Total equity		1,239,465	1,060,427
		-----------------------	----------------------
LIABILITIES
Non-current liabilities
Deferred income tax liabilities		56,714	51,055
Trade and other payables	16	7,434	5,302
		-----------------------	----------------------
		64,148	56,357
		-----------------------	----------------------
Current liabilities
Trade and other payables	16	133,207	105,483
Derivative financial instruments		92,787	10,614
Current income tax liability		39,177	85,293
		-----------------------	----------------------
		265,171	201,390
		-----------------------	----------------------
Total liabilities		329,319	257,747
		-----------------------	----------------------
Total equity and liabilities		1,568,784	1,318,174
		===========	===========

Group statement of changes in equity (unaudited)

	Share  capital	Share  premium	Capital  redemption  reserve	Other  reserve	Retained  earnings	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
At 1 January 2007 (as previously reported)	79,969	216,942	77,150	2,909	364,964	741,934
Change in accounting policy with respect to the valuation of crude oil underlifts	-	-	-	-	12,337	12,337
	------------------------	------------------------	------------------------	------------------------	------------------------	------------------------
At 1 January 2007 (as restated)	79,969	216,942	77,150	2,909	377,301	754,271
Shares issued during the period	91	636	-	-	-	727
Profit for the period	-	-	-	-	114,925	114,925
Employee share option scheme:
-value of services provided	-	-	-	689	-	689
-transfer to share premium account	-	397	-	(397)	-	-
Change in accounting policy with respect to the valuation of crude oil underlifts	-	-	-	-	9,212	9,212
	-------------------------	------------------------	------------------------	------------------------	------------------------	------------------------
At 30 June 2007 (as restated)	80,060	217,975	77,150	3,201	501,438	879,824
Shares issued during the period	15	128	-	-	-	143
Profit for the period	-	-	-	-	179,777	179,777
Employee share option scheme:
-value of services provided	-	-	-	683	-	683
-transfer to share premium account		(397)		397	-	-
Transfer on exercise of share options	-	-	-	(454)	454	-
	------------------------	------------------------	------------------------	------------------------	------------------------	------------------------
At 31 December 2007	80,075	217,706	77,150	3,827	681,669	1,060,427
Shares issued during the period	610	11,058	-	-	-	11,668
Profit for the period	-	-	-	-	166,862	166,862
Employee share option scheme:
-value of services provided	-	-	-	508	-	508
Transfer on exercise of share options	-	-	-	(3,333)	3,333	-
	------------------------	------------------------	------------------------	------------------------	------------------------	------------------------
At 30 June 2008	80,685	228,764	77,150	1,002	851,864	1,239,465
	============	============	============	===========	============	============

All amounts are attributable to equity holders of the Company.

Group cash flow statement

	Note	Unaudited  6 months  ended  30 June 2008	Unaudited  6 months  ended  30 June 2007  Restated
		US$'000	US$'000
Cash generated from operating activities	13b	316,407	163,388
Interest paid		(219)	(109)
Income tax paid		(85,186)	(39,730)
		----------------------	---------------------
Net cash generated from operating activities		231,002	123,549
		----------------------	---------------------
Cash flows from investing activities
Additions to property, plant and equipment		(144,177)	(114,165)
Interest received on bank deposits		11,697	7,978
Amounts placed on term deposits		(310,681)	(226,916)
		----------------------	---------------------
Net cash used in investing activities		(443,161)	(333,103)
		----------------------	--------------------
Cash flows from financing activities
Proceeds from issue of share capital	15	11,668	727
		----------------------	---------------------
Net decrease in cash and cash equivalents		(200,491)	(208,827)
Cash and cash equivalents at the beginning of the period		375,255	296,208
		----------------------	---------------------
Cash and cash equivalents at the end of the period		174,764	87,381
		===========	===========

1 General information

Dragon Oil plc ("the Company") and its subsidiaries (collectively, "the Group") are engaged in upstream oil and gas development and production activities in Turkmenistan under the terms of the Production Sharing Agreement ("PSA") between Dragon Oil (Turkmenistan) Limited and the state agency of the Government of Turkmenistan signed on 10 November 1999 and effective from 1 May 2000. The head office is based in Dubai, United Arab Emirates.

The Company is a public limited company, incorporated in the Republic of Ireland in September 1971. The address of its registered office is 6th Floor, South Bank House, Barrow Street, Dublin 4, Ireland. The registration number is 35228.

The Company's ordinary shares are listed on the official lists of the Irish and London Stock Exchanges.

This condensed set of financial statements was approved for issue by the Board of Directors on 22 August 2008.

2 Basis of preparation of condensed set of financial statements

 

The condensed set of financial statements for the six months ended 30 June 2008 has been prepared in accordance with the Transparency Regulations 2007, the Transparency Rules of the Irish Financial Services Regulatory Authority and IAS 34, “Interim Financial Reporting”. The condensed set of financial statements should be read in conjunction with the annual financial statements for the twelve months ended 31 December 2007, which are prepared in accordance with IFRS as adopted by the European Union.

 

3 Accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2007, as described in those annual financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

The following interpretation is mandatory for the first time for the financial year beginning 1 January 2008 and had been early adopted in 2007 by the Group:

- IFRIC 11, 'IFRS 2 - Group and treasury share transactions'.

The following interpretations are mandatory for the first time for the financial year beginning 1 January 2008 but are not currently relevant for the Group:

-  IFRIC 12, 'Service concession arrangements'; and

-  IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding requirements and their interaction'.

4 Critical accounting estimates and assumptions

The Group's estimated share of proven and probable oil reserves, at 30 June 2008 is 283 million barrels (31 December 2007: 324 million barrels) of total remaining field reserves of 644 million barrels (31 December 2007: 651 million barrels). In arriving at the Group's estimated share of reserves and, consequently, the depletion charge, significant assumptions have been made in the following areas and any material change to the underlying assumptions will have a material effect on the Group's share of oil reserves and therefore the annual depletion charge:

• management's long term view of the crude oil price for the next 28 years;

• timing of the capital expenditure spend;

• crude oil production profile for the next 28 years;

• cost estimates for capital and non-capital expenditure and production costs;

• availability of rigs; and

• flow rates.

During the period, the Group revised its long-term view of oil prices from US$ 50 per barrel to US$ 70 per barrel from 1 January 2008 in arriving at the Group's estimated share of reserves and the depletion rate. The effect of an upward revision in the long-term oil price is to lower the number of reserves attributable to the Group and to increase the depletion charge per barrel. The impact of this increase to the assumed long-term oil price on the depletion charge during the period was US$ 7 million.

If the estimate of the long-term oil price had been US$ 20 per barrel higher, the reserves attributable to the Group at the end of the period would have decreased to 269 million barrels, with a consequent increase in the depletion charge by US$ 3.4 million during the period.

If the estimate of the long-term oil price had been US$ 20 per barrel lower, the reserves attributable to the Group at the end of the period would have increased to 316 million barrels, with a consequent decrease in the depletion charge by US$ 6 million during the period.

The recoverability of amounts recorded as development and production assets is dependent upon the satisfactory completion of the development of the oil reserves in Turkmenistan, which is subject to the operational and geopolitical issues in Turkmenistan. 

The depletion computation assumes that the PSA, which is valid up to 2025, will be extended on similar terms up to 2035 under an exclusive right to negotiate for an extension period of not less than ten years, provided for in the PSA.

5 Restatement of prior period comparatives

During 2007, the Group had voluntarily changed its policy for the valuation of crude oil underlifts in line with current industry practice. 

The impact of the change in accounting policy on the income statement for the period ended 30 June 2007 and the balance sheet as at 30 June 2007 is summarised below:

	Unaudited	Unaudited
	6 months  ended	6 months  ended
	30 June 2007	30 June 2007
	US$'000	US$'000
	With  change in the  accounting  policy	Without  change in the  accounting  policy
Income statement
Revenue*	229,439	213,165
Cost of sales*	(73,286)	(69,479)
Gross profit	156,153	143,686
Operating profit	148,457	135,990
Income tax expense	(32,252)	(28,997)
Profit for the period	124,137	114,925
Earnings per share
Basic	24.32c	22.51c
Diluted	24.25c	22.45c
Balance sheet	At 30 June    2007	At 30 June  2007
	US$'000	US$'000
Inventories	46,962	57,455
Trade and other receivables	89,031	48,978
Retained earnings	501,438	479,889
Deferred income tax liabilities	64,201	56,190

* Excludes sale proceeds from abandonment and decommissioning crude oil of US$ 5.9 million.

6 Revenue 

The Group reports its segment information primarily on the basis of geography. The Group's operations are primarily located in Turkmenistan in the Caspian region.

7 Cost of sales

	Unaudited	Unaudited
	6 months ended 30 June 2008	6 months ended 30 June 2007 Restated
	US$'000	US$'000
Operating and production costs	11,834	30,898
Depletion	61,701	42,388
	----------------	----------------
	73,535	73,286
	=======	=======

8 Other losses

Included within other losses is a fair value charge of US$ 91.4 million (1H 2007: US$ 3.3 million) with respect to zero cost collars relating to the current year's production. The Group has hedged 3.8 million barrels of oil comprising a proportion of the total 2008 production, the unexpired portion of which is 2.1 million barrels. The average floor and ceiling prices are US$ 45 and US$ 102 per barrel, respectively.

9 Dividends

The Directors do not recommend the payment of a dividend in respect of the six months ended 30 June 2008 (2007: nil).

10 Earnings per share

The calculation of basic earnings per ordinary share is based on the weighted average number of 512,859,282 ordinary shares in issue during the six months to 30 June 2008 (1H 2007: 510,491,234) and on the profit for the period of US$ 166.9 million (1H 2007: US$ 124.1 million).

The calculation of diluted earnings per ordinary share is based on the diluted number of 515,938,748 ordinary shares in issue during the six months to 30 June 2008 (1H 2007: 511,858,026) adjusted to assume conversion of potential dilutive options over ordinary shares. 

11 Property, plant and equipment 

	Development and production assets	Others	Total
	US$'000	US$'000	US$'000
Cost
At 1 January 2007	667,495	1,558	669,053
Additions for the period	110,836	-	110,836
	-----------------------	-------------	----------------------
At 30 June 2007	778,331	1,558	779,889
Additions for the period	117,206	258	117,464
	-----------------------	-------------	---------------------
At 31 December 2007	895,537	1,816	897,353
Additions for the period	154,447	37	154,484
	-----------------------	-------------	---------------------
At 30 June 2008	1,049,984	1,853	1,051,837
	-----------------------	-------------	---------------------
Depletion/depreciation
At 1 January 2007	154,938	1,272	156,210
Charge for the period	42,388	41	42,429
	---------------------	-------------	---------------------
At 30 June 2007	197,326	1,313	198,639
Charge for the period	59,411	90	59,501
	---------------------	-------------	---------------------
At 31 December 2007	256,737	1,403	258,140
Charge for the period	61,701	129	61,830
	---------------------	-------------	---------------------
At 30 June 2008	318,438	1,532	319,970
	---------------------	-------------	---------------------
Net book amount
At 30 June 2008	731,546	321	731,867
	=========	======	========
At 31 December 2007	638,800	413	639,213
	=========	======	========

12 Trade and other receivables

	Unaudited 30 June 2008	Audited 31 December 2007
	US$'000	US$'000
Trade receivables	98,201	87,979
Underlift receivable	1,972	-
Other receivables	45,399	5,058
Receivable from a related party	242	147
Prepayments	1,732	1,696
	-------------------	-------------------
	147,546	94,880
	=========	=========

13a Cash and cash equivalents

Cash and cash equivalents include term deposits of US$ 131 million (2007: US$ 302.2 million), representing interest bearing deposits with a maturity of less than three months. 

13b Cash generated from operating activities

		Unaudited 6 months ended 30 June 2008	Unaudited 6 months ended 30 June 2007 Restated
		US$'000	US$'000
	Note
Profit before income tax		211,591	156,389
Adjustments for:
Depletion and depreciation	11	61,830	42,429
Crude Oil underlift/overlift		(26,235)	(16,274)
Fair value loss on derivative financial instruments	8	91,439	3,338
Employee share option scheme - value of services provided		508	689
Interest expense		219	109
Interest on bank deposits		(11,697)	(7,978)
Excess tax provision written back		-	(397)
		-----------------------	-----------------------
Operating cash flow before changes in working capital		327,655	178,305
Settlement of the derivative financial instrument liability		(9,266)	-
		-----------------------	-----------------------
		318,389	178,305
Changes in working capital:
Inventories		4,900	(6,632)
Trade and other receivables		(50,694)	(9,052)
Trade and other payables		43,812	767
		-----------------------	-----------------------
Cash generated from operating activities		316,407	163,388
		==========	==========

14 Income tax expense

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for 2008 is 21.2%. This rate is applicable from 1 January 2008. 

During the period, Dragon recognised a current tax charge of US$ 39 million (1H 2007: US$ 24.1 million) and a deferred tax charge of US$ 5.7 million (1H 2007, restated: US$ 8.2 million). The deferred tax charge is due to temporary differences between the charges to the income statement and those computed under the tax laws of Turkmenistan, which principally relate to accelerated tax depreciation. 

15 Share capital and premium

	Number of	Ordinary	Share
	shares	Shares	premium	Total
	('000)	US$'000	US$'000	US$'000
At 1 January 2007	510,338	79,969	216,942	296,911
Shares issued during the period:
- Share options	675	91	636	727
Transfer from fair value reserve
- Share options	-	-	397	397
	---------------------	---------------------	---------------------	---------------------
At 30 June 2007	511,013	80,060	217,975	298,035
Shares issued during the period:
- Share options	100	15	128	143
Transfer from fair value reserve
- Share options	-	-	(397)	(397)
	---------------------	---------------------	---------------------	---------------------
At 31 December 2007	511,113	80,075	217,706	297,781
Shares issued during the year:
- Share options	3,860	610	11,058	11,668
	---------------------	---------------------	---------------------	---------------------
At 30 June 2008	514,973	80,685	228,764	309,449
	==========	==========	==========	==========

16 Trade and other payables

	Unaudited 30 June 2008	Audited 31 December 2007
	US$'000	US$'000
Trade creditors	14,927	30,743
Accruals	48,192	20,027
Advances from customers	7,736	-
Crude oil overlift payable	-	24,263
Payable to the abandonment fund	69,246	31,564
Other creditors	540	4,188
	------------------	-----------------
	140,641	110,785
Less: Non current portion	(7,434)	(5,302)
	------------------	-----------------
	133,207	105,483
	========	========

Trade creditors and accruals include amounts of US$ 11.1 million (2007: US$ 27.6 million) and US$ 39 million (2007: US$ 12.2 million) respectively, relating to additions to property, plant and equipment. Amount payable to the abandonment fund is net of a balance of US$ 9.5 million (2007: US$ 9.5 million) which is held in a restricted bank account.

17 Related party transactions 

a) Transactions and balances 

The Company's largest shareholder is Emirates National Oil Company Limited (ENOC) LLC ("ENOC"), which owns approximately 51.51% of the Company's ordinary share capital. Three members of the Board, Mr. Hussain Sultan (appointed 26 November 1998), Mr. Ahmad Sharaf (appointed 25 April 2007) and Mr. Mohammed Al Ghurair (appointed 25 April 2007) are nominees of ENOC. 

During the current period, the Group charged US$ 1.1 million (1H 2007: US$ 0.3 million) to the income statement relating to administrative services from ENOC. 

The Group charged ENOC an amount of US$ 0.1 million (1H 2007: US$ 0.2 million) for the use of the Group's London office.

b) Key management compensation

	Unaudited 6 months ended 30 June 2008	Unaudited 6 months ended 30 June 2007
	US$'000	US$'000
Executive director's fees	65	69
Salaries and short-term benefits	1,326	811
End of service benefits	324	217
Share based payments	201	184
	---------------	---------------
	1,916	1,281
	=======	=======

18 Commitments

a) Capital commitments

Committed future expenditure for property, plant and equipment for which contracts had been placed at 30 June 2008 amounted to US$ 132.1 million (31 December 2007: US$ 178.2 million).

b) Operational commitments

Irrevocable letters of credit of US$ 5.3 million were in issue at 30 June 2008 towards the supply of equipment and services (31 December 2007: US$ 4.8 million).

19 Statutory accounts

The financial information presented in this interim report does not represent full statutory accounts. Full statutory accounts for the year ended 31 December 2007, prepared in accordance with IFRS and containing an unqualified audit report, have been delivered to the Registrar of Companies.

20 Statement of directors' responsibilities

The directors confirm to the best of their knowledge that this condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report herein includes a fair review of the information required by the Transparency Regulation 2007.

The directors of Dragon Oil plc are listed in the Dragon Oil plc Annual Report for the twelve months ended 31 December 2007. A list of current directors is maintained on the Dragon Oil plc website www.dragonoil.com.

On behalf of the Board

Hussain M Sultan

Executive Chairman

Nigel McCue

Director

22 August 2008

Independent review report to Dragon Oil plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008, which comprises the income statement, balance sheet, statement of changes in equity, cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority.

PricewaterhouseCoopers  Chartered Accountants

Dublin22 August 2008

ENDIR ILFVETVILFIT

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