23rd Feb 2010 07:00
FOR IMMEDIATE RELEASE
23 February 2010
DRAGON OIL PLC (the "Company" or together with its subsidiaries the "Group" or "Dragon Oil")
2009 Preliminary Results
Landmark production achieved Solid results and a positive outlook for 2010
Dragon Oil (Ticker: DGO), an international oil and gas exploration and production company, today announced its preliminary results for the year ended 31 December 2009. These preliminary results are prepared in accordance with International Financial Reporting Standards.
Key Financial Highlights for 2009
|
|
2009 |
2008 |
Change |
|
(US$ millions, unless stated) |
|
|
|
|
Revenue |
623.5 |
706.1 |
(12%) |
|
Operating Profit |
314.4 |
474.0 |
(34%) |
|
Profit for the year |
259.0 |
369.0 |
(30%) |
|
Basic EPS (US cents) |
50.3 |
71.8 |
(30%) |
|
Cash balance |
1,137.6 |
875.7 |
30% |
|
Debt |
0.0 |
0.0 |
nil |
Key Operational Highlights
Landmark Production Achieved
§ Landmark production of 50,000 bopd reached at the turn of 2009-10
§ Average daily rate of production rose 9% to 44,765 bopd compared to 40,992 bopd in 2008
§ Eight development wells completed during 2009 with two rigs employed full-time
Strengthening Infrastructure
§ New Dzheitune (Lam) B platform completed with plans to support 8 new wells by 2011
§ Additional slots on Dzheitune (Lam) A platform installed
§ Dzheitune (Lam) 63 platform refurbished and upgraded
§ Construction of 30 inch, 40 km oil and gas trunkline and Phase 2 expansion of Central Processing Facility is
ongoing and expected to be completed during H2 2010
Positive Outlook for 2010-12
§ Plans to complete up to 11 wells in 2010 and up to 40 development wells, including five appraisal wells
§ Target annual production growth of 15% in 2010 and 10% to 15% on average in 2010-12
§ Plans to install two additional wellhead and production platforms over next 2-3 years
§ Capital expenditure for oil infrastructure in 2010-12 estimated at US$600-700 million, including US$250 million
allocated for 2010 projects
§ Continue progress made in commercialisation of gas resources
§ Pursue diversification of asset base with focus maintained on quality and strategic fit
Significant Corporate Developments
§ The Board is currently re-examining the corporate restructuring proposal and reviewing options
§ Significant progress in corporate social responsibility activities with the completion of the new desalination plant in
Hazar, Turkmenistan
Dr Abdul Jaleel Al Khalifa, CEO, commented:
"I am proud to report that Dragon Oil's production hit the landmark level of 50,000 bopd at the turn of 2009-10. We delivered another solid set of results driven by strong operational performance and a 40% increase in sales volumes. This was achieved against a backdrop of challenging economic conditions and a steady recovery in the oil price during the year from a five year low in December 2008. Our average daily rate of production increased by 9% with a total of eight development wells completed by the end of 2009. Our significant achievements during the course of the year are a testament to the hard work and dedication of all of our employees.
Going forward we have a strong balance sheet with a net cash position of more than US$1 billion and no debt which provides us with significant financial flexibility as we look to diversify our asset base and commercialise our gas resources. Looking ahead we will continue to invest for growth and are working hard to translate this strategy into value for the business for the benefit of our shareholders, our employees and our hosts."
Analyst meeting and conference call details:
Dragon Oil will host an analyst meeting and conference call today at 9.00am. Please contact Kate Lehane at Citigate Dewe Rogerson on +44 (0)20 7282 1063 or at [email protected] for further details. A replay facility of the conference call will be available from 1pm on 23 February, 2009 for one week.
Replay numbers:
|
UK |
+44 (0)20 7111 1244 |
|
Ireland |
+353 (0)1 4860902 |
|
USA |
+1 347 366 9565 |
|
Replay passcode: |
1466582# |
For further information please contact:
|
Investor and analyst enquiries Dragon Oil Plc Dr Abdul Jaleel Al Khalifa, CEO Tarun Ohri, Director of Finance Sally Marshak, Investor Relations Officer On the day of the announcement: +44 20 7647 7800 Thereafter: +971 4 305 3600 |
Media enquiries Citigate Dewe Rogerson +44 20 7638 9571 Martin Jackson George Cazenove
|
Disclaimer
This statement may contain forward-looking statementsconcerning 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.
Glossary/definitions:
bopd barrels of oil per day
US Cents United States cents
US$ United States dollars
Message from the Chief Executive Officer
Dragon Oil delivered solid results in 2009 driven by a strong operational performance against the backdrop of a steady recovery in oil prices during the year. I am proud to report that at the turn of 2009-10, Dragon Oil's production hit the landmark level of 50,000 bopd. This is a significant achievement and is a testament to the hard work and dedication of all of our employees. The management team remains committed to growing the business with a strong focus on production levels, drilling operations and infrastructure investment.
Sales volumes of crude oil increased 40% in 2009 over the prior year although revenues were 12% lower primarily reflecting the much lower comparative oil price. However, net cash generated from operations continued to be strong at US$500 million with an earnings per share of 50.30 US Cents for the year. We have a strong balance sheet with a cash balance of over US$1 billion at year end 2009 which provides us with significant financial flexibility going forward. Capital expenditure on drilling and infrastructure projects in Turkmenistan for 2009 was US$317 million of which 50% was attributable to drilling and the remaining balance spent on infrastructure projects.
I am pleased to note that, having fallen to a five year low of US$30 per barrel at the end of 2008, oil prices have since improved and appear to have reached some relative stability in the US$70 - US$80 per barrel level.
Driving Production Growth
I am pleased to report that Dragon Oil had a particularly successful year for procuring additional drilling rigs. During 2009 and in early 2010, we managed to secure a two-year contract extension for our existing jack-up rig, the Iran Khazar, and awarded contracts for the use of three more rigs to support our medium- and long-term drilling programme.
The contract for the Iran Khazar jack-up drilling rig, which we have been successfully employing since 2005, has been extended until May 2011. Dragon Oil also secured the platform-based NIS Rig for the 2010-11 period starting from December 2009. Additionally, the Astra jack-up drilling rig is operating for us on a six months' basis and commenced operations in December 2009. Our aim is to continue to employ it during the latter part of the year depending on its availability and terms.
In early 2010, Dragon Oil also awarded a contract to Yantai Raffles Offshore Ltd. for the lease and management of a new build Super M2 jack-up rig (the "M2 jack-up rig"). This is an excellent opportunity for the Group to employ a newly-built powerful jack-up rig that will be constructed as a self-elevating drilling unit in accordance with international marine construction standards. We expect the M2 jack-up rig to be constructed and mobilized to the Cheleken Contract Area in Q4 2011. Dragon Oil intends to use the M2 jack-up rig for an initial duration of five years, with an option to extend it for a further period of up to two years.
Our strategy is to secure new rig contracts or roll forward existing contracts to ensure that we always have an adequate number of rigs operating for us to progress the development of the Cheleken Contract Area and deliver on our objectives.
In 2009, we completed eight wells and our goal for 2010 is to complete 11 wells. The average gross production growth in 2009 was 9% over 2008. With more rigs operating in 2010, we expect to achieve a 15% growth in the average gross production rate in 2010.
Investing in Future Production
A new platform, the Dzheitune (Lam) B, was installed in December 2009 in the Western part of the Dzheitune (Lam) field. It marks the second platform to be built and installed in the Cheleken Contract Area since Dragon Oil became the operator in 2000. More broadly, our field development plan includes the phased installation of additional platforms during the course of the PSA to maximise recovery of crude oil from these fields. To this end we are currently planning for two additional wellhead and production platforms that we expect to be built and installed in the next two to three years.
Securing New Assets and Commercialising our Gas Resources
We continue to progress our strategies of diversification and gas monetisation. It remains a challenging task to find assets that add competitive advantage and provide a strategic fit with the Group. This will be a key activity for us during 2010 as our New Ventures Team actively focuses on opportunities in North Africa, the Middle East and Central Asia where we believe we have the best strategic fit.
We are hopeful that we will be given an opportunity to commercialise our gas resources. With this aim, we are putting the necessary infrastructure in place with a new trunkline whilst we expect to progress further the formal discussions on gas pricing with the Turkmenistan Government during 2010.
Significant Corporate Developments
2009 was an eventful year for Dragon Oil on the corporate front. We swiftly launched an investigation into irregularities in the Marketing and Contracts Departments which came to light in February 2009. We dealt quickly with the issues putting in place a new Code of Conduct. All procurement policies and procedures are now operating effectively.
In early 2009, the Company announced a corporate restructuring whereby a Bermuda-incorporated company would be established as the new holding company of the Group. Following the approach received from Emirates National Oil Company Limited (ENOC) L.L.C. ("ENOC") the restructuring was put on hold. The Board is currently re-examining the proposal and reviewing options.
Strengthening the Team
We continued with our objective within the Human Resources field to strengthen our expertise, cultural diversity and talent through hiring experienced and competent people. In 2009, we introduced a number of key roles, including the General Manager of Petroleum Development. In preparation for greater activity levels, the Group has increased its staff by 11% over the previous year taking the average number of staff to 1,015 during 2009. In 2010 we are launching a new staff training programme together with the establishment of a new Centre of Excellence for local staff training in Turkmenistan.
Giving Back to the Community
As our business in Turkmenistan continues to grow substantially, we recognise the mounting importance of our social responsibility towards the welfare of the communities close to our operations. I am proud to announce that a 1,500m3 desalination plant is being commissioned in Hazar, Turkmenistan. From this plant, a large and stable volume of potable water will be supplied to the local community in Hazar. We continue to support the local Hazar community through the construction and refurbishment of sports and health facilities. As a major step towards this objective, we plan to build a new clinic in order to enhance the available local health facilities.
Delivering Growth
The management and the Board are committed to the Group's mission to explore and develop oil and gas resources by leveraging technology and a talented workforce whilst acting as a reliable, ethical and conscientious partner.
Our medium term strategy, for the period 2010 to 2012, anticipates the completion of up to 40 new wells, including 5 appraisal wells, to support a target rate of production growth averaging 10% to 15% per annum over that three year period with an aggregate infrastructure spend of approximately US$600-700 million over the period.
Dragon Oil has a strong and dedicated management team supported by a highly-qualified employee resource base in Dubai and Turkmenistan. We will continue to invest for growth and work hard to translate strategy into value for the business for the benefit of our shareholders, our employees and our hosts. We look forward to the years ahead and to delivering that value.
operating and financial review
Dragon Oil reached the landmark production level of 50,000 bopd at the turn of 2009-10. The Group continued to deliver solid performance and the successful development of the Cheleken Contract Area, having increased average gross daily production by 9% over the 2008 level. We had two rigs, the platform-based Rig 40 and the Iran Khazar jack-up rig, operating full-time for the Group. The rigs completed four wells each in the course of 2009. The drilling programme included planned maintenance of the Iran Khazar rig and changes to the drilling plan of the first well by Rig 40 at the beginning of 2009. This resulted in wells coming on stream starting from Q2 2009, slightly later than initially anticipated, with the last two wells having been put into production towards the end of 2009.
Production
The average daily production rate on a working interest basis increased by 9% to 44,765 bopd in 2009. This is compared to the average daily production rate of 40,992 bopd achieved in 2008. The Group completed eight wells employing two rigs full-time throughout the year. The number of wells put into production and the flow rates from these wells determined the level of the increase in the average daily production in 2009. As the last two wells came on stream at the end of the year, they have been primarily contributing to average production in 2010 rather than 2009.
The entitlement production in 2009 was approximately 58% of the gross production compared to about 60% in 2008. Entitlement barrels are dependent, 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 represents a 40% increase compared to 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, slightly offset by 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. The marketing agreement on the Baku route was reviewed twice during the year on the basis of volume and price. Dragon Oil continues to assess additional marketing opportunities for its crude, including Makhachkala in Russia, the Baku-Batumi corridor and the BP-operated BTC (Baku-Tbilisi-Ceyhan) pipeline.
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:
|
Well |
Rig |
Completion date |
Depth (metres) |
Type of completion |
Initial tested rate (bopd) |
|
13/133 |
Rig 40 |
May |
2,975 |
Dual |
2,628 |
|
28/134 |
Iran Khazar |
May |
3,280 |
Dual |
3,554 |
|
13/135 |
Rig 40 |
August |
3,302 |
Single |
1,320 |
|
28/136 |
Iran Khazar |
July |
3,075 |
Dual |
3,291 |
|
28/137 |
Iran Khazar |
October |
3,301 |
Dual |
2,141 |
|
13/138 |
Rig 40 |
October |
3,268 |
Dual |
2,511 |
|
A/139 |
Iran Khazar |
December |
3,360 |
Dual |
2,647 |
|
13/140 |
Rig 40 |
December |
3,320 |
Single |
1,317 |
During 2009, our workover programme included a rigless workover operation conducted on Dzheitune (Lam) 13/96 well that resulted in initial incremental production of 783 bopd.
In December 2009, the installation of the Dzheitune (Lam) B platform was completed. The Dzheitune (Lam) B platform was installed in the Western part of the Dzheitune (Lam) field. This is the second in a series of new platforms 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 by the end of 2011.
In early Q2 2009, Dragon Oil reached an agreement to extend the contract for the Iran Khazar jack-up rig for a further two years commencing May 2009. We have been employing this rig since 2005 and have successfully completed 21 wells from the Dzheitune (Lam) platforms 21, 28, 10 and A.
In 2009, we secured a contract to employ the Astra jack-up rig for six months starting in November 2009. The Astra rig is currently drilling the Dzheitune (Lam) B/141 development well from the newly added Dzheitune (Lam) B platform. The contract to hire the Astra jack-up rig for six months was signed with BKE Shelf Limited. Dragon Oil plans to use this jack-up rig to drill two wells during the contract term.
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 mobilised to Dzheitune (Lam) 28 platform and is expected to spud its first well from this platform during Q1 2010. At the end of 2009, Dragon Oil revamped the Dzheitune (Lam) 28 platform to handle this land rig.
In January 2010, Dragon Oil awarded a contract to Yantai Raffles Offshore Ltd. for the lease and management of a new build Super M2 jack-up rig (the "M2 jack-up rig") in the Cheleken Contract Area. The M2 jack-up rig will be constructed as a self-elevating drilling unit in accordance with international marine construction standards. The M2 jack-up rig is expected to be constructed and mobilized to the Cheleken Contract Area in Q4 2011. Upon delivery, the lease and management contract is expected to commence for an initial duration of five years, with an option to extend it for a further period of up to two years.
Infrastructure
The infrastructure spend during the year included the construction, installation and completion of the Dzheitune (Lam) B platform, additional slots on the Dzheitune (Lam) A platform, the upgrade of the Dzheitune (Lam) 63 platform and Phase 2 of the Aladja Jetty.
In addition, work continued during 2009 on two major projects, the 30" 40km trunkline project and the Phase 2 expansion of the Central Processing Facility. However, we did experience some delays in the execution of these two key projects and we now expect to complete them during H2 2010. Dragon Oil has mobilised internal and external resources to deal with the delays that have been experienced. While these two projects move towards completion, the existing infrastructure is sufficient to accommodate the expected 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.
Reserves and Resources
|
As at 31 July 2009 |
|
|
Proved and Probable Remaining Recoverable Reserves |
Oil and Condensate, million barrels |
|
Gross field reserves to 1st May 2035 |
625.2 |
|
2C Resources |
TCF |
|
Gross Gas Contingent Resources |
3.1 |
Note: Based on the latest reserves certification by an independent energy consultant.
Proved and probable remaining recoverable reserves as at 31 December 2009 on working interest and entitlement basis were 617 million barrels and 282 million barrels respectively, based on assumptions including extension of the terms of the PSA beyond 2025.
During 2010, pending approvals, Dragon Oil intends to drill on a previously undrilled structure located to the west of the Cheleken Extension structure. This structure was mapped before using 2D seismic data shot during the early 1990's but it has looked more pronounced after remapping the same structure using 3D seismic conducted in 2004-05. Should this well be successful, it will prove up more reserves, and this area will be incorporated into the field development plan.
Following completion of the gas facilities and a gas sales agreement in the future it is expected that Dragon Oil will be able to confirm the proportion of contingent gas resources that can be transferred to reserves.
New business opportunities and Yemen participation
Dragon Oil's New Ventures Team is actively reviewing opportunities in North Africa, Middle East and Central Asia (former Soviet Union Republics). Diversification of our portfolio may be achieved through joint ventures, corporate acquisitions or project farm-ins. It is our objective to participate in projects, which have the potential to offer both immediate and near-term production and reserves, with the upside of longer-term growth through exploration.
The exploration programme in Yemen on Block 35 is ongoing and additional activity in Block 49 is under discussion. An extension of Block 35 for another eighteen months is under negotiation which will allow for additional exploration work.
Commercialisation of the Gas Resources
The Group is currently producing associated gas, a large percentage of which is separated offshore and flared, with the remaining gas being sent to an onshore gas and oil separation facility.
Based on the latest certification by an independent energy consultant, the Group's current 2C gas contingent resources are 3.1 TCF. The commercialisation of these gas resources is of strategic importance to the Group. Since 2008 the Group is progressing key components of its gas commercialisation strategy, including:
(i) the construction of the 40 km oil and gas trunk line, which will connect Block 2 to the onshore Central Process Facility, and the installation of the associated intra-field pipelines; and
(ii) the phase 2 upgrade of the Group's Central Process Facility.
The Group continues to assess its options to exploit its gas resources and the development of the requisite infrastructure to process and market such gas is of significant importance to the Board. Gas sales from Turkmenistan in 2008-09 were impacted by global and regional demand decline. However, the Group remains hopeful that an opportunity exists to commercialise its gas resources in the short term with the resumption of gas sales to Russia in 2010. We also expect to progress further the formal discussions on gas pricing with the Turkmenistan Government during 2010.
Our People
In 2009 the Group increased its average headcount to 1,015 representing an 11% increase over the previous year. The Group continued with its objective of strengthening our expertise, cultural diversity and talent through hiring experienced and competent people. In 2009 we also introduced a number of new key roles such as the General Manager of Petroleum Development. We expect to continue our recruitment programme in 2010.
Outlook for 2010-12
During 2010, we will be employing four rigs - the Astra jack-up rig, the Iran Khazar jack-up rig, the platform-based NIS Rig and our own Rig 40. The Astra rig and Rig 40 are currently scheduled to drill until around the middle of the year with Rig 40 then being employed in the workover programme to enhance production from existing wells on the Dzheitune (Lam) 13 platform. The drilling is ongoing in the Dzheitune (Lam) field from platforms A, B and 13. Once the NIS Rig is rigged up on the recently revamped Dzheitune (Lam) 28 platform, it will start drilling the first in a series of development wells in Q1 2010.
The three wells are being drilled in the Dzheitune (Lam) field, namely wells B/141, A/142 and 13/143. All three wells are expected to be put into production around the end of Q1 2010. In total, Dragon Oil expects to complete 11 wells in 2010 while the Group intends to complete up to 40 wells in total during the years 2010-12, including five appraisal wells.
The average daily production in 2009 was 44,765 bopd and the reached 50,000 bopd at the turn of 2009-10. Following the changes to the drilling programme, the Group expects to be able to achieve annual production growth of 15% in 2010 and average production growth of 10% to 15% per annum over the three year period of 2010-12.
The Group's field development plan includes the phased installation of additional platforms during the course of the PSA and to this end, plans are being put in place for two additional wellhead and production platforms that we expect to be built and installed in the next two to three years
The Group's capital spend on infrastructure for crude oil in 2010 is estimated at around US$250 million which includes platforms, trunkline, in field pipelines and upgrades to the Central Processing Facility. These expenditures will be internally funded. For the planning period of 2010-12, the total spending on infrastructure projects is expected to be around US$600-700 million. The level of capital expenditure is subject to approval of projects under the PSA and the availability of contractors in the Caspian Sea region. The amount of capital expenditure for drilling is mainly determined by the number of wells drilled. The progress of the drilling programme is dependent on availability of rigs.
For gas development, we envisage additional capital expenditure for the 2010-12 period in the range of US$150-170 million for the onshore Gas Treatment Plant including facilities. Commencement of this project would be dependent on the market conditions and the conclusion of the gas sales agreement.
Financial Summary
A 12% decrease in revenue and a 34% decrease in operating profit were attributed largely to the decreased realised oil prices in 2009 and change in lifting position. Earnings per share were 30% lower than 2008 and net cash from operations was down 14% over 2008. The year 2009 saw an increase of 18% in capital employed represented by higher expenditure in oil and gas interests and an increased cash balance at the year-end.
Key financial data
|
US$ million (unless stated) |
2009 |
2008 |
Change |
|
Revenue |
623.5 |
706.1 |
(12%) |
|
Cost of Sales |
(282.3) |
(193.2) |
(46%) |
|
Gross Profit |
341.2 |
512.9 |
(33%) |
|
Operating profit |
314.4 |
474.0 |
(34%) |
|
Profit for the year |
259.0 |
369.0 |
(30%) |
|
Earnings per share, basic (US Cents) |
50.3 |
71.8 |
(30%) |
|
Earnings per share, diluted (US Cents) |
50.2 |
71.6 |
(30%) |
|
Capital employed |
1,703.2 |
1,442.3 |
18% |
|
Net cash from operations |
500.3 |
578.6 |
(14%) |
|
Cash used in investing activities |
(682.3) |
(516.5) |
(32%) |
|
Debt |
0.0 |
0.0 |
nil |
Income Statement
Revenue
Production levels in 2009 averaged 44,765 bopd (2008: 40,992 bopd) on a working interest basis. The entitlement production was approximately 58% (2008: 60%) of the gross production in 2009. The Group's share of entitlement production is determined by reference to cost oil and profit oil in accordance with the terms of the PSA. The entitlement barrels continue to be determined by, amongst other factors, the level of development expenditure and the realised oil prices.
Revenue for the year was US$623 million compared with US$706 million in 2008. The decrease of 12% over the previous year is primarily attributable to a lower average realised price of US$61.6 per barrel (2008: US$90.8 per barrel), partially offset by a 40% increase in the volume of crude oil sold. The realised oil prices were almost at par with Brent during the year (2008: discount of about 6%). The increase in sales volumes is attributable to increased production, change in lifting position and movement in the crude oil inventory.
The PSA includes provisions such that parties to the agreement may not lift their respective crude oil entitlements in full and as such underlifts or overlift of crude oil may occur at period-ends. At the year end, the Group was in an overlift position of 0.2 million barrels that is recognised and measured at market value (2008:underlift 0.6 million barrels).
Operating profit
The Group generated an operating profit of US$314 million (2008: US$474 million), 34% lower than in the previous year.
Cost of Sales comprises operating and production costs and depletion charge. The Group's cost of sales was US$282 million in 2009 compared to US$193 million in 2008, an increase of about 46%. The increase is primarily due to a change in the lifting position, a lower crude oil inventory at the year-end and an increase in depletion charge.
The average rate for depletion has increased by 19% to US$19.8 per barrel (2008: US$16.7 per barrel). Depletion and depreciation charges during the year were US$189 million (2008: US$150 million), which were higher by 26% than the charge in the previous year due to increased production during the year and the upward revision in estimates of field development costs.
Administrative expenses (net of other income) at US$27 million (2008: US$18 million) were higher by 50%, due to increase in office costs and other expenses related to the ENOC approach, investigations into the irregularities reported in February 2009 and expenses related to corporate re-structuring. Other losses during the year were nil as compared to losses of US$21 million arising out of hedges undertaken during 2008.
Profit for the year
Profit for the year was US$259 million (2008: US$369 million), 30% lower than the previous year.
The profit includes finance income of US$31 million (2008: US$25 million) and a lower taxation charge of US$86 million (2008: US$130 million). Finance income increased on the back of higher cash and cash equivalents and term deposits maintained during the year.
During the year 2008, the effective tax rate applicable to the Group's operations in Turkmenistan was increased to 25% by the Hydrocarbon Resources Law. The Group has continued to apply this rate in determining its tax liabilities as at 31 December 2009. The Group is in discussions with the authorities in Turkmenistan about the applicability of this rate to prior periods, but it does not believe that prior periods are affected by the new rate. A provision has been made in respect of the additional tax that could become payable if the increased tax rate were applied to prior periods based on the expected value (weighted average probability) approach.
Basic earnings per share ("EPS") of 50.3 US Cents for the year were 30% lower than the previous year (2008: 71.8 US Cents).
Balance Sheet
Investments in property, plant and equipment were higher by US$132 million primarily due to capital expenditure of US$317 million (2008: US$287 million) incurred on oil and gas interests, offset by the depletion and depreciation charge during the year. The expenditure during the year was primarily on drilling and infrastructure projects in Turkmenistan. Of the total capital expenditure on oil and gas interests for 2009, 50% was attributable to drilling (2008: 60%). The balance of the capital expenditure was spent on infrastructure projects including the 30" 40km trunkline, the Dzheitune (Lam) B platform and additional slots on the Dzheitune (Lam) A.
Current Assets and Liabilities
Current assets rose by US$247 million mainly as result of a US$444 million increase in term deposits, partly offset by decrease in inventories and cash and cash equivalents. The cash and cash equivalents and term deposits at the year-end were US$1,138 million, including US$126 million held for abandonment and decommissioning activities and US$870 million in term deposits of maturities greater than three months.
Current liabilities rose by US$113 million primarily due to an increase of US$47 million in trade and other payables, US$44 million for abandonment and decommissioning liability owing to increased production and movement of US$17 million in overlift creditors.
Cash flows
Net cash generated from operations during the year decreased by US$79 million to US$500 million (2008: US$579 million). The decrease was primarily attributable to the lower sales price realised during the year for the sale of crude oil despite increased production and the change in the working capital position. Cash used in investing activities was US$682 million (2008: US$516 million), comprising capital expenditure of US$269 million (2008: US$288 million) and placement of term deposits of US$444 million (2008: US$253 million). Cash generated by financing activities was US$0.05 million (2008: US$12 million) on account of proceeds from the lower issue of share capital resulting from the exercise of share options.
The strong balance sheet with a net cash position of more than US$1 billion and no debt provides us with significant financial ability to fund the Cheleken development plan, diversify the asset base and commercialise our gas resources.
Glossary/Definitions/Abbreviations
2C Proved and probable contingent gas resources
Bopd barrels of oil per day
Certification of reserves Reserves certification based on a seismic survey conducted by an independent reserves auditor
CPF Central Processing Facility
Dragon Oil / the Group Dragon Oil plc and its various subsidiary companies
Dual completion Two pay zones in the same well that produce independent flow paths in the same well
ENOC Emirates National Oil Company Limited (ENOC) L.L.C.
EPIC Engineering, procurement, installation and commissioning
GCA Gaffney Cline and Associates
Long string The tubing string that connects the deeper zone to the surface of a dual completion
Km / m Kilometres / metres
MENA Middle East and North Africa
OFR Operational and financial review
Overlifts and underlifts Crude oil overlifts and underlifts arise on differences in quantities between the Group's entitlement production and the production either sold or held as inventory
Production Sharing Agreement (PSA) Contractual arrangement for exploration, development and production of hydrocarbon resources
Platform Large structure used to house employees and machinery needed to drill wells in a reservoir to extract oil and gas for transportation to shore.
Proved reserves (1P) Reserves claimed to have at least a 90% certainty of recovery under existing economic and political conditions, and using existing technology
Probable reserves (2P) Reserves based on median estimates, and claim a 50% confidence level of recovery
Seismic survey Method of investigating subterranean structure based on determinations of the time interval that elapses between the initiation of a seismic wave at a selected shop point and the arrival of reflected or refracted impulses at one or more seismic detectors
Short string The string leading to the upper completion in a side-by-side dual completion
TCF Trillion Cubic Feet
US Cents United States cents
US$ United States Dollars
Workover Well intervention involving invasive techniques, such as
wireline, coiled tubing or snubbing.
Group balance sheet
As at 31 December
|
|
|
2009 |
2008 |
|
|
|
US$'000 |
US$'000 |
|
ASSETS |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
|
908,310 |
776,552 |
|
Intangible assets |
|
1,054 |
947 |
|
|
|
------------------- |
------------------- |
|
|
|
909,364 |
777,499 |
|
|
|
------------------- |
------------------- |
|
Current assets |
|
|
|
|
Inventories |
|
43,379 |
56,585 |
|
Trade and other receivables |
|
57,264 |
58,980 |
|
Term deposits |
|
870,468 |
426,667 |
|
Cash and cash equivalents |
|
267,110 |
449,051 |
|
|
|
------------------- |
------------------- |
|
|
|
1,238,221 |
991,283 |
|
|
|
------------------- |
------------------- |
|
Total assets |
|
2,147,585 |
1,768,782 |
|
|
|
========= |
========= |
|
|
|
|
|
|
EQUITY |
|
|
|
|
Capital and reserves attributable to the Company's equity shareholders |
|
|
|
|
Share capital |
|
80,687 |
80,685 |
|
Share premium |
|
228,809 |
228,764 |
|
Capital redemption reserve |
|
77,150 |
77,150 |
|
Other reserve |
|
3,138 |
1,689 |
|
Retained earnings |
|
1,313,439 |
1,054,060 |
|
|
|
------------------- |
------------------- |
|
Total equity |
|
1,703,223 |
1,442,348 |
|
|
|
------------------- |
------------------- |
|
LIABILITIES |
|
|
|
|
Non-current liabilities |
|
|
|
|
Trade and other payables |
|
20,158 |
3,372 |
|
Deferred income tax liabilities |
|
68,905 |
80,305 |
|
|
|
------------------- |
------------------- |
|
|
|
89,063 |
83,677 |
|
|
|
------------------- |
------------------- |
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
250,033 |
141,880 |
|
Current income tax liability |
|
105,266 |
100,877 |
|
|
|
------------------- |
------------------- |
|
|
|
355,299 |
242,757 |
|
|
|
------------------- |
------------------- |
|
Total liabilities |
|
444,362 |
326,434 |
|
|
|
------------------- |
------------------- |
|
Total equity and liabilities |
|
2,147,585 |
1,768,782 |
|
|
|
========== |
========= |
Group income statement
Year ended 31 December
|
|
|
2009 |
2008 |
|
|
|
US$'000 |
US$'000 |
|
|
|
|
|
|
Revenue |
|
623,480 |
706,118 |
|
|
|
|
|
|
Cost of sales |
|
(282,277) |
(193,220) |
|
|
|
--------------- |
--------------- |
|
Gross profit |
|
341,203 |
512,898 |
|
|
|
|
|
|
Administrative expenses |
|
(27,018) |
(18,263) |
|
Other income |
|
260 |
125 |
|
Other losses |
|
- |
(20,748) |
|
|
|
--------------- |
---------------- |
|
|
|
|
|
|
Operating profit |
|
314,445 |
474,012 |
|
|
|
|
|
|
Finance income |
|
30,553 |
25,050 |
|
|
|
--------------- |
--------------- |
|
Profit before income tax |
|
344,998 |
499,062 |
|
|
|
|
|
|
Income tax expense |
|
(85,971) |
(130,020) |
|
|
|
--------------- |
--------------- |
|
Profit attributable to equity holders of the Company |
|
259,027 |
369,042 |
|
|
|
======== |
======== |
|
Earnings per share attributable to equity holders of the Company |
|
|
|
|
Basic |
|
50.30c |
71.81c |
|
Diluted |
|
50.20c |
71.58c |
|
|
|
======== |
======== |
Group statement of comprehensive income
Year ended 31 December
|
|
2009 |
2008 |
|
|
US$'000 |
US$'000 |
|
|
|
|
|
Profit attributable to equity holders of the Company |
259,027 |
369,042 |
|
|
------------------- |
------------------- |
|
Total comprehensive income for the year |
259,027 |
369,042 |
|
|
======== |
======== |
Group cash flow statement
Year ended 31 December
|
|
|
2009 |
2008 |
|
|
|
US$'000 |
US$'000 |
|
|
|
|
|
|
Cash generated from operating activities |
|
593,287 |
663,773 |
|
Income tax paid |
|
(92,982) |
(85,186) |
|
|
|
----------------- |
----------------- |
|
Net cash generated from operating activities |
|
500,305 |
578,587 |
|
|
|
------------------ |
----------------- |
|
Cash flows from investing activities |
|
|
|
|
Additions to property, plant and equipment |
|
(268,938) |
(287,672) |
|
Additions to intangible assets |
|
(107) |
(508) |
|
Interest received on bank deposits |
|
30,553 |
25,050 |
|
Amounts placed on term deposits (with original maturities greater than three months) |
|
(443,801) |
(253,329) |
|
|
|
------------------ |
----------------- |
|
Net cash used in investing activities |
|
(682,293) |
(516,459) |
|
|
|
------------------ |
----------------- |
|
Cash flows from financing activities |
|
|
|
|
Proceeds from issue of share capital |
|
47 |
11,668 |
|
|
|
------------------ |
----------------- |
|
Cash generated from financing activities |
|
47 |
11,668 |
|
|
|
------------------ |
----------------- |
|
Net (decrease)/increase in cash and cash equivalents |
|
(181,941) |
73,796 |
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
449,051 |
375,255 |
|
|
|
------------------ |
----------------- |
|
Cash and cash equivalents at end of year |
|
267,110 |
449,051 |
|
|
|
======== |
======== |
Statement of changes in equity
Group
|
|
|
Share capital |
Share premium |
Capital redemption reserve |
Other reserve |
Retained earnings |
Total |
|
|
Notes |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 1 January 2008 |
|
80,075 |
217,706 |
77,150 |
3,827 |
681,669 |
1,060,427 |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| Total comprehensive income for the year |
|
- |
- |
- |
- |
369,042 |
369,042 |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| Shares issued during the year |
15,16 |
610 |
11,058 |
- |
- |
- |
11,668 |
| Employee share option scheme: |
|
|
|
|
|
|
|
| - value of services provided |
15 |
- |
- |
- |
1,211 |
- |
1,211 |
| Transfer on exercise of share options |
|
- |
- |
- |
(3,349) |
3,349 |
- |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| Total transactions with owners |
|
610 |
11,058 |
- |
(2,138) |
3,349 |
12,879 |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| At 31 December 2008 |
|
80,685 |
228,764 |
77,150 |
1,689 |
1,054,060 |
1,442,348 |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| Total comprehensive income for the year |
|
- |
- |
- |
- |
259,027 |
259,027 |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| Shares issued during the year |
15,16 |
2 |
45 |
- |
- |
- |
47 |
| Employee share option scheme: |
|
|
|
|
|
|
|
| - value of services provided |
15 |
- |
- |
- |
1,801 |
- |
1,801 |
| Transfer on exercise/forfeiture of share options |
|
- |
- |
- |
(352) |
352 |
- |
|
|
---------------- |
------------------ |
---------------- |
-------------- |
--------------------- |
--------------------- |
|
| Total transactions with owners |
|
2 |
45 |
- |
1,449 |
352 |
1,848 |
|
|
---------------- |
------------------- |
---------------- |
-------------- |
----------------------- |
--------------------- |
|
| At 31 December 2009 |
|
80,687 |
228,809 |
77,150 |
3,138 |
1,313,439 |
1,703,223 |
|
|
|
======= |
========= |
======= |
====== |
========== |
========= |
1 General information
Dragon Oil plc ("the Company") and its subsidiaries (together "the Group") are engaged in upstream oil and gas exploration, development and production activities primarily in Turkmenistan. Its head office is based in Dubai, United Arab Emirates ("UAE").
The Company is incorporated in Ireland. The Company's ordinary shares are listed on the official lists of the Irish and London Stock Exchanges.
This financial information has been approved for issue by the Board of Directors on 22 February 2010.
2 Basis of preparation
In accordance with EU Regulations, the Group is required to present its annual consolidated financial statements for the year ended 31 December 2009 in accordance with EU adopted International Financial Reporting Standards ("IFRS"), International Financial Reporting Interpretations Committee ("IFRIC") interpretations and those parts of the Irish Companies Act, 1963 to 2009 applicable to companies reporting under IFRS and Article 4 of the International Accounting Standards ("IAS") Regulation.
This financial information has been extracted from the consolidated financial statements for the year ended 31 December 2009 approved by the Board of Directors on 22 February 2010. The financial information comprises the Group balance sheets as of 31 December 2009 and 31 December 2008 and related Group income statements, cash flows, statement of changes in equity and selected notes for the twelve months then ended, of Dragon Oil plc. This financial information has been prepared under the historical cost convention except for the measurement at fair value of share options, derivative financial instruments and underlift receivables/overlift payables.
The preliminary results for the year ended 31 December 2009 have been prepared in accordance with the Listing Rules of the Irish Stock Exchange.
The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group financial information are disclosed in Note 4.
3 Accounting policies
The accounting policies used are consistent with those set out in the audited financial statements for the year ended 31 December 2008, which are available on the Company's website, www.dragonoil.com, except for the adoption of IAS 1 (Revised), 'Presentation of financial statements' and IFRS 8, 'Operating segments' effective from 1 January 2009.
4 Critical accounting estimates, assumptions and judgments
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as well as contingent assets and liabilities at the date of the balance sheet, and the reported amounts of revenues and expenses during a reporting period. The resulting accounting estimates will, by definition, seldom equal the related actual results.
The estimates and assumptions that could result in material adjustments to the income statement and the carrying amounts of assets and liabilities are discussed below:
Development and production assets - depletion
The Group's share of commercial oil reserves is computed in accordance to the PSA. In arriving at the Group's share of reserves and, consequently, the depletion charge, significant assumptions have been made. These significant assumptions include estimates of oil reserves, future oil prices, future development costs including the cost of drilling, infrastructure facilities and other capital and operating costs.
The Group's estimated long-term view of oil prices is US$70 per barrel.
If the estimate of the long-term oil price had been US$20 per barrel higher at US$90 from 1 January 2009, the reserves attributable to the Group would decrease, with a consequent increase in the depletion charge of US$11.8 million for the year.
If the estimate of the long-term oil price had been US$20 per barrel lower at US$50 from 1 January 2009, the reserves attributable to the Group would increase, with a consequent decrease in the depletion charge of US$17.9 million.
The depletion computation assumes that the PSA, which is valid up to 2025, will be extended on similar terms up to 2035 under an exclusive right to negotiate for an extension period of not less than ten years, provided for in the PSA.
5 Segment information
The Group is managed as a single business unit and its development and production assets are located in Turkmenistan in the Caspian region. The head office is based in Dubai, where a significant portion of cash at bank and term deposits of the Group are held.
The exploration and evaluation assets represent the Group's interest in certain exploration blocks in Yemen.
6 Dividends
The Directors do not recommend the payment of a dividend in respect of the year ended 31 December 2009 (2008: nil).
7 Earnings per share
|
|
2009 US$'000 |
2008 US$'000 |
|
|
|
|
|
Profit attributable to equity holders of the Company |
259,027 |
369,042 |
|
|
--------------- |
--------------- |
|
|
|
|
|
|
Number '000 |
Number '000 |
|
Weighted average number of shares: |
|
|
|
|
|
|
|
Basic |
514,982 |
513,922 |
|
Assumed conversion of potential dilutive share options |
957 |
1,669 |
|
|
--------------- |
--------------- |
|
Diluted |
515,939 |
515,591 |
|
|
--------------- |
--------------- |
|
Earnings per share attributable to equity holders of the Company: |
|
|
|
Basic |
50.30c |
71.81c |
|
Diluted |
50.20c |
71.58c |
Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive options over ordinary shares.
8 Cash generated from/(used in) operating activities
|
|
|
2009 |
2008 |
|
|
|
US$'000 |
US$'000 |
|
Group |
|
|
|
|
|
|
|
|
|
Profit before income tax |
|
344,998 |
499,062 |
|
Adjustments for: |
|
|
|
|
- Depletion and depreciation |
|
188,558 |
149,603 |
|
- Crude oil underlifts |
|
22,785 |
(22,785) |
|
- Crude oil overlifts |
|
16,907 |
(24,263) |
|
- Employee share options - value of services provided |
|
1,801 |
1,211 |
|
- Fair value movement on derivative financial instruments |
|
- |
(10,614) |
|
- Write-off of intangible assets |
|
- |
394 |
|
- Interest on bank deposits |
|
(30,553) |
(25,050) |
|
|
|
--------------- |
--------------- |
|
Operating cash flow before changes in working capital |
|
544,496 |
567,558 |
|
|
|
|
|
|
Changes in working capital: |
|
|
|
|
- Inventories |
|
13,206 |
(21,930) |
|
- Trade and other receivables |
|
(21,069) |
58,685 |
|
- Trade and other payables |
|
56,654 |
59,460 |
|
|
|
--------------- |
--------------- |
|
Cash generated from operating activities |
|
593,287 |
663,773 |
|
|
|
======== |
======== |
9 Statutory Accounts
This financial information is not the statutory accounts of the Company and the Group, a copy of which is required to be annexed to the Company's annual return to the Companies Registration Office in Ireland. A copy of the statutory accounts in respect of the year ended 31 December 2009 will be annexed to the Company's annual return for 2009. Consistent with prior years, the full financial statements for the year ended 31 December 2009 and the audit report thereon will be circulated to shareholders at least 20 working days before the AGM. A copy of the statutory accounts required to be annexed to the Company's annual return in respect of the year ended 31 December 2008 has been annexed to the Company's annual return for 2008 to the Companies Registration Office.
10 Further information is available on the Company's website, www.dragonoil.com.
Related Shares:
DGO.L