Interim Management Statement

FOR IMMEDIATE RELEASE

20 October 2011

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

Interim Management Statement

Dragon Oil plc (Ticker: DGO), an international oil and gas exploration and production company, issues its Interim Management Statement in accordance with the EU Transparency Directive.  The statement covers the period from 1 July 2011 to date.  The financial and production data are for the period from 1 July 2011 to 30 September 2011.  All other information, including details on operations, is up-to-date as at the date of publication.

Key highlights

- Five new wells put into production in the period from 1 July 2011 to-date;

- Average daily production of 61,500 barrels of oil per day ("bopd") in 3Q 2011;

- Capital expenditure on infrastructure and drilling of approximately US$99 million for 3Q 2011;

- Farm-in agreement signed for a 55% participating interest in the Bargou Exploration Permit, offshore Tunisia; and

- Current crude oil marketing contract extended until 31 December 2012.

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"Production since the beginning of the year has been strong, having been supported by a significant number of wells already put into production this year, and is expected to continue to be solid with three more wells remaining to be completed in 2011. As a result, we anticipate this year's gross production growth to be somewhat above 25% with a robust exit rate of approximately 70,000 bopd.

"Progress with infrastructure projects is gathering pace and more contract awards are expected in the next few years as we invest to maintain our broad medium-term objective of an average 10-15% gross production growth per annum over the coming three years, 2012-14.

"The farm-in agreement for the Bargou Permit has added an interesting exploration play to our excellent producing Cheleken asset. With this farm-in and the capital available to support such projects, we have sowed a seed to create a diversified and balanced portfolio of exploration and development assets. We continue to search for other exploration and development opportunities in the regions of our interest, including Africa, Central Asia, the Middle East and selectively south-east Asia."

For further information please contact:

Investor and analyst enquiries

Dragon Oil plc (+44 (0)20 7647 7804)

Anna Gavrilova

Media enquiries

Citigate Dewe Rogerson (+44 (0)20 7638 9571)

Martin Jackson

Kate Lehane

About Dragon Oil

Dragon Oil plc is an international oil and gas exploration, 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.

Dragon Oil (Turkmenistan) Ltd., a wholly owned subsidiary of Dragon Oil plc, holds 100% interest in and is the operator of the Production Sharing Agreement for the Cheleken Contract Area. The operational focus is on the re-development of two oil-producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).

www.dragonoil.com

Disclaimer

This news release may contain forward-looking statements concerning the financial condition and results of operations of Dragon Oil. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. No assurances can be given as to future results, levels of activity and achievements and actual results, levels of activity and achievements may differ materially from those expressed or implied by any forward-looking statements contained in this report. Dragon Oil does not undertake any obligation to update publicly or revise any forward-looking statement as a result of new information, future events or other information.

INTERIM MANAGEMENT STATEMENT

MATERIAL EVENTS AND TRANSACTIONS

Production

Gross field production for 3Q 2011 averaged 61,500 bopd (3Q 2010: 46,400 bopd). This represents a 33% increase over the level reached during the corresponding period in 2010 on the back of a solid drilling programme. Four wells with an average initial flow rate of above 2,000 bopd were put into production in 3Q 2011.

The entitlement production for 3Q 2011 was approximately 53% (3Q 2010: 71%) of the gross production. The entitlement barrels are finalised in arrears and are dependent on, amongst other factors, operating and development expenditure in the period and the realised crude oil price. Lower proportion of entitlement barrels in 3Q 2011 is due primarily to higher realised crude oil prices and lower development expenditure during the quarter.

Marketing

Dragon Oil sold 2.7 million barrels of crude oil in 3Q 2011 (3Q 2010: 4.5 million barrels), which is 40% lower than the volume sold during the corresponding period last year. Higher sales in 3Q 2010 were a result of accumulated inventory sold against a short-term extension of the Iranian swap arrangement, which expired in July 2010. In 3Q 2011, Dragon Oil exported approximately 95% (3Q 2010: approximately 65%) of its crude oil production through Baku, Azerbaijan with the balance sold to an independent third party that has an Iranian swap agreement.

To ensure safe and uninterrupted export of its share of crude oil production, Dragon Oil has agreed an extension of the current contract with Socar Trading SA via Baku, Azerbaijan, until 31 December 2012. The terms of the contract are FOB the Aladja Jetty, for export of our crude oil production share to international markets primarily using the BP-operated BTC (Baku-Tbilisi-Ceyhan) pipeline. It is expected that the realised crude oil prices will be marginally less favourable (10% to 13% discount to Brent) than the current realised prices generated through that route.

In line with its strategy to gain access to a number of routes to international markets and maintain flexibility in operations, Dragon Oil will continue to review alternative marketing arrangements for exporting its share of crude oil production, including a return to exporting crude oil via Neka, Iran should the terms and conditions become more favourable.

Drilling

Since the beginning of the second half of 2011, Dragon Oil has completed five wells. The following table summarises the drilling activity by Dragon Oil in the Dzheitune (Lam) Field during that period:

Note: A correction to the previously reported depth of the well.

The NIS rig has completed the Dzheitune (Lam) 28/161 well, which tested for initial production from the short string at the rate of 896 bopd with the long string testing at 2,280 bopd. The NIS rig will skid to the next slot to spud the Dzheitune (Lam) 28/164 well in the next few days.

Infrastructure

Installation of the Dzheitune (Lam) C platform is expected to be completed on schedule and drilling from the platform is expected to commence in early 2012. The pipelines feeding into the new oil gathering platform, the Dzheitune (Lam) Block-1 riser platform are currently being re-connected; the project is expected to be completed early next year. Block-1 will act as a gathering station and will help increase the throughput capacity of the Dzheitune (Lam) West area.

Work on the construction of the Dzhygalybeg (Zhdanov) B platform is commencing. The design of the platform will be similar to that of the Dzhygalybeg (Zhdanov) A platform: designed to support a land and a jack-up rig, with an accommodation facility and up to 16 slots. It will also feature a helicopter deck. Completion of the Dzhygalybeg (Zhdanov) B platform is expected in 1H 2013. Another helideck is planned to be installed on the Dzheitune (Lam) 22 platform.

Construction of Block-4 riser platform is progressing on schedule with completion of the platform and installation of the associated pipelines planned for the second half of 2012. It will act as a gathering station for the production from new wellhead and production platforms in the Dzhygalybeg (Zhdanov) field.

Installation of the Dzhygalybeg (Zhdanov) A platform is anticipated in 2Q 2012 and we have modified our drilling plans to drill from available slots on other platforms and enable the Group to maintain the pace of the drilling campaign.

As part of our field development plan, Dragon Oil intends to undertake an underwater survey to assess the existing facilities as well as map the seabed of the Cheleken Contract Area and, separately, to carry out a geophysical and geotechnical investigation to evaluate locations for future platforms.

FINANCIAL UPDATE

Realised prices

The average realised crude oil price during 3Q 2011 was approximately US$103/bbl (3Q 2010: US$68/bbl), which was 51% higher compared to the corresponding period last year. For the year to 31 December 2011, Dragon Oil expects to achieve an average realised price at about 10% discount to Brent.

Cash and cash equivalents

Cash and cash equivalents and term deposits at 30 September 2011 were approximately US$1,597 million (30 June 2011: US$1,472 million), including US$248 million (30 June 2011: US$216 million) set aside for abandonment and decommissioning activities.

Capital expenditure

Capital expenditure for 3Q 2011 was approximately US$99 million (3Q 2010: US$146 million). Of this capital expenditure, approximately 50% was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during 3Q 2011 included primarily work on the construction of the two new platforms, the crane vessel and the gathering stations, as well as additional slots on the Dzheitune (Lam) A platform.

Capital expenditure on infrastructure in 2011 is expected to amount to approximately US$200 million.

Gas Monetisation

Commissioning of the gas compressor station in Hazar, Turkmenistan is currently taking place with a portion of Dragon Oil's unprocessed gas flowing through the station and into the system. We are pleased to take this opportunity to reduce gas flaring - a fact that is important to us as a good corporate citizen and one of the largest independent hydrocarbon producers in Turkmenistan. We continue to discuss with the government of Turkmenistan a range of options for the monetisation of gas, including a long-term gas sales agreement, targeted towards export markets. That would require us to supply processed ("dry") gas into the Turkmenistan system.

Diversification

On 10 October 2011, Dragon Oil announced that it had signed a farm-in agreement with a wholly owned subsidiary of Cooper Energy Limited through which Dragon Oil is to earn a 55% participating interest in the Bargou Exploration Permit, offshore Tunisia. Further, if the Joint Venture proceeds with a development phase, Dragon Oil will assume operatorship of the block, subject to confirmation from the Government of Tunisia.

Dragon Oil is to earn the 55% interest by paying 75% of the cost to drill the Hammamet West-3 well, scheduled for 2012, in the Hammamet West Oil Field, according to an agreed well plan scope, up to a cost cap of US$26.6 million (on a 100% basis).

Following completion of the farm-in conditions, the Bargou Joint Venture will comprise Dragon Oil (55%), Cooper Energy (30%) and Jacka Resources (ASX: JKA, 15%).

In Iraq, Dragon Oil has been pre-qualified to participate in the fourth round of bidding (due to take place early next year). Twelve exploration blocks are on offer in this bidding process. This round, given Iraq's significant hydrocarbon resource base, creates a potentially attractive diversification opportunity for the Group.

Dragon Oil continues to screen and evaluate targets that fit our criteria within Africa, Central Asia, the Middle East and selectively south-east Asia in order to create a diversified balanced portfolio of assets for the Group.

Share Buyback Programme

Dragon Oil has launched a limited share buyback programme of up to 5,000,000 shares in the Company. The buy-back programme commenced on 26 September 2011 and will run until the requisite number of shares has been acquired or, in any event, no later than 31 January 2012. The sole objective and purpose of the programme will be to meet all relevant obligations arising from the Company's various share schemes.

As of 19 October 2011, 84% of the targeted number of shares was purchased at an average price of GBP 4.76 per share.

OUTLOOK

For the remainder of the year, three more wells are expected to be put on stream as Rig 40 and the Iran Khazar rig are currently drilling the Dzheitune (Lam) 13/163 and A/162 wells while the NIS rig is to complete the Dzheitune (Lam) 28/164 well.

The delivery of the Super M2 jack-up rig, the "Caspian Driller", is expected in 1H 2012; our drilling plans for 1H 2012 have been adjusted to ensure continuous drilling during this time. We are currently in the process of tendering for another Super M2 jack-up rig to be ready for delivery in 2014 and we are sourcing for another platform-based rig for mobilisation later in 2012.

Given the strong performance from the Cheleken Contract Area so far this year, we expect to be able to achieve gross production growth of somewhat above 25% and exit the year at approximately 70,000 bopd. The outlook for the next three years, 2012-14, envisages the drilling of about 50 wells of which two will be appraisal wells. We target 10-15% gross field production growth on average per annum with total capital expenditure for infrastructure estimated at US$700-800 million over this period.

- end -