22nd Oct 2008 07:00
22 October 2008
Dragon Oil plc
("Dragon Oil" or the "Company")
Interim Management Statement
Dragon Oil plc, an international oil and gas exploration and production company, has today issued its Interim Management Statement as required in accordance with the EU Transparency Directive for the period from 1 January 2008 to date. This statement is solely for the purpose of providing information to the market and it should not be relied upon for any other purpose.
Key Highlights
Mr. Mohammed Al Ghurair, Non-Executive Chairman, commented
"I am pleased to announce that the CEO and I recently had a very constructive meeting with the Vice Prime Minister of Turkmenistan and the Director of the Agency for the Use of Hydrocarbon Resources to discuss the Company's strategic development programme. Dragon Oil and the Government of Turkmenistan continue to enjoy a strong relationship and we look forward to building further on that relationship in the years ahead."
Abdul Jaleel AL Khalifa, CEO, commented:
"Dragon Oil is continuing to deliver strong results, with a 32% increase in average daily production for the 9-month period as compared to the corresponding period in 2007.
"The Company continues to strengthen and I believe that we will deliver long-term growth and return on investment for our shareholders through our 3-pronged strategy of developing the Cheleken Contract Area, commercialising the gas resources and most importantly, diversifying our asset portfolio."
MATERIAL EVENTS AND TRANSACTIONS
Drilling
In the year to date six wells were completed of which three were from the Dzheitune (Lam) 22 platform with CIS-Rig 1 and three from Dzheitune (Lam) A platform with the Iran Khazar jack-up rig. These wells were drilled to depths ranging from 3,600 to 4,100 meters targeting reservoir zones CH2 to CH9.
In addition, the CIS-Rig 1 has drilled the Dzheitune (Lam) 22/130 well and the Iran Khazar jack-up rig has drilled the Dzheitune (Lam) A/131 well to depths of 3,770 and 4,120 meters respectively. Both of these wells are currently being completed and we expect to be able to announce test results in the early part of November.
Production
The working interest production for Q3 2008 averaged 42,320 bopd. There was a 32% increase in the average daily production rate for the 9-month period ending 30 September 2008 to 39,770 bopd (2007: 30,224 bopd). During the same period, the entitlement production was approximately 54% of the total production. This is about 3% lower in terms of volumes than the corresponding period in 2007 due to higher realised prices and full recovery of the historical costs.
Entitlement barrels are subject to approval of the host government and do not equate to sales volumes on account of movements in lifting positions and unsold crude oil inventory.
As at 30 September, Dragon Oil was in an underlift position of approximately 60,920 barrels recorded at market value.
Marketing
Due to the earlier disturbance in Georgia Dragon Oil exported 100% of its sales through Neka in Iran for a brief period in August. However, normal marketing routes have now resumed with 20% of volumes moving through Baku and 80% through Neka.
Sales volumes for the period to 30 September 2008 amounted to 4.9 million barrels, 21% lower than the corresponding period last year. This decrease was primarily due to inventory movement and change in lifting positions. Dragon Oil continues to assess additional routes to market including Makhachkala in Russia and the BP operated BTC (Baku-Tibilisi-Ceyhan) pipeline.
Gas monetisation
During the 9-month period ending 30 September, Dragon Oil achieved several key milestones in its strategy to commercialise the gas resources in the Cheleken Contract Area. This includes awarding a US$170m contract for a 30 inch, 39.4km trunkline and, more recently, awarding a US$37m contract for the Phase 2 expansion of the CPF, which will be capable of handling all produced gas when completed.
In addition, bids have been received for the Front End Engineering Design Study, which will take approximately six months to complete. Upon completion, the Company will then tender for the additional construction works.
New Petroleum Law
The Government of Turkmenistan recently introduced a new Petroleum Law, effective from 1 August 2008. The new law redefines the role of the Agency for the Use of Hydrocarbon Resources in the management of all hydrocarbon Product Sharing Agreements. The Company is currently assessing the impact of the law, if any, on operations and taxation.
Board Restructuring
On 26 September, the Company announced the resignation of Mr. Hussain Sultan, former Executive Chairman. Mr. Sultan will continue in an advisory role as a board member until 31 December 2008. In addition, Dragon Oil announced the appointment of Mohammed Al Ghurair as the new Non-Executive Chairman and the appointment of Abdul Jaleel Al Khalifa, CEO, to the Board.
FINANCIAL UPDATE
Cash and cash equivalents
The cash and cash equivalents and term deposits at 30 September 2008 were approximately US$820m including US$80m set aside for abandonment and decommissioning activities. The increase in the period reflects strong realised oil prices, increased production and lower capital expenditure.
Capital expenditure
Capital expenditure for Q3 2008 and for the 9-month period ending 30 September 2008 was approximately US$65m and US$200m respectively. Of the total capital expenditure to date, 70% was attributable to drilling with the balance spent on infrastructure. Anticipated capital expenditure for 2008 is now forecast at approximately US$300m. Capital expenditure is lower than planned mainly due to administration delays.
Derivative Instruments
At 30 September 2008 the Group's derivative instruments were marked to market resulting in a fair value charge of approximately US$27m compared to US$91m at 30 June 2008. The decrease in the mark to market position principally reflects the volatility in the oil price and its downward trend during Q3 2008. The reversal of the fair value charge of US$91m at 30 June resulted in a credit to the income statement for the period ending 30 September of US$64m.
Realised prices
The realised oil price during Q3 2008 was approximately US$114/bbl. The average realised price of crude for the nine period ending 30 September 2008 was approximately US$110/bbl, 67% higher compared to the corresponding period last year. The Company's realised oil prices achieved a discount of less than 2% to Brent during the year.
CURRENT OPERATIONS AND OUTLOOK
The CIS-Rig 1 and Rig 40 are scheduled to be mobilised to platforms Dzheitune (Lam) 28 and 13 respectively in November 2008. The Iran Khazar Rig will undergo scheduled maintenance work upon completion of well Dzheitune (Lam) A/131 prior to returning to the Dzheitune (Lam) A platform to drill and complete two additional wells.
Major infrastructure projects currently underway include construction of the new Dzheitune (Lam) B platform, the new trunkline, the phase 2 expansion of the CPF and an upgrade of the export facilities. In addition, Dragon Oil is currently reviewing the bids for the lease of up to four jack-up rigs.
Dragon Oil is on track to achieve its targets of drilling eight wells and to reach an average daily production rate of 40,000 bopd by the end of 2008.
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 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).
NB All data on financial, production and sales covers the period from 1 January 2008 to 30 September 2008. All other information including details on operations is up-to-date as at the date of this release.
www.dragonoil.com
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
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.
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