Interim Management Statement

14 October 2014

(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, development and production company, issues its Interim Management Statement in accordance with the EU Transparency Directive. The statement covers the period from 1 July 2014 to date. The financial and production data are for the period from 1 July 2014 to 30 September 2014. All other information, including details on operations, is up-to-date as at 14 October 2014.

Key highlights 

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"I am glad to report that in 3Q 2014, the average gross production in the Cheleken Contract Area was 8.4% higher compared to a year ago and grew by 9.6% compared to the production level achieved in the first half of this year.

"On the diversification front, September was an eventful month for us. Early that month, we were pleased to announce along with our operating partner Kuwait Energy an oil discovery in the first target, the Mishrif formation, in Block 9, Iraq. Then, Dragon Oil, in partnership with Enel of Italy, was successful in bidding for two exploration blocks in Algeria. This is an achievement in line with our diversification strategy and an entry into yet another North African country known to be rich in hydrocarbon resources and opportunities.

"The Board of Dragon Oil is in detailed discussions regarding a possible offer to be made by Dragon Oil for the issued, and to be issued, share capital of Petroceltic. Any further announcements will be made as appropriate."

INTERIM MANAGEMENT STATEMENT

PRODUCTION

Turkmenistan

Production and entitlement

Average gross field production for 3Q 2014 was 80,510 bopd (3Q 2013: 74,300 bopd), representing an 8% increase over the level reached during the corresponding period in 2013. Six new development wells were drilled of which five were put into production during the third quarter. The average production for September 2014 was 82,540 bopd (September 2013: 74,000 bopd)

The entitlement production for 3Q 2014 was approximately 55% (3Q 2013: 43%) 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. The higher proportion of entitlement barrels in 3Q 2014 is due primarily to higher development expenditure during the quarter and lower realised crude oil prices compared to the corresponding period in 2013.

Marketing

Dragon Oil sold 3.6 million barrels of crude oil in 3Q 2014 (3Q 2013: 3.2 million barrels), which is 13% higher than the volume sold during the corresponding period last year due to increased production. In 3Q 2014, Dragon Oil exported 100% (3Q 2013: 100%) of its crude oil production through Azerbaijan.

Drilling

In 3Q 2014, Dragon Oil completed the following wells in the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields in the Cheleken Contract Area:

\* The development well Dzheitune (Lam) 22/188 was drilled to a depth of 3,276 metres but due to equipment failure has been temporarily suspended and is scheduled for sidetracking later this year.

The current status of the drilling rigs in the Cheleken Contract Area is as follows:

Artificial lift and water injection

The water injection pilot project is progressing in the pilot Dzheitune (Lam) 75 area. The process to acquire water injection facilities to be installed at the Dzheitune (Lam) 10 and 13 platforms is in the evaluation stage with the intention to procure and install these facilities in 2H 2015. The aim of the water injection programme is to maintain pressure, sustain production rates and increase reserves recovery.

Dragon Oil has commissioned the jet pumping system on the Dzheitune (Lam) 13 platform and initial results are encouraging. Additional systems are expected to be received for the Dzhygalybeg (Zhdanov) 60 and Dzheitune (Lam) 10 platforms with a plan for installation and commissioning in 4Q 2014 and 1Q 2015, respectively. The objective of this artificial lift application is to increase production and enhance recovery.

In parallel, Dragon Oil is considering use of electric submersible pumps (ESP) with an aim to commence their application in a pilot in 2H 2015.

Infrastructure

In February 2014, Dragon Oil awarded a contract for the construction and installation of the wellhead and production platform Dzheitune (Lam) E and associated pipelines. Design and detailed engineering work is ongoing. Construction and installation are expected to take two years with the platform being ready in 1H 2016.

The Dzheitune (Lam) F platform (former Dzhygalybeg (Zhdanov) B platform) is being installed offshore in the central part of the Dzheitune (Lam) field and is expected to be completed later this year.

The project to quadruple our crude oil storage capacity at the Central Processing Facility is progressing as planned. The tank farm is anticipated to be completed in 1Q 2016 with three tanks built and commissioned on a priority basis in 2Q 2015.

The process to select a contractor to build another 30-inch trunkline from the Dzheitune (Lam) field to the Central Processing Facility is in the tendering stage. Construction is expected to take two years after the contract is awarded.

Structural strengthening work continues at a number of platforms in the Dzheitune (Lam) field, with new slots being added or planned to allow further drilling from these platforms. Work is ongoing on the Dzheitune (Lam) C, 10, 28, A and B platforms.

Gas Treatment Plant

The bids for an engineering, procurement, installation and construction project of the Gas Treatment Plant are in the evaluation stage. We anticipate the construction phase to take two to three years after the contract is awarded.

EXPLORATION

Iraq

On 10 September 2014, the consortium comprised of Kuwait Energy (70% and operator) and Dragon Oil (30%) reported its first oil discovery at Block 9, Iraq. The successful discovery was at the consortium's first target, the Mishrif formation at 2,700 metres, in its Block 9 exploration well, Faihaa-1. Preliminary tests of the Faihaa-1 Mishrif formation resulted in a flow rate of circa 2,000 bopd of 20 API oil on 32/64" choke. The consortium will conduct more detailed testing on Mishrif towards the end of the year.

The consortium's strategy is to continue drilling activities, exploring deeper horizons and collecting further data, to evaluate the discovery and to define an appraisal plan. De-mining operations on the block are ongoing.

Afghanistan

The consortium, comprising Dragon Oil (40%, operator of Sanduqli block), TP Afghanistan Ltd. (TPAL, 40% and operator of Mazar-i-Sharif block) and the Ghazanfar Group (20%), has awarded contracts for the airborne gravity and magnetic survey; operations are expected to commence in 4Q 2014. The contract to acquire 1,270 kilometres of 2D seismic data has also been awarded with operations expected to commence in 1Q 2015 following the interpretation of the gravity data for final determination of the seismic geometry. Similar activities are ongoing for the Mazar-i-Sharif block.

Egypt

Dragon Oil is conducting a tendering process to select a contractor to perform 3D seismic acquisition over an area of approximately 100km2 in Block 19 East Zeit Bay, offshore the Gulf of Suez, Egypt. In parallel, Dragon Oil is evaluating bids to select a contractor to re-process the exiting 2D seismic data and in the future to process the 3D seismic data to be acquired. Dragon Oil is working closely with the authorities seeking required permits and approvals. The initial exploration period commitment envisages the drilling of two wells.

Tunisia

The joint venture partners (Dragon Oil, 55%; Cooper Energy, 30% and operator; and Jacka Resources Ltd, 15%) continue work on securing a drilling rig to perform Sidetrack-2 of the Hammamet West-3 well in 2015. The estimated cost of Sidetrack-2 is approximately US$35 million of which Dragon Oil will contribute based on working interest in the block.

The Philippines

On 7 July 2014, Nido Petroleum Limited (ASX: NDO) on behalf of SC 63 Joint Venture partners PNOC-EC and Dragon Oil (Philippines SC 63) Limited advised that the Baragatan-1A well did not discover commercial hydrocarbons. The Baragatan-1A well has been plugged and abandoned.

The partners have requested a one-year extension that will bring the expiry of the licence to November 2015 in order to be able to integrate data obtained from the well into a revised geological model. Dragon Oil finds it useful to participate in such post facto analysis.

Algeria

On 30 September 2014, Dragon Oil announced that in partnership with ENEL Trade S.p.A. ("Enel") the Group was awarded two exploration perimeters in Algeria, Tinrhert Nord Perimeter and Msari Akabli Perimeter.

The Tinrhert Nord Perimeter in which Dragon Oil will hold a 70% participating interest and be the operator with Enel holding the remaining 30% is in the Illizi Basin in Eastern Algeria and near a number of producing oil and gas fields. The total area of the perimeter is 2,907 km2. A number of undeveloped discoveries have been previously identified on the perimeter. The commitment during the exploration period includes acquisition and interpretation of 2D seismic data and drilling four wells.

The Msari Akabli Perimeter in which Dragon Oil will hold a 30% participating interest with Enel holding the remaining 70% and serving as the operator is in the Ahnet Basin in South-western Algeria. The total area of the perimeter is 8,096 km2. A number of undeveloped discoveries have been previously identified on the perimeter. The commitment during the exploration period includes acquisition and interpretation of 3D seismic data and drilling three wells.

The contract for the exploration and exploitation of hydrocarbons is expected to be signed inapproximately one month.

CORPORATE DEVELOPMENTS

On 6 October, the Board of Dragon Oil plc noted the announcement by the Board of Petroceltic and confirmed that it is in detailed discussions regarding a possible offer to be made by Dragon Oil for the issued, and to be issued, share capital of the Company (the "Possible Offer") at a price of 230 pence sterling per share in cash.

There can be no certainty that any offer will be made or as to the terms of any offer. A further announcement will be made as appropriate.

FINANCIAL UPDATE

Realised prices

The average realised crude oil price during 3Q 2014 was approximately US$85/bbl (3Q 2013: US$94/bbl), which was 10% lower compared to the corresponding period last year. During the third quarter of 2014, the Group's average realised crude oil prices were at a discount of 16% (3Q 2013: a provisional discount of approximately 15%) to Brent. For the year to 31 December 2014, Dragon Oil expects to achieve an average realised price at about 14-17% discount to Brent.

Cash and cash equivalents

Cash and cash equivalents and term deposits at 30 September 2014 were approximately US$1,882 million (30 June 2014: US$1,859 million), excluding the funds set aside for abandonment and decommissioning activities. The Group has no debt.

Capital expenditure

Capital expenditure for 3Q 2014 was approximately US$171 million (3Q 2013: US$80 million) excluding an additional provision for impairment of US$4.3 million (3Q 2013: nil) towards the Baragatan-1A well exploration and evaluation costs. Of this capital expenditure, approximately 48% was attributable to infrastructure, 46% to development drilling with the balance spent on exploration activities. The infrastructure spend during the period included installation of the Dzheitune (Lam) F platform, construction of the tank farm and additional slots on the Dzheitune (Lam) C, 28 and 10 platforms.

OUTLOOK

In 2014, we expect to drill 16 wells, including a number of sidetracks. Of this total number of wells, 10 wells, including two sidetracks, have already been competed to-date with another six wells to be drilled by the end of the year. The remaining wells will be drilled by

 We expect the average gross production growth from the Cheleken Contract Area to be in the range of 5% to 10% in 2014 with a year-end exit rate of 87,000-90,000 bopd. We maintain our guidance for an exit rate of 100,000 bopd in 2015 and plans to sustain the 100,000 bopd average gross production for a minimum of five years thereafter.

The Group's capital expenditure on infrastructure and drilling in the Cheleken Contract Area for 2014 is estimated at US$600mn. Capex for exploration assets is expected to be under US$100mn in 2014. For 2014-16 the estimated capital expenditure for infrastructure and drilling in the Cheleken Contract Area would be higher at US$2.0 billion on account of increased drilling activity and excluding the expenditure for the Gas Treatment Plant and for exploration assets.

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

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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 and gas producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).

The Group has exploration blocks in Tunisia, Iraq, Afghanistan, Egypt and the Philippines. Dragon Oil's diversification strategy is to add exploration and production assets within Africa, parts of Asia and the Middle East in order to create a diversified and balanced portfolio of assets for the Group.

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.

Citigroup Global Markets Limited ("Citi") is authorised in the United Kingdom by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority and is acting exclusively for Dragon Oil and no one else in connection with the Possible Offer and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Possible Offer and will not be responsible to anyone other than Dragon Oil for providing the protections afforded to clients of Citi or for providing advice in relation to the Possible Offer or any other matters referred to in this announcement.

The Directors of Dragon Oil accept responsibility for the information contained in this announcement. To the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case), the information contained in this announcement is in accordance with the facts and does not omit anything likely to affect the import of such information.

This announcement is not intended to, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities whether pursuant to this announcement or otherwise. The distribution of this announcement in jurisdictions outside Ireland or the United Kingdom may be restricted by law and therefore persons into whose possession this announcement comes should inform themselves about, and observe, such restrictions. Any failure to comply with the restrictions may constitute a violation of the securities law of any such jurisdiction.