Interim Management Statement

FOR IMMEDIATE RELEASE

21 April 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 January 2011 to date. The financial and production data are for the period from 1 January to 31 March 2011. All other information, including details on operations, is up-to-date as at 20 April 2011.

Key highlights for 1Q 2011

- Three new wells were put into production in the period from 1 January 2011 to date;

- The average daily production rate was approximately 57,800 barrels of oil per day ("bopd") in 1Q 2011; and

- Capital expenditure on infrastructure and drilling was approximately US$74 million for 1Q 2011.

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"Dragon Oil had a strong first quarter with a very solid production performance. A number of significant projects are being progressed this year to support our continued development of the Cheleken Contract Area, including two wellhead and production platforms and a gathering station. At the same time we are planning ahead for additional platforms to be installed in both the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields as well as related connecting pipelines and onshore infrastructure."

INTERIM MANAGEMENT STATEMENT

OPERATIONAL UPDATE

Production

Gross field production for 1Q 2011 averaged approximately 57,800 bopd (1Q 2010: 47,600 bopd). Following the transition over to the 30-inch trunkline from the two 12-inch pipelines used before we have seen the exit rate of over 57,000 bopd maintained throughout the first quarter of this year. The level was further supported by the solid initial test rates from the two wells put into production at the end of March 2011, the Dzheitune (Lam) 28/152 and B/153.

The entitlement production for 1Q 2011 was approximately 53% (1Q 2010: 50%) 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. Higher entitlement barrels in 1Q 2011 are due primarily to higher development expenditure partly offset by higher realized crude oil prices as compared to 1Q 2010.

Marketing

Dragon Oil sold 2.6 million barrels of crude oil in 1Q 2011 (1Q 2010: 2 million barrels), which is 30% higher than the volume sold during the corresponding period last year. In 1Q 2011, Dragon Oil exported all (1Q 2010: approximately 14%) of its crude oil production through Baku, Azerbaijan. In the first half of 2010, Dragon Oil exported crude oil through two routes: via Neka, Iran, under the 10-year swap agreement, which expired in March 2010, as well as via Baku, Azerbaijan. While we have marketing arrangements in place for 2011 to export our crude oil via Baku, we retain the flexibility for a proportion of our crude oil output to be exported via other routes should the commercial terms become attractive.

The terms of the current contract are FOB the Aladja Jetty, primarily using the BP-operated BTC (Baku-Tbilisi-Ceyhan) pipeline.

Drilling

Since the beginning of the year, Dragon Oil has completed three wells, the first of which was finished within the 2010 drilling programme. The three wells were in the Dzheitune (Lam) field and completed as dual producers.

The Dzheitune (Lam) B/150 was drilled to a depth of 3,980 metres by the Iran Khazar rig. The combined initial test rate was 1,622 bopd with the short and long strings testing at 632 and 990 bopd, respectively.

The Dzheitune (Lam) 28/152 well was drilled to a depth of 3,768 metres by the NIS rig and flew with the initial combined test rate of 3,463 bopd. The short string tested at the initial rate of 2,091 bopd while the initial test result from the long string was 1,372 bopd.

The Dzheitune (Lam) B/153 well was drilled by the Iran Khazar rig to a depth of 3,668 metres. The combined initial test result was 2,428 bopd: the short string tested at the initial rate of 1,080 bopd with the long string testing at 1,348 bopd.

The NIS and the Iran Khazar rigs are currently drilling the next two wells, the Dzheitune (Lam) 28/154 and B/155 development wells.

We have signed a two-year extension for the use of the Iran Khazar rig and we are currently negotiating an extension of the contract to use the NIS rig to cover drilling of up to five wells in 2011.

The new build Super M2 jack-up rig, to be delivered in 4Q 2011 and leased on a long-term basis, is being assembled in the ship yard in Astrakhan, Russia to facilitate the delivery of the rig into the Caspian Sea, a practice common for drilling rigs and large structures, such as platforms, given that the Caspian Sea is land-locked.

Reserves and resources

Based on the results of the recent assessment by an independent energy consultant, the Group has upgraded its reserves to 639 million barrels of oil and condensate at the year-end and 1.6 TCF of gas reserves corresponding to 260 million barrels of oil equivalent. Recognition of gas reserves is based on a plan for development, a reasonable expectation of a market for the expected sales quantities of gas and the availability of infrastructure either in place or planned to be installed. The increase in oil and condensate reserves is due to increased reserves in the Dzheitune (Lam) West area and the additional condensate, which will be stripped from the gas once the Gas Treatment Plant is constructed and becomes operational.

Infrastructure

In 2010, Dragon Oil awarded some US$200 million-worth of infrastructure projects. The main projects to be progressed this year are the construction of two wellhead production platforms, a 100-tonne crane vessel and the Dzheitune (Lam) Block I gathering station.

The construction of two wellhead platforms is progressing as planned. The Group has allocated land in the harbour area to contractors to allow them to fabricate platforms near Dragon Oil's operations. This also helps the Group to monitor the progress of the platform fabrication on a daily basis. 

The Dzheitune (Lam) C platform is being built to support a jack-up rig and will have eight slots for drilling. We expect the platform to be completed in Q4 2011 and to be installed in the western part of the Dzheitune (Lam) field between the Lam B and Lam 28 platforms. From this location, the drilling programme will target reserves beyond the reach of the two existing platforms.

The Dzhygalybeg (Zhdanov) A platform will be the first new platform installed by Dragon Oil in the Dzhygalybeg (Zhdanov) field since Dragon Oil became the operator in the Cheleken Contract Area in 2000. It will support either type of rig, a land or jack-up rig with eight slots for each, and comprise an accommodation facility. Up to eight wells will be drilled from this platform; and depending on the results from the first few wells additional eight wells may be drilled to extend the drilling programme from this platform. The platform is to be installed in the eastern part of the Dzhygalybeg (Zhdanov) field.

Within our plans for aggressive development of the Cheleken Contract Area, we are planning additional platforms to be built in both fields, the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) in the next two-three years.

We anticipate the delivery of a 100-tonne crane vessel in Q4 2011, which will be employed for drilling and infrastructure projects, adding to our existing operational capabilities.

The Dzheitune (Lam) Block I is being replaced with a new platform, which will act as a gathering station, in order to increase the throughput capacity of the crude oil flow in this part of the field. The platform is expected to be completed in the first half of this year.

As part of the ongoing programme of maintaining and adding to our infrastructure, we are currently upgrading three Dzheitune (Lam) and two Dzhygalybeg (Zhdanov) platforms. Up to six additional slots are currently being added to the Dzheitune (Lam) A platform and we expect to finish this project in Q3 2011. Ten wells have been completed from this platform with an average initial flow rate of above 3,000 bopd per well.

For the onshore facilities, we are currently in the planning phase to build additional storage tanks at the Central Processing Facility to accommodate our growing production.

FINANCIAL UPDATE

Realised prices

With Brent averaging about US$ 105 per barrel, the average realised crude oil price during 1Q 2011 was approximately US$95/bbl (1Q 2010: US$75/bbl), which was 27% higher compared to the corresponding period last year.

Cash and cash equivalents

The cash and cash equivalents and term deposits at 31 March 2011 were approximately US$1,309 million (31 December 2010: US$1,337 million), including US$188 million (31 December 2010: US$174 million) set aside for abandonment and decommissioning activities.

Capital expenditure

Capital expenditure for 1Q 2011 was around US$74 million (1Q 2010: US$67 million). Of this capital expenditure, approximately 46% was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during 1Q 2011 included work on the construction of the two new platforms, the gathering station and the crane vessel, as well as work related to adding slots on the Dzheitune (Lam) A platform and upgrading other platforms.

Capital expenditure on infrastructure in 2011 is expected to amount to US$250 million as the projects mentioned above are progressed through the year.

MATERIAL EVENTS

Dividend in respect of 2010

The Board of Directors of Dragon Oil recommended the payment of a full-year maiden dividend of US cents 14 per share in respect of 2010 in recognition of the Group's solid performance, strong financial position and cash generation abilities.

The dividend will be paid on 27 May 2011 to shareholders on the register as of 3 May 2011 subject to shareholder approval at the forthcoming Annual General Meeting to be held on 18 May 2011 at the London Hilton Hotel. In subsequent years, the dividend will be split between an interim and final dividend and paid approximately half-yearly.

The following is the dividend timetable for the shareholders' information:

21 February 2011: Declaration of final dividend

27 April 2011: Ex-Dividend Date

3 May 2011: Record Date

18 May 2011: Annual General Meeting

27 May 2011: Dividend Payment Date.

Management appointment

Dragon Oil is pleased to announce that Hussain Al Ansari has been appointed Chief Operating Officer; he joined Dragon Oil management team in March and is based in Dubai, United Arab Emirates. With a background in Engineering and Projects, Hussain brings with him many years of leadership and experience. He will lead infrastructure Engineering and Projects as well as Health, Safety and Environment functions.

Prior to joining Dragon Oil Hussain worked for Mubadala Petroleum Services Company. He brings 23 years of experience in petroleum industry having worked with ARCO International, ENOC Processing Company LLC, Dolphin Energy and Mubadala Petroleum Services Company. He has wide knowledge of and experience in gas process engineering, process and project engineering support for gas expansion projects and management of terminal safety system upgrade projects. He has a Bachelor's Degree in Chemical Engineering from the University of California at Santa Barbara.

OUTLOOK

The Iran Khazar rig and the platform-based NIS rig, which are contracted until 2Q 2013 and 4Q 2011, respectively, are currently drilling the Dzheitune (Lam) 28/154 and B/155 development wells. We expect to put these wells into production before the end of 2Q 2011. In order to support our drilling campaign for the year ahead, we are also seeking additional leased rigs to our current fleet in addition to the Super M2 jack-up rig on order for delivery in 4Q 2011.

In 2011, our plan is to complete 11 wells within the 2011 drilling campaign, two of which were completed and put into production in March 2011. Rig 40 is currently being prepared for re-deployment on the Dzheitune (Lam) 13 platform in order to drill and complete two wells this year.

We are continuing to monitor the field performance and flow rates following the transition over to the new integrated system comprising the 30-inch trunkline, associated in-field pipelines and the expanded Central Processing Facility. Given the continuing strong flow rates seen in the first quarter of this year, we expect to achieve production growth for this year of up to 20%; while we maintain our medium-term target of 10-15% growth on average per annum in 2011-2013.

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About Dragon Oil

Dragon Oil plc is an 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.

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.