24th Jul 2008 07:00
DRAGON OIL plc (“Dragon Oil” or the “Company”) Trading and Operational Update 37% Increase in Gross Production
Dragon Oil (DGO) issued the following trading and operational update for the interim period ended 30 June 2008. All information referred to in this update is unaudited and subject to further review. Dragon Oil will publish its 2008 interim financial results on 22 August 2008.
Highlights
Operations and Production
37% increase in 1H/08 gross production over 1H/07 with an average rate of 38,482 barrels of oil per day ("bopd") compared to 28,321 bopd in 1H/07
Peak production rate of 43,227 bopd achieved on 1st June 2008
US$170 million, 15 month contract awarded for a new 30-inch, 39.4 km trunkline
4 development wells completed in 1H/08
Dzheitune (Lam) 22/128 well completed in July 2008 with an initial combined production from the two strings of 2,600 bopd
Cash of US$654 million as at 30 June 2008
Strategy and Outlook
Progress the infrastructure investment plan including facility planning for gas utilisation and commercialisation
Pursue value-adding acquisitions, further diversifying Dragon Oil's portfolio
Geophysical and geological studies ongoing in Dragon Oil's non-operated blocks in Yemen
Hussain M. Sultan, Executive Chairman, commented:
"Dragon Oil has delivered another strong performance over the last six months and we are confident of achieving our drilling and production targets for 2008. We see progress on both the drilling programme and the infrastructure investment plan which are key to delivering increasing oil production and monetising the gas resource in the Cheleken Contract Area. In addition, we are continuing to seek acquisitions that would increase the diversity of Dragon Oil's portfolio. The Company is wholly committed to achieving long-term growth and profitability for all its stakeholders."
Trading and Operational update
Production and marketing
The 1H/08 gross field production from the Cheleken Contract Area was an average of 38,482 bopd, a 37% increase over the 1H/07 production average of 28,321 bopd. Of this, Dragon Oil's entitlement was 20,850 bopd (1H/07: 21,062 bopd). Dragon Oil's entitlement barrels are dependent amongst other factors on operating and development expenditures and realized crude oil prices. As a result of the fiscal terms of the Production Sharing Agreement, Dragon Oil's entitlement barrels in the current period was 54% (1H/07: 74%) of the gross field production.
Dragon Oil sold 3.5 million barrels of oil in 1H/08 (1H/07: 3.5 million barrels) and held low crude oil inventory at period end having resolved logistical constraints. The average realized price in 1H/08 was approximately US$108 per barrel (1H/07: US$61 per barrel).
Dragon Oil hedged 3.8 million barrels comprising a proportion of the total 2008 production using zero cost collars, with oil price floors at US$45 per barrel and a ceiling price averaging US$102 per barrel. These derivative instruments produced an opportunity loss of approximately US$91 million comprising of settlement obligations for 1H/08 and mark to market for the balance quantities, resulting from the exceptionally high crude oil prices. The Company continues to review its hedging strategy in light of market conditions. No hedges have been undertaken for the period beyond December 2008.
The Company continues to market approximately 80% of its crude oil through Neka in Iran as it is stable and continues to offer Dragon Oil the highest netback on its crude. In addition, the Company markets the balance of its crude through Baku, Azerbaijan in order to maintain a good level of marketing flexibility. Dragon Oil has arrangements in place to export its entire crude oil entitlement to Baku immediately should the need arise.
Drilling
Four development wells were completed during 1H/08, two from Dzheitune (LAM) 22 platform (L22/124 and L22/126) and two from the new Dzheitune (Lam) A Platform (LA/125 and LA/127).
The CIS 1 platform-based rig completed the Dzheitune (Lam) 22/128 well on 12th July 2008 with an initial combined production from the two strings of 2,600 bopd with optimisation of the well to follow. The CIS 1 Rig is now preparing to drill development well Dzheitune (Lam) L22/130, which has a target depth of 3,840 metres and is expected to come on production in October 2008.
The Iran Khazar jack-up drilling rig is now drilling development well Dzheitune (Lam) A/129 which has a target depth of 4,212 metres and is scheduled for completion in August 2008.
In addition, the Company is continuing to refurbish its own platform-based Rig 40 for commencement of drilling operations from the refurbished Dzheitune (Lam) 13 Platform from Q4/08.
Yemen Geological and geophysical evaluations are currently underway on all three blocks (R2, 49 and 35) in our non-operated acreage in Yemen. Drilling will commence on additional prospects in Block 35 in 2009. Capital Expenditure Programme Dragon Oil recently awarded a US $170 million, 15 month contract for the engineering, procurement and installation of a new 30-inch, 39.4 km trunkline, which will transport all the oil and gas produced to the Company's processing facility.
Dragon Oil continues to make progress with its other major infrastructure development projects including the construction of additional wellhead platforms and refurbishment of the crude oil export jetty.
The Company is tendering for the Front End Engineering Design for the gas monetisation project and for phase 2 of the NPF which will enable a production capacity of up to 100,000 bopd and 180 mmscfd of gas. The Company has also tendered for up to four new jack-up rigs intended to partially replace the current hired rigs.
The robust balance sheet reflecting zero debt and a cash balance of approximately US$654 million at 30th June 2008 is expected to adequately support the planned capital expenditure for field development.
Outlook
Dragon Oil continues to make good progress with the field development plan and the infrastructure investment programme. The management team is confident that the Company will achieve its drilling and production targets for 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).
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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