Trading Statement

14 January 2014

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

Trading Statement

Dragon Oil plc (Ticker: DGO), an international oil and gas exploration, development and production company, today issues the following trading statement, which includes an operational update, financial highlights for 2013 and the results of the latest reserves assessment for the Cheleken Contract Area. All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2013 full-year financial results on 18 February 2014.

Key operational highlights

Key corporate highlights

Key financial highlights

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"In 2013, we completed 10 wells, which is fewer than what we had planned due to delays in new rigs operations and maintenance of existing rigs. Yet the growth achieved is significant given that we only had one rig for the full year and the other rig for part of the year operational in the Cheleken Contract Area. As a result, average gross production grew by 9.1% to 73,750 bopd.

"The encouraging results from the artificial lift application and initial positive response from the ongoing water injection pilot project have allowed us to achieve a 93% reserves replacement against the year's gross production. In the next couple of years, we will be significantly expanding the application of jet pumps and introducing water injection at a number of platforms.

"As a result of our diversification efforts in recent years, our asset portfolio now includes four exploration assets in Tunisia, Iraq, Afghanistan and Egypt. We continue the search for the right fit value-creative development asset as well as more exploration blocks.

"The 100,000 bopd production target remains in our sights to be reached in 2015 and then we aim to maintain the average daily production of 100,000 bopd as a plateau from 2016 for at least five years. In the coming few weeks, we expect four rigs to be drilling in the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields with two more rigs expected to arrive later in 2014."

OPERATIONAL UPDATE

Turkmenistan

Production

Gross field production for 2013 averaged 73,750 bopd (2012: 67,600 bopd). The 9.1% growth was achieved on the back of 10 wells, including one sidetrack, completed during 2013.

The entitlement production for 2013 was approximately 44% (2012: 48%) of the gross production. 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 lower proportion of entitlement barrels in 2013 is primarily due to the lower capital expenditure despite lower realised crude oil prices.

Marketing

Dragon Oil sold 11.5 million barrels of crude oil in 2013 (2012: 11.6 million barrels). The marginally lower volume sold over the previous year is mainly due to lower entitlement offset by higher production.

In 2013, Dragon Oil exported 100% (2012: 100%) of its crude oil production through Baku, Azerbaijan. We continue to monitor closely alternative marketing routes to ensure access of our share of the crude oil production to international markets in the medium term.

The Group was in an overlift position of approximately 0.1 million barrels of crude oil at the end of 2013 (31 December 2012: overlift position of 0.1 million barrels of crude oil).

Drilling

During 2013, Dragon Oil completed 10 wells, including a sidetrack, in the Dzheitune (Lam) field. The following table summarises the results of this drilling programme:

The initial flow rates from the completed wells vary depending on the depth of completions, maturity of the area and type of completion (a dual or single completion or a sidetrack). The results from the Dzheitune (Lam) 28 single completions were solid and above our expectations, while the single sidetrack came in line with predictions. The Dzheitune (Lam) 21 platform is in a mature area, this fact had predominantly determined lower than desired results.

The results from the Dzheitune (Lam) C platform were mixed with two wells below expectations and two wells strongly above our expectations. The Dzheitune (Lam) C/184 well was drilled between the Dzheitune (Lam) C and B platforms; the location was selected on the basis of seismic data as well as production performance of a neighbouring well. The aim was to delineate this area. The well encountered water in an upper section and will, therefore, be side-tracked in the future. This result does not affect our current development plans for the area nor recoverable reserves attributed to the area. In the future, we expect a variability of initial flow rates from new development wells and will factor this variability into our drilling programmes and production guidance.

Four drilling rigs will become operational in the Cheleken Contract Area in the coming two months. The jack-up rig has been mobilised to the Dzheitune (Lam) B platform to sidetrack the Dzheitune (Lam) B/155 well. The contract for the use of this jack-up rig lasts till May 2015.

The other three rigs are expected to commence drilling in February 2014: the Neptune jack-up drilling rig is being prepared for spudding the Dzhygalybeg (Zhdanov) 21/101 well; the leased platform-based rig ("Land Rig 1") is expected to commence drilling on the Dzheitune (Lam) 22 platform and the contracted platform-based rig ("Land Rig 2") is being prepared to commence drilling the Dzhygalybeg (Zhdanov) A/102 appraisal/development well.

The Neptune rig is available for nine months and will then be released. In its place we expect to take delivery of the Mercury jack-up drilling rig, which is scheduled to arrive into the Caspian Sea in 4Q 2014 and will be available for the remainder of the three-year contract term.

Land Rig 1 is contracted to complete three wells on the Dzheitune (Lam) 22 platform in 2014 and will be released.

Land Rig 2 for drilling on the Dzhygalybeg (Zhdanov) A platform is contracted for two years with an option to extend the contract for another year.

The arrival of the Caspian Driller jack-up rig is expected in mid-2014 due to further delays on the contractor's side. Upon delivery, the lease and management contract is expected to commence for an initial duration of five years, with an option to extend it for a further period of up to two years.

The contracted platform based rig ("Land Rig 3") is expected to arrive in 4Q 2014. The contract is for two years with an option to extend it for another year.

Water injection project and artificial lift

The water injection pilot project is progressing well since its start in June 2013 with continued positive response from the offset wells in the pilot Dzheitune (Lam) 75 area. The reservoir pressure in the pilot area is showing a sustained rising trend, which is encouraging. Preparations are now underway to expand water injection operations to two more platforms during 2014.

We started introducing artificial lift in the form of jet pumps in June 2013. Having installed jet pumps in two wells on the Dzheitune (Lam) 13 platform: 13/118 and 13/168, we have seen a production increase in the range of 500-700 bopd per well. The impact from jet pumps application has, thus far, been encouraging and we plan to expand jet pumps operations to up to 14 more wells during 2014.

Infrastructure

The Dzhygalybeg (Zhdanov) A platform was constructed and installed in 2013; final preparations are taking place to enable the spudding of the Dzhygalybeg (Zhdanov) A/102 in February 2014.

The Dzhygalybeg (Zhdanov) B platform is being relocated to the Dzheitune (Lam) field. The original plan was to drill and test potential from the Dzhygalybeg (Zhdanov) A platform before installing a second platform, the Dzhygalybeg (Zhdanov) B, in the field. Due to delays with the delivery of the Dzhygalybeg (Zhdanov) A platform, the two platforms are ready at the same time. It has therefore been decided to relocate the Dzhygalybeg (Zhdanov) B platform to the Dzheitune (Lam) field, to accelerate production from known areas in that field. The modification work and subsequent installation are expected to be completed in 4Q 2014.

Structural strengthening is planned for four platforms in the Dzheitune (Lam) field, which would allow us to add a number of new slots for drilling from these platforms. Tendering for the construction and installation of a number of additional platforms in the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields is ongoing with a number of awards expected to happen in 2014.

The contract for an engineering, procurement, installation and construction project to quadruple our crude oil storage capacity at the Central Processing Facility was awarded in September 2013 to an international construction contractor. The tank farm is anticipated to be completed in 4Q 2015 with three tanks built and commissioned on a priority basis.

The tendering process to select a contractor to build another 30-inch trunkline from the Dzheitune (Lam) field to the Central Processing Facility is ongoing. The award of the contract is expected in 1H 2014 with construction expected to take two and a half years. The purpose of the additional trunkline will be to transport oil and gas onshore to accommodate production growth and in anticipation of the completion of the Gas Treatment Plant in 2016 to strip condensate. Partial replacement of one of the two existing 12-inch pipelines has been completed and work on the partial replacement of the second pipeline is expected to be completed in 2Q 2014.

The tendering process for an engineering, procurement, installation and construction project for the Gas Treatment Plant is ongoing. The intention is to award a contract in 1Q 2014. We anticipate the construction phase to take two to three years after the contract is awarded.

Reserves and resources

Based on the results of the recent assessment by an independent energy consultant, the 2013 year-end oil and condensate 2P reserves are 675 (31 December 2012: 677) million barrels. As in the previous year, we have added to our oil and condensate reserves, achieving a 93% reserves replacement against the 2013 gross production. Assessment of the ongoing water injection pilot and application of jet pumps have contributed towards the increase in oil and condensate 2P reserves.

The gas 2P reserves are 1.4 (31 December 2012: 1.5) TCF. The gas contingent resources are 1.3 (31 December 2012: 1.4) TCF.

The oil and condensate contingent resources as at 31 December 2013 have increased to 69 (31 December 2012: 59) million barrels. Necessary upgrades of and additions to offshore and onshore infrastructure are planned to allow the conversion of the contingent resources into reserves in the future.

No changes have been made to the estimates of recoverable oil from the Dzhygalybeg (Zhdanov) field, where we believe 15% of the total proved and probable recoverable reserves are contained and initial flow rates are expected to be at around 1,000-1,500 bopd of each well.

Tunisia

Initial production testing of Sidetrack-1 confirmed the presence of open hydrocarbon bearing fractures, but could not be completed due to continuous blockages and obstructions caused by lost circulation material (LCM). The Hammamet West-3 well has been temporarily suspended.

Alternative Sidetrack-2 will be drilled in the Abiod formation from the original Hammamet West-3 wellbore to intersect fractures and to test the formation. Previously employed GSP drilling rig has been released and a new rig is expected to be secured to drill Sidetrack-2 in the near future.

Dragon Oil has contributed 75% of the cost to drill the Hammamet West-3 well, according to an agreed cost cap of US$26.6 million (on a 100% basis). Costs in excess of the cost cap are shared among the joint venture partners pro rata to their participating interest (Dragon Oil 55%; Cooper Energy, 30% and operator; and Jacka Resources Ltd, 15%). The estimated total well cost to-date is US$85 million of which Dragon Oil has contributed approximately US$52 million.

The estimated cost for Sidetrack-2 is approximately US$32mn of which Dragon Oil will contribute on a pro rata basis. 

Iraq

The consortium (Kuwait Energy 70% and operator and Dragon Oil 30%) has secured a drilling rig from the Iraqi Drilling Company (IDC) to spud an exploration well in 1Q 2014.

The work commitment on the block within the initial five-year exploration period will include de-mining, seismic acquisition and interpretation and drilling of an exploration well.

Afghanistan

On 8 October 2013, Dragon Oil announced the formal signing by the Ministry of Mines and Petroleum of Afghanistan of the exploration and production sharing contracts for two blocks, Sanduqli and Mazar-i-Sharif.

The participating interest of Dragon Oil, Turkiye Petrolleri A.O. (TPAO) and the Ghazanfar Group in the two blocks is 40%, 40% and 20%, respectively. Dragon Oil will be the operator of the Sanduqli block while the Mazar-i-Sharif block will be operated by TPAO. The Sanduqli block borders Turkmenistan and Uzbekistan in the north and spans 2,583 km2. The Mazar-i-Sharif block borders Uzbekistan in the north and has an area of 2,715 km2.

Work commitments on the blocks within the initial four-year exploration period will include seismic acquisition and interpretation and drilling of two exploration wells in each block.

Egypt

In November 2013, we were notified by Ganoub El Wadi Holding Petroleum Company (Ganope), one of the main entities of the Petroleum Ministry responsible for all exploration and production activities in the southern part of Egypt, that the Group's offer for Block 19 in the Gulf of Suez, Egypt, had been initially accepted. This acceptance will be final after the approval by the governmental competent authorities. This is a normal process of final government approvals, which will result in an official decree awarding Dragon Oil the block.

Block 19 East Zeit Bay (in which Dragon Oil will have a 100% interest) is located offshore in the prolific southern Gulf of Suez region. The block covers an area of 93 km2 and lies in shallow waters ranging in depth from 10 to 40 metres. A number of producing oil fields are adjacent to or near Block 19, namely East Zeit, Hilal, Ashrafi, SW Ashrafi and Zeit Bay fields. Dragon Oil plans to do seismic acquisition and analysis over an area of approximately 100 km2 and drill two wells during the initial exploration period.

FINANCIAL UPDATE

Capital expenditure

Capital expenditure for 2013 was approximately US$328 million (2012: US$382 million). Of the total capital expenditure, approximately 37% (2012: 58%) was attributable to infrastructure with 46% (2012: 42%) spent on development drilling, the balance was spent on exploration assets. The infrastructure spend during the period included construction of the Dzhygalybeg (Zhdanov) A and B platforms, partial replacement of the existing two 12-inch pipelines, structural upgrades and additional slots on a number of platforms.

Realised prices

Dated Brent for the year averaged approximately US$109 per barrel (2012: US$112 per barrel). The average realised crude oil price during 2013 was approximately US$91/bbl (2012: US$100/bbl), at a provisional 17% (2012: 11%) discount to Brent.

Total revenue for 2013 is expected to be approximately US$1 billion (2012: US$1.2 billion) subject to final audit.

OTHER EVENTS

Board Changes

In March 2013, Mr McCue resigned from the Board of Directors of the Company having served on the Board of the Company for more than 10 years.

Thor Haugnaess temporarily assumed the role of Senior Independent Non-executive Director.

On 2 September 2013, Dragon Oil announced the appointment of Mr Justin Crowley as an Independent Non-executive Director. Mr Crowley is an Audit and Assurance Partner at BDO International specialising in regulated industries, oil and gas industry and other manufacturing and industrial sectors. Mr Crowley is based in Dubai, UAE. Prior to joining BDO International, Mr Crowley had an extensive audit career with PricewaterhouseCoopers as an auditor and with two UK-based mid-tier auditing firms as a Director. His working experience covers external audit services; internal audit, specifically risk management, corporate governance, compliance audit; as well as forensic audit and corporate advisory.

OUTLOOK

Our target is to grow average gross production at between 10% and 15% in 2014. This estimate is on the basis of 14 to 16 wells, including one sidetrack, expected to be put into production given the present and future availability of drilling rigs.

The details of the 2014 drilling programme are as follows:

For the 2014-15 period, we re-iterate our guidance to achieve an average gross production growth of 10% to 15% per annum, allowing us to reach the 100,000 bopd target in 2015 with the aim of maintaining the average daily gross production of 100,000 bopd as a plateau for a minimum period of five years from 2016.

The Group expects to report its 2013 full-year financial results on 18 February 2014.

- end -

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

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 and Afghanistan. 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.