Trading Statement

22 July 2010

(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 and production company, today issues the following trading statement, which includes an operational update and financial highlights for the six-month period ended 30 June 2010. All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2010 Interim financial results on 9 August 2010.

Key highlights

Operational update

§ 8% increase in average daily production rate at 46,420 barrels of oil per day ("bopd") in 1H 2010 compared to 42,808 bopd in 1H 2009;

§ Six new development wells, three workovers and one sidetrack completed to date this year;

§ Contract awarded for the lease and management of a new Super M2 jack-up rig to be deployed in Q4 2011;

§ Contracts awarded for the construction of two new platforms, Dzheitune (Lam) C and Dzhygalybeg (Zhdanov) A to be completed in Q4 2011 and Q1 2012 respectively;

§ Marketing arrangements in place for significant volumes of crude oil through Baku, Azerbaijan.

Financial update

§ Capital expenditure on infrastructure and drilling amounted to US$174 million for 1H 2010, (1H 2009: US$155 million);

§ The Group's cash balance at 30 June 2010 was US$1,155 million (31 December 2009: US$1,138 million); unleveraged position maintained.

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"Although average production for 1H 2010 was below our expectations due to certain infrastructure issues, we are confident that these are being successfully overcome. In addition, the new marketing arrangements provide us with a secure and reliable export route for our entitlement barrels for the year ahead.

Good progress has been made in the development of our infrastructure to support our long-term drilling programme. This includes the award of contracts for the new Super M2 jack-up rig to be delivered next year and two new platforms, Dzheitune (Lam) C and Dzhygalybeg (Zhdanov) A which are due to be completed in late 2011 and early 2012 respectively. We expect to complete a further five new development wells in 2010, bringing us to a total of 11 new wells for the year and, as a result, we are targeting up to 10% production growth for 2010."

OPERATIONAL UPDATE

Production

The average daily production rate on a working interest basis was 46,420 bopd for 1H 2010. This represents an 8% increase over the comparable period in 2009 when the average daily production rate was 42,808 bopd. Production in 1H 2010 has been impacted mainly by infrastructure issues, however the 30" trunkline together with the installation of other infield pipelines and the upgrade of the onshore Central Processing Facility (all due to be completed in 2H 2010) are expected to resolve these issues and provide a strong underpinning for continued production growth.

Marketing

Dragon Oil sold 3.7 million barrels of crude oil in 1H 2010 (1H 2009: 4.9 million barrels), which is 24% lower than the volume sold during the corresponding period last year. This is attributable to lower entitlement barrels during the period and higher crude oil inventory. The entitlement production for 1H 2010 was approximately 55% of gross production compared to 65% for the comparable period in 2009. Entitlement barrels are dependant, amongst other factors, on operating and development expenditure in the period and realised crude oil prices. Notably in 1H 2010, higher crude oil prices, compared to the comparable period in 2009, resulted in lower entitlement barrels.

In 1H 2010, approximately 75% (1H 2009: approximately 90%) of crude oil was exported via Neka, Iran, the "southern route", with the balance exported through Baku, Azerbaijan, the "western route". Since the commencement of its PSA for the Cheleken Contract Area, Dragon Oil has marketed the majority of its entitlement barrels through a crude oil swap agreement with a subsidiary of the National Iranian Oil Company, Naftiran Company Limited ("NICO"). This swap agreement expired on 31 March 2010 and consequently in April 2010 Dragon Oil entered into a short-term swap contract with NICO on a three-month rollover basis on revised terms which expired this month. All operations under the swap arrangement with NICO have now ceased.

On 16 June 2010 Dragon Oil announced a new contract with Socar Trading SA, the trading arm of the State Oil Company of Azerbaijan Republic, for the sale of the Group's entitlement barrels, FOB Aladja Jetty, through the western route. Socar Trading is expected primarily to use the BP-operated BTC (Baku-Tbilisi-Ceyhan) pipeline for exporting the crude oil. Dragon Oil plans to sell the substantial proportion of its production through this route over the contract period. It is expected that the realised net crude oil prices will be less favourable than the historic netback prices generated through the southern route swap arrangement with NICO. For the year to 31 December 2010, Dragon Oil expects to achieve an average realised price in the range of an 8% to 10% discount to Brent. Discount in future years may vary depending on a number of factors and the availability of alternative routes to market.

Dragon Oil is satisfied that the marketing arrangement with Socar Trading provides a secure and reliable export route for its entitlement production with sufficient capacity to satisfy its current anticipated needs. Nonetheless, to gain further access to international markets and maintain flexibility in operations, Dragon Oil continues to review and test alternative routes for exporting its crude oil.

The Group was in an overlift position of approximately 0.6 million (31st Dec 2009: overlift position of approximately 0.2 million) barrels of crude oil remaining unsold at the end of 1H 2010.

Drilling and Infrastructure

Four development wells and three workovers were completed during the first half of 2010. A further two development wells and one sidetrack were completed in July 2010. The following table summarises the results of the six development wells drilled to date this year:

In addition to the Dzheitune (Lam) A/142 well, the Iran Khazar rig, as part of the workover programme for the first half of the year, completed a work-over of the Dzheitune (Lam) A/125 well, yielding an incremental production of 562 bopd, and recently completed a sidetrack of the Dzheitune (Lam) A/129 well, yielding an incremental production of 1,140 bopd. Two wells that had been planned to be sidetracked by Rig 40 on the Dzheitune (Lam) 13 platform were worked over using wireline operations yielding an incremental production of approximately 700 bopd. Production from these wells is planned to be optimised further during the remainder of the year.

Following a successful six-well drilling campaign including the Dzheitune (Lam) 13/143 and Dzheitune (Lam) 13/144 wells, Rig 40 will now be cold-stacked on the Dzheitune (Lam) 13 platform and may be used for some additional workovers in the future.

The Astra jack-up rig has now been demobilised following the completion of its short term contract. The use of the Astra rig remains an option in the future, pending favourable contractual terms and availability.

The platform-based NIS rig which has been contracted for a period of two years up to Q4 2011,, was mobilised to the Dzheitune (Lam) 28 platform where it is drilling a series of development wells, the first of which, Dzheitune (Lam) 28/146, was completed this month.

In the first half of the year, Dragon Oil also announced three new major contract awards, including the lease and management of a new build Super M2 jack-up rig to Yantai Raffles Offshore Ltd which is due to be delivered in Q4 2011. Contracts were also awarded for the construction of two new wellhead and production platforms, Dzheitune (Lam) C and Dzhygalybeg (Zhdanov) A, which will support a total of up to 16 wells and are due to be completed in Q4 2011 and Q1 2012 respectively.

In addition, our two major ongoing infrastructure projects, the new 30" trunk line and Phase 2 upgrade to the Central Processing Facility, made further progress during the first half of the year and are targeted for completion in 2H 2010. The Central Processing Facility Phase 2 is currently at an advanced stage of construction while the key activity of offshore pipe-laying is in progress for the 30" trunk line project.

FINANCIAL UPDATE

Cash and cash equivalents

The cash and cash equivalents and term deposits as at 30 June 2010 was US$1,155 million (31 December 2009: US$1,138 million), including US$155 million (31 December 2009: US$126 million) set aside for abandonment and decommissioning activities.

Capital expenditure

Capital expenditure for 1H 2010 was approximately US$174 million (1H 2009: US$155 million). Of the total capital expenditure, approximately 35% (1H 2009: 53%) was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during the first six months of the year included the ongoing construction of the 30" trunkline and Phase 2 expansion of the Central Processing Facility, both of which are scheduled to be completed during 2H 2010.

Capital expenditure on infrastructure is expected to total approximately US$250 million for 2010 and around US$600-700 million overall for infrastructure projects during 2010-12.

Realised prices

The average realised crude oil price during 1H 2010 was approximately US$75/bbl (1H 2009: US$50/bbl), which was 50% higher compared to the corresponding period last year. The Group's realised crude oil prices achieved a discount of approximately 3% (1H 2009: approximately 2%) to Brent during the first six months of the year.

CURRENT OPERATIONS AND OUTLOOK

Following the recent completion of the Dzheitune (Lam) 13/144 well, Rig 40 will be cold-stacked on the Dzheitune (Lam) 13 platform pending further use. The Iran Khazar rig has completed the sidetrack of the Dzheitune (Lam) A/129 well and is currently undergoing routine inspection prior to commencing further drilling on the Dzheitune (Lam) B platform. This rig is expected to complete a further two wells by year-end. The NIS rig has spudded the Dzheitune (Lam) 28/147 well, which is the second in a series of wells planned for this platform, and is expected to be completed in September 2010.

Dragon Oil is working towards completing 11 new development wells in 2010. The Group expects to be able to achieve an average production growth of 10-15% per annum over the three year period of 2010-12.

Discussions with the Turkmenistan Government continue regarding the commercialisation of our gas resources are ongoing. Also, in line with our diversification strategy, we continue to evaluate potential investment opportunities in our core focus areas of the Caspian Sea region, the Middle East and Africa.

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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 (+44 20 7647 7804)

Sally Marshak, Investor Relations

Davy (+353 1 679 6363)

John Frain

About Dragon Oil

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.

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 

Note

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.