Interim Management Statement (3556B)

TIDMDGO

RNS Number : 3556B

Dragon Oil PLC

16 April 2012

FOR IMMEDIATE RELEASE

16 April 2012

Dragon Oil plc

(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 January 2012 to date. The financial and production data are for the period from 1 January 2012 to 31 March 2012. All other information, including details on operations, is up-to-date as at 16 April 2012.

Key highlights

-- Five new wells were put into production, including one sidetrack, for the period from 1 January 2012 to date;

-- The average daily production rate in 1Q 2012 was approximately 70,600 barrels of oil per day ("bopd");

-- Capital expenditure on infrastructure and drilling was approximately US$84 million in 1Q 2012; and

-- Dragon Oil has become a full participating member of the Bargou Joint Venture in Bargou Exploration Permit, offshore Tunisia.

Dr Abdul Jaleel Al Khalifa, CEO, commented:

"We have maintained a strong level of gross production in the first quarter of this year, supported by solid performance from the Dzheitune (Lam) area and good progress of the drilling programme. Strong initial flow rates from the Dzheitune (Lam) C/167 well prove the prolific nature of the Dzheitune (Lam) C platform location.

"A number of wells are scheduled to be completed before the end of the year giving us confidence in our guidance for gross production growth of 15% for 2012.

"We have commenced tendering for a significant number of projects, including new wellhead and production platforms and associated pipelines, drilling rigs, onshore infrastructure. The Group has also received the approval to start tendering for the Gas Treatment Plant."

INTERIM MANAGEMENT STATEMENT

OPERATIONAL UPDATE

Production and Entitlement

Gross field production for 1Q 2012 averaged approximately 70,600 bopd (1Q 2011: 57,800 bopd). This represents a 22% increase compared to the level of gross production in the first quarter of last year and a 15% increase over the 2011 average production, measured at observed temperature. Four new development and appraisal wells with good results were put into production in 1Q 2012, including a sidetrack of an existing well.

The entitlement production for 1Q 2012 was approximately 44% (1Q 2011: 53%) 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. Lower entitlement barrels in 1Q 2012 arise from operation of fiscal terms of the Production Sharing Agreement and are due primarily to higher realised crude oil prices offset by marginally higher development expenditure.

Marketing

Dragon Oil sold 3.6 (1Q 2011: 2.6) million barrels of crude oil in 1Q 2012, which is 38% higher than the volume sold during the corresponding period last year. In 1Q 2012, Dragon Oil exported all (1Q 2011: 100%) of its crude oil production through Baku, Azerbaijan primarily using the BP-operated BTC (Baku-Tbilisi-Ceyhan) pipeline. The Group was in an overlift position of approximately 0.8 million barrels at the end of 1Q 2012 (31 December 2011: underlift 0.05 million barrels).

Drilling

Since the beginning of the year, Dragon Oil has completed five wells, including a sidetrack of an existing well, in the Dzheitune (Lam) field. A sidetrack of an existing well is an efficient way to drill a new well via re-entering and then deviating from an existing wellbore with drilling equipment to access reserves from alternate zones or pools of hydrocarbons.

 
 Well      Completion   Depth (metres)   Type of completion   Initial test 
                 date                                          rate (bopd) 
 13/140A      January            2,237               Single          2,123 
 A/165        January            3,060                 Dual          2,272 
 28/166      February            2,810               Single          1,975 
 C/167          March            2,765                 Dual          3,396 
 13/168         April            2,791               Single          1,008 
 

Three new development wells are currently being drilled in the Dzheitune (Lam) field: 13/171, 28/169 and C/170, by two platform-based rigs and a jack-up rig, respectively.

The delivery of the new build Caspian Driller jack-up rig is being delayed by subcontractor issues and is expected towards the end of 2012 and, as such, the rig is scheduled to be ready for drilling in 1Q 2013. The rig is to be leased on a long-term basis: five years with an option to extend the lease for a further two years.

In order to support our drilling campaign for the years ahead, we are seeking to lease additional platform-based rigs. We are currently tendering for two land rigs with an aim to secure at least one by the end of the year. Subject to mobilisation time, the new rig is expected to be ready for drilling in 1Q 2013.

Dragon Oil has commenced the tendering process for up to two new build jack-up rigs. The construction phase is expected to take between two to three years after the contract award. We anticipate being able to award the contracts towards the end of 2012.

Infrastructure and Facilities

Infrastructure projects include construction and installation of additional platforms for drilling new development wells, in-field pipelines, facilities upgrade to cater for future growth in production.

The Dzhygalybeg (Zhdanov) A platform is expected for delivery by the end of this year and we estimate it will be ready for drilling in 1Q 2013. Work on the Dzhygalybeg (Zhdanov) B platform is progressing as planned and the platform is expected to be delivered and ready for drilling in 1H 2013.

Completion of the Dzhygalybeg (Zhdanov) Block-4 gathering platform and installation of the associated in-field pipelines are expected to be on schedule, in the second half of 2012. Block-4 will cater for the production from new wellhead and production platforms in the Dzhygalybeg (Zhdanov) field, specifically the Dzhygalybeg (Zhdanov) A and B in the near future.

For the construction of the Dzheitune (Lam) D and E platforms, Dragon Oil conducted a pre-bid conference meeting with top international service contractors in the course of which the senior management outlined the Group's organic growth plans for the medium term. The meeting was held to attract quality contractors and suppliers to the Caspian region and to help mitigate the Group's operational risks.

The tendering processes to select contractors to build and install the Dzheitune (Lam) D and E platforms and associated pipelines have commenced and we expect contracts to be awarded by the end of 2012. These platforms will be suitable for drilling with a jack-up rig with eight slots each initially.

Dragon Oil will start later this year the next cycle of tendering for additional new wellhead and production platforms to be installed in the Dzheitune (Lam) field in 2014-2015.

Separately from the platforms construction project, international contractors will build a fabrication yard for Dragon Oil in the Hazar harbour area, Turkmenistan, with an expanded load-out capabilities, related facilities, berths, etc. due to be completed by the end of 2013.

Later this year, we will start the tendering processes to award contracts for the construction and installation of the Dzheitune (Lam) F, G and H platforms and associated pipelines. The Dzheitune (Lam) F platform will be built for drilling with a platform-based rig with initially 16 slots, while the Dzheitune (Lam) G and H platforms will be suitable for the deployment of a jack-up rig and will have eight slots each. We anticipate being able to award contracts for the construction of these platforms in early 2013.

In 1Q 2012, a contract has been awarded for a Front End Engineering Design Study of another trunkline to transport oil and gas production onshore to plan for production growth beyond 2015 subject to an outcome from the water injection pilot in the next two-three years, initial flow rates in the Dzhygalybeg (Zhdanov) field and overall performance from the area.

Over the next two to three years, Dragon Oil will undertake major works to perform berths upgrade, channel dredging and breakwater construction at Aladja Jetty and in the harbour area in order to enhance the Group's operational and crude oil loading capacity.

The Group is planning to triple its crude oil tank storage capacity at the Central Processing Facility for which a Front End Engineering Design study is currently being undertaken.

Gas Monetisation

In 2011, we reduced flaring of gas by over two thirds after we commissioned the pipeline connecting our Central Processing Facility to the Turkmenistan government's compressor station and the subsequent commissioning of the compressor station in the second half of last year. At the moment, a major portion of the unprocessed gas is being fed into the compressor station.

We have secured the approval to start the tendering process for an Engineering, Procurement, Installation and Construction project for the Gas Treatment Plant. The processing capacity of the plant is expected to be 220 mmscfd of gas, which should allow us in the future to strip around 2,000 barrels of oil equivalent per day of condensate and blend our share of condensate with our entitlement share of crude oil. The split of the produced condensate is subject to the same terms under the Production Sharing Agreement as crude oil.

We anticipate the construction phase to take two to three years to complete after the contract is awarded.

We continue to discuss with the Government of Turkmenistan a range of options for the monetisation of gas, including a long-term gas sales agreement, targeted towards export markets.

Diversification

In late 2011, Dragon Oil signed a farm-in agreement with a wholly owned subsidiary of Cooper Energy Limited through which Dragon Oil is to earn a 55% participating interest in the Bargou Exploration Permit, offshore Tunisia. We have recently received an approval from the Tunisian Hydrocarbons Consultative Committee for the farm-in agreement and for Dragon Oil to become a fully-fledged participating member in the Bargou Joint Venture.

Preparations for the drilling of the Hammamet West-3 well in the Hammamet West Oil Field in the Bargou Exploration Permit have progressed with a contract for the well management services having been recently awarded to AGR Petroleum (ME) Ltd - Dubai. The drilling of the Hammamet West-3 well is scheduled to commence in 4Q 2012. Dragon Oil is to contribute 75% of the cost to drill the Hammamet West-3 well, according to an agreed well plan scope, up to a cost cap of US$26.6 million (on a 100% basis). If the well cost exceeds US$26.6 million, costs in excess of this amount will be shared among the joint venture partners pro rata to their participating interest. The well plan consists of a pilot hole followed by a slanted or horizontal section to intersect the fractures within the Abiod formation thereby increasing the flow potential of the reservoir.

In Iraq, Dragon Oil has been pre-qualified to participate in the fourth round of bidding (due to take place in 2Q 2012). We are looking at partnering opportunities ahead of this bidding round.

Dragon Oil continues to screen and evaluate targets that fit our criteria within Africa, Central Asia, the Middle East and selectively South-East Asia in order to build a portfolio of assets for the Group.

FINANCIAL UPDATE

Realised prices

With Brent averaging about US$118 per barrel, the average realised crude oil price during 1Q 2012 was approximately US$107/bbl (1Q 2011: US$95/bbl), which was 13% higher compared to the corresponding period last year.

Cash and cash equivalents

The cash and cash equivalents and term deposits at 31 March 2012 were approximately US$1,652 million (31 December 2011: US$1,527 million), excluding the funds set aside for abandonment and decommissioning activities.

Capital expenditure

Capital expenditure for 1Q 2012 was around US$84 million (1Q 2011: US$74 million). Of this capital expenditure, approximately 48% was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during 1Q 2012 included work on the construction of the two new platforms, the Block-4 gathering platform and the Caspian Driller jack-up rig, as well as work related to upgrading existing platforms.

MATERIAL EVENTS

Final dividend for 2011

The Board of Directors of Dragon Oil recommended the payment of a final dividend of US cents 11 per share for 2011; the interim dividend was US cents 9.

The dividend is expected to be paid on 27 April 2012 to shareholders on the register as of 30 March 2012 subject to shareholder approval at the forthcoming Annual General Meeting to be held on 18 April 2012 at the London Hilton Hotel.

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

21 February 2012: Declaration of final dividend

28 March 2012: Ex-Dividend Date

30 March 2012: Record Date

18 April 2012: AGM

27 April 2012: Dividend Payment Date.

Board and management appointments

Mr Thor Haugnaess was appointed to the Board of Directors on 20 February 2012 as an additional Independent Non-executive Director. Mr Haugnaess has been working in the upstream oil and gas industry for over 25 years, predominantly within the oilfield services with the Schlumberger group of companies in a variety of management roles. Between 2003 and 2006, Mr Haugnaess was the President for the Norwegian drilling contractor, Ocean Rig ASA, which was listed on the Oslo Stock Exchange. Mr Haugnaess has a Master's degree in petroleum engineering from the University of Trondheim (NTNU) in Norway.

Mr Ali Al Hauwaj was appointed Exploration Manager to head Dragon Oil's exploration team and develop the Group's exploration expertise in line with the Group's strategy. Prior to joining Dragon Oil, Mr Al Hauwaj worked for Saudi Aramco for over 30 years and for the last seven years as Manager of Exploration Department. His exploration skills had been critical in discovering many oil and gas fields in both Central and Eastern parts of Saudi Arabia, including a number of gas fields discovered onshore and offshore.

OUTLOOK

For 2012, we maintain our target to achieve a 15% increase in gross production on the basis of 13 new wells, including two sidetracks of existing wells, to be put into production during the year, as well as a number of workovers. The details of the remaining drilling programme for 2012 are as follows:

-- Our own platform-based rig is working on the Dzheitune (Lam) 13 platform: it has completed a new 13/140A well, a sidetrack, and the 13/168 well; it is currently drilling the 13/171 well and after that it is scheduled to drill one more sidetrack;

-- The leased platform-based rig has completed the Dzheitune (Lam) 28/166 well and is now drilling the Dzheitune (Lam) 28/169 well; then it will drill up to two more wells in 2012;

-- The jack-up rig has completed the Dzheitune (Lam) A/165 and C/167 wells and is currently drilling the Dzheitune (Lam) C/170 development well; after that well the rig is due to complete two more wells before the end of the year.

Over the 2012-15 period, we expect to maintain an average production growth rate of 10%-15% per annum, taking our gross field production to a level of 100,000 bopd in 2015 with the aim of maintaining this level for a minimum period of five years thereafter. Delivery of the production targets, including the attainment of this sustainable production level is supported by a development plan that envisages the deployment of up to three jack-up rigs, additional platform-based rigs, construction of new platforms and execution of a range of key infrastructure projects.

The infrastructure spend in 2012 is expected to amount to US$250-300 million, while the overall infrastructure capex for 2012-15 is likely to surpass US$1 billion. A similar amount is expected to be spent on drilling activities up to 2015.

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For further information please contact:

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Anna Gavrilova

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Kate Lehane

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-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.

This information is provided by RNS

The company news service from the London Stock Exchange

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