Dragon Oil: Revenues down 9%

Dragon Oil, an international oil and gas exploration, development and production company, today announces its full-year results for the year ended 31 December 2013. These results are prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

KEY OPERATIONAL AND CORPORATE HIGHLIGHTS

Drilling

– Ten wells completed during 2013, including one sidetrack;
– Average gross daily production increased by 9.1% to 73,750 bopd;
– A new jack-up rig and a platform-based rig arrived to the Cheleken Contract Area increasing the current drilling fleet to four rigs;
– Drilling in the Dzhygalybeg (Zhdanov) field is to commence shortly;
– Water injection pilot is ongoing in the Dzheitune (Lam) 75 area showing positive indications of increased pressure in offset wells; and
– Artificial lift applied to two wells with encouraging results.

Corporate and Commercial Developments

– Marketing arrangements renegotiated in January 2014 with the amended contract in place until 31 December 2014 and realised oil prices are expected to be in the range of a 14%-17% discount to Brent in 2014;
– 93% organic reserves replacement of 2P oil and condensate reserves;
– Contract to build the Gas Treatment Plant is being tendered;
– Sidetrack-2 of the Hammamet West-3 well in Tunisia planned;
– Drilling in Block 9 in Iraq is to commence in 1H 2014;
– Formal contract for two exploration blocks in Afghanistan signed;
– Our offer for Block 19 in Egypt initially accepted;
– Farm-in agreement for an offshore exploration block in the Philippines signed in January 2014; and
– Nigel McCue resigned from the Board in March 2013; Justin Crowley joined the Board in September 2013.

Financial Developments

– The Board recommends the payment of a final dividend of 18 US cents per share for 2013; the full-year dividend for 2013 amounts to 33 US cents (2012: 30 US cents); and
– Cash generating capabilities remained strong: US$0.8bn was generated from operations during 2013.

Outlook for 2014-16

– Expect to complete between 14 and 16 wells, including one sidetrack, in 2014 and around 20 wells in 2015;
– Target annual production growth at the lower end of 10% to 15% in 2014 and between 10% and 15% in 2015-16;
– Achieve the 100,000 bopd production target in 2015 and maintain the average daily gross production of 100,000 bopd as plateau from 2016 for at least five years;
– US$1.5 billion estimated capital expenditure for infrastructure, drilling and exploration assets in 2014-16;
– Execute current projects, including additional oil storage facilities and relocation of Dzhygalybeg (Zhdanov) B platform to the Dzheitune (Lam) field;
– Expect to award contracts for a number of platforms to be constructed in the Cheleken Contract Area, for expanded processing facilities and additional 30-inch trunkline;
– Expect to commence work in operated assets – Afghanistan’s Sanduqli block and Egypt;
– Expect to work with partners on non-operated assets – Tunisia, Afghanistan’s Mazar-i-Sharif block, Iraq and the Philippines; and
– Actively pursue the diversification strategy to add more exploration and development assets to the portfolio.

Dr Abdul Jaleel Al Khalifa, CEO, commented:

“Today we are reporting solid financial and operational results despite difficulties experienced during the year. Revenues albeit down year-on-year by 9% as a result of lower realised oil prices were still above US$1bn. Our cash generating capabilities remain strong with US$0.8bn generated during the year.

“The strength of our balance sheet gives us confidence in achieving our diversification targets. In 2013 and early 2014, we added exploration blocks in Egypt and the Philippines, while we continue to search for the right fit value-creative development asset. We made progress in Iraq and Afghanistan. Difficulties encountered while testing the production flow from the offshore well in Tunisia were a disappointment, but an option to drill a sidetrack to test the formation remains attractive in our view.

“Delays in the arrival of rigs constrained our ability to grow average gross production at a higher rate; nevertheless, the 9.1% growth achieved is a solid result and we are particularly pleased with encouraging results from the artificial lift application and management of production from existing wells. We were also positively encouraged by a good initial response from the water injection pilot. While this programme will take another two to three years to see the full impact on the production flow of the offset wells, the results to-date are such that they have allowed us to book additional 2P reserves.

“2013 saw completion and inauguration of the state-of-the-art polyclinic in Hazar, Turkmenistan. We are proud of this project, which is already contributing to an improvement of the living standards by supplementing medical services provided to the local community, our employees and their families.

“We continue our journey to achieve the 100,000 bopd production target in 2015, which will be maintained as a plateau from 2016. With the mobilisation of rigs, drilling will pick up considerably in the months ahead to enable us to reach this target; at the same time we are embarking on a number of large projects – the new 30-inch trunkline, tank farm, Gas Treatment Plant – having prepared the ground for significant infrastructure expenditure in the medium term.”