Dragon Oil issues trading and operational update

All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2007 preliminary financial results on 5th March 2008.

Highlights

Operations and Production

• 56% increase in 2007 gross production over 2006, with an average rate of 31,997 barrels of oil per day ("bopd") compared to
• Average 2H/07 production of 35,613 bopd up from 28,321 bopd in 1H/07, an increase of 26%
• A record exit production for 2007 of 40,038 bopd (2006: 27,353 bopd).
• 6 development and 1 appraisal wells completed in 2007 (2006: 4 wells)
• 6 workovers successfully completed in 2007 adding 2,000 bopd to production
• Commissioning of LAM A Platform and 50,000 bopd onshore processing facility
• Dzheitune (Lam) 22/124 well was completed in January 2008 with initial production from the two strings of 2,414 bopd. Further optimisation to be completed.

Strategy and Outlook

• Accelerate 2008 development programme subject to rig availability
• Significant infrastructure renewal and upgrade ongoing in Cheleken
• Ongoing discussions and facility planning for gas utilisation and commercialisation
• Exploration drilling ongoing in Yemen following the December 2007 farm-in agreement
• Pursue value-adding assets, further diversifying Dragon Oil's portfolio

Hussain M. Sultan, Chairman and CEO of Dragon Oil, commented:

"Dragon Oil has delivered a strong overall performance in 2007 highlighted by exceeding our peak production target of 40,000 bopd ahead of plan, further strengthening the field infrastructure and taking a first important step in our planned geographic diversification. I am also pleased to report that the CIS 1 Rig has completed the LAM 22/124 well which is in line with our strategy to bring into operation additional rigs in 2008. I hope to see Dragon Oil raise production by an additional 25% by the end of 2008, and I am confident that we can continue to capitalise on this success to drive future growth and increase shareholder returns."

Trading and Operational update

Production and marketing

Total 2007 gross field production from the Cheleken Contract Area was 11.7 million barrels of oil with an average 2007 gross production of 31,997 bopd. This compares to 7.5 million barrels of oil in 2006 and an average gross production of 20,514 bopd. The average sales price in 2007 was $70.9 per barrel (2006: US$ 61.3 per barrel).

Dragon Oil hedged 3.7 million barrels of 2007 production and 3.8 million barrels of 2008 production on a zero cost basis, by using collars. Dragon Oil has met its obligations for the November and December 2007 hedged quantities. The Company will continue to review its hedging strategy in the light of market conditions.

Drilling and workover

Six development wells were completed during 2007, one from the upgraded Dzheitune (Lam) 13 platform (L13/118), one from the upgraded Dzheitune (Lam) 21 platform (L21/117) and four from the new Dzheitune (Lam) A Platform (LA/119, LA/121, LA/122 and LA/123). In addition, one development/appraisal well has been drilled from the upgraded Dzheitune (Lam) 28 platform (L28/120). The L28/120 well proved the presence of hydrocarbons and a high quality reservoir in the Dzheitune (Lam) West area and was completed as a producer.

In addition, six wells have been worked over from two platforms using a combination of rigless wireline and hydraulic workover operations. The workover programme was successful and achieved incremental production in excess of 2,000 bopd.

Two major projects were completed, namely the Dzheitune (Lam) 'A' wellhead and production platform that was commissioned in 4Q 2006, as well as the 50,000 bopd onshore New Processing Facility ("NPF") which accepted first oil in March 2007.

Current operations and 2008 outlook

Turkmenistan

The 'Iran Khazar' rig is now drilling the fifth development well from the Dzheitune (Lam) A platform, LA/125, which is scheduled to be completed in March 2008. This well has a target depth of 4,390 metres. The CIS 1 Rig completed the Dzheitune (Lam) 22/124 well on 9th January 2008 with initial production from the two strings of 2,414 bopd with optimisation of the well to follow. The CIS Rig is preparing to drill its second development well, L22/126. In addition, the Company is continuing to refurbish its own drilling rig, Rig 40, for the commencement of drilling operations from the refurbished Dzheitune (Lam) 13 Platform.

Dragon Oil continues the major infrastructure development programme, which includes the construction of additional wellhead platforms, expansion of the NPF, refurbishment of the crude oil export jetty and continued upgrade of existing infrastructure.

In line with its commitment to commercialise the gas resources within the Cheleken Contract Area, Dragon Oil has completed feasibility and design studies. Subject to the necessary approvals, the Company plans to install new offshore and onshore facilities, which will include a 30-inch offshore trunk pipeline to transport the gas and oil onshore. Discussions with the Government of Turkmenistan are ongoing.

Yemen

An exploration drilling programme on our non-operated acreage in Yemen is currently underway with drilling taking place in Blocks 49 and R2. Drilling will commence on additional prospects in Block 35 once drilling has been completed in Blocks 49 and R2.