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This statement is solely for the purpose of providing information to the market and it should not be relied upon for any other purpose.
Key highlights
- The average daily production rate reached 43,787 barrels of oil per day ("bopd") in Q1 2009, an increase of 19% over the comparable period in 2008 (Q1 2008: 36,784 bopd);
- Entitlement barrels in Q1 2009 were approximately 65% of the gross field production compared to 56% in Q1 2008;
- Capital expenditure on infrastructure and drilling was approximately $81m for Q1 2009 (Q1 2008: $61m);
- Financial position of the Group with the cash balance of $833m at the end of Q1 2009 continued to be strong with no debt.
Dr Abdul Jaleel Al Khalifa, CEO, commented:
"Dragon Oil continues to increase production and we achieved a 19% increase in the gross production in Q1 2009 compared to Q1 2008. The two wells currently being drilled by Rig 40 and the Iran Khazar rig are expected to be completed and come on stream in May this year and add to the production from the existing wells. We expect to complete eight wells in 2009. The recent extension of the contract for the Iran Khazar rig and good progress in the tendering process for another platform-based drilling rig make us confident in proceeding with our drilling programme."
Material events and transactions
Production
The gross production for Q1 2009 averaged 43,787 bopd. This represents a 19% increase over the comparable period in 2008 when the average daily production rate was 36,784 bopd. The entitlement production for Q1 2009 was approximately 65% of the gross production compared to 56% for the comparable period in 2008. The entitlement barrels are dependant amongst other factors on operating and development expenditure in the period and the realised crude oil price. In Q1 2009, lower oil prices and higher capital expenditure than in the comparable period in 2008 resulted in higher entitlement barrels.
Marketing
Dragon Oil sold 2.5m barrels of crude oil in Q1 2009, which is 108% higher than the volume sold during the corresponding period last year (Q1 2008: 1.2m barrels). During the first two months of 2009, 100% of crude oil was exported via Neka, Iran. The sales of crude oil via Baku, Azerbaijan, resumed in March 2009 after a new crude oil marketing contract was put in place in early 2009.
Dragon Oil continues to assess additional routes to market, including Makhachkala in Russia and the BP operated BTC (Baku-Tibilisi-Ceyhan) pipeline.
Drilling
The Group's platform-based drilling rig, Rig 40, is currently completing the Dzheitune (Lam) 13/133A well; we expect to commence production from this well during the first half of May 2009.
On 9 April 2009, Dragon Oil announced that it had reached an agreement to extend the contract for the Iran Khazar rig for another two years. This rig is to complete the Dzheitune (Lam) 28/134 well and we expect to have this well on production by the end of May 2009.
Corporate restructuring
On 27 March 2009, the Board of Dragon Oil plc announced the proposed restructuring of the Company by means of a scheme of arrangement by putting in place a Bermuda-incorporated company as the new ultimate holding company of the Group. Following the restructuring, the Company will apply for a primary listing on the London Stock Exchange and a secondary listing on the Irish Stock Exchange.
The proposed corporate restructuring is to be implemented by way of scheme of arrangement under Section 201 of the Irish Companies Acts 1963-2006 and needs to be sanctioned by the High Court of Ireland (the "Court"). It will, therefore, be subject, amongst other things, to approval by the Company's shareholders at an extraordinary general meeting, approval by the Company's shareholders at a separate Court-convened meeting and sanction by the Court.
Dragon Oil is currently finalising the shareholder, court and other documentation in relation to the proposed restructuring. It is expected that the required shareholder and court meetings will occur after the annual general meeting and the completion of the transaction is anticipated in H2 2009. A further update on the timetable will be given in due course.
Investigation
On 26 February 2009, Dragon Oil announced that the Group had identified via its Internal Audit Department possible irregularities within the Marketing Department and Contracts Department and, subsequently, had engaged KPMG (Dubai) to conduct an investigation. On 24 March 2009, the Company updated the market on the progress with the investigation and confirmed that there was no material impact on the Group's financial position. The Company will update the market as and when required.
Financial Update
Cash and cash equivalents
The cash and cash equivalents and term deposits at 31 March 2009 were approximately $833m (31 December 2008: $876m), including $106m (31 December 2008: $92m) set aside for abandonment and decommissioning activities.
Capital expenditure
Capital expenditure for Q1 2009 was around $81m (Q1 2008: $61m). Of the total capital expenditure, approximately 65% was attributable to infrastructure with the balance spent on drilling. The infrastructure spend during the first three months of the year included upgrading the processing facility and progressing the construction of the Dzheitune (Lam) B platform and the 30 inch 40km trunkline. Capital expenditure for 2009 is expected to be weighted towards the second half of the year, subject to approvals.
Realised prices
The average realised crude oil price during Q1 2009 was approximately US$44/bbl, which was 52% lower compared to the corresponding period last year (Q1 2008: US$92/bbl). The Group's realised crude oil prices achieved a discount of less than 2% to Brent during the first three months of the year.
Current operations and outlook
The Rig 40 and the Iran Khazar rig are scheduled to complete two wells, Dzheitune (Lam) 13/133A and Dzheitune (Lam) 28/134A, respectively, in May 2009. Rig 40 is expected to drill and complete three wells in total on Dzheitune (Lam) 13 platform by the year-end.
The Iran Khazar rig is scheduled to drill and complete four wells by the year-end. The tendering process for another platform-based drilling rig is continuing. We expect to be able to award a contract in Q2 2009 and we anticipate that the new rig will complete one well by the end of 2009. In total, Dragon Oil is working towards completing eight wells in 2009.
In addition, Dragon Oil is also exploring the possibility of contracting another jack-up rig on a part-time basis before the end of the year.
Posted by Rima Ali Al Mashni
