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Dragon Oil PLC
27 March 2009
 



FOR IMMEDIATE RELEASE

27 March 2008




DRAGON OIL PLC 

(the "Company" or together with its subsidiaries the "Group" or "Dragon Oil")


2008 Preliminary Results

Another robust set of results and a positive outlook for 2009


Dragon Oil (Ticker: DGO), an international oil and gas exploration and production company, today announced its preliminary results for the year ended 31 December 2008. These preliminary results are prepared in accordance with the International Financial Reporting Standards ("IFRS"). 

Key Financial Highlights for 2008



2008

2007

Change

(US$ millions, unless stated)




Revenue

706

597

18%

Operating Profit

474

365

30%

Profit for the year

369

304

21%

Basic EPS (US cents)

71.8

59.5

21%

Cash balance

876

549

60%

Debt

0.0

0.0

nil


Growing Production

Strengthening Infrastructure

Positive Outlook for 2009-11

Corporate Restructuring of Dragon Oil

Dr Abdul Jaleel Al Khalifa, CEO, commented: 


"I am proud to report that Dragon Oil has achieved another solid set of results in spite of the challenging economic climate towards the end of 2008. We achieved and, in some cases, exceeded our targets; the average daily rate of production increased by a further 28% and nine development wells were completed by the end of 2008. We continue to enjoy full cooperation from the Government of Turkmenistan

"The proposed corporate restructuring of Dragon Oil will help align our corporate interests with our legal and commercial status. Dragon Oil's strong cash position and unleveraged balance sheet will enable us to move towards the next level of development and growth to increase shareholder value."

Analyst meeting and conference call details:

Dragon Oil will host an analyst meeting and conference call today at 9.30am. Please contact Emma Woollaston at Citigate Dewe Rogerson on +44 (0)20 7282 2836 or at emma.woollaston@citigatedr.co.uk for further details. A replay facility of the conference call will be available from 1pm on 27 March 2009 for one week. 


Replay numbers:

 
 
UK
+44 (0)20 7806 1970
Ireland
+353 (0) 1659 8321
USA
+1 718 354 1112

 

 Replay passcode:         4396925#


For further information please contact:


Investor and analyst enquiries
Dragon Oil Plc
Dr Abdul Jaleel Al Khalifa, CEO
Tarun Ohri, Director of Finance
Anna Gavrilova, Communications Officer
On the day of the announcement: +44 20 7647 7800
Thereafter: +971 4 305 3600
Media enquiries
Citigate Dewe Rogerson
+44 20 7638 9571
Martin Jackson
George Cazenove
 

 


Disclaimer

This statement 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. 

Glossary/definitions:    

bopd          barrels of oil per day

US Cents    United States cents

US$          United States dollars

 

 

 

  DRAGON OIL PLC 


2008 Preliminary Results


Message from the CEO


In my first preliminary results statement as Dragon Oil's CEO, I am proud to report that we delivered another year of strong performance and continued growth. The Group further strengthened its balance sheet as a result of increased realised prices, competitive materials and services costs and our long-term strategy to reinvest in the business. We are in a good position to continue delivering on our promises and expanding our operations.


In 2008, we achieved growth of 18% in revenue to US$706 million (2007: US$597 million) and 30% in operating profit to US$474 million (2007: US$365 million) on the back of increased realised prices during last year. We raised the average daily production rate by 28% to 40,992 bopd at the end of 2008, beating our target of a 25% increase. Earnings per share was 21% higher at 71.8 USc than in 2007 (2007: 59.5 USc); net operating cash flow was up 24% at US$579 million (2007: US$467 million); and a 36% increase in capital employed (2008: US$1,442 million; 2007: US1,060 million) was due to higher expenditure in oil and gas interests and an increase in the cash balance at the year-end. The Group's cash equivalents and term deposits at the year-end reached US$876 million. 

In May 2008, I joined Dragon Oil to allow Mr Hussain M. Sultan, the then Executive Chairman, to focus on the Group's strategic activities. In September 2008, after more than nine years with Dragon Oil Mr Sultan left to pursue other business interests. He was replaced by Mr Mohamed Al Ghurair as the Non-Executive Chairman. 

We continue to maintain positive working relationship with the Turkmenistan Government built on many years of successful partnership. 


In 2008, capital expenditure amounted to US$287 million, 60% was used for drilling projects with the remaining balance spent on infrastructure development in Turkmenistan. Dragon Oil awarded contracts and has projects underway to refurbish the Dzheitune (Lam) 28 platform; construct the new Dzheitune (Lam) B platform; build additional tanks at the Central Processing Facility and construct a new 30 inch, 40-km trunkline to bring all the oil and gas onshore. As of March 2009, the Dzheitune (Lam) 13 platform was refurbished and upgraded, and the Group's own Rig 40 was refurbished.


In 2009, we plan to allocate up to US$300 million from internal resources for capital expenditure on infrastructure. The level of capital expenditure is subject to approval of projects under the Group's Production Sharing Agreement in Turkmenistan ("PSA") and the availability of contractors in the Caspian Sea region. We are committed to increasing the annual production rate by up to 15% on average in 2009-11Our plan is to complete eight wells in 2009 taking the total for the years 2009-11 up to 35 development wells. The drilling plan is subject to availability of rigs in the region.


In early 2009, we reported the results of the latest reserves certification for the Cheleken Contract Area with proved and probable (2P) reserves of 645 million barrels of oil and condensate and 3.2 tcf of gas resources as of 30 June 2008. This certification incorporates the results of full field remapping for all the reservoir levels based on the 3D seismic survey conducted from 2004 to 2005. This result confirms our previous interpretation of the field and we can now proceed confidently with the field development plan.


In February 2009, we commenced an investigation into irregularities identified by the Group's Internal Audit Department within the Marketing and Contracts Departments. We were reassured by the preliminary findings from the investigation, which confirmed that there would be no material impact on the Group's financial position. The Board and the management team sought immediate advice from its lawyers and sponsors and have acted, and will continue to act, upon the information available to ensure that the matter is dealt with swiftly and that procurement policies and procedures continue to operate effectively.


Diversification of our asset base remains on top of the Board's agenda. While the horizon of new and interesting opportunities may have broadened in the current market environment of depressed valuations, we continue to take a measured approach to identifying and securing good quality assets. Our focus is on the Middle EastNorth Africa and Central Asia regions where we believe our managerial and operational expertise could add most value. 


I am pleased to report that the Board is proposing a corporate restructuring of Dragon Oil plc by creating a new holding company incorporated in Bermuda. This decision has been reached following an extensive review of the Group's operating structure. This new structure more closely aligns the Group's corporate interests with its legal and commercial status. Upon completion of the restructuring process the Company will have a primary listing on the London Stock Exchange, while maintaining a secondary listing in Ireland.


Operations Overview


The drilling programme in the Group's 100%-owned Cheleken Contract Area continued successfully, delivering a 28% increase in the average daily rate of production to 40,992 barrels of oil over the course of 2008. In early 2008, unusually cold weather was experienced in this area of the Caspian Sea, which temporarily affected operations. In particular, production from Dzheitune (Lam) 28/120 well needed to be shut to enable a new coflex alternative pipeline to be installed. In April 2008, the production from this well was restored to full flow.


Production and Marketing


Gross production during the year reflected a 28% increase over the previous year. Total 2008 gross field production from the Cheleken Contract Area was 15 million barrels of oil with an average daily gross production rate of 40,992 bopd. This compares to 11.7 million barrels of oil in 2007 and an average daily gross production rate of 31,997 bopd. The Group's entitlement barrels are dependent amongst other factors on operating and development expenditures and realised crude oil prices. As a result of the fiscal terms of the PSAthe Group's entitlement barrels in the current period were about 60% (2007: 68%) of the gross field production.  


The Group sold 7.5 million barrels (2007: 8.7 million barrels) of oil in 2008 and held a crude oil inventory of 0.7 million barrels at the year-end (2007: 0.2 million barrels). The quantity sold during the year is lower due to change in the lifting positions and inventory movement. At the year end, the Group was in an underlift position of approximately 0.6 million barrels. The average realised price in 2008 was approximately US$90.8 per barrel (2007: US$70.9 per barrel). The realised oil prices achieved a discount of about 6% to Brent during the year.  


The Group continued to market approximately 80% of its crude oil through Neka in Iran during 2008 because it offered higher netback prices as compared to the western route through BakuAzerbaijanThe Group moved approximately 20% of its crude through Baku in order to maintain marketing flexibility. The Baku route was briefly interrupted for two weeks earlier in the year due to the conflict in Georgia. During that time 100% of production was marketed through the Iranian swap agreement at Neka. The marketing team continues to assess the possibility of opening additional routes through Makhachkala in Russia and the BTC pipeline initiating at Baku


The Drilling Programme


Nine development wells were completed during 2008, four from Dzheitune (Lam) 22 platform (L22/124, 126, 128 and 130) using the CIS Rig 1, four from Dzheitune (Lam) A platform (LA/125, 127, 129 and 131) using the Iran Khazar and one from Dzheitune (Lam) 21 Platform (L21/132) also using the Iran Khazar.  


The drilled depths of the nine wells varied between 3,000m and 4,200m. Except for L21/132, which was completed as a single string completion, the other eight wells were completed as dual completions. Initial tested rates from the nine wells varied between 916 bopd (L21/132) to 4,682 bopd (LA/131).

 

Further perforations were added to three wells in the fourth quarter of 2008 resulting in an incremental production of approximately 2,000 bopd. 


Following refurbishment of the Group's Rig 40, the Group mobilised the rig to begin drilling the first well in January 2009This well was targeted at the Southern flank of the field beyond the fault line and was found to be wet. Therefore, wdecided to sidetrack it in order to reach the planned depth and complete. We expect to complete three wells using Rig 40 by the year-end. 


The Iran Khazar rig underwent planned maintenance and was mobilised to the designated platform to commence drilling. We expect to complete four wells using the Iran Khazar rig by the year-end. The Group has commenced discussions to renew the contract for the Iran Khazar rig, which is due to expire in Q2 2009. 


On March 2009Dragon Oil announced that it had decided not to renew the CIS Rig 1 contract. The management team concluded that a higher specification platform-based rig was more suitable for drilling slanted wells to obtain higher productivity. Subject to contract negotiations, the Group expects to award a contract in Q2 2009 with an intention to complete one well by the end of 2009.


Infrastructure


A number of important infrastructure projects were awarded over the course of 2008.


In July 2008, US$170 million contract was awarded to Petro Gas FZE for the engineering, procurement and installation of a new 30 inch, 40 km oil and gas trunkline. Once commissioned, the trunkline will be capable of transporting all the oil and gas produced offshore in the Cheleken Contract Area to the Group's onshore Central Processing Facility.


Another project integral to the success of the field development plan is the phase 2 upgrade of the Central Processing Facility to handle up to 100,000 barrels of liquid and 220 mmscfd of gas per day. In October 2008, a contract worth US$37 million for the project was awarded to Petro Gas FZE.


Other important projects underway include the phase 2 upgrade of the export facility at the Aladja Jetty to increase loading capability and efficiency and the building of the desalination plant, which is planned to ensure a constant supply of fresh water to the Group's operations as well as to the local community. 


Reserves and Resources


As at 30 June 2008


Proved and Probable Remaining Recoverable Reserves

Oil and Condensate, 

million barrels

Gross field reserves to 1 May 2035

645.1



2C Resources

TCF

Gross Gas Contingent Resources

3.2


Note: Based on the latest reserves certification by an independent energy consultant.


Proved and probable remaining recoverable reserves as at 31 December 2008 on working interest and entitlement basis were 636 million barrels and 296 million barrels, respectively.


Between June 2004 and April 2005, the Group acquired 3D seismic data over an area of 652 kms2 across both the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields. This set of data was then processed and made available for interpretation in the Q4 2005. 


A preliminary interpretation of the time-migrated data set was initiated at that time and the resultant maps were used to position the new Dzheitune (Lam) A platform and to identify the potential for hydrocarbons in the Dzheitune (Lam) West structure. Dzheitune (Lam) West was successfully appraised with the well Dzheitune (Lam) 28/120 and the Group has since drilled eight successful wells from the Dzheitune (Lam) A platform.


Dragon Oil recognised that due to the structural complexity of the fields, the quality of the imaging could be improved with further processing of the seismic data. A full depth migration of the data (Pre-Stack Depth Migration) was conducted, which resulted in a significant improvement in the structural and stratigraphic imaging further improving our understanding of the fields.


This latest reserves update incorporates the results of full field re-mapping, based on this improved dataset. 


Following completion of the gas facilities and a gas sales agreement in the future it is expected that Dragon Oil will be able to confirm the proportion of contingent gas resources that can be transferred to reserves.


Yemen Operations Update


In April 2008, Dragon Oil announced non-commercial findings of crude oil from Block 49 of its three non-operated acreage in the Republic of Yemen. Studies for a possible commercialisation in conjunction with two existing small discoveries on Block 49 are ongoing. Geological and geophysical analysis is continuing on Block 35 in order to identify prospects to be drilled during the current exploration period. Block R2 has been relinquished after two dry holes were drilled in 2007-08.  


Commercialisation of the Gas Resources


Significant strides were made in 2008 towards commercialising Dragon Oil's gas resources in the Cheleken Contract Area. This included award of the contracts for the 40km trunkline project and the phase 2 upgrade of the Central Processing Facility. The Group is looking to award the six-month front end engineering and design contract shortly, following which the engineering, procurement and construction contract for the gas processing facility will be tendered.


Our People


In 2008 Dragon Oil increased its Group headcount by 10% over the previous year taking the average number of staff to 913 during 2008. The Group continues to maintain a very diverse culture in its approach to recruitment and to develop its human resources in line with our growth and diversification strategy.


The Group is increasingly sourcing candidates from within Turkmenistan and this is expected to increase over time as we aim to nurture and encourage skilled local candidates for key roles in a growing Dragon Oil.


One of the focuses in 2008 was recruitment of additional staff into the contracts and purchasing department as well as the engineering and construction department - both are crucial for the proper implementation of the field development strategy and oversight of the extensive infrastructure expenditure programme for 2009. The majority of this recruitment took place in the second half of 2008 and Dragon Oil expects the benefit of this to filter through in 2009 as the major infrastructure projects begin to progress.


The former employees involved in the irregularities identified by the Group's Internal Audit Department have been replaced. The Group's operations are now driven by high-calibre, motivated team of managers.  

  Outlook for 2009-11


We intend to complete eight wells by the end of 2009. Drilling will take place from the Dzheitune (Lam) A platform and from the refurbished Dzheitune (Lam) 28 and 13 platforms.  The Group intends to complete up to 35 development wells in total during the years 2009-11.


The average daily production in 2008 was 40,992 bopd and the exit rate reached at the end of the year was 45,600 bopd. Following the changes to the drilling programme, the Group expects to be able to achieve the annual production growth of up to 15% on average during 2009-11


The Group has an estimated capital expenditure programme for 2009 of up to US$300 million for infrastructure (including platforms, trunkline, upgrades to the Central Processing Facility and the export facilities). These expenditures will be internally funded. For the planning period of 2009-11, the total spending on infrastructure projects is expected to be around US$700-800 million. The level of capital expenditure is subject to approval of projects under the PSA and the availability of contractors in the Caspian Sea region. The amount of capital expenditure for drilling is mainly determined by the number of wells drilled. The progress of the drilling programme is dependent on availability of rigs.


For gas development, we envisage capital expenditure in the range of US$200-250 million for the onshore Gas Treatment Plant including facilities.


Financial Summary

An 18% growth in revenue and a 30% growth in operating profit were generated largely on the back of increased realised prices in 2008. Earnings per share was 21% higher than 2007 and net operating cash flow was up 24% over 2007. The year 2008 saw an increase of 36% in capital employed represented by higher expenditure in oil and gas interests and an increased cash balance at the year-end.  

Key financial data 

US$ million (unless stated)
2008
2007
Change
Average production on entitlement basis (bopd)
24,490
21,739
13%
Revenue 
706.1
596.6
18%
Cost of Sales 
(193.2)
(198.7)
3%
Gross Profit
512.9
398.0
29%
Operating profit 
474.0
365.1
30%
Profit for the year 
369.0
303.9
21%
Earnings per share, basic (US Cents)
71.8
59.5
21%
Earnings per share, diluted (US Cents)
71.6
59.3
21%
Capital employed 
1,442.3
1,060.4
36%
Net cash from operations
578.6
467.2
24%
Cash used in investing activities 
(516.5)
(390.8)
(32%)
Debt
0.0
0.0
nil

                       

Income Statement

Revenue

Production levels in 2008 averaged 40,992 bopd (2007: 31,997 bopd) on a working interest basis and 24,490 bopd (2007: 21,739 bopd) on an entitlement basis. The Group's share of entitlement production is determined by reference to cost oil and profit oil in accordance with the terms of the PSA. Due to the fact that the Group fully recovered its historic costs in 2007, the entitlement barrels have been and continue to be determined by, amongst other factors, the level of development expenditure and the realised oil prices. 

Revenue for the year was US$706 million compared with US$597 million in 2007. The increase of 18% over the previous year is primarily attributable to a higher average realised price of US$90.8 per barrel (2007: US$70.9 per barrel), despite a 14% decrease in the sales volumes during 2008. The realised oil prices achieved a discount of about 6% to Brent during the year.  The decrease in sales volumes is attributable to change in lifting position and higher inventory sold after the year-end. 


The PSA includes provisions such that parties to the agreement may not lift their respective crude oil entitlements in full and as such underlifts or overlift of crude oil may occur at period- ends. The underlift and overlift positions are dependent on factors similar to those affecting determination of the entitlement barrels. At the year end, the Group was in an underlift position of 0.6m barrels that is recognised as revenue and measured at market value

Operating profit

The Group generated an operating profit of US$474 million (2007: US$365.1 million). 

Cost of Sales comprises operating and production costs and depletion charge. The Group's cost of sales was US$193 million in 2008 compared to US$199 million in 2007, a decrease of about 3%. The decrease is primarily due to a reversal of 2007 overlift charge of US$24 million and a higher crude oil inventory at the year-end, offset by an increase in depletion charge.

The average rate for depletion has increased by 30% to US$16.7 per barrel (2007: US$12.8 per barrel), mainly as a result of the upward revision of the long-term oil price assumption and the increased field development costs. Depletion and depreciation charges during the year were US$150 million (2007: US$102 million). The Group's view on long-term oil price until the end of the PSA was revised to US$70 per barrel for 2008 (2007: US$50 per barrel) 

Operating profit for 2008 was 30% higher than in the previous year despite an increase in other losses of US$million on account of derivative financial instruments. These instruments put in place for managing crude oil price exposure using zero-cost collars resulted in a net fair value charge of US$21 million at the year-end (2007: US$15 million). A write-off of US$0.4 million (2007: US$4.1 million) for exploration and evaluation expenditure in Yemen was made to the extent that the efforts did not result in commercial discoveries.  

Profit for the year

Profit for the year was US$369 million (2007: US$304 million). 

The profit included finance income and a higher taxation charge. Finance income increased to US$25 million (2007: US$19 million) on the back of higher cash and cash equivalents and term deposits maintained during the year. 

During the year the tax rate applicable to the Group's operations in Turkmenistan was increased to 25% by the Hydrocarbon Resources Law of 2008. The Group has applied this new rate in determining its tax liabilities as at 31 December 2008. The Group is in discussions with the authorities in Turkmenistan about the applicability of the new rate to prior periods, but it does not believe that prior periods are affected by the new rate. Consequently, no provision has been made in respect of any additional tax that could become payable if the increased tax rate were applied to prior periods. 


Balance Sheet

Investments in oil and gas interests were higher by US$138 million due to capital expenditure of US$287 million (2007: US$228 million) incurred, offset by the depletion and depreciation charge during the year. The expenditure during the year was primarily on drilling and infrastructure projects in Turkmenistan. Of the total capital expenditure for 2008, 60% was attributable to drilling. The balance of the capital expenditure was spent on infrastructure projects including the refurbishment of Dzheitune (Lam) 13 and 28 platforms, the new Dzheitune (Lam) B platform, construction of tanks at the Central Processing Facility and the 40-km trunkline. Included in exploration and evaluation assets was the acquisition of a minority working interest in three exploration blocks in the Republic of Yemen. These assets are carried as intangible assets net of write-off due to lack of commercial success.  

Current Assets and Liabilities 

Current assets rose by US$313 million mainly as result of a US$327 million increase in cash at bank due to increased cash from operations. The cash and cash equivalents and term deposits at the year-end were US$876 million, including interest receivable of US$9 million and deposits of US$91.5 million held for abandonment and decommissioning activities. The increase in cash over the previous year reflects strong realised oil prices, despite a 14% decrease in sale volumes and a 32% increase in investing activities. 

Current liabilities rose by US$41 million primarily due to an increase of US$63 million in provision for abandonment and decommissioning on increased production and an increase of US$16m in tax payable, offset by a US$11 million decrease in the fair value provision on derivative financial instruments and a movement of US$24 million in overlift creditors.  

Cash flows

Net cash generated from operations during the year improved by approximately US$111 million to US$579 million (2007: US$467 million). The increase was primarily attributable to higher sales prices realised during the year for the sale of crude oil. Cash used in investing activities was US$516 million (2007: US$391 million), mainly comprising capital expenditure of US$288 million (2007: US$232 million) and placement of term deposits amounting to US$253 million (2007: US$173 million). Cash generated by financing activities was US$12 million (2007: US$1 million) on account of an increase in share capital resulting from exercise of share options.  


The Group's robust cash position secures funding for organic growth in Turkmenistan and its diversification plan over the next few years.



  Group balance sheet

As at 31 December 


 
 
 
2008
 
2007
 
US$’000
 
US$’000
ASSETS
 
 
 
Non-current assets
 
 
 
Property, plant and equipment
776,552
 
639,213
Intangible assets
       947
 
        833
 
 
 
 
 
777,499
 
640,046
 
 
 
 
Current assets
 
 
 
Inventories
56,585
 
34,655
Trade and other receivables
58,980
 
94,880
Term deposits
426,667
 
173,338
Cash and cash equivalents
449,051
 
375,255
 
 
 
 
 
991,283
 
678,128
 
 
 
 
Total assets
1,768,782
 
1,318,174
 
========
 
========
 
 
 
 
EQUITY
 
 
 
Capital and reserves attributable to the Company’s equity shareholders
 
 
 
Share capital
80,685
 
80,075
Share premium
228,764
 
217,706
Capital redemption reserve
77,150
 
77,150
Other reserve
1,689
 
3,827
Retained earnings
1,054,060
 
681,669
 
 
 
 
Total equity
1,442,348
 
1,060,427
 
 
 
 
LIABILITIES
 
 
 
Non-current liabilities
 
 
 
Deferred income tax liabilities 
80,305
 
51,055
Trade and other payables
3,372
 
5,302
 
 
 
 
 
83,677
 
56,357
 
 
 
 
Current liabilities
 
 
 
Trade and other payables
141,880
 
105,483
Derivative financial instruments
-
 
10,614
Current income tax liability
100,877
 
85,293
 
 
 
 
 
242,757
 
201,390
 
 
 
 
Total liabilities
326,434
 
257,747
 
 
 
 
Total equity and liabilities
1,768,782
 
1,318,174
 
========
 
========


  Group income statement

Year ended 31 December


 

 


2008 


2007  


  US$'000 


US$'000  





Revenue

706,118 

 

596,614  





Cost of sales

(193,220)  

 

(198,659)   





Gross profit

512,898 


397,955  





Administrative expenses

(18,263)  


(18,247)   

Other income

125 


636  

Other losses

 (20,748)  


 (15,256)   









Operating profit 

474,012 


365,088 





Finance costs


   (198)

Finance income

 25,050 


 19,370 





Profit before income tax

499,062 


384,260 





Income tax expense

(130,020)  


(80,346)  





Profit attributable to equity holders of the Company

369,042 


303,914 


==========


==========

Earnings per share attributable to equity holders of the Company


 



Basic

71.81c


59.50c

Diluted

71.58c


59.25c


==========


==========



  

Group cash flow statement

Year ended 31 December




2008


2007 


US$'000


US$'000 





Cash generated from operating activities


663,773



507,172 

 - Interest paid

-


(198)

 - Income tax paid

(85,186) 


(39,730)  





Net cash generated from operating activities


578,587



467,244 





Cash flows from investing activities 




Additions to property, plant and equipment 

(287,672) 


(231,520) 

Addition to intangible assets

(508) 


(4,933) 

Interest received on bank deposits

25,050


18,955

Amounts placed on term deposits (with original maturities of over three months)


(253,329) 



(173,338) 





Net cash used in investing activities

(516,459) 


(390,836) 





Cash flows from financing activities




Proceeds from issue of share capital

11,668


870





Net increase in cash and cash equivalents


73,796  



77,278





Cash and cash equivalents at beginning of year


375,255



297,977

 

Cash and cash equivalents at end of year

 

          449,051



375,255

 

==========


==========

  

 

  Statement of changes in equity

  Group

 

 
 
 
Share
capital
 
Share
premium
Capital
redemption
reserve
 
Other
reserve
 
Retained
earnings
 
 
Total
 
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At 1 January 2007
79,969
216,942
77,150
2,909
377,301
754,271
Shares issued during the year
106
764
-
-
-
870
Profit for the year
-
-
-
-
303,914
303,914
Employee share option scheme:
 
 
 
 
 
 
- value of services provided
-
-
-
1,372
-
1,372
Transfer on exercise of share options
-
-
-
(454)
454
-
 
----------
--------------
------------
----------
-------------
------------
At 31 December 2007
80,075
217,706
77,150
3,827
681,669
1,060,427
Shares issued during the year
610
11,058
-
-
-
11,668
Profit for the year
-
-
-
-
369,042
369,042
Employee share option scheme:
 
 
 
 
 
 
- value of services provided
-
-
-
1,211
-
1,211
Transfer on exercise of share options
         -
           -
          -
 (3,349)
 3,349
          -
 
 
 
 
 
 
 
At 31 December 2008
80,685
228,764
77,150
1,689
1,054,060
1,442,348
 
=======
========
=======
======
========
========

 



1      General information


Dragon Oil plc ("the Company") and its subsidiaries (together "the Group") are engaged in upstream oil and gas exploration, development and production activities primarily in Turkmenistan. Its head office is based in DubaiUnited Arab Emirates ("UAE").


The Company is incorporated in Ireland. The Company's ordinary shares are listed on the official lists of the Irish and London Stock Exchanges.


This financial information has been approved for issue by the Board of Directors on 27 March 2009.


2      Basis of preparation


In accordance with EU Regulations, the Group is required to present its annual consolidated financial statements for the year ended 31 December 2008 in accordance with EU adopted International Financial Reporting Standards ("IFRS"), International Financial Reporting Interpretations Committee ("IFRIC") interpretations and those parts of the Irish Companies Act, 1963 to 2006 applicable to companies reporting under IFRS and Article 4 of the International Accounting Standards ("IAS") Regulation. 


This financial information has been extracted from the consolidated financial statements for the year ended 31 December 2008 approved by the Board of Directors on 27 March 2009. The financial information comprises the Group balance sheets as of 31 December 2008 and 31 December 2007 and related group income statements, cash flows, statement of changes in equity and related notes for the twelve months then ended, of Dragon Oil plc. This financial information has been prepared under the historical cost convention except for the measurement at fair value of share options and derivative financial instruments and underlift receivables/overlift payables.


The preliminary results for the year ended 31 December 2008 have been prepared in accordance with the Listing Rules of the Irish Stock Exchange.


The preparation of financial information in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Group financial information are disclosed in Note 4.

 

3     Accounting policies


The accounting policies used are consistent with those set out in the audited financial statements for the year ended 31 December 2007, which are available on the Company's website, www.dragonoil.com.


4     Critical accounting estimates, assumptions and judgments


The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities as well as contingent assets and liabilities at the date of the balance sheet, and the reported amounts of revenues and expenses during a reporting period. The resulting accounting estimates will, by definition, seldom equal the related actual results.  


The estimates and assumptions that could result in material adjustments to the income statement and the carrying amounts of assets and liabilities are discussed below: 


Development and production assets - depletion 


The Group's share of commercial oil reserves is computed in accordance to the PSA. In arriving at the Group's share of reserves and, consequently, the depletion charge, significant assumptions have been made. These significant assumptions include estimates of oil reserves, future oil prices, future development costs including the cost of drilling, infrastructure facilities and other capital and operating costs. 


The Group revised its long-term view of oil prices from US$50 per barrel to US$70 per barrel from 1 January 2008. The effect of an upward revision in the long-term oil price is to lower the level of reserves attributable to the Group and to increase the depletion charge per barrel. 


If the estimate of the long-term oil price had been US$20 per barrel higher at US$90 from 1 January 2008, the reserves attributable to the Group would decrease, with a consequent increase in the depletion charge of US$9.2 million for the year.


If the estimate of the long-term oil price had been US$20 per barrel lower at US$50 from 1 January 2008, the reserves attributable to the Group would increase, with a consequent decrease in the depletion charge of US$16.8 million.


The depletion computation assumes that the PSA, which is valid up to 2025, will be extended on similar terms up to 2035 under an exclusive right to negotiate for an extension period of not less than ten years, provided for in the PSA.


5      Segmental reporting


The Group reports its segment information primarily on the basis of geography. The Group's operations are primarily located in Turkmenistan in the Caspian region. 

 

6      Dividends

 

The Directors do not recommend the payment of a dividend in respect of the year ended 31 December 2008 (2007: nil).


7       Earnings per share



2008

US$'000

2007

US$'000




Profit attributable to equity holders of the Company

369,042

303,914








Number '000

Number '000

Weighted average number of shares:






Basic

513,922

510,771

Assumed conversion of potential dilutive share options

1,669

2,174


---------

---------

Diluted

515,591

512,945


---------

---------

Earnings per share attributable to equity holders of the Company:



Basic

71.81c

59.50c

Diluted

71.58c

59.25c


Basic earnings per share is calculated by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares in issue during the year.


For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential dilutive options over ordinary shares. 

  

8     Cash generated from operating activities



2008 

2007 


US$'000 

US$'000 

Group






Profit before income tax

499,062 

384,260 

Adjustments for: 



 - Depletion and depreciation

149,603 

101,930 

 - Crude oil underlifts

(22,785)

23,779 

 - Crude oil overlifts

(24,263)

24,263 

 - Employee share options - value of services provided

1,211 

1,372 

 - Fair value movement on derivative financial instruments

(10,614)

10,614 

 - Write-off of intangible assets

394 

4,100 

 - Finance costs

198 

 - Interest on bank deposits

(25,050)

(18,955)

 - Excess provision written back

           

     (397)




Operating cash flow before changes in working capital 

567,558 

531,164 




Changes in working capital:



 - Inventories 

(21,930)

5,675 

 - Trade and other receivables 

58,685 

(58,969)

 - Trade and other payables

   59,460 

   29,302 




Cash generated from operating activities

663,773 

507,172 


==========

==========


9      Reclassification of prior year comparative figures

 

       Certain prior year comparatives have been reclassified to conform to the current year's 
       presentation.

 

10     Statutory Accounts

 

       This financial information is not the statutory accounts of the Company and the Group, a copy of

       which is required to be annexed to the Company's annual return to the Companies Registration Office

       in Ireland. A copy of the statutory accounts in respect of the year ended 31 December 2008 will be

       annexed to the Company's annual return for 2008. Consistent with prior years, the full financial

       statements for the year ended 31 December 2008 and the audit report thereon will be circulated to

       shareholders at least 20 working days before the AGM. A copy of the statutory accounts required to be

       annexed to the Company's annual return in respect of the year ended 31 December 2007 has been

       annexed to the Company's annual return for 2007 to the Companies Registration Office.

    

11   Further information is available on the Company's website, www.dragonoil.com.




This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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