20 January 2015
Dragon Oil plc
(the "Company" or together with its subsidiaries "Dragon Oil" or the "Group")
Trading Statement
Dragon Oil plc (Ticker: DGO), an international oil and gas exploration, development and production company, today issues the following trading statement, which includes an operational update, financial highlights for 2014 and results of the latest reserves assessment for the Cheleken Contract Area, Turkmenistan. All information referred to in this update is unaudited and subject to further review.
Dragon Oil expects to publish its 2014 full-year financial results on 17 February 2015.
Key operational highlights
· Fourteen development wells, including two sidetracks, completed;
· 6.8% increase in average daily production rate to approximately 78,790 barrels of oil per day (bopd) in 2014 compared to 73,750 bopd in 2013;
· Average daily production rate for the month of December 2014 was approximately 89,680 bopd with the exit rate of 92,008 bopd;
· Four drilling rigs are on site in the Cheleken Contract Area.
Key corporate highlights
· Reserves replacement of 60% achieved, which is attributable to ongoing drilling operations and well performance;
· 2014 year-end oil and condensate 2P reserves amount to 663 (2013: 675) million barrels;
· Gas reserves (1.3 TCF) and contingent gas resources (1.3 TCF) amount to 2.6 TCF;
· 2C contingent oil resources of 198 million barrels and 2C contingent gas resources of 56 Bscf net to Dragon Oil on a working interest basis in the Mishrif formation in Block 9, Iraq.
Key financial highlights
· Capital expenditure on infrastructure, drilling and exploration assets amounted to US$677 million for 2014 (2013: US$331 million);
· Group's cash balance (net of abandonment and decommissioning funds) as at 31 December 2014 was US$1,975 million (31 December 2013: US$1,924 million).
Dr Abdul Jaleel Al Khalifa, CEO, commented:
"In 2014, we completed 14 development and appraisal wells and commenced drilling in the Dzhygalybeg (Zhdanov) field. We grew average gross production in the Cheleken Contract Area by 6.8% - slower than we had hoped to grow it at the beginning of 2014, because in 1H 2014 we drilled fewer wells than originally planned. Drilling accelerated in the second half and well results were solid.
"In December, we reached an agreement with two buyers to export our entitlement share of the crude oil production using two routes. We achieved diversification in export routes and negotiated a better price for our crude.
"On the exploration front, we had excellent results in Block 9 in Iraq: together with our partner, Kuwait Energy, we made two oil reservoir discoveries in both targeted formations. In partnership with a major European utility company, we won two exploration perimeters in Algeria, a country rich in hydrocarbon opportunities.
"On the other hand, the exploration well in the Philippines did not discover hydrocarbons and we are assessing the remaining prospectivity of the block. We also looked at bidding to acquire an E&P company, but subsequently decided against this transaction as the oil price plummeted. We will continue to search for the right fit value-creative development asset."
OPERATIONAL UPDATE
Turkmenistan
Production
Gross field production for 2014 averaged approximately 78,790 bopd (2013: 73,750 bopd). The 6.8% growth came from production from new wells and management of the existing production. We completed 14 development and appraisal wells, including two sidetracks.
The entitlement production for 2014 was approximately 56% (2013: 44%) of the gross production. 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. The higher proportion of entitlement barrels in 2014 is due to the higher capital expenditure and lower realised crude oil prices.
Marketing
Dragon Oil sold 13.5 million barrels of crude oil in 2014 (2013: 11.5 million barrels). The higher volume sold over the year is mainly due to higher entitlement share of gross production offset by the movement in the lifting position.
In 2014, Dragon Oil exported 100% (2013: 100%) of its crude oil production through Baku, Azerbaijan.
In December 2014, the Group reached a one-year agreement with two buyers for all its anticipated entitlement export production in 2015, achieving diversification in marketing routes. The terms are FOB (free-on-board) the Aladja Jetty, Turkmenistan through Baku, Azerbaijan and Makhachkala, Russia until 31 December 2015. Negotiations on the new marketing agreements resulted in a better overall discount to monthly average Brent prices compared to the discount in the previous year. The discount to Brent is expected to be approximately US$14 per barrel.
The Group was in an underlift position of approximately 2.1 million barrels of crude oil at the end of 2014 (31 December 2013: overlift position of 0.1 million barrels of crude oil).
Drilling
During 2014, Dragon Oil completed a total of 14 development and appraisal wells: 13 wells in the Dzheitune (Lam) and one well in the Dzhygalybeg (Zhdanov) field. The following table summarises the results of the drilling programme in 2014:
|
Well
|
Rig
|
Completion date
|
Depth (metres)
|
Type
|
Initial test rate (bopd)
|
|
Lam B/155A
|
Elima
|
February
|
2,447
|
Development
|
1,027
|
|
Lam 4A/187
|
Elima
|
April
|
1,668
|
Appraisal
|
No production
|
|
Lam B/148A
|
Elima
|
May
|
1,875
|
Development
|
1,300
|
|
Zhdanov 21/101
|
Neptune
|
June
|
3,447
|
Appraisal
|
425
|
|
Lam 22/188
|
Land Rig 1
|
July
|
3,276
|
Development
|
No production
|
|
Lam A/189
|
Elima
|
July
|
1,822
|
Development
|
1,987
|
|
Lam A/190
|
Elima
|
August
|
1,904
|
Development
|
1,704
|
|
Lam C/191
|
Neptune
|
September
|
2,440
|
Development
|
1,510
|
|
Lam 28/192
|
Elima
|
September
|
2,283
|
Development
|
2,632
|
|
Lam 28/193
|
Elima
|
September
|
2,220
|
Development
|
1,961
|
|
Lam C/195
|
Neptune
|
November
|
2,421
|
Development
|
2,002
|
|
Lam 28/196
|
Elima
|
November
|
2,100
|
Development
|
1,952
|
|
Lam 22/194
|
Land Rig 1
|
December
|
3,252
|
Development
|
Being tested
|
|
Lam 28/197
|
Elima
|
December
|
1,943
|
Development
|
Being tested
|
The Neptune rig is currently drilling the Dzheitune (Lam) C/198 development well; the Elima jack-up rig is drilling the Dzheitune (Lam) 13/199 well and Land Rig 2 is drilling the Dzhygalybeg (Zhdanov) A/102 well.
Following the completion of the Dzheitune (Lam) 22/194 well, Land Rig 1 is being released.
Three drilling rigs are now operational in the Cheleken Contract Area with the Caspian Driller expected to commence operations later in 1Q 2015.
Water injection project and artificial lift
The water injection pilot project in the Dzheitune (Lam) 75 area is progressing since its start in June 2013. The process to acquire water injection facilities to be installed at the Dzheitune (Lam) field is in the approval stage with the intention to procure and start installation of these facilities in 2H 2015.
In 2H 2014, Dragon Oil commissioned the jet pumping system on the Dzheitune (Lam) 13 platform for two wells. Additional jet pumping systems were procured for other platforms and commissioning is scheduled to start in 1Q 2015.
Infrastructure
In February 2014, Dragon Oil awarded a contract for the engineering, construction and installation of the wellhead and production platform Dzheitune (Lam) E and associated pipelines. Design and detailed engineering work is in progress and fabrication of the platform has commenced.
Installation of the Dzheitune (Lam) F accommodation (living quarters) platform (former Dzhygalybeg (Zhdanov) B platform) in the central part of the Dzheitune (Lam) field is complete. Installation of the production platform is in progress and the platform is expected to be made ready for drilling by the end of 2Q 2015.
The project to quadruple our crude oil storage capacity at the Central Processing Facility is progressing as planned. The tank farm is anticipated to be completed in 1Q 2016 of which three tanks will be built and commissioned on a priority basis in 2Q 2015.
Structural strengthening and slot addition works continue at a number of platforms in the Dzheitune (Lam) field, with new slots being added or planned to be added to allow further drilling from these platforms.
The bids for an engineering, procurement, installation and construction project of the Gas Treatment Plant are in the evaluation stage. We anticipate the construction phase to take up to three years after the contract is awarded.
Reserves and resources
Based on the results of the recent assessment by an independent energy consultant, the 2014 year-end oil and condensate 2P reserves were 663 (31 December 2013: 675) million barrels after having allowed for the 2014 production of 29 million barrels. Assessment of the ongoing drilling operations and well performance have contributed towards the increase of oil and condensate 2P reserves by 17 million barrels. The oil and condensate contingent resources are 93 million barrels compared with 69 million barrels as of 31 December 2013.
The gas 2P reserves are 1.3 TCF while the gas contingent resources are 1.3 TCF. Necessary upgrades of and additions to offshore and onshore infrastructure are planned to allow the conversion of the contingent resources into reserves in the future.
No changes have been made to the estimates of recoverable oil from the Dzhygalybeg (Zhdanov) field, where we believe 15% of the total proved and probable recoverable reserves are contained.
|
|
As at 31 December 2014
|
As at 31 December 2013
|
As at 31 December 2012
|
|
Proved and Probable Remaining Recoverable Reserves
|
Oil and Condensate
|
Gas
|
Oil and Condensate
|
Gas
|
Oil and Condensate
|
Gas
|
|
mn barrels
|
TCF
|
mn barrels
|
TCF
|
mn barrels
|
TCF
|
|
Gross field reserves to 1st May 2035
|
663
|
1.3
|
675
|
1.4
|
677
|
1.5
|
|
2C Resources
|
|
|
|
|
|
|
|
Gross oil and condensate contingent resources
|
93
|
-
|
69
|
-
|
59
|
-
|
|
Gross gas contingent resources
|
-
|
1.3
|
-
|
1.3
|
-
|
1.4
|
EXPLORATION
Iraq
On 10 September 2014, the partners in Block 9 in Iraq, Dragon Oil (30%) and Kuwait Energy (70% and operator), announced their first oil discovery at the consortium's first target, the Mishrif formation, reached at 2,700 meters, in the Block 9 exploration well, Faihaa-1. Preliminary open hole tests of the Faihaa-1 Mishrif formation resulted in a flow rate of c. 2,000 bopd and 3,400 bopd of 20 API oil on a 32"/64" and 64"/64" chokes, respectively.
Later in the year, in December, the partners reported their second oil section discovery in the second target, the Yamama formation, reached at 4,000 meters in the same Faihaa-1 exploration well. Preliminary open hole tests of the Faihaa-1 Yamama formation resulted in oil flow rates of c. 5,000 and 8,000 bopd of 35 API crude oil on 32"/64" and 64"/64" chokes, respectively.
The report from an independent petroleum engineer incorporating the results of testing the Mishrif formation indicated contingent 2C oil resources of 198 million barrels and contingent 2C gas resources of 56 Bscf net to Dragon Oil on a working interest basis.
More detailed testing on both formations will be conducted in the cased hole to help evaluate the commerciality of the findings. The consortium's strategy is to accelerate the evaluation of the Faihaa-1 discovery by drilling two appraisal wells in 2015 in order to fast track the development.
Algeria
On 30 September 2014, Dragon Oil announced that in partnership with ENEL Trade S.p.A. ("Enel"), the Group was awarded two exploration perimeters in Algeria, Tinrhert Nord Perimeter (Dragon Oil 70% participating interest and operator, Enel 30%) and Msari Akabli Perimeter (Dragon Oil 30% participating interest, Enel 70% and operator). The contract for the exploration and exploitation of hydrocarbons was signed on 29 October 2014.
Egypt
The contract for the East Zeit Bay Block (Dragon Oil 100%), offshore the Gulf of Suez, Egypt, was signed between the Petroleum Ministry represented by Ganoub El Wadi Petroleum Holding Company (GANOPE) and Dragon Oil on 19 May 2014. We have hired a country manager and are setting up an office in Cairo.
Afghanistan
In 2014, the consortium, comprising Dragon Oil (40%, operator of Sanduqli block), TP Afghanistan Ltd. (TPAL, 40% and operator of Mazar-i-Sharif block) and the Ghazanfar Group (20%), awarded contracts for the airborne gravity and magnetic survey, which commenced in early 1Q 2015. Similar activities are ongoing for the Mazar-i-Sharif block.
Tunisia
The joint venture partners (Dragon Oil, 55%; Cooper Energy, 30% and operator; and Jacka Resources Ltd, 15%) have rescheduled appraisal drilling at Hammamet West until 2016.
The Philippines
On 7 July 2014, Nido Petroleum Limited (ASX: NDO, 20% participating interest) on behalf of SC 63 Joint Venture partners PNOC-EC (40% and operator) and Dragon Oil (Philippines SC 63) Limited (40%) advised that the Baragatan-1A well did not discover commercial hydrocarbons. The Baragatan-1A well was plugged and abandoned. The partners are in the process of integrating information and data obtained from the well into current geological models and Dragon Oil is assessing its future interest in the block.
FINANCIAL UPDATE
Capital expenditure
Capital expenditure for 2014 was approximately US$677 million (2013: US$331 million). Of the total capital expenditure, approximately 49% (2013: 37%) was attributable to infrastructure with 44% (2013: 46%) spent on development drilling, the balance was spent on exploration assets. The infrastructure spend during the period included relocation of the Dzhygalybeg (Zhdanov) B platform (now Dzheitune (Lam) F platform), construction of the tank farm and additional slots on a number of platforms.
Realised prices
Dated Brent for the year averaged approximately US$99 per barrel (2013: US$109 per barrel). The average realised crude oil price during 2014 was approximately US$81/bbl (2013: US$91/bbl), at an 18% (2013: provisional discount of 17%) discount to Brent.
Total revenue for 2014 is expected to be approximately US$1.1 billion (2013: US$1 billion) subject to final audit.
Taxation update
The Group's subsidiary Dragon Oil (Turkmenistan) Ltd has paid taxes in accordance with the legislation of Turkmenistan. Since 2008, Dragon Oil (Turkmenistan) Ltd paid taxes in accordance with the Tax Code at the rate of 20% and provided for additional taxes at 5% in line with provisions of the Production Sharing Agreement (PSA) and the Hydrocarbon Resources Law of 2008.
In December 2014, the state authorities in Turkmenistan amended the provisions of the PSA to make the tax rate consistent with the provisions of the Tax Code of Turkmenistan. The rate of 20% is now applicable to the Group in respect of its petroleum operations in Turkmenistan. The Group has applied this rate in determining its tax liabilities as at 31 December 2014.
The current income tax expense includes a credit of US$160 million in respect of the reversal of the provision for prior years (2008-2013), no longer payable. Under the terms of the amendment, the Group is committed to social projects and training programmes in Turkmenistan of approximately US$10 million per year.
OTHER EVENTS
Diversification
In line with our diversification strategy, we continue to look for development or production assets as well as exploration opportunities in Africa, the Middle East and parts of Asia.
On 6 October 2014, Dragon Oil Board confirmed that it was in detailed discussions regarding a possible offer to be made by Dragon Oil for the issued, and to be issued, share capital of Petroceltic international Plc (Petroceltic) and submitted a proposed offer of 230 pence sterling per share in cash following an extensive confirmatory due diligence exercise.
On 1 December 2014, Dragon Oil confirmed that, in light of the then prevailing market conditions, it no longer intended to make an offer for Petroceltic and accordingly, as a result of the announcement, was bound by the restrictions set out in Rule 2.8 of the Irish Takeover Rules.
The decision was taken in light of a significant drop in the crude oil price and subsequent uncertainty about the long-term prices for crude oil.
OUTLOOK
In 2015, our target is to grow average gross production at around 10% and exit the year at 100,000 bopd. We plan to complete 15 to 20 wells a year in 2015 and 2016 given the present and future availability of drilling rigs. We aim to average the gross production at 100,000 bopd in 2016 and maintain this level of production for a minimum period of five years from 2016.
Our current anticipation is that capital expenditure for 2015 will be in the range of US$500mn to US$600mn on drilling and infrastructure in the Cheleken Contract Area and excluding the cost of the Gas Treatment Plant.
The Group expects to report its 2014 full-year financial results on 17 February 2015.
- end -
For further information please contact:
Investor and analyst enquiries
Dragon Oil plc (+44 (0)20 7647 7804)
Anna Gavrilova
Media enquiries
Citigate Dewe Rogerson (+44 (0)20 7638 9571)
Martin Jackson
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 and gas producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).
The Group has exploration blocks in Tunisia, Iraq, Afghanistan, Egypt, the Philippines and Algeria. Dragon Oil's diversification strategy is to add exploration and production assets within Africa, parts of Asia and the Middle East in order to create a diversified and balanced portfolio of assets for the Group.
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.