This replaces the version issued on the 10^th August at 07:00 because the signature date for the auditors was incorrectly put as 9 August 2010, rather than 2011.

 

10 August 2011

DRAGON OIL PLC

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

2011 Interim Results

Dragon Oil plc (Ticker: DGO), an international oil and gas development and production company, today announces its interim financial and operational results for the period ended 30 June 2011.

 

Financial highlights

	1H 2011	1H 2010	Change
(US$ million, unless stated otherwise)
Revenue	527.4	276.3	+91%
Operating profit	407.3	173.6	+135%
Profit for the period	309.4	137.6	+125%
Earnings per share, basic (US cents)	59.98	26.71	+125%
Interim dividend per share (US cents)	9.00	nil	nil
Capital expenditure	151.4	173.6	-13%
Net cash generated from operating activities	413.7	197.0	+110%
Cash and cash equivalents and term deposits	1,472.3	1,154.9	+27%
Debt	0.0	0.0	nil

 

Operational performance

·      Growth of 25% in the average gross production to approximately 58,000 bopd (1H 2010: 46,420 bopd) achieved in 1H 2011;

·      Eight new development wells completed to date (including one well from the 2010 drilling campaign);

·      2011 drilling programme increased to comprise 12 wells, plus one sidetrack and one workover, versus 11 wells previously stated; and

·      The contract for the construction of the Dzhygalybeg (Zhdanov) B platform awarded.

 

Outlook for 2H 2011

·      Production growth target for 2011 of up to 20%;

·      Five development wells, one sidetrack and one workover remain to be completed by the year-end;

·      Dzheitune (Lam) Block 1 to be commissioned within a few weeks;

·      Dzheitune (Lam) C platform due in 4Q 2011; and

·      Interim dividend of 9 US cents announced.

 

Outlook for 2011-13

·      Maintain target of average annual production growth in the range of 10% to 15%;

·      Super M2 jack-up rig to be delivered in 1Q 2012 to commence drilling in 2Q 2012;

·      Dzhygalybeg (Zhdanov) A platform expected to be installed towards the end of 1Q 2012;

·      Award contracts for another two wellhead and production platforms;

·      Lease a 3,000 hp land rig for offshore operations;

·      Active and focused search for suitable acquisition assets; and

·      Dual strategy for gas monetisation explored.

 

Dr Abdul Jaleel Al Khalifa, Chief Executive Officer, commented:

"We continue to successfully ramp up production from the Cheleken Contract Area, which in the first six months of this year increased by 25% over the corresponding period in 2010. With five more wells to be completed by the end of the year plus a sidetrack and the workover of an existing well, we are set to achieve strong production growth over last year.

The first six months of 2011 were also a record in terms of revenues generated: the best ever result over comparable periods due to the continued strong production growth and high realized oil prices.

On the gas monetisation front, we are looking at a dual strategy, which would involve a short-term agreement, reflecting the current weak global gas demand, and then a long-term agreement more in line with gas export marketing.

We remain prudent in our M&A strategy and only target those opportunities that offer value-adding diversification and growth potential."

 

Analyst conference call details:

A conference call for analysts will take place today at 9.30a.m. BST. For details, please contact Kate Lehane at Citigate Dewe Rogerson on +44 (0)20 7282 2870 or at kate.lehane@citigatedr.co.uk.

A replay of the call will be available from around 12.00pm today for one week on the following telephone number:

UK/International +44 (0)20 7111 1244

Ireland +353 (0)1 486 0902

The pass code is 6763554#

 

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

Sally Marshak

Kate Lehane

 

 

About Dragon Oil

Dragon Oil plc is an international oil and gas 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-producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).

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.

Glossary/Definitions/Abbreviations

bopd	barrels of oil per day
CPF	Central Processing Facility
Dragon Oil / the Group	Dragon Oil plc and its various subsidiary companies
Dual completion	Two pay zones in the same well that produce independent flow paths in the same well
EPS	Earnings per share
FEED	Front End Engineering Design
FOB	Free On Board
GTP	Gas Treatment Plant
hp	Horse power
mmscfd	million standard cubic feet per day
Overlifts and underlifts	Crude oil overlifts and underlifts arise on differences in quantities between the Group's entitlement production and the production either sold or held as inventory
Platform	Large structure used to house employees and machinery needed to drill wells in a reservoir to extract oil and gas for transportation to shore
PSA	Production Sharing Agreement is a contractual arrangement for exploration, development and production of hydrocarbon resources in the Cheleken Contract Area
Single completion	One pay zone in a development well that produces an independent flow path
US Cents	United States Cents
US$	United States Dollars
Workover	Well intervention involving invasive techniques, such as wireline, coiled tubing or snubbing

 

 

 

2011 Interim Results

Chief Executive Officer's Statement

OVERVIEW

Revenues generated in the first six months of 2011 almost doubled to US$527.4 million as compared to the same period in 2010. This performance represents the best ever six months for the Group. Revenues were underpinned by a 32% increase in the volume of crude oil sold, reflecting impressive production growth, and the benefit of strong realised oil prices. The Group remains debt-free with a healthy cash balance allowing us to develop the Cheleken Contract Area from internal resources, pursue acquisition targets and maintain payment of dividends.

The drilling programme has progressed on schedule with seven wells put into production in 1H 2011 under the 2011 drilling campaign while one well was completed in early January as part of the 2010 drilling campaign. The Group is to complete five more new wells, making a total of 12 wells under the updated 2011 drilling programme, plus one sidetrack and one workover. We are expecting the delivery of the Super M2 jack-up rig in 1Q 2012 and we are currently in the process of contracting a 3,000 hp land rig to support our offshore operations.

We continued to expand our infrastructure base and good progress was made with the construction of the Dzheitune (Lam) platform C and Block 1 riser platform. The delivery of the Dzhygalybeg (Zhdanov) A platform is slightly delayed towards the end of 1Q 2012. We have awarded a contract for the construction of the Dzhygalybeg (Zhdanov) B platform and Block 4 riser platform to cater for the oil production from the Dzhygalybeg (Zhdanov) field and plan to tender out contracts for the construction and installation of more platforms in both fields.

Discussions with the Government of Turkmenistan on the gas monetisation continue with the aim to secure a short-term gas sales arrangement in the current weak global gas demand environment and in due course we envisage a long-term agreement, which will be guided by gas export prices.

Our portfolio diversification strategy remains high on the Board and management's agenda. We maintain strict selection criteria and emphasize prudence and thorough due diligence to ensure that any acquisition we make, represents the best use of the Group's cash resources and adds value-enhancing opportunities to our excellent existing asset.

 

OPERATIONS OVERVIEW

Production

Dragon Oil achieved an average daily production rate on a working interest basis of approximately 58,000 bopd for 1H 2011, an increase of 25% over the level of 46,420 bopd reached during the comparable period in 2010. The growth was a combination of production contributed by the six wells on the Dzheitune (Lam) 28 and B platforms completed in 1H 2011 and the transition to the new infrastructure at the end of 2010. While the Dzheitune (Lam) B platform area has not been very prolific, we believe it is worth assessing such areas as part of the field development and the information will be used to optimise future drilling plans.

 

Marketing

The Group sold 4.9 million barrels of crude oil in 1H 2011 (1H 2010: 3.7 million barrels). This represents a 32% increase over the volume sold during the corresponding period last year. The increase is mainly attributable to higher gross production during the period.

Baku, Azerbaijan remains our main marketing route and, in 1H 2011, 100% (1H 2010: approximately 25%) of crude oil was exported via this route, FOB Aladja Jetty primarily using the BP-operated Baku-Tbilisi-Ceyhan pipeline. In 1H 2010, a major portion of our crude oil was sold through Neka, Iran.

The Brent oil price continued to be strong and closed at US$111/barrel at the end of 1H 2011. Overall, the Group benefited from a 39% rise in realised oil prices during the period as compared to the year 2010.

The average realised crude oil price during 1H 2011 was approximately US$100/bbl (1H 2010: US$75/bbl), which was 33% higher compared to the corresponding period last year. During the first six months of the year, the Group's average realised crude oil prices were at a discount of approximately 10% (1H 2010: approximately 3%) to Brent.

We continue to review alternative routes for marketing our crude oil in line with our strategy to have a number of routes available to access international markets and maintain flexibility in operations.

 

Drilling

During the first half and in July-early August 2011, Dragon Oil put on stream eight development wells: one well within the 2010 drilling programme and seven wells within the 2011 drilling campaign. The following table summarises the results of the development wells drilled in the Dzheitune (Lam) field to date.

Well	Rig	Completion Date	Depth (metres)	Type of Completion	Initial Tested Rate (bopd)
B/150	Iran Khazar	January	3,980	Dual	1,622
28/152	NIS	March	3,768	Dual	3,463
B/153	Iran Khazar	March	3,668	Dual	2,428
28/154	NIS	May	1,830	Single	3,081
B/155	Iran Khazar	June	2,800	Dual	783
28/156	NIS	June	2,000	Single	3,038
B/157	Iran Khazar	July	2,900	Single	1,767
28/158	NIS	August	1,786	Single	2,876

The previously stacked Rig 40 has recently been re-fitted and is now drilling the Dzheitune (Lam) 13/160 development well. The NIS rig and the Iran Khazar rig are currently drilling the next two development wells in the Dzheitune (Lam) field, 28/161 and B/159, respectively.

The delivery of the Super M2 jack-up rig is expected in 1Q 2012; this represents a delay of a few months to the drilling start date for the rig. We have evaluated the status of the project and have adjusted our drilling plans for 1Q 2012 to ensure continuous drilling during this time.

At present, the Group is in the process of contracting a 3,000 hp land rig to be added to its fleet of rigs in 2012.

 

Infrastructure

The construction of the Dzheitune (Lam) C wellhead platform is progressing on schedule and its delivery is expected on time. Block 1 riser platform, which will act as a gathering station and help increase the throughput capacity of the Dzheitune (Lam) West area, has been installed offshore and is due to be commissioned within the next few weeks.

The Group has awarded a contract for the construction of the Dzhygalybeg (Zhdanov) B platform, the second new wellhead and production platform to be installed by Dragon Oil in the Dzhygalybeg (Zhdanov) field since we became the operator in 2000. The platform will be similar to the Dzhygalybeg (Zhdanov) A platform: designed to support either a land or a jack-up rig, with an accommodation facility and initially eight slots. The delivery of the platform is expected in 2013.

We also recently awarded a contract for the construction of Block 4 riser platform and associated pipelines in the Dzhygalybeg (Zhdanov) field to offshore construction companies. Block 4 is expected to be completed in the second half of 2012 and will act as a gathering station for the production from new wellhead and production platforms in the Dzhygalybeg (Zhdanov) field.

The delivery of the Dzhygalybeg (Zhdanov) A platform is anticipated towards the end of 1Q 2012. We have reviewed the status of this project and have modified our drilling plans to drill from available slots on other platforms during 1Q 2012 to maintain flexibility.

The Group is likely to experience a possible delay in the construction and delivery of the 100-tonne crane vessel. However, taking into consideration the fact that we have access to crane vessels, the delay will not have any impact on our operations.

At present, the Group is assessing possibilities to increase its crude oil storage capacity at the CPF. This would include, among other aspects, application for land use and construction of bigger storage tanks.

Dragon Oil is formalizing a strategy for plugging, abandonment and decommissioning of the old non-producing wells in the Cheleken Contract Area as part of the abandonment and decommissioning activities the Group is to undertake under the PSA. We have identified groups of wells based on their status and age. The Group has also awarded a contract to a company specializing in offshore operation for the plugging and abandonment of wells. Overall, up to 15 non-producing wells are expected to be plugged starting from 3Q 2011 throughout 2012. The cost of the project is to be covered from the abandonment and decommissioning funds.

 

Gas Monetisation

We continue to discuss with the government of Turkmenistan a range of options for the monetisation of the gas we produce in the Cheleken Contract Area. Given the weak global gas demand, we have recently reviewed the situation and made a decision to pursue a dual strategy. The first part of this strategy will involve having a short-term arrangement in place to realize commercial value of available gas. We are awaiting the commissioning of the compression station in order to enable us to supply unprocessed gas into the Turkmen system.

Later, in the expectation of more favourable gas market conditions in the future we would aim to conclude a long-term gas sales agreement, targeted towards export markets. That would require us to supply processed (the so-called "dry") gas to the Turkmen system.

We have reviewed the FEED study for the GTP completed by our contractor last year and ultimately concluded that our preferred option is the construction of a more optimised less costly gas-condensate recovery plant. This would allow us to strip condensate from the gas and receive value for this condensate while providing dry gas suitable for the Turkmen system. We are currently discussing this option with the government of Turkmenistan.

 

Potential Acquisitions

The Group's new ventures strategy remains a top priority for the Board and management. We continue to screen and evaluate targets that fit our criteria within Central Asia, the Middle East, Africa and South East Asia. We have evaluated numerous assets and opportunities in a range of countries and actively pursue, through bid rounds and direct negotiations, those that are considered value-adding for Dragon Oil. Our objective is to provide additional growth potential within our portfolio as well as provide geographic diversification.

We believe our proven technical and operational experience, supported by over 10 years' development of the Cheleken Contract Area, gives us strong technical and operations expertise to underpin significant new ventures investment.

We also consider assets with exploration upside and select exploration ventures, to diversify further our portfolio, which is currently centered around our excellent Cheleken producing asset.

 

Corporate Social Responsibility

Dragon Oil is delighted to report that we in the process of awarding a contract for the construction of a polyclinic in the town of Hazar, Turkmenistan, near to which our operations are located. We expect to award the contract in 3Q 2011. The design envisages building a high quality facility, which is expected to cost US$5 million. The project is anticipated to take about two years to complete and will significantly improve the healthcare services offered to our employees, their families and local citizens from Hazar and neighboring towns.

 

Interim dividend

Following the introduction of the dividend policy and declaration of the maiden dividend for 2010, the Board is pleased to announce the interim dividend of  US cents 9 per share. The final dividend in respect of 2011 will be announced at the time of publication of the 2011 full-year results in February 2012. The interim dividend is not subject to shareholder approval.

The following is the dividend timetable for the shareholders' information:

10 August 2011: Declaration of interim dividend

17 August 2011: Ex-Dividend Date

19 August 2011: Record Date

23 September 2011: Dividend Payment Date.

 

Principal risks and uncertainties

In accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, a description of the principal risks and uncertainties facing the Group in the six months to 31 December 2011 is set out below:

 

§ Oil prices

The Group's only business is the production of hydrocarbons from the Cheleken Contract Area in the Caspian Sea, Turkmenistan. The financial performance of the Group and its ability to fund development plans may, therefore, be negatively affected by adverse movements in the price of oil. The Group actively monitors its exposure to oil prices and retains flexibility in sizing its development programme.

 

§ Export routes

Opportunities exist to sell crude oil from the Caspian Sea region to international markets via Azerbaijan, Russia and Iran. The Group currently exports all of its crude oil via Azerbaijan, following the expiry of the swap agreement with Iran. The success of this marketing arrangement will continue to be evaluated over the longer term.  At the same time, we are also evaluating alternative routes.

 

§ Other

Other principal risks and uncertainties facing the Group are disclosed in the 2010 Annual Report, available on Dragon Oil's website at www.dragonoil.com. These include, among other risks and uncertainties, the following: a single-asset portfolio risk; uncertainty of estimates of oil and gas reserves and future net revenues; infrastructure adequacy; the ability to secure qualified personnel and maintain proper internal controls; insurance cover; licences; exchange rates; and political and financial risks.

 

FINANCIAL OVERVIEW

US$ million (unless stated)	1H 2011	1H 2010	Change
Revenue	527.4	276.3	+91%
Cost of Sales	109.7	89.1	-23%
Operating profit	407.3	173.6	+135%
Profit for the period	309.4	137.6	+125%
Net cash generated from operating activities	413.7	197.0	+110%
Earnings per share, basic (US cents)	59.98	26.71	+125%
Earnings per share, diluted (US cents)	59.80	26.62	+125%
Interim dividend per share (US cents)	9.00	nil	nil
Total equity	2,332.2	1,842.4	+27%
Debt	0.0	0.0	nil

Income Statement

Revenue

In 1H 2011, on a working interest basis the Group produced approximately 10.5 million barrels of crude oil as compared to 8.4 million barrels produced in the comparative period in 2010.

In the first half of 2011, the Group's revenue increased by 91% to US$527.4 million (1H 2010: US$276.3 million). Of this increase, 55% was attributed to higher crude oil price realised, with the balance due to higher sales volumes.

Operating profit

Gross profit is measured on an entitlement basis. The entitlement production for 1H 2011 was approximately 52% of the gross production compared to approximately 55% for the comparable period in 2010. Entitlement barrels are dependent, amongst other factors, on operating and development expenditure in the period and realised crude oil prices. Notably in 1H 2011, higher crude oil prices, production measurement factors and lower capital expenditure than in 1H 2010 resulted in slightly lower entitlement barrels. 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 overlifts of crude oil may occur at period-ends.

At the end of 1H 2011, the Group was in an underlift position of approximately 0.3 million (31 Dec 2010: overlift position of approximately 0.2 million) barrels of crude oil measured at market value less cost to sell.

The Group generated an operating profit of US$407.3 million in 1H 2011 (1H 2010: US$173.6 million).

The increase in operating profit of US$233.7m was primarily on account of higher revenue. The cost of sales increased by US$20.6 million to US$109.7 million (1H 2010: US$89.1 million). The cost of sales includes operating and production costs and depletion charge. The depletion charge of US$87.6 million (1H 2010: US$91.3 million) was lower by 4% than the charge in the corresponding period in 2010. This was mainly due to the conversion of a portion of gas resources into reserves and recognition of additional oil and gas reserves in 2H 2010.  The increase in the operating and production costs over the comparable period is attributed to higher field costs and inventory movement, partly offset by lower crude oil transportation costs and change in the lifting position.  

Administrative expenses (net of other income) at US$10.4 million (1H 2010: US$13.7 million) were lower by 24%, primarily due to one-off corporate costs in 1H 2010.  Operating profit was up 135% at US$407.3 million (1H 2010: US$173.6 million) primarily as a result of higher revenue.

Profit for the period

The profit for the first six months of 2011, at US$309.4 million (1H 2010: US$137.6 million), includes a higher taxation charge of US$106.9 million (1H 2010: US$49.2 million) on account of higher profits, partly offset by finance income of US$9 million (1H 2010: US$13.2 million). Finance income was lower due to the lower interest rates despite higher cash and cash equivalents and term deposits maintained during the first six months of the year.

During 2008, the effective tax rate applicable to the Group's operations in Turkmenistan was increased to 25% by the Hydrocarbon Resources Law of 2008. The Group has continued to apply this rate in determining its tax liabilities as at 30 June 2011. The Group remains in discussions with the authorities in Turkmenistan about the applicability of this rate to prior periods, but it does not believe that prior periods are affected by the new rate.  A provision has been made in respect of the additional tax that could become payable if the increased tax rate were applied to prior periods based on the expected value (weighted average probability) approach.

Basic EPS of 59.98 US cents in the first half of this year were 125% higher than the Basic EPS in the same period last year (1H 2010: 26.71 US cents).

 

Balance Sheet

Net book value of property, plant and equipment increased by US$63.8 million due to capital expenditure of US$151.5 million incurred (1H 2010: US$173.6 million) offset by the depletion and depreciation charge during the period. Of the total capital expenditure, approximately US$83 million (1H 2010: US$112 million) was attributable to drilling with the balance spent on infrastructure. The infrastructure spend during the first six months of the year included the ongoing construction of the two new platforms, Dzheitune (Lam) C and Dzhygalybeg (Zhdanov) A and the crane vessel. 

Current Assets and Liabilities

Current assets increased by US$175 million, primarily due to higher term deposits and underlift debtors held at period end, as compared to 2010 year-end.

Cash and cash equivalents and term deposits as at 30 June 2011 were US$1,472.3 million (31 December 2010: US$1,336.6 million), including US$215.6 million (31 December 2010: US$174.4 million) set aside for abandonment and decommissioning activities. At the period end, term deposits that are held for a maximum tenure of six months increased by US$143.6 million to US$1,338.8 million.

Current liabilities fell by US$25.1 million due to a reduction of US$7.1 million in current income tax liability and US$18 million in trade and other payables.

 

Cash flows

Net cash generated from operating activities in 1H 2011 of US$413.7 million was 110% higher than net cash generated in the same period last year (1H 2010: US$197 million), with the increase primarily attributed to higher sales prices realised during the period for the sale of crude oil and movement in working capital, offset by higher tax paid.

Net cash used in investing activities in 1H 2011 was US$350.5 million (1H 2010: US$350.8 million) primarily due to the capital expenditure of US$215.9 million and amounts of US$143.6 million placed on term deposits, offset by interest income of US$9 million received during the period.

Net cash used in financing activities in 1H 2011 was US$71.1 million as compared to cash of US$0.1 million generated from financing activities during the comparative period primarily due to the payment of US$72.2 million in respect of the 2010 final dividends.

 

OUTLOOK

We expect to drill and complete 12 wells plus a sidetrack as well as to perform a workover of one well within the 2011 drilling programme. This represents an upgrade to the previous guidance of 11 wells provided at the beginning of 2011. Out of 12 wells, seven wells have already been put into production. The Dzheitune (Lam) B/150 development well completed in January 2011 counted towards the 2010 drilling programme.

The NIS rig is to complete two more wells by the end of 2011, including the Dzheitune (Lam) 28/161 well currently being drilled. The Iran Khazar will complete one more well on the Dzheitune (Lam) B platform, Lam B/159 well currently being drilled. Subsequently, the rig will be mobilized to the Dzheitune (Lam) A platform to perform a workover; later, it may undergo regular maintenance.

The Rig 40 is scheduled to complete two wells, including the 13/160 well currently being drilled, and a sidetrack on the Dzheitune (Lam) 13 platform before the end of 2011.

As part of our strategy for infrastructure expansion in 2011-13, over the next 18 months we are planning to tender out contracts for the construction of at least another two new wellhead and production platforms together with associated pipelines. These will be located in the Dzheitune (Lam) field and called Dzheitune (Lam) D and Dzheitune (Lam) E while more platforms to be constructed in both fields in the next few years.

Given the solid production flow from the fields and updated drilling programme, we reiterate our production growth guidance for 2011 of up to 20% and maintain our medium-term guidance of an average 10-15% per annum over the 2011-13 period.

 

 

Dr Abdul Jaleel Al Khalifa

 

Chief Executive Officer

 

Dragon Oil plc

 

-     end -

 

Group balance sheet

 

		Unaudited	Audited
	Note	30 June 2011	31 December 2010
		US$'000	US$'000
ASSETS
Non-current assets
Property, plant and equipment	6	1,240,137	1,176,361
		------------------------	------------------------
		1,240,137	1,176,361
		------------------------	------------------------
Current assets
Inventories	7	48,432	47,035
Trade and other receivables	8	136,128	98,273
Term deposits		1,338,774	1,195,148
Cash and cash equivalents	9	133,531	141,457
		------------------------	------------------------
		1,656,865	1,481,913
		------------------------	------------------------
Total assets		2,897,002	2,658,274
		==========	==========
EQUITY Capital and reserves attributable to equity shareholders
Share capital	10	80,830	80,774
Share premium	10	231,370	230,296
Capital redemption reserve		77,150	77,150
Other reserve		4,015	4,074
Retained earnings		1,938,807	1,700,652
		------------------------	------------------------
Total equity		2,332,172	2,092,946
		------------------------	------------------------
LIABILITIES
Non-current liabilities
Deferred income tax liabilities		107,854	83,231
		------------------------	------------------------
		107,854	83,231
		------------------------	------------------------
Current liabilities
Trade and other payables	11	322,026	340,023
Current income tax liabilities		134,950	142,074
		------------------------	------------------------
		456,976	482,097
		------------------------	------------------------
Total liabilities		564,830	565,328
		------------------------	------------------------
Total equity and liabilities		2,897,002	2,658,274
		==========	==========

 

 

Groupincome statement

 

		Unaudited	Unaudited
	Note	6 months ended 30 June 2011	6 months ended 30 June 2010
		US$'000	US$'000
Revenue	12	527,366	276,330
Cost of sales	13	(109,655)	(89,094)
		-------------------	-------------------
Gross profit		417,711	187,236
Administrative expenses		(10,598)	(13,757)
Other income		147	95
		-------------------	-------------------
Operating profit		407,260	173,574
Finance income		8,969	13,194
		-------------------	-------------------
Profit before income tax		416,229	186,768
Income tax expense	17	(106,878)	(49,199)
		-------------------	-------------------
Profit attributable to equity holders of the Company		309,351	137,569
		========	========
Earnings per share		US Cents per share	US Cents per share
Basic	15	59.98c	26.71c
Diluted	15	59.80c	26.62c
		========	========

 

 

Group statement of comprehensive income

 

		Unaudited	Unaudited
		6 months ended 30 June 2011	6 months ended 30 June 2010
		US$'000	US$'000
Profit attributable to equity holders of the Company		309,351	137,569
		-------------------	-------------------
Total comprehensive income for the period		309,351	137,569
		========	========

 

 

Group statement of changes in equity (unaudited)

 

	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 2010	80,687	228,809	77,150	3,138	1,313,439	1,703,223
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Total comprehensive income for the period	-	-	-	-	137,569	137,569
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Shares issued during the period	33	604	-	-	-	637
Employee share option scheme:
-value of services provided	-	-	-	985	-	985
Transfer on exercise of share options	-	-	-	(574)	574	-
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Total transactions with owners	33	604	-	411	574	1,622
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
At 30 June 2010	80,720	229,413	77,150	3,549	1,451,582	1,842,414
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Total comprehensive income for the period	-	-	-	-	248,514	248,514
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Shares issued during the period	54	883	-	-	-	937
Employee share option scheme:
-value of services provided	-	-	-	1,081	-	1,081
Transfer on exercise of share options	-	-	-	(556)	556	-
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Total transactions with owners	54	883	-	525	556	2,018
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
At 31 December 2010	80,774	230,296	77,150	4,074	1,700,652	2,092,946
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Total comprehensive income for the period	-	-	-	-	309,351	309,351
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Shares issued during the period	56	1,074	-	-	-	1,130
Employee share option scheme:
-value of services provided	-	-	-	987	-	987
Transfer on exercise of share options	-	-	-	(1,046)	1,046	-
Dividends (Note 14)	-	-	-	-	(72,242)	(72,242)
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
Total transactions with owners	56	1,074	-	(59)	(71,196)	(70,125)
	-----------------	-------------------	-----------------	---------------	----------------------	----------------------
At 30 June 2011	80,830	231,370	77,150	4,015	1,938,807	2,332,172
	=======	========	=======	======	==========	==========

 

All amounts are attributable to equity holders of the Company.Group cash flow statement

 

 

	Note	Unaudited 6 months ended 30 June 2011	Unaudited 6 months ended 30 June 2010
		US$'000	US$'000
Cash generated from operating activities	16	503,105	274,429
Income tax paid		(89,379)	(77,378)
		------------------	------------------
Net cash generated from operating activities		413,726	197,051
		------------------	------------------
Cash flows from investing activities
Additions to property, plant and equipment		(215,883)	(193,537)
Interest received on bank deposits		8,969	13,194
Amounts placed on term deposits (with original
maturities of over three months)		(143,626)	(170,438)
		------------------	------------------
Net cash used in investing activities		(350,540)	(350,781)
		------------------	------------------
Cash flows from financing activities
Proceeds from issue of share capital	10	1,130	637
Dividends paid		(72,242)	-
		------------------	------------------
Net cash (used in) / generated from financing activities		(71,112)	637
		------------------	------------------
Net decrease in cash and cash equivalents		(7,926)	(153,093)
Cash and cash equivalents at the beginning of the period		141,457	267,110
		------------------	------------------
Cash and cash equivalents at the end of the period		133,531	114,017
		========	========

 

 

1          General information

 

Dragon Oil plc (the "Company") and its subsidiaries (collectively, the "Group") are engaged in upstream oil and gas development and production activities in Turkmenistan under the terms of the Production Sharing Agreement ("PSA") between Dragon Oil (Turkmenistan) Limited and the State Agency for Management and Use of Hydrocarbon Resources at the President of Turkmenistan, which was signed on 10 November 1999 and effective from 1 May 2000. The head office is based in Dubai, United Arab Emirates.

 

The Company is a public limited company, incorporated in the Republic of Ireland in September 1971. The address of its registered office is 6th Floor, South Bank House, Barrow Street, Dublin 4, Ireland.  The registration number is 35228.

 

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

 

This condensed consolidated interim financial information ("interim financial information") was approved for issue by the Board of Directors on 9 August 2011.

 

2          Basis of preparation of interim financial information

 

This interim financial information for the six months ended 30 June 2011 has been prepared in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007, the related Transparency Rules of the Irish Financial Services Regulatory Authority and with International Accounting Standard 34, "Interim financial reporting" ("IAS 34") as adopted by the European Union. The interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2010, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the European Union.

 

The preparation of the interim financial information includes the use of estimates and assumptions that affect items reported in the Group balance sheet and the Group income statement. Although these estimates are based on management's best knowledge of current circumstances and assumptions about future events and actions, actual results may differ from those estimates.

 

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

 

3          Accounting policies

 

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2010, as described in those annual financial statements, except for the adoption of new standards and interpretations as of 1 January 2011, as noted below.

 

New standards, interpretations and amendments thereof, adopted by the Group

 

·              IAS 24 Related Party Transactions (Amendment)

The International Accounting Standards Board ("IASB") has issued an amendment to IAS 24 that clarifies the definitions of a related party. The new definitions emphasise a symmetrical view of related party relationships as well as clarifying in which circumstances persons and key management personnel affect related party relationships of an entity. Secondly, the amendment introduces an exemption from the general related party disclosure requirements for transactions with a government and entities that are controlled, jointly controlled or significantly influenced by the same government as the reporting entity. However, the Group has continued to disclose related party transactions as in the prior period. This amendment did not have any impact on the financial position or performance of the Group.

 

·              IAS 32 Financial Instruments: Presentation (Amendment)

The amendment alters the definition of a financial liability in IAS 32 to enable entities to classify rights issues and certain options or warrants as equity instruments. The amendment is applicable if the rights are given pro rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. The amendment has had no effect on the financial position or performance of the Group.

 

3          Accounting policies (continued)

 

·              IFRIC 14 Prepayments of a Minimum Funding Requirement (Amendment)

The amendment removes an unintended consequence when an entity is subject to minimum funding requirements (MFR) and makes an early payment of contributions to cover such requirements. The amendment permits a prepayment of future service cost by the entity to be recognised as pension asset. The Group is not subject to minimum funding requirements in the territories in which it operates. The amendment to the interpretation therefore had no effect on the financial position or performance of the Group.

New standards issued but not effective for the financial year beginning 1 January 2011 and not early adopted by the Group

 

·              IFRS 10 Consolidated Financial Statements

The IFRS supersedes IAS 27 'Consolidated and Separate Financial Statements' and establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU and is not expected to have any impact on the financial position or performance of the Group.

 

·              IFRS 11 Joint Arrangements

The IFRS supersedes IAS 31 'Interests in Joint Venture' and establishes principles for financial reporting by parties to a joint arrangement. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU and is not expected to have any impact on the financial position or performance of the Group.

 

·              IFRS 12 Disclosure of Interests in Other Entities

The IFRS applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU and is not expected to have any impact on the financial position or performance of the Group.

 

·              IFRS 13 Fair Value Measurement

The IFRS applies to IFRSs that require or permit fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances. The standard is not applicable until 1 January 2013 but is available for early adoption. However, the standard has not yet been endorsed by the EU and is not expected to have any impact on the financial position or performance of the Group.

 

Improvements to IFRSs (issued May 2010)

 

In May 2010, the IASB issued its third omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments did not have any impact on the financial position or performance of the Group.

 

·              IFRS 3 Business Combinations: The measurement options available for non-controlling interest (NCI) have been amended. Only components of NCI that constitute a present ownership interest that entitles their holder to a proportionate share of the entity's net assets in the event of liquidation shall be measured at either fair value or at the present ownership instruments' proportionate share of the acquiree's identifiable net assets. All other components are to be measured at their acquisition date fair value.

 

·              IFRS 7 Financial Instruments - Disclosures: The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving disclosures by requiring qualitative information to put the quantitative information in context.

 

·              IAS 1 Presentation of Financial Statements: The amendment clarifies that an option to present an analysis of each component of other comprehensive income may be included either in the statement of changes in equity or in the notes to the financial statements.

 

 

3          Accounting policies (continued)

 

·              IAS 34 Interim Financial Statements: The amendment requires additional disclosures for fair values and changes in classification of financial assets, as well as changes to contingent assets and liabilities in interim condensed financial statements.

 

Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group:

 

·              IFRS 3 Business Combinations - Clarification that contingent consideration arising from business combination prior to adoption of IFRS 3 (as revised in 2008) are accounted for in accordance with IFRS 3 (2005)

 

·              IFRS 3 Business Combinations - Unreplaced and voluntarily replaced share-based payment awards and its accounting treatment within a business combination

 

·              IAS 27 Consolidated and Separate Financial Statements - applying the IAS 27 (as revised in 2008) transition requirements to consequentially amended standards

 

·              IFRIC 13 Customer Loyalty Programmes - in determining the fair value of award credits, an entity shall consider discounts and incentives that would otherwise be offered to customers not participating in the loyalty programme

 

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

4          Segment information

 

The Group is managed as a single business unit and the financial performance is reported in the internal reporting provided to the Chief Operating Decision-maker ("CODM"). The Board of Directors ("BOD"), who is responsible for allocating resources and assessing performance of the operating segment, has been identified as the CODM that makes strategic decisions.

 

The Group's development and production assets are located in Turkmenistan in the Caspian region and its head office is based in Dubai, where a significant portion of cash and cash equivalents and term deposits of the Group is held.

 

The financial information reviewed by the CODM is based on the IFRS financial information for the Group.

 

5          Critical accounting estimates and assumptions

The preparation of the interim financial information in conformity with IAS 34 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 Group income statement and the carrying amounts of assets and liabilities are discussed below:

 

Carrying value of development and production assets

 

In arriving at the carrying value of the Group's development and production assets, significant assumptions in respect of the depletion charge have been made. These significant assumptions include estimates of oil and gas reserves, future oil and gas prices, finalisation of the gas sales agreement and future development costs including the cost of drilling, infrastructure facilities and other capital and operating costs.

 

5          Critical accounting estimates and assumptions (continued)

 

The Group's estimated long-term view of oil prices is US$70 per barrel and netback prices for gas is US$3.5 per Mscf, based on the current outlook.

 

·    If the estimate of the long-term oil price had been US$20 per barrel higher at US$90 and the netback price of gas had been US$1 per Mscf higher at US$4.50 from 1 January 2011, the reserves attributable to the Group would decrease, with a consequent increase in the depletion charge of US$6.2 million for the six months period ended 30 June 2011.

 

·    If the estimate of the long-term oil price had been US$20 per barrel lower at US$50 and the netback price of gas had been US$1 per Mscf lower at US$2.50 from 1 January 2011, reserves attributable to the Group would increase, with a consequent decrease in the depletion charge of US$10.6 million for the six months period ended 30 June 2011.

 

The depletion computation assumes the continued development of the field to extract the assessed oil and gas reserves and the required underlying capital expenditure to achieve the same. It also 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.

 

6          Property, plant and equipment

 

		Development and production assets	Others	Total
		US$'000	US$'000	US$'000
Cost
At 1 January 2010		1,499,533	5,078	1,504,611
Additions for the period		173,580	9	173,589
Write-off for the period		-	(3,088)	(3,088)
		-----------------------	--------------	-----------------------
At 30 June 2010		1,673,113	1,999	1,675,112
Additions for the period		286,026	-	286,026
		-----------------------	--------------	-----------------------
At 31 December 2010		1,959,139	1,999	1,961,138
Additions for the period		151,367	72	151,439
		-----------------------	--------------	-----------------------
At 30 June 2011		2,110,506	2,071	2,112,577
		-----------------------	--------------	-----------------------
Depletion/depreciation
At 1 January 2010		594,557	1,744	596,301
Charge for the period		91,320	59	91,379
		-----------------------	--------------	-----------------------
At 30 June 2010		685,877	1,803	687,680
Charge for the period		97,058	39	97,097
		-----------------------	--------------	-----------------------
At 31 December 2010		782,935	1,842	784,777
Charge for the period		87,608	55	87,663
		-----------------------	--------------	-----------------------
	At 30 June 2011	870,543	1,897	872,440
		-----------------------	--------------	-----------------------
	Net book amount
	At 30 June 2011	1,239,963	174	1,240,137
		==========	======	==========
	At 31 December 2010	1,176,204	157	1,176,361
		==========	======	==========

 

7          Inventories

 

	Unaudited 30 June 2011	Audited 31 December 2010
	US$'000	US$'000
Crude oil	1,315	724
Drilling and other supplies	47,975	47,184
	-----------------	-----------------
	49,290	47,908
Provision for obsolete inventories	(858)	(873)
	-----------------	-----------------
	48,432	47,035
	========	=======

 

8          Trade and other receivables

 

	Unaudited 30 June 2011	Audited 31 December 2010
	US$'000	US$'000
Trade receivable	91,367	90,873
Crude oil underlift receivable	33,422	-
Other receivables	4,339	3,819
Receivable from a related party	228	71
Prepayments	6,772	3,510
	-----------------	-----------------
	136,128	98,273
	=======	=======

 

9          Cash and term deposits

 

Cash and cash equivalents include term deposits of nil (2010: US$7.3 million), representing interest bearing deposits with original maturities of less than three months.

 

Cash and term deposits include an amount of US$215.6 million (2010: US$174.4 million) held on deposit for abandonment and decommissioning activities. The related liability is shown under trade and other payables (Note 11).

 

10         Share capital and premium

 

	Number of	Ordinary	Share
	shares	shares	premium	Total
	('000)	US$'000	US$'000	US$'000
At 1 January 2010	514,989	80,687	228,809	309,496
Shares issued during the year in respect of   share options vested	639	87	1,487	1,574
	------------------	----------------	------------------	------------------
At 31 December 2010	515,628	80,774	230,296	311,070
Shares issued during the period in respect of   share options vested	390	56	1,074	1,130
	------------------	----------------	------------------	------------------
At 30 June 2011	516,018	80,830	231,370	312,200
	========	=======	========	========

 

11         Trade and other payables

 

	Unaudited 30 June 2011	Audited 31 December 2010
	US$'000	US$'000
Trade payables	49,029	78,639
Accruals	27,340	62,331
Crude oil overlift payable	-	12,680
Abandonment and decommissioning liability	244,889	185,828
Other creditors	768	545
	-------------------	-------------------
	322,026	340,023
	========	========

 

Trade payables and accruals include amounts of US$42.8 million (2010: US$76.6 million) and US$18.7 million (2010: US$49.4 million) respectively, relating to additions to property, plant and equipment - development and production assets. 

 

The abandonment and decommissioning liability represents amounts relating to the sale of crude oil set aside to cover abandonment and decommissioning liabilities under the terms of the PSA.

 

12         Revenue

 

Revenue includes an amount of US$493.8 million (1H 2010: US$70.4 million) arising from the sale of crude oil through Azerbaijan and US$0.2 million (1H 2010: US$0.03 million) arising from other sales in addition to revenue recognised from the underlift of entitlement to crude oil produced of US$33.4 million (1H 2010: US$ nil). There was no revenue (1H 2010: US$205.9 million) arising from the sale of crude oil in Iran.

 

Revenue from the sales of crude oil through Azerbaijan were from one customer (1H 2010: one customer) and from one customer in Iran in 1H 2010.

 

13         Cost of sales

 

	Unaudited 6 months ended 30 June 2011	Unaudited 6 months ended 30 June 2010
	US$'000	US$'000
Depletion	87,608	91,320
Crude oil overlift	(12,680)	21,822
Crude oil inventory movement	(592)	(56,499)
Other operating and production costs	35,319	32,451
	----------------	------------------
	109,655	89,094
	=======	========

 

14         Dividends paid and proposed

	Unaudited 30 June 2011	Audited 31 December 2010
	US$'000	US$'000
Dividends on ordinary shares declared and paid during the six-month period: Maiden dividend for 2010: US cents 14 per share (2009: nil)	72,242	-
	=======	========
Interim dividends on ordinary shares approved subsequent to the period-end (not recognised as a liability as at 30 June 2011):
Interim dividend for 2011: US cents 9 per share (Interim 2010: nil)	46,418	-
	=======	========
The 2011 proposed interim dividend was approved on 8 August 2011

 

15         Earnings per share

 

The calculation of basic earnings per ordinary share is based on the weighted average number of 515,751,755 ordinary shares in issue during the six months to 30 June 2011 (1H 2010: 515,127,981 ordinary shares) and on the profit for the period of US$309 million (1H 2010: US$138 million).

 

The calculation of diluted earnings per ordinary share is based on the number of 517,349,283 ordinary shares in issue during the six months to 30 June 2011 (1H 2010: 516,833,386 ordinary shares) adjusted to assume conversion of potential dilutive options over ordinary shares.

 

16         Cash generated from operating activities

 

		Unaudited 6 months ended 30 June 2011	Unaudited 6 months ended 30 June 2010
	Note	US$'000	US$'000
Profit before income tax		416,229	186,768
Adjustments for:
- Depletion and depreciation	6	87,663	91,379
- Crude oil underlifts		(33,422)	-
- Crude oil overlifts		(12,680)	21,822
- Employee share option scheme - value of services provided		987	985
- Interest on bank deposits		(8,969)	(13,194)
- Write-off property, plant and equipment		-	3,088
		-------------------	------------------
Operating cash flow before changes in working capital		449,808	290,848
Changes in working capital:
- Inventories		(1,397)	(56,405)
- Trade and other receivables		(4,433)	19,655
- Trade and other payables		59,127	20,331
		-------------------	------------------
Cash generated from operating activities		503,105	274,429
		========	========

 

17         Income tax expense

 

Income tax expense is recognised based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate used for 2011 is 25%. This rate has been applied from 1st July 2008.

 

During the period,the Group recognised a current tax charge of US$82.3 million (1H 2010: US$38.7 million) and a deferred tax charge of US$24.6 million (1H 2010: US$10.5 million).  The deferred tax charge is due to temporary differences between the accounting carrying values and the tax bases of assets and liabilities computed under the tax laws of Turkmenistan, which principally relate to accelerated tax depletion.

 

During 2008, the effective tax rate applicable to the Group's operations in Turkmenistan was increased to 25% by the Hydrocarbon Resources Law of 2008.  The Group has continued to apply this rate in determining its tax liabilities as at 30 June 2011.  The Group remains in discussions with the authorities in Turkmenistan about the applicability of this rate to prior periods, but it does not believe that prior periods are affected by the new rate.  A provision has been made in respect of the additional tax that could become payable if the increased tax rate were applied to prior periods based on the expected value (weighted average probability) approach.

 

18         Related party transactions

 

a)         Transactions and balances

 

The Company's largest shareholder is Emirates National Oil Company Limited (ENOC) L.L.C ("ENOC"), which owns approximately 51.41% of the Company's ordinary share capital. ENOC is ultimately a wholly owned entity of the Government of Dubai. Two members of the Board, Mr. Ahmad Sharaf and Mr. Mohammed Al Ghurair are nominees of ENOC. All transactions with related parties are on an arm's length basis.

 

	Unaudited 6 months ended 30 June 2011	Unaudited 6 months ended 30 June 2010
	US$'000	US$'000
Trading transactions:
(i) Sale of goods & services - companies under common  control	203	18,251
	-----------------	-----------------
(ii) Purchase of services - companies under common control	657	994
	-----------------	-----------------
Other transactions:
(i) Finance income - companies under common control	4,768	8,059
	-----------------	-----------------

 

	Unaudited 30 June  2011	Audited 31 December  2010
	US$'000	US$'000
Period end balances:
(i) Receivables - companies under common control	228	71
	-----------------	-----------------
(ii) Term deposits - companies under common control	699,220	785,668
	-----------------	-----------------
(iii) Cash and cash equivalents - companies under common control	65,720	17,238
	-----------------	-----------------
(iv) Payables - companies under common control	65	460
	-----------------	-----------------

 

b)         Key management compensation

 

	Unaudited 6 months ended 30 June 2011	Unaudited 6 months ended 30 June 2010
	US$'000	US$'000
Non-executive directors' fees	392	326
Salaries and short-term benefits	1,363	1,278
	--------------	--------------
Short term benefits	1,755	1,604
End of service benefits	69	121
Share-based payments	371	430
	--------------	--------------
	2,195	2,155
	======	======

Comparative information presented above is amended to accord to the current period presentation.

 

19         Commitments and contingencies

 

a)         Capital commitments

 

Committed future expenditure for property, plant and equipment for which contracts were placed at 30 June 2011 amounted to US$710.7 million (31 December 2010: US$663.9 million).

 

b)         Operational commitments

 

Irrevocable letters of credit of US$20.7 million were in issue at 30 June 2011 towards the supply of equipment and services (31 December 2010: US$20.5 million).

 

c)         Taxation

 

At 30 June 2011, there was a contingent liability with respect to taxation. Details of the contingent liability are outlined in Note 17.

 

d)         Others

 

The Group's operations in Turkmenistan, conducted through Dragon Oil (Turkmenistan) Ltd., are undertaken in accordance with the terms of the PSA, which became effective on 1 May 2000 between Dragon Oil (Turkmenistan) Ltd. and the Turkmenistan government. The agreement determines the rights and obligations of Dragon Oil (Turkmenistan) Ltd, inter alia, to carry out development activities through work plans and annual budgets. It also grants various tax, currency control and related concessions. However, there are no financial commitments, other than those disclosed above, arising from the terms of the PSA.

 

However, the Group's operations in Turkmenistan are ultimately subject to the political, socio-economic and legal uncertainties arising from the Turkmenistan political and legal systems.

 

20         Statutory accounts

 

The interim financial information presented in this report does not represent full statutory accounts. Full statutory accounts for the year ended 31 December 2010, prepared in accordance with IFRS, as adopted by the European Union, and containing an unqualified audit report, have been delivered to the Registrar of Companies.

 

21           Subsequent event

 

The Board has declared an interim 2011 dividend of US cents 9 per share for the half year to 30 June 2011 to be paid on 23 September 2011 to shareholders on the register on 19 August 2011 (1H2010: nil). No liability has been recognised as at 30 June 2011.

 

 

Statement of directors' responsibilities

 

We, the Board of Directors, confirm our responsibility for the half year report and that to the best of our knowledge:

 

(a)        the interim financial information comprising the Group balance sheet, the Group income statement, the Group statement of comprehensive income, the Group statement of changes in equity, the Group cash flow statement and related notes 1 to 21 have been prepared in accordance with IAS 34 as adopted by the European Union.

 

(b)        the interim management report includes a fair review of the information required by:

 

(i)         Regulation 8(2) of the Transparency (Directive 2004/109/EC) Regulations 2007, being an indication of important events that have occurred during the first six months of the current financial year and their impact on the interim financial information; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(ii)         Regulation 8(3) of the Transparency (Directive 2004/109/EC) Regulations 2007, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

The Directors are confident that the Group will have adequate financial resources to continue in operational existence for the foreseeable future after reviewing the Group's plans for 2011 and future years.  We have therefore continued to adopt the going concern basis in preparing the accounts.

 

The directors of Dragon Oil plc are listed in the Dragon Oil plc Annual Report for the year ended 31 December 2010. A list of current directors is maintained on the Dragon Oil plc website www.dragonoil.com.

 

The maintenance and integrity of the Dragon Oil plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the web site.  Legislation in the Republic of Ireland governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.

 

On behalf of the Board

 

 

 

Mohammed Al Ghurair

Chairman

 

 

 

Nigel McCue

Director

Date:   9 August 2011

 

 

INDEPENDENT REVIEW REPORT TO DRAGON OIL PLC

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises the Group balance sheet, Group income statement, Group statement of comprehensive income, Group statement of changes in equity, Group cash flow statement and the related explanatory notes 1 to 21. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom and Ireland. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Transparency (Directive 2004/109/EC) Regulations 2007 and the Transparency Rules of the Irish Financial Services Regulatory Authority.

 

 

Ernst & Young

Dublin

Date: 9 August 2011