Dragon Oil plc (DGO) announces its interim results for the period ended 30 th June 2008.
KEY HIGHLIGHTS
Restated (US$ millions, unless stated otherwise)
Revenue
H1 2008: 373.5
H1 2007: 229.4
Change: +63%
Operating Profit
H1 2008: 200.2
H1 2007: 148.5
Change: +35%
Net cash generated from operating activities
H1 2008: 231.0
H1 2007: 123.5
Change: +87%
Profit for the period
H1 2008: 166.9
H1 2007: 124.1
Change: +34%
Capital expenditure
H1 2008: 154.5
H1 2007: 110.8
Change: +39%
Basic EPS (US cents)
H1 2008: 32.54
H1 2007: 24.32
Change: +34%
Operational Performance:
• Average gross production increased by 36% over the period to 38,482 bopd (H1/07: 28,321 bopd), of which 20,850 bopd (H1/07: 21,062 bopd) was attributable to the Company. Attributable barrels decreased due to full recovery of capital expenditure
• Peak production rate of 43,227 bopd achieved on 1st June 2008
• Four wells completed successfully in H1/08, with a fifth well and a sixth well completing in July and August 2008 respectively
• Capital expenditure of US$154.5 million included US$89.5 on drilling activities and US$65 million on infrastructure projects
• US$170 million, 15 month contract awarded in July for a new 30-inch, 39.4 km trunkline to bring all the oil and gas produced in the Cheleken Contract Area onshore to the Company's processing facility
• Cash and term deposits of US$659 million and no debt at period-end
Outlook
• On course to achieve drilling targets and deliver significant production growth for 2008
• Execution of the US$400 million infrastructure refurbishment and development programme prior to the end of 2009
• Tendering for up to four new rigs and for phase 2 of the processing facility
• Deploy its own, refurbished platform-based Rig 40 in Q4 2008
• The Front End Engineering Design study planned for the onshore processing facility and associated infrastructure for the gas development project
• Geophysical and geological studies ongoing in Dragon Oil's non-operated blocks in Yemen
• Pursue value-adding acquisitions, further diversifying Dragon Oil's portfolio
Mr. Hussain M. Sultan, Executive Chairman, commented:
"Dragon Oil continues to make strong progress towards achieving its targets. The drilling programme is on schedule having drilled six wells to date and an additional two wells scheduled for completion in H2 2008. This will enable the Group to achieve its average daily production rate target of 40,000 bopd for the year by the end of 2008.
"Our finances have strengthened further over the period which will fund Dragon Oil's infrastructure investment programme and will place us in a strong position to diversify our asset portfolio. Key projects are progressing well with the signing of a contract for the new 30-inch trunkline and the tendering process for a number of additional important projects nearing the completion phase.
"We are confident that Dragon Oil will deliver on its promises for 2008 and will continue to execute its projects in Turkmenistan in such way as to progress our development plan and to achieve continuous, improved results. We are working hard to ensure a bright and positive outlook for 2008 and beyond."
Dragon Oil continues to focus on securing long-term returns for its shareholders by investing in field development in the Cheleken Contract Area and portfolio diversification.
Financial performance
Net cash generated from operating activities in H1/08 of US$231 million was 87% higher than the corresponding period in the prior year (H1/07 US$123.5 million). The robust balance sheet reflecting zero debt, cash and term deposits of US$659 million at 30th June 2008 is expected to adequately support the planned capital expenditure for field development and asset diversification.
The cost of sales increased by US$0.2 million to US$73.5 million (H1/07: US$73.3 million). The increase in the cost of sales was primarily due to a 46% increase in depletion charge, an increase of 16% in operating and production costs, offset by reversal of the year-end crude oil overlift position of US$24.3 million. The depletion charge for the period was US$61.7 million (H1/07: US$42.4 million). This increase is due to the impact of higher assumed long-term oil prices applied in the estimation of entitlement reserves.
Dragon Oil hedged 3.8 million barrels of oil comprising approximately 45% of our 2008 entitlement barrels using zero cost collars, with oil price floors at US$45 per barrel and a ceiling price averaging US$102 per barrel. The Group's derivative instruments do not qualify for hedge accounting as prescribed by IAS 39 and the fair value movements are recorded in the income statement as "Other losses". The fair value charge in the income statement of US$91 million resulted from crude oil prices trading significantly above the ceiling prices. The Company continues to review its hedging strategy in light of market conditions. No hedges have been undertaken for the period beyond December 2008.
Basic earnings per share of 32.54 US cents were 34% higher than the corresponding period in the previous year (H1/07: 24.32 US cents).
Production and marketing
The H1/08 gross field production from the Cheleken Contract Area was an average of 38,482 bopd, a 36% increase over the H1/07 production average of 28,321 bopd. Of this, Dragon Oil's entitlement was 20,850 bopd (H1/07: 21,062 bopd). Dragon Oil'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 Production Sharing Agreement, Dragon Oil's entitlement barrels in the current period was 54% (H1/07: 74%) of the gross field production.
Dragon Oil sold 3.5 million barrels of oil in H1/08 (H1/07: 3.7 million barrels) and held low crude oil inventory at period end having resolved logistical constraints. The average realised price in H1/08 was approximately US$108 per barrel (H1/07: US$62 per barrel).
The Company continues to market approximately 80% of its crude oil through Neka in Iran as it is stable and continues to offer Dragon Oil the highest netback on its crude. In addition, the Company markets the balance of its crude through Baku , Azerbaijan in order to maintain a good level of marketing flexibility.
Drilling
Four development wells were completed during H1/08. Wells 22/124, L22/126, LA/125 and LA/127 yielded initial production rates of 2,414 bopd, 2,795 bopd, 4,082 bopd and 3,674 bopd respectively.
Two additional wells have been completed since the period end including Dzheitune (Lam) 22/128 on 16th July 2008 , which yielded a combined rate of 2,600 bopd and Dzheitune (Lam) A/129 on 20th August 2008 , which yielded a combined rate of 2,213 bopd.
The CIS-1 rig continues to drill a further development well, Dzheitune (Lam) 22/130, which is scheduled for completion in October 2008. Thereafter, the CIS-1 platform-based rig will be moved to the Dzheitune (Lam) 28 platform for the next phase of its drilling programme. In addition, the Iran Khazar jack-up rig will spud a further development well from the Dzheitune (Lam) A platform, which is expected to be completed in November 2008. Once this well has completed, the Iran Khazar rig will relocate for planned maintenance works.
In addition, the Company is continuing to refurbish its own platform-based Rig 40 for commencement of drilling operations from the refurbished Dzheitune (Lam) 13 Platform from Q4/08.
Yemen
Geological and geophysical evaluations are currently underway on all three blocks (R2, 49 and 35) in our non-operated acreage in Yemen . Drilling will commence on additional prospects in Block 35 in 2009.
CapEx
Capital expenditure in the first six months of 2008 increased by 39% over the corresponding period to US$154.5 million (H1/07: US$110.8 million). Of this figure, US$89.5 million went towards drilling activities and US$65 million was spent on infrastructure projects.
The infrastructure investment plan is expected to pick up pace in the second half of the year, with a number of key projects currently in the tendering phase.
