Dragon Oil

Strategy

Driving Production Growth
We are looking to maximise the returns from our high quality asset base through maintaining a good supply of rigs. The recently contracted Super M2 jack-up rig is critical to this strategy as it will be a newly built powerful rig, capable of drilling new wells faster and more efficiently and is due to be mobilised in Q4 2011.
 
Investing in Infrastructure
We are currently planning two additional wellhead and production platforms, Dzheitune (Lam) C and Dzhygalybeg (Zhdanov) A, to be built and installed by Q4 2011 and Q1 2012 respectively.  The new trunkline and upgrade of the Central Processing Facility are due to be completed later this year.

Investing in People
We will continue to focus on strengthening our employee base through both high quality recruitment and developing local personnel in Turkmenistan through a new staff training programme and a new Centre of Excellence to be completed later this year.

Leveraging Technology
Dragon Oil is leveraging technology to drive production growth and achieve our targets. We use both dual completion and high angle, extended reach wells to maximise production potential combined with sophisticated tools such as 3-D seismic imaging and reservoir simulation models.

Commercialising our Gas Resources
We continue to put the necessary infrastructure in place to commercialise our gas resources with the new trunkline, the Central Processing Facility upgrade and FEED study for a gas treatment plant. We expect to progress formal discussions on gas pricing with the Turkmenistan Government during 2010.
    
Securing New Assets
We continue to progress our diversification strategy looking to find new assets which add competitive advantage and provide a strategic fit with the Group. This will continue to be a key activity for us in 2010.

Cheleken Contract Area

Dragon Oil plc’s principal development and production asset is the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan, west of the coastal town of Hazar. The Cheleken Contract Area covers approximately 950 square kilometres (235,000 acres) and comprises two offshore oil and gas fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov), in water depths of between 8 and 42 metres.  The fields comprise two elongate anticlines situated at the eastern end of the Aspheron Ridge.  The Aspheron Ridge is a prolific hydrocarbon play extending from the Apsheron Peninsula in Azerbaijan to the Cheleken Peninsula in Turkmenistan and divides the South Caspian Basin from the Middle Caspian Basin. The 3-D seismic survey was acquired in 2004/2005; the interpretation was completed, while continuous additional studies and refinement are ongoing.

Dragon Oil’s operational focus is the re-development of the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields that were discovered during the Soviet era in Turkmenistan. Dragon Oil holds a 100% interest in and is operator of the Production Sharing Agreement (“PSA”) for the Cheleken Contract Area. Development in the Cheleken Contract Area under the PSA commenced in May 2000.

The Group is producing from a significant number of new and old wells and has an aggressive development programme comprising drilling new wells and an ongoing workover programme. The average daily Gross Field Production has increased from approximately 7,000 bopd in 2000 to over 60,000 bopd in the course of 2011.

Dzheitune (LAM)

The Lam Field is located to the South-West of Zhdanov field. Since the commencement of the

Production Sharing Agreement (“PSA”) in 2000, Dragon Oil has drilled 59 new wells on the

Lam field as of 21 September 2011, constructed and installed two new platforms with plans to install one more platform in late 2011, refurbished and upgraded existing platforms and performed

many successful workovers.

First well drilled in 1967

First production in 1978

A significant number of old and new wells in production

Nine producing platforms.

Dzhygalybeg (Zhdanov)

The Zhdanov Field is located to the North-East of the Lam field. The initial exploration and prospecting of the Zhdanov structure began in 1965. The first well with commercial oil and gas was drilled in 1966. The field has produced oil and gas from a series of numerous, stacked early to middle Pliocene Red Series sandstone reservoirs. Dragon Oil has completed a number of successful workovers in the Zhdanov Field and plans to install its first new platform, Zhdanov A, in early 2012.

First well drilled in 1966

First production 1972

Three old wells still producing.

Dragon Oil operates their principal asset, the Cheleken Contract Area, offshore in the eastern section of the Caspian Sea from our onshore base, near the town of Hazar, located on the Western coast of Turkmenistan.

In addition, we have our Turkmenistan main office in the capital of Turkmenistan, Ashgabat, where both our Dragon Oil country managers, Rashid Redjepov and Eldar Kazimov, are located.

Dragon Oil’s Group headquarters are located in Dubai, United Arab Emirates, and most of the Company's senior management are based in the Dubai office, including the Chief Executive Officer. All key personnel regularly visit the operations in Turkmenistan. In addition, Dragon Oil maintains an office in London, UK.

Production Sharing Agreement

Dragon Oil, through its wholly owned subsidiary Dragon Oil (Turkmenistan) Limited, is the operator of the Cheleken Contract Area under a Production Sharing Agreement ('PSA'), which was signed in 1999 and became effective in May 2000.

The PSA is between the State Agency for the Management and Use of Hydrocarbon Resources at the President of Turkmenistan (the "State Agency"), and Dragon Oil (Turkmenistan) Limited.  The State Agency is the primary Turkmenistan Governmental authority responsible for overseeing and approving matters relating to the PSA.  Dragon Oil was granted a production licence for the exploration and development of the oil and gas resources in the Cheleken Contract Area for a term of 25 years, effective 1 May 2000. The Company, during the term of the PSA, has the exclusive right to negotiate with the State Agency for the extension of the base term of the production licence for a period of not less than 10 years.

Pursuant to the PSA, Dragon Oil has the right to explore for, and the obligation to, develop oil and gas resources in the Cheleken Contract Area. Dragon Oil is obliged to provide the capital and expertise, subject to prescribed rights of cost recovery. Under the PSA terms, the oil and gas recovered is shared between the parties by reference to the level of production at a given time.

Reserves

Based on the results of the recent assessment by an independent energy consultant, the 2010 year-end reserves were upgraded to 639 (December 2009: 617) million barrels of oil and condensate and 1.6 TCF of gas reserves corresponding to 260 million boe; the gas resources are accordingly reduced to 1.4 (December 2009: 3.1) TCF.

The increase in oil and condensate reserves is due to increase in reserves in the Dzheitune (Lam) West area and addition of condensate that will be stripped from gas once the Gas Treatment Plant (“GTP”) is constructed and becomes operational. A portion of gas previously booked as contingent resources has now been converted into gas reserves based, amongst other factors, on the planned capacity of the GTP.

The 30-inch trunkline and Phase 2 expansion of the CPF are part of the infrastructure necessary to deliver unprocessed gas to the Turkmen gas network. The Group is producing about 120 mmscfd of gas most of which is currently flared.

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.

For more information about Dragon Oil's current operations, please click here.

Mohammed Al Ghurair - Non-executive Chairman

Mr Al Ghurair, born 24.03.1952, is presently the Non-executive Chairman for the Group. He was appointed to the Board of Dragon Oil plc on 25 April 2007 and was appointed as Chairman on 26 September 2008. He has served on the Board for almost four years. He has a degree in Mechanical Engineering and is a prominent executive  Director in a number of leading companies in the Middle East, including Dubai Aluminium, ENOC and the Saudi International Petrochemical Company. Mr Al Ghurair is a member of Dragon Oil’s Remuneration and Nominations Committees.

Dr Abdul Jaleel Al Khalifa - Chief Executive Officer

Dr Al Khalifa, born 02.07.1957, is presently the CEO for the Group. He was appointed to the Board of Dragon Oil plc on 26 September 2008 and has  served on the Board for approximately two and a half years. He joined the Company from Saudi Aramco where he managed a wide range of E&P departments, based in Dhahran, Saudi Arabia for 12 years. He has a doctorate in petroleum engineering from Stanford University and is a respected public speaker on the oil and gas industry. He also has a keen interest in humanitarian efforts, being a founder member of the industry’s Humanitarian Support Alliance NGO (IHSAN—H2O).

Ahmad Sharaf - Non-executive Director

Mr Sharaf, born 16.10.1966, is the Non-executive Vice-Chairman for the Group. He has extensive experience in the upstream oil and gas industry, having spent 15 years working with ConocoPhillips in its international operations in the United States and Middle East. He left ConocoPhillips in 2005 and joined Dubai Holding where he held leadership positions in the energy, health care and real estate sectors of the Group. In 2010, Mr Sharaf was appointed Chief Strategy Officer of Dubai Holding.

Mr Sharaf is Chairman of Dubai Mercantile Exchange, a member of the Board of the ENOC and a member of the ENOC Audit Committee. He serves as a Member of the Board of Visitors and a Group Member of the Global Partnerships Committee of the Fuqua School of Business, Duke University. Mr Sharaf was appointed to the Board of Dragon Oil plc in April 2007 and became a member of Dragon Oil’s Remuneration and Nominations Committees in 2008.

Mr Sharaf earned a B.Sc and M.Sc in Petroleum Engineering from the Colorado School of Mines and an MBA from Duke University’s Fuqua School of Business.

Nigel McCue - Senior Independent Non-executive Director

Mr McCue, born 12.09.1951, has over 30 years’ experience in the petroleum industry. He is a Director and CEO of Lamprell plc, a company that provides construction and specialist services to the offshore and onshore oil and gas industry. He is the Chairman of Jura Energy Corporation, a company listed on the Toronto Stock Exchange, and is a

member of its Compensation Committee. Previously, Nigel was a Director and CFO of Lundin Oil AB and prior to that he held various positions with Chevron Overseas Inc. and Gulf Oil Corporation.

Mr McCue is Dragon Oil’s Senior Independent Non-executive Director. He is a member of the Remuneration and Nominations Committees and is currently the Chairman of the Audit Committee. He was appointed to these committees on 19 June 2008. He was appointed to the Board of Dragon Oil plc on 22 April 2002 and in April 2011 will have served nine years on the Board.

Saeed Al Mazrooei - Non-executive Director

Mr Al Mazrooei, born 24.12.1960, received a Masters degree in gas engineering and management from Salford University in the UK and has focused on various aspects of the gas industry since he joined Arco International in 1985. Mr Al Mazrooei currently holds the position of CEO for Emirates Aluminium, as well as a number of Directorships in other Middle Eastern companies. Mr Al Mazrooei is a member of Dragon Oil’s Audit Committee and is the Chairman of the Remuneration Committee. He was appointed to these committees on 19 June 2008. He was appointed to the Board of Dragon Oil plc on 22 May 2007 and as such has served for almost four years.

Ahmad Al Muhairbi - Non-executive Director

Mr Al Muhairbi, born 07.09.1959, has a strong background in upstream oil and gas, with a comprehensive knowledge of well technology having obtained a degree in petroleum engineering. Mr Al Muhairbi has been involved in petroleum field development and production since 1988 previously with Margham Dubai Establishment and now with Dubai Supply Authority. Mr Al Muhairbi is a member of Dragon Oil’s Audit Committee and is the Chairman of the Nominations Committee. He has served on the Board for almost four years, having been appointed to the Board of Dragon Oil plc on 22 May 2007.

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