Dragon Oil Moving Forward with Cheleken Development Program

Dragon Oil

'Dragon has had a challenging first half of 2006, with notable successes offset by some early operational difficulties. In the second half of the year, Dragon will have two jackups operating concurrently for the first time and this will go a long way to achieving our stated goal of accelerating the field development plan and consequently, driving up production.' Commented Hussain Sultan, Chairman & CEO.

Production and marketing

The total field production from the Cheleken Contract Area, in the Caspian Sea, offshore Turkmenistan, for 1H 2006 was 3.4 million barrels of oil and the average gross production for the half-year was 18,576 bopd with 13,444 bopd attributable to Dragon. This compares to 3.5 million barrels of oil in 1H 2005 which had a total gross production of 19,533 bopd, of which 14,044 bopd was attributable to Dragon. The weighted average sales price in 1H 2006 was US$61.1 per barrel (1H 2005: US$43.6 per barrel).

Lower production in 1H 2006 was primarily due to a blockage in the pipeline between the LAM 22 well head platform and the Block 2 riser platform in late January 2006. Dragon restored the production from the LAM 22 platform in April 2006.

Dragon to date has not hedged the oil price, however the company's management will continue to review this on a regular basis during the year.

Drilling and workover

Two development wells have been drilled and completed from the upgraded LAM 10 platform in 2006 using the Iran Khazar jackup and four wells have been worked over from 3 other platforms.

Well LAM 10/113 was spudded on December 29, 2005 and drilled to a total depth of 3,753 m from the refurbished LAM 10 platform and tested oil from multiple reservoir Zones at a combined rate of 3,453 bopd. The second well, LAM 10/114, was spudded on 13th March 2006 (also from the LAM 10 platform) and put on production, with a combined rate of 1,700 bopd from multiple Zones.

Wells Zhdanov 21/53, Zhdanov 60/68, Zhdanov 21/51 and Zhdanov 60/66 were all worked over as part of the workover program. Well Zhdanov 21/53 was completed and tested at an initial rate of 214 bopd. Well Zhdanov 60/68 was completed and tested at an initial rate of 515 bopd. Well Zhdanov 21/51 was completed and tested at an initial rate of 656 bopd. Finally, well Zhdanov 60/66 was completed and tested at an initial rate of 350 bopd. All the worked over wells were shut-in prior to workover operations and are now on production.

Current operations and outlook

The Iran Khazar jackup rig is drilling the sixth well from the LAM 10 platform, LAM 10/115. The well has a target depth between 3,700 and 4,300 meters. Following completion of well LAM 10/115, the Iran Khazar is scheduled to complete another development well by the end of this year.

The Astra jackup is also on schedule to commence drilling operations and complete a development well from the LAM 13 platform. Following completion of that well, Dragon intends to use the Astra to commence drilling of an exploration / appraisal well from the LAM 28 platform on the LAM West structure before the year end.

In addition, Dragon is planning to refurbish the drilling rig that it owns, for commencement of platform-based drilling operations in 2007. Further, workover operations are in progress on well LAM 86/86 using a HWU. The workover program will continue with rigless operations and the HWU.

Significant progress has also been made on execution of two major contracts, namely the LAM 'A' wellhead and production platform and the onshore new process facility. By the end of the year, The LAM 'A' platform will be installed and made ready for drilling and the NPF will be installed and commissioned. The NPF will provide a processing capacity of up to 50,000 bopd. Tendering and engineering work is also progressing and is complete to different stages on additional wellhead and production platforms, refurbishment of the crude oil export jetty, refurbishment and upgrading of existing platforms for drilling and installation of new in-field flow lines.

Dragon Oil (Turkmenistan) Ltd., a wholly owned subsidiary of Dragon Oil plc, holds 100% interest in, and is the operator for a 25-year base term of, the Production Sharing Agreement ('PSA') for the Cheleken Contract Area. Development of the two oil producing fields, Dzheitun ('LAM') and Dzhygalybeg ('Zhdanov') in the Contract Area commenced in May 2000. Dragon has an exclusive right to negotiate an extension to the PSA for a further period of not less than 10 years.