Dragon Oil Provides Q2 Ops and Production Update

Dragon Oil plc, an international oil and gas exploration, development and production company, has published a quarterly update on the drilling activity in the Cheleken Contract Area, Turkmenistan, and its exploration assets in the second quarter of 2014 and production numbers for 1H 2014.

Turkmenistan

In 2Q 2014, Dragon Oil completed the following wells in the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields in the Cheleken Contract Area:

The sidetrack drilled from the Dzheitune (Lam) 4 platform (4A/187) to appraise the location for a future platform encountered water and will be side-tracked in the future.

The first new well in the Dzhygalybeg (Zhdanov) field, an appraisal well Zhdanov 21/101, was tested across limited reservoir intervals for initial production at 425 bopd with a high water content. Due to well bore stability issues we have decided to suspend the well and sidetrack it in the future.

The current status of the drilling rigs in the Cheleken Contract Area is the following:

– Land Rig 1 is currently completing the Dzheitune (Lam) 22/188 well and will continue drilling on the Dzheitune (Lam) 22 platform;

– The Elima jack-up rig is drilling the Dzheitune (Lam) A/190 well;

– The Neptune rig is being mobilised to the Dzheitune (Lam) C platform to spud the Dzheitune (Lam) C/191 well;

– Work is ongoing on preparing Land Rig 2 to spud the Dzhygalybeg (Zhdanov) A/102 well in the coming two weeks;

– The Caspian Driller is expected to arrive in the Cheleken Contract Area in 2H 2014.

The Philippines

As reported by Dragon Oil’s partner Nido Petroleum Limited (ASX: NDO) on 7 July 2014, the Baragatan-1A well reached a depth of 2,681 meters Measured Depth (2,328 meters TVD sub-sea) having drilled through the primary Pagasa Formation reservoir objective. The primary Pagasa Formation reservoir objective was encountered between 2,534 – 2,654 meters Measured Depth (2,209 – 2,305 meters TVD sub-sea) comprising primarily limestones of poor to good reservoir quality with minor sandstones and siltstones. Preliminary Logging Whilst Drilling (LWD) log data recorded through this interval indicated the reservoir units to contain low gas saturations (C1 to C5), which did not warrant further evaluation or testing.

With respect to the two zones of potential interest encountered in the shallower Pagasa Formation, preliminary evaluation of available LWD data indicates the thin sandstones encountered within the gross interval 1,977 – 2,004 meters Measured Depth (1,785 – 1,805 meters TVD sub-sea) are potentially gas-bearing and the limestone encountered over the gross interval 2,207 – 2,236 meters Measured Depth (1,960 – 1,982 meters TVD sub-sea) contains low gas saturations. Both these intervals did not warrant further evaluation or testing.

The Baragatan-1A well will be plugged and abandoned.

Production
The average Cheleken Contract Area gross production for 1H 2014 was 73,440 bopd (1H 2013: 73,600 bopd). The average production for June 2014 was 76,100 bopd (June 2013: 75,800 bopd). The production rate on 9 July 2014 was 78,031 bopd.

As advised in the updated production growth guidance published on 25 June 2014, taking into account the performance in the first half of the year and forecasts for the second half of the year, Dragon Oil expects the average gross production growth from the Cheleken Contract Area to be in the range of 5% to 10% in 2014. Dragon Oil re-iterated drilling programme of between 14 and 16 wells, most of which will come into production in 2H 2014. Dragon Oil expects to exit at 87,000-90,000 bopd in 2014 and maintain the guidance for an exit rate of 100,000 bopd in 2015.

Dr Abdul Jaleel Al Khalifa, CEO, commented: “We have now drilled and tested the first new well in the Dzhygalybeg (Zhdanov) field, an appraisal well Zhdanov 21/101. Due to drilling difficulties, we tested only the upper part of the reservoir. While the results of the initial flow rate from the well are below our expectations, it would be premature to draw conclusions about the potential of the Dzhygalybeg (Zhdanov) field. With the coming well in the Dzhygalybeg (Zhdanov) A platform and the future sidetrack of the Dzhygalybeg (Zhdanov) 21/101 well, we would aim to test the entire section. The Dzhygalybeg (Zhdanov) field is definitely worth appraising further and developing.

“While the Barragatan-1A exploration well in the Philippines did not discover commercial hydrocarbons, its results and data from drilling provide us with information, which we will integrate into the regional geological picture and use to assess our future interest in the block.”

Press Release, July 11, 2014