producing results Annual Report and Accounts 2008 WorldReginfo - a0ccc23f-15ea-478f-80e6-f06799ba3abe results we’re proud of... Dana Petroleum plc is a leading British independent oil company, committed to maximising shareholder value through the creation and execution of high impact opportunities. Contents 1 Highlights 36 Directors’ report and accounts 2 Chairman and Chief 114 Proven and probable reserves Executive’s statement and resources 6 Business review 115 Exploration and production 32 Directors and officers interests as at 31 December 2008 WorldReginfo - a0ccc23f-15ea-478f-80e6-f06799ba3abe Highlights Production 39,365boepd up 29% Revenue £518.0m up 66% Pre-tax profit £191.4m up 34% Earnings per share 111.13p up 51% Cashflow from operations £345.0m up 75% WorldReginfo - a0ccc23f-15ea-478f-80e6-f06799ba3abe 1 Dana Petroleum plc Annual Report 2008 Chairman and Chief Executive’s statement Dear Shareholder It is extremely pleasing to report that excellent progress has been made across all key areas of the Company’s business during 2008. Despite the extremely difficult global economic conditions now prevailing, which have resulted in an unprecedented and rapid deterioration of the oil price over recent months, Dana delivered record profits and earnings per share for the full year. 2008 also saw the achievement of new record highs in oil and gas reserves, production, revenue and cash flow. Dana has developed a strong and balanced asset base combining healthy cash reserves, a robust production portfolio delivering strong cash flow, a range of development opportunities and an extensive and exciting exploration programme. 2008 was Tom Cross, Chief Executive the most active year of exploration in Dana’s history with 11 wells completed during the year, including notable successes in the North Sea and the Nile Delta, with a further four wells being drilled at the year end. These exploration successes have allowed the Group to replace reserves during 2008 by nearly 300%, resulting in a new high for year end proven plus probable reserves of 194.1 mmboe, up from 165.8 mmboe at the end of 2007. Group production for the 2008 full year reached a new record high for Dana of approximately 39,400 boepd, giving a second successive year of around 30% growth. The Group also successfully delivered first production from the Grouse oil field development in the Central North Sea and sanctioned two further developments during the year, the E18 gas project in the Dutch sector and the Babbage gas field in the UK Southern North Sea. These new Colin Goodall, Chairman developments are expected to add to the production portfolio in 2009 and 2010 respectively. As the Company undertakes further operated activity, in seismic acquisition, onshore and Revenue £ million offshore drilling, and offshore operations, a focus on Health, Safety and the Environment (‘HS&E’) becomes increasingly important. Dana has set ideals it strives to achieve, in terms 2008 518.0 of no harm to people, property or the environment in its operations. Annual goals and targets 2007 are set to achieve these ideals and excellent results were delivered in 2008 in respect of these 2006 goals and targets. Further, more challenging goals and targets have been set in 2009 with the 2005 aim of achieving continual improvement in HS&E. 2004 Comprehensive details of the 2008 business environment, the Group’s activities and the Profit before tax £ million progress and results achieved during the year are contained in the Business Review on pages 2008 191.4 6 to 31. 2007 2006 Results 2005 2004 With 2008 average daily oil and gas production growing by 29% to 39,365 boepd (2007: 30,514 boepd) and an increased average realised price of $66.58 per boe during 2008 (2007: $56.03 Earnings per share pence per boe), revenue for the year increased by 66% to £518.0 million (2007: £311.5 million). 2008 111.13 Profit before tax grew by some 34% to £191.4 million (2007 restated: £143.1 million). This 2007 trading performance was impacted by a number of adjustments, including £34.0 million of 2006 exploration write-offs, £22.4 million of impairment charges; together partially offset by an 2005 exchange gain of £19.1 million due to the movement in the GBP:USD exchange rate during the 2004 latter part of 2008. Profit after tax increased by 54% to £97.2 million (2007 restated: £63.0 million). After allowing for the Company’s post tax share of the losses from Associates, the profit for the year was £96.2 million (2007 restated: £63.0 million) resulting in a 51% improvement in earnings per share to 111.13p (2007 restated: 73.55p). WorldReginfo - a0ccc23f-15ea-478f-80e6-f06799ba3abe 2 Dana Petroleum plc Annual Report 2008 Dana delivered record production in 2008 and also had an excellent year with the drillbit, adding record oil and gas reserves and replacing production by some 300%. WorldReginfo - a0ccc23f-15ea-478f-80e6-f06799ba3abe 3 Dana Petroleum plc Annual Report 2008 Chairman and Chief Executive’s statement continued Record reserves Cash generated from Group operations grew 75% to £345.0 million (2007 restated: £197.2 million). This facilitated total investment activity during the year of £173.4 million, including replacement £157.4 million (2007 restated: £202.7 million) on the Group’s portfolio of upstream assets, and expenditure of £80.2 million (2007 restated: £36.2 million) to fully repay the Group’s bank indebtedness. The Group closed the year with cash resources of £158.9 million and net cash, +297% after convertible debt, of £43.2 million (2007 net debt: £71.3 million), and gearing eliminated. In view of the prevailing financial market conditions with respect to liquidity and credit and in light of the Group’s commitment to an exciting exploration programme ahead, the Directors do not recommend payment of a dividend at this time. This will be reviewed once the results of the ongoing exploration drilling are known and financial market conditions improve. Overall, some 42.7 mmboe of proven and probable reserves were added during 2008 due to the net effect of discoveries, disposals and field revisions. The net reserve additions replaced Group production of 14.4 mmboe nearly three-fold over the calendar year. Year end proven and probable oil and gas reserves reached a new high of 194.1 mmboe (2007: 165.8 mmboe) of which 80% are now held in Europe. Dana’s end 2008 contingent resources (technically, recoverable hydrocarbons not yet determined to be commercial) were a further 146.4 mmboe. Therefore the total recoverable hydrocarbon resources available to the Group at the end of 2008 were 340.5 mmboe (2007: 280.1 mmboe) of which 57% are currently classed as proven and probable reserves. Board and Corporate governance As planned, Angus Pelham Burn retired as a non-executive director at the AGM in July 2008. Angus was a key member of the Dana Board and had always shown great skill, intelligence and integrity during more than eight years of service to the Company. We would like to record our thanks and appreciation to Angus for his significant contribution during the development of the Group and we wish him a long and happy retirement. Following the 2008 AGM, Ian Rawlinson assumed the role of Chairman of the Remuneration Committee, relinquishing the role of Chairman of the Audit Committee, which in turn was assumed by Philip Dayer from the same date. Brian Johnston was appointed as a non- executive director on 24 April 2008. Brian enjoyed a highly successful 34 year career with Bank of Scotland/HBOS, and has joined Ian and Philip serving as independent directors on the Audit, Remuneration and Nominations Committees. We look forward to working with him as the Company continues to grow over the coming years. Business development Business development continues to play a significant role in delivering Dana’s future growth and, over the past few years, Dana has consistently undertaken a high level of commercial activity ranging from exploration farm-ins, to individual asset deals and corporate portfolio acquisitions. This activity has continued with the recent announcement in February 2009 that the Company has entered into an agreement with Bow Valley Energy Ltd (“Bow Valley”), that provides for the acquisition by Dana of the entire share capital of Bow Valley, subject to regulatory and shareholder approvals. Bow Valley is a Toronto Stock Exchange-listed upstream company, predominantly focused on oil production and development in the UK North Sea. This acquisition is directly in line with Dana’s successful strategy of growing reserves and production in its core operating areas through both exploration and acquisition. In connection with this transaction and as a broader corporate refinancing initiative, Dana has agreed a new three year USD400 million revolving credit facility with the Bank of Scotland, replacing the Company’s existing undrawn facility which was due to mature in March 2009. This new facility will provide funding both for the circa USD35 million acquisition costs and for WorldReginfo - a0ccc23f-15ea-478f-80e6-f06799ba3abe 4 Dana Petroleum plc Annual Report 2008 settling Bow Valley’s bank indebtedness, which stood at an estimated USD142 million at 31 December 2008. The Bow Valley acquisition and the refinancing have been achieved despite extremely difficult market conditions. These significant steps forward for the Group are testament to the skills and very hard work of Dana’s talented team of industry professionals. On behalf of the Board, we would like to recognise and thank all staff for their valuable contributions, enthusiasm and dedication to the Company. Outlook 2009 has started with an exceptionally high level of exploration activity, with a total of seven exploration wells expected to complete during the first quarter of the year.