DANA PETROLEUM IS A FTSE 250 INDEPENDENT OIL & GAS EXPLORATION AND PRODUCTION COMPANY. WE AIM TO DELIVER GROWTH FOR Annual Report and Accounts 2007 SHAREHOLDERS THROUGH THE CREATION AND EXECUTION OF HIGH Tel +44 (0) 1224 652 400 Fax +44 (0) 1224 652 401 IMPACT OPPORTUNITIES IN THE www.dana-petroleum.com NORTH SEA AND EGYPT. EXPANDING HORIZONS Dana Petroleum plc Annual Report and Accounts 2007 designed & produced by Communiqué Associates Limited, Edinburgh and Aberdeen DANA PETROLEUM IS A FTSE 250 INDEPENDENT OIL & GAS EXPLORATION AND PRODUCTION COMPANY. WE AIM TO DELIVER GROWTH FOR Annual Report and Accounts 2007 SHAREHOLDERS THROUGH THE CREATION AND EXECUTION OF HIGH Tel +44 (0) 1224 652 400 Fax +44 (0) 1224 652 401 IMPACT OPPORTUNITIES IN THE www.dana-petroleum.com NORTH SEA AND EGYPT. EXPANDING HORIZONS Dana Petroleum plc Annual Report and Accounts 2007 designed & produced by Communiqué Associates Limited, Edinburgh and Aberdeen SUCCESSFUL ISSUE OF £141.5M 17 CONVERTIBLE exploration wells BOND & NEW planned in 2008 $400M DEBT FACILITY VALUABLE NEW UK OIL FIELDS +30% DISCOVERED AT growth predicted WEST AND EAST in Group production RINNES for 2008 PROVEN & PROBABLE 30 RESERVES producing fields in INCREASED TO UK, Egypt, Norway 165.8 MMBOE & Netherlands (2006 130.6) SIGNIFICANT NEW GAS DISCOVERY AT WEST EL BURULLUS +3 new field 1st developments already sanctioned WELL IN EGYPT in 2008 SUCCESSFUL ISSUE OF £141.5M 17 CONVERTIBLE exploration wells BOND & NEW planned in 2008 $400M DEBT FACILITY VALUABLE NEW UK OIL FIELDS +30% DISCOVERED AT growth predicted WEST AND EAST in Group production RINNES for 2008 PROVEN & PROBABLE 30 RESERVES producing fields in INCREASED TO UK, Egypt, Norway 165.8 MMBOE & Netherlands (2006 130.6) SIGNIFICANT NEW GAS DISCOVERY AT WEST EL BURULLUS +3 new field 1st developments already sanctioned WELL IN EGYPT in 2008 CONTENTS Chairman & Chief Executive’s Review 2 Operational Highlights 7 Corporate & Social Responsibility 18 Business Review 20 Financial Review 28 Directors & Officers 34 Directors’ Report and Accounts 36 Proven and Probable Reserves and Resources 105 Exploration and Production GROWTH Interests as at 31 March 2008 106 2007 HAS BEEN A YEAR OF EXCEPTIONAL GROWTH FOR DANA; OUR EXPERT TEAMS CREATING OPPORTUNITIES, DEVELOPING PROJECTS AND DISCOVERING OIL & GAS. +316% +37% +44% reserves replacement increase in increase in cashflow production from operations 30,514 boepd to £201.8m (2006: 22,285) (2006: £139.9m) +2 +48% significant increase in pre tax acquisitions: profit £143.3m Devon Energy, Egypt, (2006: £97.1m) Ener Petroleum, Norway Dana Petroleum plc Annual Report 2007 1 CHAIRMAN AND CHIEF EXECUTIVE’S REVIEW “DANA deLIVered record PRODUCTION IN 2007 AND IS ON TARGET FOR SIGNIFICANT FURTHER GROWTH IN 2008” 2 Dana Petroleum plc Annual Report 2007 + + + + + INTRODUCTION Alongside production growth, Dana has RESULTS We are delighted to report on another year pursued an ambitious exploration and With 2007 average daily oil and gas of record operating performance with new appraisal programme. Significant effort production growing by 37% to 30,514 boepd highs established for reserves, production, was expended on securing drilling rigs in (2006: 22,285 boepd) and an increased revenue, cashflow and profit. Dana’s what continues to be an extremely tight average realised price of $56.03 per boe management team has also delivered a market for all oilfield equipment. Rigs during 2007 (2006: $48.78 per boe), revenue significant geographic expansion of the were, however, secured for prospects in the for the year increased by 45% to £311.5 Company’s business activities. UK, Norway and Egypt. The 2007 drilling million (2006: £215.3 million). campaign delivered a number of successes Following the successful acquisitions of such as finding gas in the Dutch sector at Profit before tax grew by some 48% to independent oil company Ener Petroleum E18, testing oil at high rates in the Grouse £143.3 million (2006: £97.1 million). Profit in Norway and the substantial Egyptian well in the UK, and discovering oil in two after tax increased by 49% to £61.8 million upstream business of Devon Energy, Dana reservoirs at Storskrymten in Norway, which (2006: £41.6 million), resulting in a 50% has established full operating capability and was the Company’s first well following improvement in earnings per share to 72.17p numerous new business opportunities in two its entry into the Norwegian sector. Good (2006: 48.24p). further proven hydrocarbon provinces. The progress was also made in building Dana’s Cash generated from Group operations Group’s enhanced portfolio now comprises a portfolio of future exploration drilling grew 44% to £201.8 million (2006: £139.9 strong and balanced asset base. It combines opportunities. The Company achieved million). This was supplemented by the a robust production portfolio delivering excellent results in its bids in the UKCS proceeds from a convertible bond issue cashflow from 30 fields, a wide range of 24th Licensing Round, being awarded 16 and a new bank debt facility both of which field development projects and an exciting new blocks, and also secured seven were completed on terms that were very exploration and appraisal drilling programme blocks offshore Norway in the 2007 APA attractive to the Company. Together these with the potential to deliver major upside Licensing Round. facilitated the record £351.3 million net cash over the next two years. Looking ahead, 2008 has started brightly investment made during 2007 on existing During 2007, Dana’s active development and production is expected again to projects and the acquisitions in Egypt and programme and astute commercial deals grow by more than 30%, with output for Norway. The Group closed the year with allowed the Company to continue its the year expected to be in the range of net debt of £71.3 million, equivalent to a delivery of year-on-year production growth. 40,000-45,000 boepd. Seventeen exploration gearing level of just 17%. In particular, the Enoch oil field and the and appraisal wells are planned for 2008, Having completed two significant strategic Cavendish gas field developments both with rigs already secured for 14 of these, acquisitions, and launched the most active achieved first production and have continued representing the most intense year for exploration programme in the Company’s to produce in line with expectations. This exploration in Dana’s history. This forward history, the Directors do not recommend new production was augmented by further programme will target potential reserves of payment of a dividend at this time. This will successful infill drilling within already around 1.4 billion barrels net to Dana over be reviewed once the upside opportunities producing fields. the next two years. within the acquired assets are assessed and the results of the ongoing exploration drilling are known. Dana Petroleum plc Annual Report 2007 3 Chairman & Chief Executive’s Review continued 2007 was also a very successful year for BUSINESS DEVELOPMENT BOARD AND CORPORATE Dana in terms of oil and gas reserves Business development continues to play GOVERNANCE additions, with a substantial increase in a significant role in delivering Dana’s As planned, Angus Pelham Burn will retire proven and probable reserves to a new growth, and over the past few years, as a non-executive director following the record level for the Group at year end. Dana has consistently undertaken a high completion of the next AGM in July 2008. Increases in reserves arose in three areas. level of commercial activity averaging Angus has been a key member of the Firstly, there were upward revisions in a around 10 commercial transactions per Dana Board and always shown great skill, number of producing fields which have year, ranging from exploration farm-ins, intelligence and integrity during more than 8 outperformed earlier forecasts. Secondly, to individual asset deals, to full blown years of service to the Company. We would there were acquisition-related additions in corporate portfolio acquisitions. Typically like to record our thanks and appreciation to Egypt and Norway and at the Cavendish gas this activity is targeted at the strategy of Angus for his significant contribution during field in the UK. Thirdly, reserves were added adding value through front-end exploration the development of the Group and we wish through the new exploration discoveries. work and accelerating cash flow through him a long and happy retirement. Further reserves growth is being sought development and asset trading. 2007 was Following the forthcoming AGM, Ian in 2008, with Dana’s 17 exploration well no exception, with the most significant Rawlinson will assume the role of drilling programme targeting a range of transactions being the acquisition of Devon Chairman of the Remuneration Committee, prospects. Energy Corporation’s Egyptian assets, relinquishing the role of Chairman of the completed in October, and the acquisition of Overall, some 46.3 mmboe of proven and Audit Committee, which will in turn be the Norwegian oil company Ener Petroleum probable reserves were added during assumed by Philip Dayer from the same ASA (now Dana Petroleum Norway AS) in 2007 due to the net effect of discoveries, date. Brian Johnston was appointed July. These transactions have significantly acquisitions, disposals and field revisions. as a non-executive director on 24 April expanded the Company’s horizons and This increase replaced Group production 2008. Brian enjoyed a highly successful delivered a larger, better balanced portfolio of 11.1 mmboe more than three-fold. 34 year career with Bank of Scotland/ of opportunities that the Company will seek Overall, net additions replaced 316% of HBOS, and was latterly Head of Corporate, to exploit over the coming years. Full details production over the calendar year. Group Scotland, for the Bank managing a team of these two major transactions and the proven and probable oil and gas reserves of 600 colleagues in 45 locations.