Delivering for the future Dragon Oil Delivering for Dragon Oil Annual plc Report 2014 the future ANNUAL REPORT 2014 About us Dragon Oil (Ticker: DGO) is an independent international oil and gas exploration, development and production company. The Group has a producing asset in Turkmenistan and exploration assets in Iraq, Algeria, Afghanistan, Egypt, Tunisia and the Philippines. Our headquarters are in Dubai, UAE. Dragon Oil is registered in Ireland (Company registration no: 35228) with a premium listing on the London Stock Exchange and a primary listing on the Irish Stock Exchange. Operations at a glance Dragon Oil’s principal producing asset is the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan. We also have onshore and offshore exploration assets in Iraq, Algeria, Egypt, Afghanistan, Tunisia and the Philippines. The Group’s headquarters are located in Dubai, United Arab Emirates. Emirates National Oil Company Limited (ENOC) L.L.C., a company ultimately owned by the Government of Dubai, owns approximately 54% of the Company’s ordinary share capital. Dragon Oil is registered in Ireland (Company Registration no: 35228) with a premium listing on the London Stock Exchange (Ticker: DGO) and a primary listing on the Irish Stock Exchange (Ticker: DRS). 01. Production 03. Exploration 05. Exploration Turkmenistan Algeria Afghanistan The Cheleken Contract Area covers Dragon Oil in partnership with Enel Dragon Oil has interest in two onshore approximately 950km2 and comprises was awarded two onshore exploration exploration blocks, Sanduqli (2,583km2) two offshore oil and gas fields, Dzheitune perimeters, Tinrhert Nord Perimeter and and Mazar-i-Sharif (2,715km2). The (Lam) and Dzhygalybeg (Zhdanov), in Msari Akabli Perimeter, in 2014. participating interest of Dragon Oil water depths of between eight and 42 (operator in Sanduqli block), Turkiye The Tinrhert Nord Perimeter (Dragon Oil metres. The area is being developed under Petrolleri A.O. (TPAO) (operator in 70% and operator, Enel 30%) is in the Illizi a Production Sharing Agreement (PSA). Mazar-i-Sharif block) and the Ghazanfar Basin in Eastern Algeria near a number of Group is 40%, 40% and 20%, respectively. In the Cheleken Contract Area, the average producing oil and gas fields and covers an gross field production for 2014 reached area of 2,907 km2. Read more on page 28 approximately 78,790 bopd (2013: 73,750 The Msari Akabli Perimeter (Dragon Oil bopd) – a 6.8% average gross production 30%, Enel 70% and operator) is in the 06. Exploration growth on the back of 14 wells completed Ahnet Basin in South-western Algeria in the Dzheitune (Lam) and Dzhygalybeg and covers an area of 8,096 km2. A number Tunisia (Zhdanov) fields, including two sidetracks, of undeveloped discoveries have been and solid performance from the The Bargou Exploration Permit, previously identified on the perimeter. existing wells. located in the Gulf of Hammamet in the Mediterranean Sea, offshore Tunisia covers Read more on pages 8-9 and 22-26 Read more on page 27 an area of 4,616km2 in water depths of 50 to 100 metres. The Bargou Joint Venture 02. Exploration 04. Exploration comprises Dragon Oil (55%), Cooper Energy (30%) and Jacka Resources (15%). Iraq Egypt Read more on page 28 Block 9 is located in the Basra province, The contract for the East Zeit Bay, onshore Iraq, and covers an area of 866km2. offshore the Gulf of Suez, was signed 07. Exploration Kuwait Energy is the operator for Block 9, on 19 May 2014. participating with a 70% contractor share, The Philippines while Dragon Oil has 30%. The East Zeit Bay (Dragon Oil 100%) is located offshore in the prolific southern Gulf In January 2014, Dragon Oil signed a In 2014, the partners drilled an exploration of Suez region. The block covers an area of farm-in agreement with Nido Petroleum 2 well, Faihaa-1, and made two oil 93km and lies in shallow waters ranging in Philippines Limited for Service Contract 63 discoveries with encouraging results. depth from 10 to 40 metres. A number of (SC 63) North West Palawan Basin, producing oil fields are adjacent to or near Read more on page 27 offshore the Philippines. The partners East Zeit Bay, namely East Zeit, Hilal, drilled an exploration well, which did not Ashrafi, SW Ashrafi and Zeit Bay fields. discover commercial hydrocarbons. Read more on page 28 Read more on page 28 OUR PRODUCTION & EXPLORATION SITES OUR OFFICES DUBLIN UK RUSSIA LONDON IRELAND CENTRAL ASIA EUROPE KAZAKHSTAN BLACK SEA CASPIAN UZBEKISTAN SEA 01 AZERBAIJAN TURKMENISTAN TURKEY 05 ASHGABAT 06 MAZAR-I-SHARIF TUNISIA MEDITERRANEAN AFGHANISTAN SEA 02 IRAN 04 IRAQ ALGERIA CAIRO 03 EGYPT PERSIAN PAKISTAN LIBYA GULF SAUDI DUBAI RED SEA ARABIA UAE OMAN ARABIAN SEA YEMEN MIDDLE EAST AFRICA PHILIPPINES SERVICE CONTRACT 63 07 Advisors Financial Communications Consultant Registrars Citigate Dewe & Rogerson Capita Registrars (Ireland) Limited 3 London Wall Buildings 2 Grand Canal Square London EC2M 5SY Dublin 2 UK Ireland Joint Corporate Broker Solicitors Davy Mason Hayes & Curran Davy House South Bank House 49 Dawson St Barrow Street Dublin 2 Dublin 4 Ireland Ireland Joint Corporate Broker Bankers Nomura International plc Standard Chartered Bank 1 Angel Lane Al Mankhool Road London EC4R 3AB Bur Dubai UK PO Box 999 Dubai Auditors UAE Ernst & Young Ernst & Young Building Emirates NBD PJSC Harcourt Centre Baniyas Road, Deira Harcourt Street PO Box 777 Dublin 2 Dubai Ireland UAE Company registration number: 35228 Designed and produced by MerchantCantos www.merchantcantos.com Printed by CPi Colour. CPi Colour are ISO14001 certified, CarbonNeutral®, Alcohol Free and FSC® certified. The inks used are vegetable oil based. Highlights of 2014 Operational highlights Financial highlights 14 US$1,093mn Drilling Revenue Fourteen wells, including two sidetracks, completed in Revenue grew by 4% on the back of an increase in the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields the volumes of crude oil sales as a result of higher in the Cheleken Contract Area, Turkmenistan entitlement offset by lower realised crude oil prices 78,790 bopd US$0.8bn Production Cash from operations Average daily gross production rose by 6.8% Stayed at the same level due to higher sales volumes offset by lower realised crude oil prices 60% US$1,975mn Reserves replacement Cash balance, net of abandonment and Approx. 60% of reserves produced in 2014 from the decommissioning funds Cheleken Contract Area have been replaced Unleveraged position maintained 2 132.32 US cents Diversification 2014 Earnings per share (basic) Two new countries entered: the Philippines and Algeria 2014 full-year EPS diluted of 132.26 US cents with exploration assets 2 36 US cents Diversification Full-year dividend Two successful oil discoveries in Block 9, Iraq 2014 final dividend of 16 US cents and interim dividend of 20 US cents, a 9% increase over 2013 Contents Strategic Review Governance Financial Statements 04 Year in review 46 Board of Directors and Senior 80 Independent Auditor’s Report 06 Market overview Management Team to the Members of Dragon Oil plc 08 Where we operate 50 Directors’ Report 84 Financial Statements 10 Chairman’s statement 56 Corporate Governance Statement 90 Notes to the financial statements 12 Business model 62 Directors’ Remuneration Report 118 Supplementary information – 14 Our strategy 75 Audit Committee Report Movement in oil, condensate and gas reserves (unaudited) 16 Chief Executive Officer’s statement 119 Five-year financial summary 20 Key Performance Indicators 119 Shareholder information 22 Business and financial review 120 Glossary/Definitions/Abbreviations 32 Corporate Social Responsibility IBC Advisors 38 Enterprise Risk Management 40 Principal risks Dragon Oil plc Annual Report 2014 01 02 Dragon Oil plc Annual Report 2014 Strategic Review Strategic Strategic Review 04 Year in review 06 Market overview 08 Where we operate 10 Chairman’s statement 12 Business model 14 Our strategy 16 Chief Executive Officer’s statement 20 Key Performance Indicators 22 Business and financial review 32 Corporate Social Responsibility 38 Enterprise Risk Management 40 Principal risks Dragon Oil plc Annual Report 2014 03 Year in review In 2014, we continued to grow the average gross production in the Cheleken Contract Area, Turkmenistan, and exited the year at an impressive rate of 92,008 barrels of oil per day. We also added two exploration perimeters in Algeria to our portfolio of oil and gas assets and had two oil discoveries in Iraq. The portfolio of our assets performed MEDITERRANEAN well during 2014: we grew average gross SEA production in Turkmenistan by 6.8% to 78,790 bopd; in Iraq, the consortium reported encouraging oil discoveries in both targeted formations; and in Algeria, in partnership with a major European utility company, we won two exploration ALGERIA perimeters. Unfortunately, the joint ALGERIA venture partners were not successful in the Philippines where the exploration well did not discover hydrocarbons. SEPTEMBER & OCTOBER Diversification Algeria On 30 September 2014, Dragon Oil announced that in partnership with ENEL Trade S.p.A. (“Enel”) the Group was awarded two exploration perimeters in Algeria, Tinrhert Nord Perimeter and Msari Akabli Perimeter. The contract for the exploration and exploitation of hydrocarbons was signed on 29 October 2014. OCTOBER & DECEMBER Diversification Petroceltic In 4Q 2014, the Board of Dragon Oil considered a possible offer to acquire Petroceltic International plc. However, in light of the then prevailing market conditions, the Board did not believe it was advisable to proceed with this transaction following a significant drop in the crude oil price and subsequent uncertainty about the long-term prices for crude oil. 04 Dragon Oil plc Annual Report 2014 Strategic Review Strategic JANUARY & JULY Exploration The Philippines In January 2014, Dragon Oil signed a farm-in agreement for Service Contract 63 (SC 63) MEDITERRANEAN SEA NW Palawan Basin, offshore the Philippines.