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Dragon Oil upbeat about 2010-2012 with large cash pile

Oil and gas producer and FTSE 250 constituent Dragon Oil (LSE: DGO) reported an average daily production rate increase of 9% in 2009 over 2008 and landmark production of 50,000 bopd (barrels of oil per day) achieved at the turn of 2009/2010. It is also offering a bullish outlook for the next three years amid a recovery in commodity prices and with a cash balance of more than US$1.1 billion.

For the full year 2009, lower oil prices reduced revenues 12% to US$623.5 million, while profits declined 30% from 2008 to US$259 million and earnings per share slid to US50.3 cents from US71.8 cents. Prices had hit five year lows at the end of 2008.

Despite a weaker crude demand, the group achieved a 40% increase in sales volumes in 2009. Other operational highlights included a 9% increase in average daily rate of production from 40,992 bopd to 44,765 bopd with eight development wells completed during the year and two rigs employed full time.

The group now plans to complete up to 11 wells in 2010 along with 40 development wells, including five appraisal wells, targeting an annual production growth of 15% in 2010 and 10% to 15% on average in 2010-12.

Capital expenditure on infrastructure for 2010-2012 is estimated at US$600-700 million, including US$250 million allocated for 2010 projects, which will include platforms, trunkline, in-field pipelines and upgrades to the central processing facility. Expenditure on drilling and infrastructure projects in Turkmenistan for 2009 was US$317 million, of which 50% was attributable to drilling and the remaining balance spent on infrastructure.

Dragon Oil is currently well funded with no debt and a cash balance of US$1.137.6 billion, compared to US$875.7 million in 2008, which marks a 30% increase.

“Going forward we have a strong balance sheet with a net cash position of more than US$1 billion and no debt which provides us with significant financial flexibility as we look to diversify our asset base and commercialise our gas resources.  Looking ahead we will continue to invest for growth and are working hard to translate this strategy into value for the business for the benefit of our shareholders, our employees and our hosts,” said chief executive of Dragon Oil Abdul Jaleel Al Khalifa.

Dragon Oil (Turkmenistan) Ltd holds 100% in and is the operator of the production sharing agreement for the Cheleken contract area offshore Turkmenistan. The operational focus is on the re-development of two oil producing fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).

It also holds interests in Blocks 35, 49 and R2 (10%) in the Republic of Yemen.

Disclosure: The author holds no positions in the company