Dragon Oil Increases Production in Turkmenistan

Source: www.gulfoilandgas.com 4/21/2015, Location: Asia

Dragon Oil plc, an international oil and gas exploration, development and production company, issues its Interim Management Statement in accordance with the EU Transparency Directive. The statement covers the period from 1 January 2015 to date. The financial, production and drilling results data are for the period from 1 January 2015 to 31 March 2015. All other information, including details on operations, is up-to-date as of 20 April 2015.

Key highlights:
• Average gross production in the Cheleken Contract Area, Turkmenistan, reached approximately 88,700 barrels of oil per day (bopd) in 1Q 2015 - a 23% increase over the corresponding 2014 level;
• Average gross production in the Cheleken Contract Area for March 2015 amounted to approximately 89,600 bopd with April average gross production so far at above 93,000 bopd; and
• Capital expenditure on infrastructure, drilling and exploration assets was approximately US$153 million in 1Q 2015.

Dr Abdul Jaleel Al Khalifa, CEO, commented: "We have seen a very strong gross production performance at 88,700 bopd in the Cheleken Contract Area in the first quarter of 2015. This represents a 23% increase over the corresponding level in 2014. Since the beginning of April, we are producing at above 93,000 bopd. This gives us added confidence in reaching our target of 100,000 bopd gross production later this year."

Operational Update:
Production and entitlement:
Gross field production for 1Q 2015 averaged approximately 88,700 bopd (1Q 2014: 72,300 bopd). This represents a 23% increase compared to the level of gross production in the first quarter of last year. New development wells with strong flow rates were put into production.

The entitlement production for 1Q 2015 was approximately 71% (1Q 2014: 47%) of the gross production. The entitlement barrels are finalised in arrears and are dependent upon, amongst other factors, operating and development expenditure in the period and the realised crude oil price. Higher entitlement barrels in 1Q 2015 are a result of workings of the fiscal terms of the Production Sharing Agreement and are due primarily to lower realised oil prices and higher development expenditure.

Marketing:
In 1Q 2015, Dragon Oil sold 4.8 (1Q 2014: 2.7) million barrels of crude oil; this is 78% higher than the volume sold during the corresponding period last year. Higher sales in 1Q 2015 are primarily due to an increase in entitlement barrels as compared to the corresponding period last year. In 1Q 2015, Dragon Oil exported 87% (1Q 2014: 100%) of its crude oil production through Baku, Azerbaijan with the remainder of the volumes exported through Makhachkala in Russia (1Q 2014: nil). The terms are FOB (free-on-board) the Aladja Jetty, Turkmenistan. The new arrangements are in place until 31 December 2015.

Drilling:
The Neptune rig is currently sidetracking the Dzheitune (Lam) C/184 well.
The Elima jack-up rig is drilling the Dzheitune (Lam) B/202 well.
Land Rig 2 is currently sidetracking the Dzhygalybeg (Zhdanov) A/102 well following an equipment failure in the well.

The Caspian Driller is expected to commence operations in the Cheleken Contract Area later in 2Q 2015. Water injection project and artificial lift

The water injection pilot project is progressing in the pilot Dzheitune (Lam) 75 area. The acquisition of additional water injection facilities to be installed and commissioned in the Dzheitune (Lam) field is in the approval stage with the intention to procure these facilities later in 2015. The aim of the water injection programme is for pressure maintenance, to sustain production rates and increase reserves recovery.

In 2H 2014, Dragon Oil commissioned the jet pumping system on the Dzheitune (Lam) 13 platform for two wells. Additional jet pumping systems are currently being installed and expected to be commissioned during 2Q 2015. The objective of this artificial lift application is to increase production and enhance recovery.

In parallel, Dragon Oil is considering use of electric submersible pumps (ESP) with an aim to commence their application in a pilot in 2H 2015.

Infrastructure:
Design and detailed engineering work is ongoing for the new wellhead and production platform Dzheitune (Lam) E and associated pipelines, awarded in February 2014. Fabrication of the platform is progressing. The platform will have eight slots with provision for another four slots to be installed later, and suitable for a jack-up drilling rig use. Construction and installation are expected to take two years; it is anticipated that the platform will be ready in 1H 2016.

Installation of the Dzheitune (Lam) F production platform is progressing and the platform is expected to be ready for drilling in 2Q 2015. At the same time we continue to add drilling slots to the existing platforms to ensure flexibility in our drilling programme.

Work to quadruple our crude oil storage capacity at the Central Processing Facility is ongoing. The tank farm is anticipated to be completed in 1Q 2016 of which three tanks will be built and commissioned on a priority basis in 3Q 2015.

The project to build another 30-inch trunkline from the Dzheitune (Lam) field to the Central Processing Facility has been deferred. The purpose of the additional 30-inch trunkline was to transport mainly gas production onshore to feed the Gas Treatment Plant that is now planned to be constructed in phases over the next three to four years.

The existing 30-inch trunkline and two 12-inch pipelines are sufficient to accommodate increases in gross production in 2015 and 2016 and the plateau production of 100,000 bopd for at least five years from 2016.

Dragon Oil has plans to increase the loading capacity at the Aladja Jetty by installing another 16-inch pipeline and associated loading arms to support export of higher volumes in 2H 2015.

Gas Treatment Plant:
The bids for an engineering, procurement, installation and construction project of the Gas Treatment Plant are in the evaluation stage. We anticipate the construction to be phased out and the project to take three to four years to complete after the contract is awarded.


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