Production and Development

During 2006, the Goosander oil field was brought on-stream and Dana completed the acquisition of stakes in the Johnston and Anglia gas fields. The Company closed the year producing from a total of 13 North Sea fields which delivered an annualized average output of 20,709 boepd. Together with a contribution of 1,576 boepd from the South Vat Yoganskoye oil field in Russia, average Group production in 2006, grew 13.2% to a new record high of 22,285 boepd.

As a result of the addition of new fields, infill drilling and workover activity on existing fields, Group production capacity increased strongly during 2006 to reach approximately 30,000 boepd by year end. A good performance was achieved in particular at the Hudson field, where Dana, as operator, has driven forward a programme of improvements. Production capacity at Hudson is now at levels significantly above those being delivered when Dana increased its interest and took over operatorship in 2005. There was also increased production in the GKA with peak production rates reaching record levels of over 32,000 boepd in the second half of 2006.

In the early months of 2007, production from GKA was impacted by severe weather affecting the tanker based offloading system and earlier this month an incident following tanker operations resulted in a shutdown of GKA. Although repairs are underway, the ongoing downtime caused by poor weather affecting tanker operations will be solved permanently by the construction of a new 10 inch oil export pipeline linking GKA to BP's Forties Pipeline System. Uptime in the GKA should increase significantly, with the new pipeline offtake also leading to an extended life for the GKA fields, resulting in additional oil reserves of approximately 2 million barrels net to Dana. The new pipeline is currently being manufactured and is scheduled to be operational by the fourth quarter of 2007. Dana has agreed to the construction of this pipeline, but is not exposed to any of the capital costs. Instead, Dana will pay a tariff to export oil through the pipeline, which reduces the Company's capital requirements, removes exposure to any cost pressures in the construction project, and protects against any future field underperformance. This pipeline will also underpin future development decisions and improve the economic return for new tie-backs in the area, including the Grouse oil field where development studies are well advanced.

The Enoch oil field and Cavendish gas field developments are progressing well with first production from both fields scheduled in Q2 2007. At Enoch, the focus of remaining work is on the Brae platform topsides, where the field will tie-in. At Cavendish, the first well has been drilled and completed with excellent flow rates, and the second well is currently drilling. The platform is installed, the export pipeline completed, the sub-sea pigging skid commissioned and work is almost complete on the host Murdoch platform. A third well will commence drilling following field start-up. In addition, infill drilling on fields already in production will again be an important factor in 2007, with drilling activity currently scheduled or being considered on the Otter, Hudson, Banff, Johnston, Anglia, Claymore and F16-E fields. This programme continues Dana's drive to maximise reserves and cash flow from its existing portfolio.

As a result of this intense offshore activity, Dana remains on target to increase its production capacity to 40,000 boepd by the end of 2007. It is currently estimated that Group production for 2007 will average between 31,000 and 34,000 boepd. The actual production out-turn for 2007 will depend on existing field performance and uptime, the precise timing of production start-up of the new fields under development, and the UK gas price which affects the economics of gas production and therefore export nominations and production levels.

Development planning, including detailed geoscience and engineering work, is underway on a number of fields which will come on-stream after 2007. At the Barbara gas field in the Central North Sea, Dana is acting as operator for the development studies which should allow the field owners to reach a project sanction decision later in 2007. Significant progress has been made in the last six months on aligning the five Barbara equity owners and agreeing a high level strategy for a potential combined development with the neighbouring Phyllis gas field. A Barbara/Phyllis combined project would become one of the most substantial remaining gas developments in the UK North Sea.

Additional gas was discovered in the Babbage field in 2006, flow testing at 10.7 million cubic feet of gas per day. Following this positive well result, the Group is now pursuing fast-track development plans. A number of development scenarios and evacuation routes are currently being considered. Also in the Southern North Sea, a production licence application has been made in respect of the gas discovered to date on Block A15 in the Netherlands.