OPERATIONAL UPDATE

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Dana Petroleum plc, the independent oil and gas exploration and production company focused on growth through international exploration and the development of production in the North Sea and Egypt, is pleased to provide the following operational update and outlook.

The Group's 2009 full year results are scheduled for release at the end of March 2010. The information contained herein has not been audited and so may be subject to further change and review.

Highlights:

  • Completion of acquisition of Bow Valley Energy
  • Secured interest in highly prospective acreage offshore Guinea. Seismic already underway.
  • Average oil and gas production of approximately 38,700 boepd delivered in 2009. Production increased and during November and December 2009, averaged just under 42,000 boepd.
  • Currently producing from 36 oil and gas fields, spanning the UK, Egypt, Norway and the Netherlands
  • Good progress on developments, with Babbage first gas planned for Q2 2010, and project sanction expected on the Barbara/Phyllis and Western Isles fields in Q4 2010
  • Successful exploration programme with significant oil and gas reserves added, notably in the UK, Norway and Morocco
  • Proven and probable reserves increased to a new record high of 222 mmboe at end of 2009, representing a reserves replacement of approximately 200%
  • Attractive new acreage won in the UK and Norway, including nine new blocks in the recently announced APA2009 Awards offshore Norway
  • Strong financial position. Group cash of £67 million at 2009 year-end with net bank debt (excluding convertible bond) of just £24 million
  • $400 million debt facility ensures robust financial basis for the Company, with headroom to grow the business

Outlook:

  • Group working interest production for 2010 forecast to average between 37,000 and 41,000 boepd, assuming a continuation of 2009 UK gas market dynamics
  • Currently drilling three exploration wells: Papyrus offshore Nile Delta, RAD 3X in the Gulf of Suez and East of Nile F-1x well, to be followed with a balanced portfolio of 14 further wells planned in 2010. These wells are targeting significant prospects in the Faroe Islands (Anne Marie), offshore Nile Delta (Bamboo) and Mauritania Block 7, with a number of wells in Egypt and the UK which can be developed in a timely manner to deliver near term cash flow.
  • Planned 2010 capital investment of approximately £235 million across existing fields and licences

Chief Executive, Tom Cross commented:

 

“Despite tough macro economic conditions during 2009, Dana has achieved substantial progress across its portfolio.

The Company made five significant new oil and gas discoveries, driving its reserves to a new record high.

We have already begun an exciting drilling campaign for 2010, with three wells currently drilling in Egypt and a total of 17 exploration wells scheduled for this year across five countries.”

 

29 January, 2010

 

For further information please contact:

Tom Cross, Chief Executive Dana Petroleum plc 01224 652400
David MacFarlane, Finance Director    
Stuart Paton, Technical & Commercial Director    
Nick Elwes College Hill Associates 020 7457 2020

 

OPERATIONAL UPDATE

Extensive Exploration Programme Delivering Substantial Oil & Gas Reserves Increase:

  • During 2009, Dana completed drilling on 17 exploration wells. The Company is currently drilling three wells in Egypt; the Papyrus exploration well, offshore Nile Delta, the EON-1x well in the East Beni Suef concession and has just spudded the RAD-3x well, offshore Gulf of Suez.
  • The 2009 programme delivered five significant discoveries:
    • SE Rinnes in the UK Northern North Sea. This oil field will be part of the Western Isles Development where the gross reserves are now estimated to be approximately 65 mmboe.
    • Tornado in the UK West of Shetland. This was Dana���s first well in the relatively unexplored West of Shetland area. The reservoir properties were in line with pre-drill expectations resulting in in-place volumes also in line with prognosis although the discovery contains gas as well as oil. Work will now focus on refining the subsurface model and determining the optimal development plan, which may be in conjunction with the neighbouring Suilven discovery which has similar hydrocarbons. The recent HM Treasury announcement extending the field allowance concept to remote gas fields in the West of Shetlands area is to be welcomed particularly as a potential catalyst for the necessary infrastructure projects. Although further details are awaited, this is a positive development for the potential commercialisation of West of Shetland reserves, such as Dana's recent Tornado oil and gas discovery and also Glenlivet, the West of Shetland gas discovery made by Dana’s associate Faroe Petroleum plc during 2009.
    • The Anchois gas discovery offshore Morocco. The well results were in line with pre-drill expectations. 3D seismic will be acquired during 2010 to refine the large number of further prospects in this block, before further drilling in 2011 and definition of an optimal development plan.
    • The Fulla gas discovery in Norway. The operator has now declared this discovery to be commercial and the redevelopment of the nearby Lille Frigg field may also be considered as part of the Fulla development.
    • The Jetta oil discovery in the Jotun area. Although relatively small, Jetta’s proximity to the Jotun producing field makes the threshold for commerciality relatively low. Oil was also discovered in the Heimdal sands at the Eitri prospect. ExxonMobil have recently sold their interest in the Jetta and Eitri discoveries to Det Norske Oljeskap enabling closer commercial alignment between the partners in respect of new developments.
  • Two further commercial discoveries were made in the East Beni Suef concession, onshore Egypt, with the Sohba field already having been brought on-stream.
  • The Group expects to report end 2009 proven plus probable reserves of approximately 222 mmboe, on a P50 working interest basis. This strong growth, from around 194 mmboe at end 2008, represents a reserves replacement ratio of approximately 200%.
  • The costs of unsuccessful exploration increased by £34 million during 2H09, due to write-downs following certain exploration work in Norway, Morocco and Egypt.

Significant Portfolio Growth:

  • In February 2009, the Company signed an Purchase Agreement to acquire Canadian listed company Bow Valley Energy. The transaction, which completed on 30 April 2009, added to Dana three new producing fields, additional equity in the Enoch field, and an interest in the Ettrick field which came on-stream in August 2009. There has been relatively good production performance across this portfolio with further infill opportunities being progressed in 2010. Minor exploration interests in Alaska, which were inherited as part of the corporate transaction, were divested in December 2009.
  • In December 2009, Dana signed a binding Sale and Purchase Agreement with Hyperdynamics Corporation to acquire a 23% interest in an exploration stage Production Sharing Contract (PSC) covering a significant area offshore Guinea, West Africa. A Joint Operating Agreement was executed between Dana and Hyperdynamics on 28 January 2010, following approval of the assignment of interest to Dana by the Guinean authorities. The companies are currently acquiring a large 2D seismic survey in the area and plan to follow this with a 3D survey later this year over the key prospects, with the aim of drilling towards the end of 2011.
  • Dana was awarded two licences in the Norwegian 20th Round in May 2009 and was awarded six licences in the APA2009 round announced in January 2010. The APA2009 licences encompass two new licences in the Norwegian Sea, one in the Southern North Sea and the rest in the Central North Sea and include two extensions to existing Dana licences where discoveries were made by Dana in 2009. The licences have relatively light work commitments in the initial phase. These awards significantly strengthen Dana’s exploration position in Norway and give the Company a very strong position in the Norwegian Sea in particular.

Robust Production Performance:

  • Group production for 2009 is expected to out-turn at an average of approximately 38,700 barrels per day oil equivalent, subject to final reconciliation. The Company is now producing from a total of 36 fields, providing a strong and balanced portfolio of cashflow.
  • Production performance from the Greater Kittiwake Area, Otter and Hudson in the UK Northern North Sea, Cavendish in the UK Southern North Sea and Jotun in Norway continue to be strong. However, during 2009 production was lower than expected from the following four assets:
  • Johnston gas field in the UK Southern North Sea due to low gas prices during the 2nd, 3rd and 4th quarters of 2009, which resulted in the field being shut-in for more than 5 months. The Company has reduced its estimates for Johnston production in 2010 accordingly on the basis of the 2009 UK gas market dynamics continuing. The lower production in 2009 has, however, not impacted field reserves.
  • East Zeit in Egypt where the C2 well started cutting water in late 2008. The production decline was somewhat mitigated by a workover campaign during 2009.
  • Onshore Egypt concessions where the difficult economic environment of early 2009 caused operators to delay investment in the infill drilling programme. Notwithstanding this, across Dana’s non-operated portfolio in Egypt, three development wells were drilled along with 15 further well interventions, and a 3D seismic programme was acquired in the Qarun concession. The infill programme has now been re-energised with a significant number of wells planned for 2010.
  • Ettrick field in the UK Central North Sea, where first oil was later than anticipated and a number of operational issues, in particular commissioning of the gas compressor, resulted in production being less than the well deliverability. However, the maximum flow rates achieved from the wells and the pressure data to date is positive in respect of future field performance.

Development Projects Progressing:

  • The E18 gas field in the Netherlands was brought on-stream in June 2009, some three months ahead of schedule. A further exploration target has been identified in the area which will be drilled in Q2 2010.
  • Development of the Babbage gas field has been progressing well. The jacket and topsides were installed in September 2009 with the outstanding work currently being completed offshore. Tie-in work between the Babbage platform and West Sole is also currently being completed. The initial three development wells have all now been drilled to TD with the third well to be completed imminently. Given the progress to date, first gas is expected by mid-year, with the key remaining activities being completion of the topsides work and fraccing of the wells.
  • On the Barbara/Phyllis gas development in UK Central North Sea, Dana, as operator, has delivered a host selection decision pack to partners with confirmation required by early February. Subject to this approval, a FEED study will then be undertaken with the project sanction expected Q4 2010. There is close partner alignment to meeting these deadlines and to delivering first gas in 2012.
  • Dana as operator of the Western Isles oil development in the UK Northern North Sea has been progressing the subsurface evaluation, holding discussions with host infrastructure and floating production system owners, and performing commercial evaluations with the aim of deciding on a single preferred host by May and achieving project sanction during Q4 2010. Discussions have also been progressing to agree the detailed mechanism for CIECO to back-in to the Lewis and Harris (formerly West and East Rinnes) discoveries made by Dana on a “sole-risk” basis during 2008.
  • In addition to new field developments, a number of infill drilling targets have been identified within Dana’s producing fields. The Company has budgeted for further wells in the Claymore, Ettrick and Cavendish fields in the UK and each of the Egyptian concessions in 2010. In addition, further infill opportunities are being considered in the Chestnut, Johnston and Otter fields in the UK and the Dutch gas fields.

Financial Performance and Balance Sheet Strength:

  • With the difficult global economic backdrop, and the lower commodity price environment, 2009 proved to be a challenging year. Some lower than forecast production from certain assets, allied to a number of unsuccessful exploration wells and the write-offs arising there from, will result in reduced financial performance.
  • The Group will take a one-off, non-cash, impairment charge of approximately £10 million in 2009, due to the impact on carrying values of the current weak UK gas price outlook. This will however, be substantially offset by an exchange gain realised over the year of £8 million due to the movement in the sterling/dollar exchange rate during 2009.
  • The Group’s effective tax rate for 2009 is currently expected to be in the 55-59% range for the year, inflated from normal levels by some exploration write-downs which did not attract any tax relief.
  • At the end of 2009, however, Dana had cash of approximately £67 million, with bank debt of approximately £91 million. The Group’s year-end reportable convertible debt was £120 million.
  • The out-turn of the 2009 capital investment programme is now expected to be at the low end of the £240-255 million range anticipated at the time of the November 2009 Interim Management Statement.
  • Dana’s has a $400 million debt facility in place with a strong group of eight, E&P focused banks. Net bank debt of approximately $40 million has effectively been drawn on this facility leaving significant headroom to fund the 2010 work programme and future investment opportunities.

Outlook:

  • Group production for 2010 is expected to be in the range of 37,000 to 41,000 boepd The actual out-turn will again depend on the UK gas price which impacted on nominations and hence production during the summer of 2009, and the timing of first gas from the Babbage field.
  • The 2010 capital investment programme is budgeted to be around £235 million. This figure will vary with the sterling/dollar exchange rate, given the dollar drilling component of the investment programme.
  • 17 exploration wells are currently scheduled for 2010, including the ongoing drilling in Egypt, at a total cost of approximately £115 million. The programme is targeting 200-250 mmboe net to Dana of unrisked reserves. These wells provide a balanced portfolio across each of Dana’s focus areas, and include:
    • the Anne Marie prospect, Faroe Islands, West of Shetland;
    • the Papyrus and Bamboo prospects, offshore Nile Delta;
    • the Cormoran prospect in Block 7, Mauritania aimed at proving sufficient volumes of gas to reach the commercial threshold for gas development when taken together with Dana’s Pelican discovery;
    • the Storkollen prospect in Norway;
    • three wells in the UK Southern North Sea, benefitting from the recent significant reduction in jack-up rig rates;
    • two wells offshore the Gulf of Suez, Egypt;
    • two onshore wells in the Gulf of Suez, Egypt, and
    • five wells in the East Beni Suef concession, onshore Egypt, which provide the opportunity for near term production growth.
  • In addition to Dana’s extensive ongoing exploration and development programme, highlighted above, the Company will continue to appraise new opportunities and commercial transactions where Dana’s technical expertise and financial strength can be utilised to add further value for shareholders.

29 January, 2010

NOTES TO EDITORS:

Dana Petroleum plc is a leading independent oil and gas, exploration and production company listed on the London Stock Exchange (symbol: DNX), and is a constituent of the FTSE 250 Index.

The Group currently produces from 36 oil and gas fields across four countries and holds more than 80 interests in exploration and production licences spanning eight countries. Dana’s activities are focused within its two core areas of Europe (North Sea) and Africa (North & West).

In Africa, Dana has production, development and exploration interests across Egypt, oil and gas discoveries offshore Mauritania and Morocco, and additional exploration opportunities offshore Senegal.

In Europe, Dana’s producing interests are focused on oil and gas in the UK North Sea, oil offshore Norway and gas offshore The Netherlands. Dana also has significant development and exploration opportunities across the North Sea.

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