DO PLC Annual Report 2012

Registered office
Continuing to
Dragon Oil plc Annual Report 2012

Dragon Oil plc
6th floor, South Bank House
meet our targets

Barrow Street
Dublin 4
Ireland
Tel: +353 1 614 5247
Fax: +353 1 614 5001
www.dragonoil.com
Company registration number: 35228
Group headquarters
Dragon Oil
ENOC House II
3rd Floor
Right Wing
Sheikh Rashid Road
P.O. Box 34666
Dubai, UAE
Tel: +971 4 305 3600
Fax: +971 4 335 6954
London office:
St Andrew’s Building
17 Old Park Lane
London
W1K 1QT
United Kingdom
Tel: +44 20 7647 7800
Fax: +44 20 7629 5543
Ashgabat office:
Ata Govshudov Street 9/1
Ashgabat
Turkmenistan
Tel: +993 1293 5333
Fax: +993 1293 6377
More online
Visit our corporate website at
www.dragonoil.com
The Essential Read

For the second year in a row, revenues exceeded
US$1 billion due to strong oil prices and solid
production growth. The Group’s cash generating
abilities remained strong: we generated US$1bn
from operations during the year.
Read more on page 04
Our performance
Production challenges in early 2012 were
successfully dealt with allowing us to close the
year with the average December gross production
of 73,500 bopd. We also entered two countries
winning in bidding rounds for exploration assets.
Governance
We welcomed a new Independent Non-executive
Board member and a Company Secretary to our team.
Read more on pages 49 and 50
Financial statements
This section provides Independent Auditor’s
Report to the Members of Dragon Oil plc, financial
statements and notes to the financial statements.
Designed and produced by MerchantCantos
Read more on page 76 www.merchantcantos.com
Printed by CPi Colour.
CPi Colour are ISO14001 certified, CarbonNeutral®,
Alcohol Free and FSC® and PEFC Chain of Custody certified.
The inks used are vegetable oil based.
Dragon Oil (Ticker: DGO) is an independent
international oil and gas exploration,
The Essential Read

development and production company. Our
principal producing asset is the Cheleken
Contract Area, in the eastern section of
the Caspian Sea, offshore Turkmenistan.
Performance
02 The Essential Read 46 Governance
04 Highlights of 2012 48 Board of Directors and Senior Management Team

06 Year in review 52 Principal Risks Governance
08 Group at a glance 57 Directors’ Report
12 Business model 62 Corporate Governance Statement
14 Our strategy 69 Directors’ Remuneration Report
16 Key result areas
18 Risk Management Process
20 Performance 74 Financial statements
22 Chairman’s Statement 76 Independent Auditor’s Report to the

Financial Statements
24 Chief Executive Officer’s Statement Members of Dragon Oil plc

28 Operating and Financial Review 78 Financial Statements
38 Corporate Social Responsibility 84 Notes to the financial statements
108 Supplementary information – Movement in oil,
condensate and gas reserves (unaudited)
109 Five-year financial summary
110 Shareholder information
111 Glossary/Definitions/Abbreviations
112 Advisors
www.dragonoil.com Annual Report and Accounts 2012 Dragon Oil plc 01

The Essential Read
2012 was a strong year
both on the financial
and operational fronts.
02 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

04 Highlights of 2012
06 Year in review
The Essential Read

08 Group at a glance
12 Business model
14 Our strategy
16 Key result areas
18 Risk Management Process
Performance
Governance

Highlights of 2012
For 2012, we reported robust financial and operational

results. We surpassed US$1 billion in revenues as a result
of strong oil prices and growth in production despite the
challenges we faced during the year.
Summary Operational highlights

We earned over US$1 billion in revenues for a second year in a row
due to strong oil prices and solid production growth. Our cash
+15
generating abilities remained strong: we generated US$1bn from
operations during the year. The Group continued to return capital:
the dividend payout of about 25% allowed us to reward our
shareholders with a higher interim dividend and the Board of
Directors recommended a higher 2012 final dividend of 15 US 15 wells completed against an initial target of between
cents. This brings the total dividend for the year to 30 US cents. 13 and 15 wells
We also felt it was right to carry out a share buyback programme
to return US$200mn to our shareholders, which was successfully
67,600bopd
completed last October.
During 2012, we had to deal with sand control issues. Our best
resources - talented and experienced colleagues - across all
operational departments acted together to solve the issue as
Average gross production rose by 10%
quickly as was possible within the challenging operating
environment of the Caspian Sea. Despite the sand control issue,
180%
we achieved a solid 10% gross production growth having
completed more wells than we had originally planned.
Infrastructure expansion onshore and offshore supports our
drilling programme and production growth. In 2012, work
continued on the two new platforms for the Dzhygalybeg Reserves replacement rate
(Zhdanov) field, A and B. Tendering processes for a number of
new platforms are currently ongoing and we have plans to install
677mn
more platforms as we continue to develop the reserves in the
Cheleken Contract Area.
We secured a marketing route for the full volume of our export
entitlement production until the end of 2014 via Baku, Azerbaijan, Oil and condensate 2P reserves increased
that has proven to be a reliable outlet for our crude oil to-date.
to 677mn barrels
Further progress was made on executing our diversification
strategy. In Iraq, Dragon Oil, in a consortium of companies,
2
was awarded exploration Block 9 in the Basra region, while
in Afghanistan, again in a consortium of companies, we were
selected as the winning bidder for two blocks, Sanduqli and
Mzar-i-Sharif. In the offshore block in Tunisia, the Bargou
Exploration Permit, we expect to commence drilling in March new countries entered in consortia of companies with
this year and look forward to seeing the results of this contracts for exploration assets
exploration activity.
We continue our search for the right-fit assets in the regions of
interest, namely Africa, the Middle East, Central and parts of Asia.

Financial highlights
US$1,155mn
The Essential Read

Revenue
Revenue exceeded US$1 billion
119.49 US cents
2012 Earnings per share (basic) 2013 is promising to be
2012 full-year EPS diluted of 119.26 US cents
an exciting year for us
Performance
to work as a strong team
US$1,737mn for the benefit of all our
Cash balance, net of abandonment and
decommissioning funds stakeholders.
Unleveraged position maintained
30 US cents Governance
Full-year dividend
2012 final dividend of 15 US cents and interim dividend
of 15 US cents
US$200mn
Share buyback
The programme undertaken in June to October 2012
to return value to shareholders

Year in review
In 2012, we advanced on the diversification front

having entered two new countries where, in consortia
of companies, we were awarded contracts for
exploration assets.
January — March 2012 April — June 2012
The Board of Iraq

Directors Dragon Oil, in a consortium of companies, awarded an
exploration, development and production contract for
Thor Haugnaess from the oil services industry Block 9 in Iraq.
appointed Independent Non-executive Director Read more on page 32
to the Board of the Company.
TURKEY
SYRIA
MEDITERRANEAn BAGHDAD
sea
IRAQ iran
EXPLORATION BLOCK
BASRA
EGYPT
saudi arabia
The management Share buyback

Ali Al Hauwaj joined as Exploration Manager to head The programme launched in recognition of the
Dragon Oil’s exploration team and develop the Group’s Group’s strong financial position and significant
exploration expertise in line with the Group’s strategy. cash generating abilities.
Read more on page 51 Read more on page 32

July — September 2012 October — December 2012
Drilling on track Afghanistan
The Essential Read

12 wells, including two sidetracks, completed Dragon Oil, in a consortium of companies, selected
in the first eight months of the year. as the winning bidder for two blocks, Sanduqli and
Read more on page 28 Mzar-i-Sharif, in Afghanistan.
turkmenistan
EXPLORATION blocks
Performance
kabul
Afghanistan
IRan
pakistan
Drilling rig Drilling rigs

The jack-up rig “GPS Jupiter” secured to drill the Two 2,000 horse-power platform-based (“land”) rigs
Hammamet West-3 well, offshore Tunisia. with specifications secured for drilling operations in Governance
Read more on page 32 the Cheleken Contract Area, Turkmenistan.

TUNIS
BARGOU EXPLORATION PERMIT
ALGERIA
TUNISIA
MEDITERRANEAn sea
GABÈS

Group at a glance
Dragon Oil’s principal producing asset is the Cheleken

Contract Area, offshore Turkmenistan. Our exploration
assets are in Tunisia and Iraq; in 2012, we were also selected
as the winning bidder for two blocks in Afghanistan.
Where we operate
Russia
Dublin
UK
LONDON
ireland
Europe CENTRAL ASIA

kazakhstan
BLACK SEA uzbekistan
TURKEY TURKMENISTAN
ashgabat
Tunisia AFGHANISTAN
MEDITERRANEAn sea
IRAN
Iraq
ALGERIA LYBIA EGYPT PAKISTAN
SAUDI Dubai
ARABIA
UAE
OMAN
Africa YEMEN
MIDDLE EAST
ARABIAN sea
The Group’s headquarters are located in Dubai,

United Arab Emirates. Emirates National Oil Company Our production &
Limited (ENOC) L.L.C., a company ultimately owned exploration sites
by the Government of Dubai, owns approximately

Our offices
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 and a primary listing on the Irish Stock
Exchange (Ticker: DGO).

Production: caspian
Uzbekistan
sea
Turkmenistan
The Essential Read

Azerbaijan
The Cheleken Contract Area covers approximately
950km2 (235,000 acres) and comprises two offshore BAKU
oil and gas fields, Dzheitune (Lam) and Dzhygalybeg Cheleken

Turkmenistan
(Zhdanov), in water depths of between eight and 42
metres. The area is being developed under a
Production Sharing Agreement. Neka

IRAN AFGHANISTAN
Exploration:
TUNIS
Tunisia
BARGOU EXPLORATION PERMIT The Bargou Exploration Permit, is located in the Gulf
Performance
of Hammamet in the Mediterranean Sea, offshore
ALGERIA
Tunisia and covers an area of 4,616km2 in water
TUNISIA depths of approximately 50 to 100 metres. The Bargou
MEDITERRANEAn sea
Joint Venture comprises Dragon Oil (55%), Cooper
Energy (30%) and Jacka Resources (15%).
GABÈS
Exploration: TURKEY
Iraq SYRIA
Block 9 is located in the Basra province, onshore Iraq,

MEDITERRANEAn BAGHDAD Governance
and covers an area of 866km2. Kuwait Energy will be sea
the operator for Block 9, participating with a 70% IRAQ iran
contractor share, while Dragon Oil has 30%.

EXPLORATION BLOCK
BASRA
EGYPT
saudi arabia
turkmenistan
Exploration:
Afghanistan
EXPLORATION blocks
kabul
Dragon Oil, in a consortium of companies comprising
Kuwait Energy, Turkiye Petrolleri A.O. (TPAO) and
Afghanistan
the Ghazanfar Group, has been selected as the
IRan
winning bidder for two blocks, Sanduqli and Mzar-i-
Sharif, in the Afghan-Tajik Phase 1 Oil & Gas Tender.
pakistan

Group at a glance
Continued development of
the Cheleken Contract Area
How it happens in the

Cheleken Contract Area N
Dragon Oil operates in the Cheleken Contract Area
under a Production Sharing Agreement (“PSA”)
granted for a term of 25 years from 1 May 2000 and
has an exclusive right to negotiate an extension of
not less than 10 years.
Dragon Oil has been successfully operating in
Turkmenistan for over 12 years. We have invested
more than US$2.6bn in expanding the oil production 12”
and infrastructure in the Cheleken Contract Area, BLOCK 1 BLOCK 2
and as such, we are one of the largest foreign 20”
investors in Turkmenistan.
The Group has a medium-term development
programme, which targets the 100,000 barrels of oil
per day production rate to be achieved in 2015 and LAM 75
then maintained for at least five years. We employ LAM 28 LAM 21
over 1,400 employees of whom approx. 1,300 are LAM A
working in Turkmenistan and a majority of whom

are Turkmen nationals. LAM B LAM 63
LAM 10
Read more on page 28 LAM 04
LAM C
LAM 13
Dzheitune (LAM) Field

LAM 21
caspian
The Cheleken Contract Area
sea Uzbekistan
(Lam and Zhdanov) BLOCK
Azerbaijan
BAKU
The fields comprise two elongate anticlines situated at the eastern
Cheleken end of the Aspheron Ridge, which is a prolific hydrocarbon play
Turkmenistan extending from the Apsheron Peninsula in Azerbaijan to the
Cheleken Peninsula in Turkmenistan.
677mn barrels
Neka
IRAN AFGHANISTAN

Today’s targets Future targets
Target to reach a 100,000 bopd gross production rate arget the 2013 average gross production growth
T
in 2015 and maintain it for a minimum of five years at the lower end of the medium-term guidance of
starting from 2016. 10-15% on average per annum and target production
Evaluate options to enhance oil recovery from the growth of around 15% in 2014 and 2015.
reservoir by performing and analysing results of a Perform the water injection pilot project at the
water injection pilot project. Dzheitune (Lam) 75.
Pursue opportunities in Turkmenistan to monetise Progress plans to build the Gas Treatment Plant.
the gas reserves and resources.
The Essential Read

Dzhygalybeg
ZH 60 (Zhdanov) Field
ZH 04 ZH 21
ZH B ZH 31
ZH A
ZH 25 TURKMENISTAN
ZH 27
GOSP
Performance
BLOCK 3
dragon
oil camp
LAM 86
30”
30”
CPF
BLOCK 4
trunkline
karagel
Caspian Sea tank farm
ALADJA Governance
JETTY
LAM 22 Export
Dzheitune (LAM) Field Dzhygalybeg (Zhdanov) Field

LAM ZH
Since 2000, Dragon Oil has drilled new wells, constructed and The initial exploration and prospecting of the Zhdanov structure
installed three new wellhead and production platforms, refurbished began in 1965. The first well with commercial oil and gas was drilled
and upgraded existing platforms and performed workovers. The first in 1966. Dragon Oil has completed a number of successful workovers
well was drilled in 1967, first production commenced in 1978. in the Zhdanov field.
+77 new wells +1 new block

Our business model
Our business model is to create value across selected areas

of the oil and gas value chain where we have or can apply
our expertise and knowledge best.
Achieving our goals

We achieve this through four key pillars: operational excellence,
cost efficiency, organic growth and corporate activity.
Key Pillars
REGI
ONAL KNOWLEDG
E Operational excellence
REGI
ONAL KNOWLEDG
E
INF
INF
S RA TS
ST ST RES DRI
RE RU
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EM
E DRI CT TS L
T TS LLI IN SE
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PL
IN SE NG S
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BU
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ILD
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LO
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OP
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A
EL
MM
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EXP
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T
EXP
Cost efficiency
RA
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DEV
T
DEV
E
RA
XC
PO
PO
Creating and Creating and

ELL
COR

COR
ENCE
delivering delivering
sustainable sustainable
value for value for
stakeholders stakeholders
CY
OR
TY
OR
N
GA
AFE
IE
GA
RE
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GR F C
SE
NI
COM
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EF
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GR
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OW T
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CO
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MU
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ES
I R
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ND
PL EP
AT
UC
UC
AC
TH
LA
NI
NI
ER Read more on page 28

PE
TI
N EM P EX CE
TI
O N
O
TI
TI
AL
GR ENT ME
AL
O
GR NT
ES
ES
OW T
HE
TH PI OW
CA TH
ENVIRONMENT ENVIRONMENT
Corporate activity

The Essential Read
Objectives Achievements Future targets
ontinue to build infrastructure
C he Dzhygalybeg (Zhdanov) Block-4 gathering
T lans to continue installing new platforms
P
to support the drilling programme platform and associated in-field pipelines as we progress towards our 100,000 bopd
and production completed and installed target and beyond
Flexible drilling programme We install platforms suitable for drilling with Secure platform-based and jack-up rigs
Performance
based on platform-based and a platform-based or jack-up rig or a combination for an uninterrupted drilling campaign
jack-up rigs of both Manage and maintain facilities and
Target sweet spots based on 3D We select targets based on the hydrocarbon infrastructure at industry standards
seismic data and well history distribution and oil reserves in every zone Re-map continuously the subsurface
Reduce facility downtime targets and drill to various depths
ompetitive bidding process for

C or every project, we conduct a competitive
F igorous bidding process criteria will
R
goods and services bidding process where we set out specific continue to apply to all projects
Platforms upgraded for additional requirements governing quality, delivery Add slots on existing platforms on an
slots to add capacity and integrity ongoing basis to ensure flexibility in
Disciplined budgetary controls T hree slots were added on the Dzheitune (Lam) drilling sequence
28 platform We aim to keep the costs within a
Cost kept within
pre-determined limits Operating cost was higher at US$4/bbl reasonable range despite inflation and
primarily due to higher manpower costs limited resource availability in the
and increased level of field activity Caspian Sea region Governance
Increase production and mitigate solid 10% growth achieved in 2012 despite the
A xpect to grow 2013 average gross
E
decline rates sand control issues production at the lower end of the medium-
Increase processing capacity The tendering process to select an EPIC contractor term guidance of 10-15% on average per
to increase the Group’s crude oil storage capacity annum and target production growth of
Organic reserves growth by
at the CPF is ongoing around 15% in 2014 and 2015
drilling and extending boundaries
180% reserves replacement – increase in oil E xpand processing capacity as and
Generate growth in cash
and condensate 2P reserves is mainly due to an when required
from operations
increase in reserves in shallow areas of the field Drill appraisal wells, perform water
The increase in operating cash was primarily injection pilot project
attributable to production growth and sustained We expect to maintain strong operating
crude oil price cash flow on the back of production growth
iversfication strategy:
D n exploration, development and production
A ontinue to add exploration blocks and/
C
exploration interests and contract for Block 9 awarded to a consortium or a producing asset in the regions of
development assets of companies, including Dragon Oil interest to us: Africa, the Middle East
Diversify in new geographical areas A consortium of companies, including Dragon and parts of Asia
Oil, has been selected as the winning bidder
for two blocks, Sanduqli and Mzar-i-Sharif,
in Afghanistan

Our strategy
Our strategy is focused on three elements: to continue

the development of the Cheleken Contract Area and
to explore opportunities for gas in Turkmenistan;
and to become a multi-asset company through our
diversification strategy.
Our Mission 1. Continued development

T
o safely explore and develop oil of the Cheleken Contract Area
and gas resources by leveraging
technology and a talented workforce
as a dependable, ethical and
environmentally conscientious partner.
Our Vision
T
o continue the efficient operation
and optimum development of our
asset in Turkmenistan, with a vision
of reaching a production rate of
100,000 bopd in 2015 and maintaining
the plateau for a minimum of five
years from 2016.
T
o achieve additional and significant
production and reserves growth,
through the acquisition of new
2. Gas monetisation
exploration and production assets
in other geographical areas.
3. Diversification
TURKMENISTAN
ashgabat
AFGHANISTAN
IRAN
Iraq

2012 targets Achievements Future targets
Complete between 13 and 15 wells in 2012 e completed 15 wells, including two
W omplete 13 to 15 wells and two
C
sidetracks of existing wells workovers in 2013 and around 20
arget annual production growth of 15%
T
development wells per year in 2014
in 2012 he average daily gross production grew by
T
The Essential Read

and 2015
10% due to impact from sand control issues
zhygalybeg (Zhdanov) A platform due
D
in 2H 2012 row the 2013 average gross production
G
verage daily production rate for the month
A
at the lower end of the medium-term
of December 2012 was 73,500 bopd
lans to award a contract in 2012 to build
P guidance of 10-15% on average per annum
the Dzheitune (Lam) D and E platforms he contract to continue the use of the
T
currently deployed jack-up rig extended for arget production growth of around 15%
T
ew jack-up rig under construction
N in 2014 and 2015
another two years
(“Caspian Driller”) expected for delivery
in 1H 2012 rilling from the Dzhygalybeg
D
wo platform-based rigs secured for
T
(Zhdanov) A and B platforms due to
drilling in the Dzhygalybeg (Zhdanov) field
dditional platform-based rig is
A commence in 2H 2013
currently being sourced to be mobilised 80% organic reserves replacement of 2P
1
in 2H 2012 lans to award a contract in 2013 to build
P
oil and condensate reserves
the Dzheitune (Lam) D and E platforms
Marketing route for the full export volumes
secured for two years to 31 December 2014 he delivery of the Caspian Driller is
T
expected in mid-2013
each the 100,000 bopd production
R
Performance
target in 2015
E
valuate options to enhance oil recovery
from the reservoir by performing and
analysing results of a water injection
pilot project
inimise flaring and progress gas

M have the approval in place to go ahead
We rogress plans to build the Gas
P
monetisation subject to market conditions with the tendering process to select a Treatment Plant to strip condensate
contractor to build a Gas Treatment Plant and produce export quality gas
to strip condensate and produce export
quality gas
Governance
Actively pursue the diversification strategy e added an exploration asset in Iraq

W ontinue to pursue actively
C
and were selected as the winning bidder the diversification strategy
for two blocks in Afghanistan

Measuring our performance
Dragon Oil’s deliverability on commitment to create value

for stakeholders is measured through five key result
areas. These measurements seek to assess the Group’s
long-term growth as a safe operator and environmentally
conscientious partner.
Key result areas Production Operating cost per barrel

(bopd) (US$)
Read more on page 28 Read more on page 36
67,600bopd US$ 4.0pb

2010 47,200 2010 3.8
2011 61,500 2011 3.3
2012 67,600 2012 4.0
Achieving sustainable The Group is committed to

production growth is maintaining the operating
paramount to the Group’s cost within a reasonable
vision as an operator and and manageable range,
to its aim to maximise which is also comparable
shareholder return. wherever possible
to industry and its
peers’ standards.
Performance in year 2012

The average gross production growth during
2012
Operating cost per barrel was higher at
the year was 10% due to curtailed production US$4/bbl primarily due to higher manpower
in 2Q 2012 as a result of the sand control issues. costs and increased level of field activity.
Outlook 2013
We expect to grow the 2013 average gross
2013
We aim to keep the costs within a reasonable
production at the lower end of the medium- range despite inflation and limited resource
term guidance of 10-15% on average availability in the Caspian Sea region.
per annum.

Reserves replacement Operating cashflow Lost time incident
(%) before working capital frequency (LTIF)
The Essential Read

changes (US$)
Read more on page 30 Read more on page 37 Read more on page 42
180% US$ bn 1 1.26LTIF

2010 228 2010 678 2010 1.46
2011 183 2011 1,047 2011 1.30
2012 180 2012 1,023 2012 1.26
Performance
Replacement of oil and The Group’s goal is to The Group’s prime
condensate reserves is ensure that operating responsibility is to protect
driven by the Group’s cash flow funds our our employees and
success in undrilled areas, capital expenditure in contractors from work-
which also increases our the Cheleken Contract related injuries
production potential. Area, dividend payments and illnesses.
and return of capital
to shareholders.
Governance
2012 2012 2012

The 2012 year-end oil and condensate 2P The increase in operating cash was primarily LTIF reflected an improvement over last
reserves were upgraded to 677mn barrels attributable to production growth and year at 1.26.
after having allowed for the year’s sustained crude oil price.
production. The increase in oil and
condensate 2P reserves is mainly due to
successful drilling in and production
performance of shallow areas of the field.
2013 2013 2013

Continue activities that may potentially lead We expect to maintain strong operating Our aim is to keep reducing the LTIF as we
to reserves replacement, such as drilling cash flow on the back of production growth. grow and work more hours, making our
appraisal wells and implementation of the operations safer.
water injection pilot project.

Risk Management Process
Enterprise Risk Management (ERM) Framework:

The Dragon Oil ERM Framework consists of three core
elements: governance, process and culture & compliance.
Managing business risk

Dragon Oil recognises that management of risk is an integral part of our
business and manages key risks within the ERM framework. The Group is
impacted by a variety of risks, not all of which are within its control. We run
our business ensuring the impact of such risks is mitigated wherever possible.
Governance
The Board is committed to risk management
by setting up a clear structure and defining
roles and responsibilities. 1. Strategy
& Appetite
2. Policy, Roles
& Responsibilities
Process
The ERM process provides a consistent 3. Identification & Assessment
approach to risk management from
identification, mitigation to reporting.
4. Control & Mitigation
5. Monitoring, Escalation & Reporting
6. Tools & Technology
Culture & Compliance 7. Performance & Reward 8. Training & Awareness

Dragon Oil leadership drives a culture
of risk management by a top-down
commitment and seeks assurances that 9. Assurance
responses to critical risks are acceptable.

Thew Essential Read
1 & 2. Risk Management Governance
and Tone at the top
lear structure that defines and demonstrates Board and senior
C
management involvement in and specific accountability for
risk management.
Performance
3. Risk Identification and Assessment 5. Risk Monitoring, Escalation and Reporting
obust processes in place to aggregate and prioritise risks
R isk monitoring and escalation processes are defined and
R
at an enterprise level. embedded within business processes.
cope of assessment considers low probability/high impact
S arly warning systems in place to red flag emerging risks
E
risks specifically. and identify change in existing risks.
Correlations and portfolio effects of risk exposures recognised. isk reports are formally defined to provide adequate and
R
timely intelligence to senior management and the business
4. Risk Control and Mitigation for oversight of risks.
isk treatment decisions are linked to risk appetite and target
R Governance
lear risk management policies and procedures for managing
C
risk levels are clear. all material risks.
pecific consideration has been made as to whether the design
S Availability of sufficient resources to support risk management needs.
and execution of key treatments are effective, and in turn whether
such treatments are sufficient overall. 6. Infrastructure (Tools and Technology)
isk Management technology and IT systems that support and
R
enable the business to embed the risk management processes
and deliver risk relevant data.
7 & 8. Awareness and Communication 9. Assurance over Significant Risks

Culture that supports risk management effectiveness and reporting. ssurance that mitigation and control responses to critical
A
op-down commitment to risk management with leadership
T risks are appropriate or official acceptance that the risks
by example. are considered to be acceptable.
Proactive risk management encouraged and rewarded.
wareness of organisation’s risk management appetite
A
and practices and decision making autonomy, with defined
escalation paths and triggers in place.

Performance
2012 was a good year for
Dragon Oil with progress
of the diversification
strategy and solid
production growth.

22 Chairman’s Statement
24 Chief Executive Officer’s Statement
The Essential Read

28 Operating and Financial Review
38 Corporate Social Responsibility
Performance
Governance

Chairman’s Statement
While the world in 2012 was, for many, a place of

uncertainty and volatility, Dragon Oil continued
on course and on schedule to our next destination —
100,000 bopd of gross production from the Cheleken
Contract Area in 2015.
For many companies – and indeed countries – 2012 was a year they
would like to forget. Yet in our own space, the oil price proved its
resilience and strength once again, averaging around US$112 and
maintaining its solid run of around two and a half years.
Dragon Oil put in resilient performance in 2012, despite experiencing
some challenges along the way. In delivering good results, we
showed how we are equipped to meet adverse issues head-on, and
have the team spirit and expertise to win through.
A sound year
We had a good year with gross production up by a healthy 10%
despite temporary operational issues, addressed by our management
and staff quickly and professionally. The gross production in
2012 averaged 67,600 bopd and we exited the year with a strong
December average production of 73,500 bopd. Dragon Oil’s
revenue exceeded US$1bn for a second consecutive year and the
Group generated US$600mn in net profit, allowing the Board to
recommend a higher final dividend for 2012.
Our strategy
These results were achieved through continuing to follow our clear
and consistent strategy, with three areas of focus.
The first is to accelerate the development of the Cheleken Contract
Area in Turkmenistan. This is our major asset, located in the Eastern
Section of the Caspian Sea. We operate the project under a PSA. Our
drilling of 15 wells, at the top end of our expectations, was another
important benchmark in pursuing this objective. We are on track to
reach our target of 100,000 bopd in 2015 and then maintain this level
for at least five years thereafter while we explore water
injection potential.
The second is to develop opportunities for gas. Timing is key here:
the market is waiting for an upturn. In the interim, we plan to start
construction of a Gas Treatment Plant in 2013, ready to strip
condensate and produce processed gas.
The third area of focus is to diversify into other hydrocarbon
exploration and development opportunities outside of Turkmenistan.
The coming year will see us drilling in Tunisia’s Bargou Permit,
as well as progressing our participation in projects in Iraq
and Afghanistan.
All the while, we are assessing development possibilities in Africa,
the Middle East and parts of Asia.
Returning value to shareholders
We are always looking to align our strategy of creating value with the
interests of our loyal shareholders. We introduced the dividend policy
in 2011, and in 2012, given the Group’s continued strong performance
and healthy balance sheet, we were delighted to announce an
increase of 67% in the interim dividend to 15 US cents. In addition,
we are recommending a higher final dividend of 15 US cents.

The Company’s US$200mn share buyback programme, undertaken
in June-October last year, is another strand of this strategy. In a
volatile market climate, we were pleased to be able to return some
significant value to our shareholders. Our retail shareholders in
The Essential Read

particular found this to be a welcome boost.
At the same time, our priority is to retain a sizeable cash reserve for
our diversification ambitions. Therefore, we aim to strike a very
careful balance between returning value to shareholders, retaining
enough for the growth of the Group and being ready and able to
enhance both when opportunities materialise.
The board and corporate governance
During the year, we welcomed Thor Haugnaess to our Board.
Thor brings 25 years of oil services experience to the Board and the
depth of his knowledge and expertise will undoubtedly contribute
to the further success of the Group.
What has remained unchanged is our commitment to the highest
standards of corporate governance at Dragon Oil. This includes the
Performance
criteria for recruiting directors and refreshing the Board; the way we
split roles and responsibilities; and immovable standards governing
integrity and ethics.
During the year we engaged an independent facilitator to coordinate
the evaluation of the Board’s performance in 2011. The assessment
found that the Board was robust and comprised a wealth of
operational, technical and regional experience. It also identified the
potential for improvement in succession planning and in Board and
committee structures. We will conduct an internal performance
evaluation during the year, and directors’ training is also planned Dividend
as part of our periodic programme to sharpen governance skills. (US cents per share)
Raising our game
2010 full-year 14
I have always admired the management guru, the late Peter Drucker.
He described leadership as “lifting a person’s vision to higher sights,
2011 interim 9 Governance
the raising of a person’s performance to a higher standard”. 2011 final 11
2012 interim 15
For example, in 2012 we invested nearly US$1mn in training,
2012 final 15
internally and externally, across the business. This included
49 high achievers from across our core departments who were
selected for special training that will boost their skills and enhance
our performance.
I have always seen this success as a consolidated effort of our Board,
management and our employees. The support of the State Agency
and other Turkmen authorities was vital and necessary to achieve
the 2012 results.
Finally, I would like to thank all our loyal shareholders and we look
forward to another year of success in 2013.
Mohammed Al Ghurair
Chairman

Chief Executive Officer’s Statement
This was a year where we showed our ability to cope with

difficulties. We drilled at the top of our expectations,
dealt with unexpected issues and put in place the
infrastructure for a productive 2013.
Certainly, in 2012 we encountered challenges, but that makes our

overall performance for the year all the more satisfying. We exited
the year with growth of a creditable 10% despite a period of
curtailed production. We demonstrated our ability to face, assess
and solve problems, quickly and effectively.
We also made further progress with our diversification plans;
invested in infrastructure being built or installed for 2013; and
cemented still further our credentials as good corporate citizens
in the home of our main asset in Turkmenistan.
Our ambitious target of 100,000 bopd also remains on track.
Delivering on drilling
In 2012, we also showed our ability to continuously optimise our
plans. By re-mapping our potential targets we found that we could
exceed our scheduled drilling while still using the same drilling
fleet. This resulted in 15 wells having been completed (target was
between 13 and 15).
The flow rates were mixed, but we are keeping in mind some deep
zone targets in these wells for the future; we believe this will add
more potential.
We are looking forward to sustaining the momentum of our drilling
in 2013, with two new platform rigs secured and the arrival of the
new jack-up rig Caspian Driller.
Sanding: assessed, addressed, resolved
Sand control is vital to reliable production in many clastic reservoirs
where sand can present a major challenge to well production.
Mindful of industry-wide experience of sand control, almost two
years ago we initiated a programme of completing most new wells
with sand screens. We put in place enhanced sand control processes
including a desander on the Dzheitune (Lam) 63 platform and sand
monitoring and disposal downstream of the wells.
In 2Q 2012, we identified certain sand control issues and had to
choke down some of our wells. This reduced production rates in
certain areas while we explored various ways of mitigating the
issue. We installed two new de-sanding units at the Dzheitune
(Lam) wells, increased de-sanding in the processing facility and
continued to install sand screens on new wells.
Our actions proved successful. A few months after the issue
revealed itself we had resumed production at previous levels,
while restricting sand production to below industry averages.
I believe that the true measure of a company is revealed when
challenges come to the fore. Our team rose to the task, assessing
the conditions, procuring and installing the appropriate equipment
and bringing about a swift and effective conclusion to the sand
control issue.

2012 Highlights
Health, safety and environment
67,600bopd
We firmly believe that to create a sustainable business sound HSE
performance is important. With improving HSE performance in
mind, we take it into account when making any business-related
The Essential Read

decision. We will look to implement all measures to protect the
health and safety of our workforce as well as to protect the
Average gross production from the Cheleken
environment in which we operate. Contract Area grew by 10%.
Over the last few years, Dragon Oil has introduced and implemented
15 wells
a variety of policies and procedures to decrease the Lost Time
Incident Frequency (LTIF) rate.
Strong management
The demands of offshore facilities and the drilling fleet are always
considerable, but in the Caspian Sea region they are more pronounced
Fifteen wells completed, at the top end of
due to limited contracting resources. This is particularly true of our expectations.
jack-up rigs and new infrastructure. It is an issue that affects all the
leading players, and I believe it is a testament to our management
3
team that we have maintained – and indeed came at the top of our
expectations – our drilling targets, initiated and progressed a number
Performance
of infrastructure projects.
We draw our expertise from far and wide; indeed, we have 40 Presence in three countries with exploration
nationalities at Dragon Oil, and the synergy of their skills creates a assets: Tunisia, Iraq and Afghanistan.
potent force. Our capabilities in the areas of logistics, procurement,
project execution, drilling and production growth consistently
translate into tangible results. Keeping those skills fresh and
current is also a constant priority. We invest heavily in training
to keep our teams abreast of new technologies and techniques.
Diversification
In 2012, we continued our active search for new opportunities that
can broaden the base of the Group. In particular, our searches have
been focused on Africa, parts of Asia and the Middle East, looking
to replicate our extensive expertise gained in Turkmenistan in other Governance
shallow offshore or onshore locations.
We are fortunate in having considerable financial resources
available for the right opportunity, whilst we continue with our
screening process. We are clear that any new development
opportunity must offer an exploration upside and play to our
strengths, as well as be sensibly priced.
Although 2012 did not result in any signatures in the development
arena, we are continuing to invest time and resources in screening
multiple assets. Meanwhile, we were pleased to make good progress
with our participation in three exploratory blocks.
Tunisia – the Bargou Exploration Permit TURKMENISTAN

We anticipate being able to start drilling this shallow offshore ashgabat
block (4,616 km2) in March 2013.
AFGHANISTAN
I raq – Block 9
In May 2012, a consortium including Dragon Oil was awarded
IRAN
an exploration, development and production service contract for
Block 9 in Iraq’s fourth bidding round and, in January 2013, the Iraq
Iraqi Ministry of Oil signed the final service contract with the
consortium. This onshore block (900 km2) is in the Basra province.

Chief Executive Officer’s Statement
continued
fghanistan – Sanduqli and Mzar-i-Sharif blocks

A In 2012, we completed an update on reserves prepared by an
Dragon Oil has bid successfully with Kuwait Energy, Turkiye independent petroleum consultant. Based on their assessment,
Petrolleri A.O. (TPAO) and a local partner, the Ghazanfar Group, the 2012 year-end oil and condensate 2P reserves were upgraded to
on two blocks. The contract terms are being negotiated with 677 million barrels (31 December 2011: 658mn). The gas 2P reserves
the government. and contingent resources remained at a similar level of c. 3.0 TCF
Gas: preparing for an upturn (31 December 2011: 3.0).
There are times when the climate demands a patient waiting game, Supporting local communities
and our plan for gas is certainly one. Although prospects for a viable We never forget that the success of Dragon Oil is hard-wired to the
gas market exist in the medium term, our plans are to go ahead with welcome and cooperation of its host countries. In Turkmenistan we
extracting valuable condensate with an option to produce and are fortunate to work productively with the government and we are
deliver processed gas as and when demand picks up. To this end we supported by a skilled and highly committed local workforce.
will soon be tendering out the construction of a Gas Treatment Plant
with a higher processing capacity of 360 mmscf/day as compared to In turn, it is only right that we play our part in improving the quality
the previous plan of 220 mmscf/day. Meanwhile, our current gas of life in Hazar (our centre of operations) and the well-being and
production is around 150 mmscf/day, and we have continued to prospects of its people.
supply unprocessed gas to the local compressor station at Hazar, In early 2013, we completed a polyclinic building, including related
and to the local community and nearby factories. infrastructure, at a cost of US$5mn and we are proud to be opening
Water injection and other upsides the clinic for the people of Hazar, offering a range of
We look forward to the pilot water injection project to explore the essential treatments.
potential of water injection to increase recovery, having seen We have carried out refurbishment projects of local schools; we buy
encouraging results from our injectivity tests. We have finalised the instruments for schools and sports supplies for clubs; we sponsor
procurement of the equipment for the programme, which we will sports activities for people; and we have contributed to the local
deploy initially in the Dzheitune (Lam) 75 area and then potentially infrastructure projects.
in the Dzheitune (Lam) 13 area. On conclusion of the project, we
intend to examine the opportunity of implementing it In our operations, we are also determined that the local area
on a wider scale. benefits wherever possible. Some 91% of our workforce in
Turkmenistan is made up of local people, and four of our platforms
In addition, we are looking at and gathering stations have been built or assembled in Hazar.
rtificial lifts of crude oil from wells using jet pumps and a range
a Indeed, we endeavour to have 20% local component for
of other means. This has the potential to increase production and EPIC contracts.
reserves of the existing wells; Ready for a significant year
rilling appraisal wells within the next three years to delineate the
d I believe that 2012 will prove to be an important springboard
Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields. We expect for our activities in 2013 and beyond.
this will help define new production areas for platforms to be Both the Dzhygalybeg (Zhdanov) A and B platforms will be ready
installed; and for drilling in 2H 2013. Mid-year should also see the arrival of the
rilling in the Dzhygalybeg (Zhdanov) field for the first time
d Caspian Driller and the first results of the water injection project.
in 2013, and any upside in potential will positively impact our 2013 will also see exploration drilling activities and initial well
production forecasts in the future. results in the Tunisian offshore block, as well as preparations for
exploration activities in Iraq.
As we move closer to 2015, we will be approaching our
100,000 bopd target. Our vision to become a multi-asset Company is driving our
expansion strategy; last year we entered two more countries
Reserves with exploration blocks. Couple this with the capabilities of the
As in the previous year, we have added to our oil and condensate team that delivered at the top end of its drilling targets and coped
reserves, achieving a 180% reserves replacement against 2012 gross so successfully with the year’s challenges, and our focus on
production. The drilling campaign in the Dzheitune (Lam) area has diversification, gas monetisation and the 100,000 bopd target in
been largely targeted at good quality shallow sands. The drilling 2015 target remains firm.
results and production performance of wells in this area have
justified an increase in 2P reserves. Dr Abdul Jaleel Al Khalifa
Chief Executive Officer

2012 Highlights
caspian
sea Uzbekistan
The Essential Read

Azerbaijan
BAKU
Cheleken
Turkmenistan
Neka
IRAN AFGHANISTAN
Nationalities
Organic growth
In 2012, we targeted
Turkmenistan 82.9%
Performance
Asia 6.3%
shallow layers of the

MENA 5.5%
Europe 3.7%
North America 1.1%
South America 0.2% Dzheitune (Lam) field that
Australia 0.2%
Africa 0.1% proved to be of good quality.
Revenue
(US$mn)
2010 780.4
2011 1,150.5 Governance
2012 1,155.1

Operating and Financial Review
We earned US$1 billion in revenues as a result of strong

oil prices and growth in production despite sand control
issues in 2Q 2012, which constrained production rates in
certain wells, but are now under control.
Turkmenistan The initial flow rates from the completed wells vary due to a number
of factors, including depth of completions, maturity of the area and
Production
type of completion (a dual or single completion or a sidetrack).
The average gross field production for 2012 reached 67,600 bopd
Overall, the results were largely in line with our expectations.
(2011: 61,500 bopd) on the back of 15 wells completed in the
Dhzeitune (Lam) area. The solid 10% growth was achieved despite During 2012, Dragon Oil completed a 15-well drilling programme in
the constraining impact from the sand control issues announced in the Dzheitune (Lam) field. The following table summarises the
2Q 2012, which were more than offset by the increased production results of this drilling programme:
flow from the higher number of wells completed in 2012. The issues
were resolved within a few weeks and production continued to Well Completion Depth Type of Initial test
date (metres) completion rate (bopd)
grow: by mid-August the production rate was above 70,000 bopd.
The initial schedule of completing between 13 and 15 wells during 13/140A January 2,237 Single 2,123
2012 was upgraded to 15 wells. sidetrack
The entitlement production for 2012 was approximately 48% A/165 January 3,060 Dual 2,272
(2011: 53%) of the gross production. Entitlement barrels are
28/166 February 2,810 Single 1,975
finalised in arrears and are dependent on, amongst other factors,
operating and development expenditure in the period and the C/167 March 2,765 Dual 3,396
realised crude oil price. The lower proportion of entitlement barrels
13/168 April 2,791 Single 1,008
in 2012 is primarily due to the workings of the Production Sharing
Agreement (“PSA”) for the Cheleken Contract Area. 28/169 May 2,010 Single 2,097
Marketing C/170A June 2,730 Dual 2,072

11.6 mn barrels (2011: 11.4 mn barrels) of crude oil were sold in 2012. 13/171* June 2,893 Single –
The volumes sold were marginally higher than the previous year’s
level mainly due to higher production, offset by lower entitlement 28/172 June 2,007 Single 1,976
and changes in the lifting and inventory positions. C/173 July 3,015 Dual 2,918
In 2012, Dragon Oil exported 100% (2011: approximately 99%) of 28/174 July 1,976 Single 1,705
its crude oil production through Baku, Azerbaijan.
13/144C July 2,637 Single 956
In January 2013, the Group reached an agreement that secured a sidetrack
reliable export route for all its anticipated entitlement production
until 31 December 2014, FOB (free-on-board) the Aladja Jetty, C/175 September 2,721 Single 1,420
through Baku, Azerbaijan. It is expected that the realised crude oil A/176 November 1,786 Single 1,462
prices under this contract will be in the range of a 14-17% discount
to Brent. A/177 December 3,085 Single 1,796
The Group was in an overlift position of approximately 0.1 mn *Note:

No commercial oil flow, we are evaluating the feasibility of using this well for water
barrels of crude oil at the end of 2012 (31 December 2011: underlift
injection purposes at a later date.
position of 0.05 mn barrels of crude oil).
Since the beginning of the year, we have completed the Dzheitune
Drilling
(Lam) 28/178 development , which is currently being tested.
We retain flexibility in our drilling programme and will optimise
it as we progress through the year. We deployed rigs on the new Three drilling rigs operated for Dragon Oil for most of 2012. Two of
Dzheitune (Lam) C platform and where we have additional spare these rigs, a jack-up and a leased platform-based rig, are expected to
capacity, the Dhzeitune (Lam) 28, A and 13 platforms. be used in 2013 for all of the year. The contract to continue using the
currently deployed jack-up rig has been extended for another two
The Group also re-assesses continuously the subsurface targets and
years until May 2015. The contract for the use of the leased platform-
drills to various depths based on the hydrocarbon distribution
based rig has been extended to complete another three wells.
and oil reserves in every zone. The targets in 2012 were mostly in
shallow layers, where we performed single or dual completions or The two platform-based rigs the Group awarded at the beginning of
sidetracks of existing wells. The Group had realised shorter drilling 4Q 2012 are scheduled to commence drilling in the Dzhygalybeg
times and, consequently, more wells were completed during the (Zhdanov) field in 2H 2013. We expect the delivery of the Caspian
stated period. We also retain an option of returning to deeper targets Driller jack-up rig in mid-2013.
in the future.

Average production (on a working interest basis)
(Barrels of oil per day)
The Essential Read

2010 47,200
2011 61,500
2012 67,600
Marketing of crude oil

(mn barrels) Operational excellence
2010 10.8
In 2012, we completed 15
Performance
2011 11.4
2012 11.6
wells, at the top end of our
expectations.
Average realised crude oil price

(US$ per barrel)
2010 72
2011 101 Governance
2012 100

continued
Water injection project Within the first phase of its strategy for plugging, abandonment and
In 2011, a preliminary water injection study using a dynamic decommissioning of the old non-producing wells and non-producing
simulation model was completed for the Dzheitune (Lam) 75 area. platforms in the Cheleken Contract Area, Dragon Oil has plugged
Subsequently, based on the simulation results, an injectivity test and abandoned two non-producing old wells. The execution of this
was conducted in June 2011. We have converted one of the wells in strategy is part of the abandonment and decommissioning activities
the target Dzheitune (Lam) 75 area into an injector-type well and the Group plans to undertake under the PSA. Up to 13 non-producing
will commence injection of water and monitoring shortly as part of wells remain to be logged for evaluation before being completely
the pilot water project. Similar activities are being undertaken in the plugged and abandoned. The cost of the project is to be covered from
Dzheitune (Lam) 13 area. the abandonment and decommissioning funds.
Infrastructure Reserves and resources
The Dzhygalybeg (Zhdanov) A platform modules will be mobilised Based on the results of the recent assessment by an independent
in 1Q 2013 to the field and the platform is expected to be ready for energy consultant, the 2012 year-end oil and condensate 2P reserves
drilling in 2H 2013. Drilling is scheduled to commence thereafter were upgraded to 677 (31 December 2011: 658) mn barrels after
from this platform using one of the platform-based rigs. The having allowed for the 2012 production of 25 mn barrels. The oil
Dzhygalybeg (Zhdanov) B platform, which is being assembled in and condensate contingent resources of 59 mn barrels compared
Dragon Oil’s yard in the harbour area in Hazar, Turkmenistan near with 88 mn barrels as of 31 December 2011; the decrease is on
our operations, is scheduled for installation in 2H 2013. Drilling from account of a change in the resource base after recognising an
this platform is expected to commence in 2H 2013. Both platforms increase in 2P reserves.
have 16 slots each: eight for drilling with a jack-up rig and eight for
The gas 2P reserves remained at 1.5 TCF while the gas contingent
drilling using a land rig.
resources remained at 1.4 TCF. Necessary upgrades of and additions
We expect to award contracts to build and install the Dzheitune to offshore and onshore infrastructure are planned to allow the
(Lam) D and E platforms and associated pipelines in due course. conversion of the contingent resources into reserves in the future.
Construction is expected to take up to two years once the contracts
No changes have been made to the estimates of recoverable oil from
are awarded. These platforms will be built for drilling with a jack-up
the Dzhygalybeg (Zhdanov) field, where we believe 15% of the total
rig with eight slots each initially.
proved and probable recoverable reserves are contained. We plan to
The tendering processes to award contracts for the construction and start drilling in the Dzhygalybeg (Zhdanov) field later this year.
installation of another two platforms in the Dzheitune (Lam) field This will enable us to understand better what the field is capable
and associated pipelines are ongoing. We expect to be able to award of producing.
contracts for the construction of these platforms in 1H 2013.
The Group’s plans to triple its crude oil storage capacity are
progressing. The tendering process to select an engineering,
procurement, installation and construction contractor to increase
the Group’s crude oil storage capacity at the Central Processing
Facility is in the bids evaluation stage. We expect the award of the
contract to happen in 1H 2013 and the construction phase to take
two years with a number of tanks built on a priority basis.
As at 31 December 2012 As at 31 December 2011 As at 31 December 2010
Proved and Probable Oil and Oil and Oil and

Condensate Gas Condensate Gas Condensate Gas
Remaining
Recoverable Reserves mn barrels TCF mn barrels TCF mn barrels TCF
Gross field reserves

to 1st May 2035 677 1.5 658 1.5 639 1.6
2C Resources
Gross oil and condensate

contingent resources 59 – 88 – 47 –
Gross gas
contingent resources – 1.4 – 1.4 – 1.4

Capital Expenditure – infrastructure
(US$mn)
The Essential Read

2010 253
2011 165
2012 222
Capital Expenditure – drilling

(US$mn)
2010 207
Performance
2011 186
2012 160
2P oil and condensate reserves (on a working interest basis)

(mn barrels) Organic growth
180%
2010 639
2011 658 Governance
2012 677
Reserves replacement. The increase in oil and

condensate 2P reserves is mainly due to successful
drilling in and performance of shallow areas of
the field.

continued
Gas Monetisation Afghanistan

We have the approval to commence the tendering process for an
A consortium of companies comprising Dragon Oil, Kuwait Energy,
engineering, procurement, installation and construction project
Turkiye Petrolleri A.O. (TPAO) and the Ghazanfar Group has been
for the Gas Treatment Plant and will proceed in due course; the
selected as the winning bidder for two exploration blocks, Sanduqli
construction phase is likely to take two to three years after the
and Mzar-i-Sharif, in the Afghan-Tajik Phase 1 Oil & Gas Tender.
contract is awarded in 2H 2013.
The consortium has been invited to enter into negotiations with the
The processing capacity of the plant is expected to be higher at 360 Afghanistan Ministry of Mines for the exploration, development
mmscfd of gas as compared to a previous plan of 220 mmscfd, which, and production activities in the two blocks, which are expected to
according to our estimates, which are to be verified at a later stage, take place and conclude in 1Q 2013.
should allow us in the future to strip around 3,600 barrels of oil
Dragon Oil’s diversification strategy remains to screen and evaluate
equivalent per day of condensate and blend our share of condensate
targets that fit our criteria within Africa, Central Asia, the Middle
with our entitlement share of crude oil. The split of the produced
East and selectively south-east Asia in order to create a diversified
condensate is subject to the same terms under the PSA as for
and balanced portfolio of exploration and development assets for
crude oil.
the Group.
Tunisia Share Buyback Programme
The Bargou Joint Venture, comprising Dragon Oil (55%), Cooper In June-October 2012, Dragon Oil undertook a US$200mn share
Energy (30%) and Jacka Resources (15%), has secured a drilling rig buyback programme to purchase up to a maximum of 5% of the then
from Grup Servicii Petroliere SA (“GSP”) and well management issued share capital of the Company. A share buyback programme is
services from AGR Petroleum (ME) Ltd – Dubai for drilling an an efficient means to return some of the cash resources to our
exploration well in the Bargou Exploration Permit, offshore Tunisia. shareholders without impacting upon the Group’s ability to grow
Drilling is scheduled to commence in March 2013. The drilling of the production organically and diversify through acquisitions of assets.
well will be managed by Cooper Energy. The Joint Venture has The shares were purchased and cancelled thus reducing the overall
applied for a one-year extension to the current exploration phase number of shares in issue and rewarding shareholders by increasing
(taking it to 2014). This will allow for additional analysis of the the future earnings per share. The programme concluded on
results of the forthcoming well. 25 October 2012 with 100% of the allotted funds spent to acquire
22.6 mn shares for cancellation, at a weighted average price of
Iraq GBP 5.68 per share.
Dragon Oil (30%) and Kuwait Energy (70% and operator) as a Dividends
consortium have been awarded an exploration, development and The Board of Directors of Dragon Oil recommends the payment of
production service contract for Block 9 in Iraq’s fourth bidding a final dividend of 15 US cents per share. Together with the interim
round. The formal contract between the Iraqi Ministry of Oil and dividend of 15 US cents, the total dividend for the year ended
the consortium was signed in January 2013. 31 December 2012 is 30 US cents. The final dividend of 15 US cents is
Block 9 is located in the Basra province. The block spans over subject to shareholder approval at the Annual General Meeting to be
900 km². The work commitment on the block within the initial held in London, UK on 30 April 2013. If approved, the final dividend
five-year exploration period will include de-mining of the area in of 15 US cents is expected to be paid on 3 May 2013 to shareholders
the first instance, seismic acquisition and interpretation and drilling on the register as of 5 April 2013.
an exploration well. The following is the dividend timetable for the
shareholders’ information:
12 February 2013: Declaration of final dividend
3 April 2013: Ex-Dividend Date
5 April 2013: Record Date
30 April 2013: AGM
3 May 2013: Dividend Payment Date.

Full-year dividends
(US cents per share)
The Essential Read

2010 14
2011 20
2012 30
Earnings per share (basic)

(US cents) Corporate activity
2010 74.9
We expanded our portfolio
Performance
2011 126.0
2012 119.5
of exploration assets having
entered two more countries.
Average headcount
2010 1,104
2011 1,223 Governance
2012 1,368

continued
Our People Outlook for 2013 and 2014-15

In 2012, the Group increased its average headcount to 1,368, a 12% For 2013, we expect to grow production at the lower end of the
increase over the previous year. In 2012, 235 new people joined medium-term guidance of 10%-15% on average per year. The plan
Dragon Oil across its two main locations, the headquarters in Dubai, calls for completion of 13 to 15 wells and two workovers given the
UAE, and operational and administrative sites in Turkmenistan. availability of drilling rigs. We are currently employing one jack-up
New people were hired for almost all departments operating from rig and a leased platform-based rig and have awarded contracts for
Dubai; while for operations in Turkmenistan we continued to hire in two more platform-based rigs. The leased platform-based rig will
the areas of engineering, field development and production, HSE, continue to drill from the Dzheitune (Lam) 28 platform, while the
maintenance and projects, as well as finance. Most of the hiring took other two rigs are expected for delivery in 2H 2013 to commence
place in Turkmenistan and most of the new hires were local people. drilling from the Dzhygalybeg (Zhdanov) A and B platforms.
We plan to continue to expand our workforce at a similar pace Drilling activity will be weighted towards the second half of the
to support continued growth of the company and to ensure our year after the awarded drilling rigs are delivered to the Cheleken
medium-term goal to reach the 100,000 bopd target in 2015. A Contract Area.
number of hires have been made to back our diversification strategy,
The details of the drilling programme are as follows:
for New Ventures and Exploration teams to support our expanding
operations and our entry into other countries. he leased platform-based rig is currently drilling the Dzheitune
T
(Lam) 28/179 well and will drill one more well in 2013 from the
The Group continued with its objective of strengthening our
same platform; once the wells are completed we will review our
expertise, cultural diversity and talent through hiring experienced
options to drill further three wells from a different platform;
and competent people. Our guiding principle of “People First”
continues to drive our focus on training, empowering and trusting he jack-up rig is now undergoing planned maintenance after
T
our talented workforce. It also drives our commitment towards the which it is due to complete four wells in the Dzheitune (Lam) area;
people in the community. The completed state-of-the-art polyclinic the contract for its use has been extended until May 2015;
in Hazar, Turkmenistan near our operations will improve the quality
he first platform-based rig is due to commence drilling from the
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of healthcare services provided to our employees, their families and
newly installed Dzhygalybeg (Zhdanov) A platform in 2H 2013
the local community.
and we expect to be able to complete one to two wells from
Corporate Social Responsibility this platform;
From 2011 to early 2013, Dragon Oil undertook a significant project,
he second platform-based rig is expected to start drilling from
T
building a polyclinic in Hazar, Turkmenistan to provide healthcare
an upgraded Dzheitune (Lam) platform or the next installed
services to our employees and the local community. In 2011, Dragon
Dzhygalybeg (Zhdanov) B platform in 2H 2013 and we expect to be
Oil completed the concept design and scope of work and awarded a
able to complete one to two wells using this rig; and
contract for this US$5mn project to an international contractor. We
are pleased to report that the polyclinic building and related he delivery of the Caspian Driller is anticipated in mid-2013 and
T
infrastructure have been completed and we anticipate the we plan to complete up to two-three wells using this rig in the
inauguration shortly. second half of the year.
We continue to lend support to the local community by undertaking
smaller-scale community-support projects, such as the Over the 2013-15 period, we expect to maintain an average
refurbishment of a local school and nursery. We also sponsored a production growth of 10% to 15% per annum, taking our gross field
number of sport and art-related events and committees in Hazar, production to a level of 100,000 bopd in 2015 with the aim of
Balkanabad and Ashgabat, Turkmenistan. maintaining this level for a minimum period of five years thereafter.
Delivery of the production targets, including the attainment of this
Dragon Oil also completed a project in Basra, Iraq to improve sustainable production level is supported by a development plan that
sanitary facilities at three schools for girls. envisages the deployment of up to three jack-up rigs, additional
platform-based rigs, construction of new platforms and execution
of a range of key infrastructure projects.
The infrastructure spend in 2013 is expected to amount to
approximately US$300mn, with the same amount to be spent
on drilling.

Financial Summary
Dragon Oil has strengthened its balance sheet further in the last
12 months with a growth of 10% in net assets to US$2.9 billion. This
comprises an increase of US$492mn in total assets, offset by an
The Essential Read

increase of US$221mn in total liabilities. The Group has no debt and
is able to finance its operations internally with net cash generated
from its operations in Turkmenistan.
A marginal increase in revenue to US$1,155mn and an 8% decrease
in operating profit to US$791mn are attributed to a marginal
increase in volumes of crude oil sales offset by higher cost of sales.
Earnings per share were 5% lower and net cash from operations was
1% higher over 2011.
Key financial data

US$mn (unless stated) 2012 2011 Change Earnings before interest, tax and depreciation
(US$mn)
Revenue 1,155.1 1,150.5 0.4%
Cost of Sales (329.2) (266.5) (24%) 2010 704.2
Performance
2011 1,089.4
Gross Profit 826.0 884.0 (7%)
2012 1,037.6
Operating profit 790.9 856.2 (8%)
Profit for the year 600.0 648.4 (7%)
Earnings per share,
basic (US cents) 119.5 126.0 (5%)
Earnings per share,
diluted (US cents) 119.3 125.6 (5%)
Net assets 2,859.3 2,588.5 10% Operating profit
(US$mn)
Net cash from operating
activities 1,025.6 1,015.8 1% 2010 487.7
Net cash used in 2011 856.2 Governance

investing activities (501.9) (914.4) (45%) 2012 790.9
Debt nil nil nil


continued
Income Statement The increase in operating and production costs was primarily
Revenue attributable to the changes in lifting positions of US$31mn and
Gross production levels in 2012 averaged about 67,600 bopd increased costs of US$26mn due to a higher level of field operations.
(2011: about 61,500 bopd) on a working interest basis. The depletion and depreciation charge during the year was higher
by about 3% at US$212mn (2011: US$205mn) primarily due to the
Revenue for the year was US$1,155mn compared with US$1,151mn
adoption of the US$85/barrel as the estimated long-term oil price,
in 2011. A marginal increase of 0.4% over the previous year is
offset by reserves replacement during the year.
primarily attributable to a 2% increase in the volume of crude oil
sold over the previous year offset by a 1% decrease in the average Administrative expenses (net of other income) were higher at
realised crude oil price. The average realised crude oil price during US$35mn (2011: US$28mn) primarily due to an increase in head
the year was approximately US$100 per barrel (2011: US$101 per office costs during 2012 on account of higher corporate activity.
barrel) and was at an 11% (2011: 9%) discount to Brent during the
Profit for the year
year. The increase in the volumes of crude oil sold was lower than
Profit for the year was US$600mn (2011: US$648mn), 7% lower
the production growth mainly due to lower entitlement in 2012
than the previous year. The profit for the year includes finance
compared to 2011. The lower proportion of entitlement barrels in
income of US$18mn (2011: US$16mn) and a taxation charge of
2012 is primarily due to the operation of the fiscal terms of the PSA.
US$209mn (2011: US$223mn). Finance income increased in 2012
Operating profit primarily due to higher cash and cash equivalents and term deposits
Gross profit is measured on an entitlement basis. The entitlement maintained during the year and despite marginally lower interest
production was approximately 48% (2011: 53%) of the gross yields.
production in 2012. Entitlement barrels are finalised in arrears
During 2008, the effective tax rate applicable to the Group’s
and are dependent on, amongst other factors, operating and
operations in Turkmenistan was increased to 25% by the
development expenditure in the period and the realised crude
Hydrocarbon Resources Law of 2008. The Group has continued to
oil price.
apply this rate in determining its tax liabilities as at 31 December
At the year-end, the Group was in an overlift position of approximately 2012. The Group is in discussions with the authorities in
0.1 mn barrels that is recognised and measured at market value Turkmenistan about the applicability of this rate to periods prior to
(31 December 2011: underlift position of 0.05 mn barrels). 2008, but it does not believe that these prior periods are affected by
the new rate. A provision has been made in respect of the additional
The Group generated an operating profit of US$791mn
tax that could become payable if the increased tax rate were applied
(2011: US$856mn), 8% lower than in the previous year.
to prior periods based on the expected value (weighted average
The decrease in operating profit of US$65mn was primarily on probability) approach.
account of higher cost of sales. The Group’s cost of sales was
Basic Earnings per share of 119 US cents for the year were 5% lower
US$329mn in 2012 compared to US$267mn in 2011, an increase of
than the previous year (2011: 126 US cents).
about 24%. Cost of sales includes operating and production costs and
the depletion charge. The increase is primarily due to movement in Balance Sheet
the lifting position, higher field operating costs and increased Investments in property, plant and equipment increased by an
depletion charge during the year. amount of US$170mn primarily due to capital expenditure of
US$382mn (2011: US$351mn) incurred on oil and gas interests
The PSA includes provisions such that parties to the agreement may
offset mainly by the depletion and depreciation charge during
not lift their respective crude oil entitlements in full, and as such,
the year. The expenditure during the year was on drilling and
underlifts or overlifts of crude oil may occur at period-ends.
infrastructure projects in Turkmenistan. Of the total capital
expenditure on oil and gas interests for 2012, 58% was attributable
to infrastructure (2011: 47%) with the balance spent on drilling.
The infrastructure spend during the year included construction of
the Dzheitune (Lam) C, Dzhygalybeg (Zhdanov) A and B platforms,
Dzhygalybeg (Zhdanov) Block-4 gathering platform, infield
pipelines as well as the geophysical and geotechnical surveys to
evaluate locations for future platforms.

Current Assets and Liabilities
Current assets rose by US$316mn primarily due to an increase
of US$148mn in term deposits, US$191mn in cash and cash
equivalents, US$5mn in inventories partly offset by a decrease of
The Essential Read

US$28mn in trade receivables. The cash and cash equivalents and
term deposits at the year-end were US$2,144mn (2011:
US$1,806mn), including US$407mn (2011: US$279mn) held for
abandonment and decommissioning activities. Amounts of
US$1,866mn (2011: US$1,718mn) are held in term deposits with
original maturities greater than three months.
Current liabilities rose by US$194mn due to increases of US$129mn
in the abandonment and decommissioning liability set aside to meet
future obligations under the PSA based on increased production,
US$14mn in overlift creditors, US$31mn towards the current tax
liability and US$20mn in trade and other payables.
Cash flows
Cost efficiency
Net cash generated from operations during the year increased by
US$10mn to US$1,026mn (2011: US$1,016mn). The increase was
We aim to keep costs stable
Performance
primarily attributable to the change in the working capital position
offset mainly by higher tax paid.
Cash used in investing activities was US$502mn (2011: US$914mn),
despite inflation and limited
comprising capital expenditure of US$367mn (2011: US$407mn),
placement of term deposits of US$148mn (2011: US$523mn) and
resources in the Caspian
addition to intangible assets of US$5mn (2011: nil), offset by interest
received on cash and cash equivalents and term deposits of
Sea region.
US$18mn (2011: US$16mn). Cash used in financing activities was
US$333mn (2011: US$155mn) mainly on account of payment of
dividends of US$131mn (2011: US$118mn) and execution of the Cash Flow
share buyback programme of about US$200mn (2011: US$38mn). (US$mn)
18 372
1,025 333
Governance
2,144
1,806
Opening Net cash Interest Investing: Financing: Closing

cash from received PPE dividends of cash
operations on bank additions US$131m share
deposits of US$382m buyback of
US$204m
and issue of share
capital of US$2m
Net profit
(US$mn)
2010 386.1
2011 648.4
2012 600.0

Corporate Social Responsibility
To be profitable is not enough. At Dragon Oil, we believe
true success is only achieved when it is with genuine
regard for our people, communities and environments.
Corporate values
We have six corporate values: Safety, People, Integrity, Stakeholder value,
Excellence and Teamwork. Our six corporate values lie at the heart of our
organisation. These are the values that guide us everyday and define how
we achieve our goals. We believe that by introducing simple and easily
understandable values, we will win employees’ and stakeholders’ support
for all that we do.
1. Safety
We are committed to attaining the highest Health, Safety and
Environment standards. Safety of our workforce, assets and the
1. SAFETY
communities in which we operate is of paramount importance.
2. People
People are first. We create an innovative work environment that
6. TEAMWORK 2. PEOPLE
keeps people motivated, that encourages continued learning and
offers open career paths.
3. Integrity
Trust, fairness and ethics are fundamental to our culture. We live
and practise our internal Code of Conduct.
4. Stakeholder value
5. EXCELLENCE 3. INTEGRITY We deliver sustainable growth and value to all our stakeholders,
shareholders, employees and the communities and countries in
which we operate.
4. STAKEHOLDER 5. Excellence
VALUE
We continue to deploy best practices and deliver to the highest
quality standards.
6. Teamwork
We are committed to a cooperative working environment, where
our employees and service providers work together with an
excellent team spirit, building capabilities and ensuring best in
class delivery.

1. Investing in our people
2. Health, safety & environment
The Essential Read

3. Community support
Investing in our people

Human beings are the most important asset.
They question and discover; they create and devise; they inspire and
Performance
motivate; they achieve, and then seek to achieve even more.
More than any state of the art machinery, they are crucial to a sector
like ours that requires initiative, determination and the hunger
for challenge.
This is why at Dragon Oil we set great store by focusing on our
people. More specifically, we invest in them, inspire them and
give them the opportunity to excel, both for themselves and
the Company.
That way, we believe everyone wins.
Our HR strategy
In our HR strategy we continue to focus on a number of undertakings
where we aim to:
91%
91% retention rate maintained in top-decile scores as a Governance
evelop and empower our Turkmen national employees, aiming
D
to make them an independent and skilled workforce; testament to our human resources strategy with focus
on development, education and attractive career
P romote and support education for our more talented people;
growth with the Group.
rovide a platform for innovative ideas and schemes for the
P
overall betterment of the employee and the business;
ine-tune our policies, and initiate new ones, to cope with
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emerging challenges and market trends;
ork hard to hire and retain the best possible pool of qualified
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candidates; and
Look at ways to extend our educational reach to the

local community.
Good employment: the key components
To work at Dragon Oil is to work in a motivational environment
that fosters a pro-active and innovative attitude. We also strive
to make our people feel valued, through the opportunities we
provide and our open and honest culture.

continued
We address employees’ expectations and perceptions in regular We are also empowering Turkmen employees at all levels, with a
discussions, performance reviews and by looking outwards at succession plan of promotion. We select employees to receive a mix
market trends. Our Company-wide satisfaction surveys also provide of on-the-job, internal and external training in their chosen careers.
vital feedback and inform our focus on making Dragon Oil an even In the last year, 202 employees have been promoted at various levels
better place to work. as part of the pilot stages of the programme (compared with 77
employees in 2011). The aim is clear: to develop people who can hold
We also contracted external consultants to review and then
responsible positions of power and authority to represent the Group
re-design the organisational structure at Dragon Oil Turkmenistan
in matters of business and take full in-charge responsibility.
to streamline our operations. The study recommended some
excellent organisational changes that can improve the integrity We recognise that development of our people and the success of our
of the facilities and the efficiency of business processes. Company go hand-in-hand. We therefore want to enhance career
development opportunities for employees whenever possible, with
Diversity is a core value of the Company and we hire talented people
a particular focus on our national employees in Turkmenistan,
from all over the world. Dragon Oil is a collection of 40 nationalities
and assure the progress of the succession programme for our
and we welcome the rich variety of cultures and perspectives this
national employees.
brings. We also promote gender diversity wherever practical.
With this in mind, we have introduced an internal job posting
The Company was an active recruiter in 2012, with 235 new joiners. programme, an orderly and fair system to identify and place the
They filled a broad spread of roles at our headquarters in Dubai, UAE, most qualified person for each opening and to comply with
and in Turkmenistan where they strengthened our capabilities in contractual responsibilities. This programme helps employees to
Engineering, Field Development and Production, HSE, Maintenance advance their careers actively and reach their professional goals
and Projects. through internal promotion and transfer opportunities. National
During 2012, Dragon Oil provided 141 training courses, mostly employees are encouraged to apply for positions in Dragon Oil
technical courses to meet operational requirements (compared Turkmenistan for which they find themselves qualified.
with 86 training courses in 2011). During the year the Human Resources Department achieved full
In addition, we have formed alliances with leading universities and compliance with ISO 9001:2008.
other institutions to provide English language training to national Maximising our talents
employees, and have hired in-house instructors. We use various initiatives to encourage and inspire our people to
We believe that everyone who works with us in the field should have perform to the very best of their abilities.
a good standard of accommodation and facilities. In the last year, These include Employee of the Month and Employee of the Year
we have invested in a continuous improvement programme, programmes where we ask employees to nominate their colleagues
refurbishing our quarters both for employees and contractors. for outstanding achievements that have benefited their teams and
We have also created additional recreation and sporting facilities the organisation overall.
in Hazar for workers to enjoy.
We also recognise that the best people to bring fresh ideas to the
Development of high-potential employees way we do things are the people who do the work. Our Innovation
A core priority of our HR strategy is to develop the skills and abilities Sharing scheme encourages employees to think outside of the
of our Turkmen workforce. box and suggest fresh ideas that can become productive business
In 2011, we set about compiling a list of high-potential national solutions. We back the best with the required resources.
employees, and in 2012 we progressed this with a fast-track training Employees are also assigned in cross-functional roles and given
and succession programme for 49 people, drawn from all the main an opportunity to work in the headquarters in Dubai.
departments. The overall training budget invested in 2012 was
almost US$1mn. As we grow, we have stepped up our internal communications to
make all employees feel informed and involved. The CEO held
The Company also introduced a programme to give selected several employee meetings during the year to discuss operations,
employees assistance with higher education tuition fees. In 2012, the Group’s performance, our vision and mission and ongoing
we supported seven Turkmen employees in degree programmes developments. On a more informal basis, our Dubai-based employees
under this initiative, compared with four the previous year. They gathered together to celebrate Iftar (the evening meal when
also benefit from mentors whom we attach to nurture their progress. Muslims break their fast during the Islamic month of Ramadan)
and the UAE National Day.
We continue to explore a range of ways to build on our
communications activity, including our intranet and
monthly bulletins.

Nationalities
The Essential Read

Turkmenistan 82.9%
Asia 6.3%
MENA 5.5%
Europe 3.7%
North America 1.1%
South America 0.2%
Australia 0.2%
Africa 0.1%
Number of courses,
including HSE training
2010 76
Performance
2011 95
2012 141
Areas of training
US$1mn
for national employees
Technical 64% Almost US$1mn spent on training, including Governance

Soft skills 19% HSE training, for our employees across all our offices
HSE 14% and operations.
English 3%

continued
Health, Safety and Environment e purchased additional personnel transfer capsules for offshore
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installations. These capsules are a safe means of transferring
The Dragon Oil HSE mission
personnel offshore by means of cranes. They are especially
The Company firmly believes that sound HSE performance is vital
valuable during rough weather conditions and in case of medical
to ensuring sustainable business. HSE is therefore considered an
emergency evacuations from platforms.
integral part of any business decision-making process. Dragon Oil is
committed to take all reasonable measures at its disposal to protect e conducted an annual corporate emergency response drill
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the health and safety of its personnel as well as to protect the covering the three major command centres in Dubai, UAE, and
environment in which it operates. Ashgabat and Hazar, Turkmenistan.
2012 HSE highlights he Group revised Dragon Oil Emergency Response Plan (ERP)
T
The HSE field audit initiated by the management in 2011 was in collaboration with an external consultant to improve our
completed with the assistance of accredited third-party consultants. preparedness in case of emergency.
The audit aimed to ensure that we comply with all HSE international
he Group has started revising the Dragon Oil’s Oil Spill
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standards and best industry practices. The findings of the audit
Contingency Plan (OSCP) in collaboration with Oil Spill Response
have helped us to identify areas of strength and weakness, and to
Limited (OSRL). The exercise will contribute to our understanding
take measures where they are needed.
and implementation of more efficient measures to combat spills.
In addition, the following key actions took place during the year:
e conducted a number of third-party HSE training courses for
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he Dragon Oil Environmental Management System (EMS) &
T personnel operating in Hazar, Turkmenistan, to boost knowledge
Waste Management Plan (WMP) were introduced throughout the and understanding of:
organisation. As part of our goal of achieving ISO certification, – sea survival;
these initiatives were rolled out to strengthen our environmental
– life boat coxswain;
practices and ethics. They include the operations of our contractors.
– fast rescue craft (FRC) operation;
he HSE department was re-organised in the field, with the
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– advanced first aid;
introduction of dedicated Drilling and Projects HSE authorities
to complement the Operational HSE authority. – permit to work (PTW), qualifying our personnel in processing
PTW requirements and complying with PTW procedures.
e introduced the Dragon Oil Fire and Gas Philosophy for all
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locations, offshore and onshore. This defines the shutdown ragon Oil participated for the first time in the Extraordinary
D
decisions and sequence in emergencies such as fires, explosions General Meeting of the International Association of Oil & Gas
and accidental gas releases. This industry-standard definition producers (OGP) held in Doha, Qatar in April 2012. This resulted in
is critical before moving to the next stage; i.e. upgrading our the HSE department proposing a number of OGP-HSE initiatives,
shutdown system for all the facilities. mainly with respect to an oil and blow-out control strategy and to
a mutual aid initiative where operators form regional alliances to
e initiated the project of introducing the Group’s Emergency
W tackle emergencies such as major oil spills or blow-outs.
Shutdown (ESD) Philosophy starting with the offshore ESD Project.
HSE Key Performance Indicator profile for 2012
The primary objective for this project is to ensure the integrity of Our KPIs relating to safety incidents are evidence of the adage that
our existing facilities by providing the following: ‘things that get measured get improved’. Over the last few years,
– automatic activation of the shutdown sequence on critical facilities Dragon Oil has made great strides in systematically driving down
(mainly wellhead platforms); its Lost Time Incident Frequency (LTIF) rate, and we are fully
– automatic activation of the fire and gas protection network; focused on realising even greater success in the future. In 2012, we
experienced a higher number of incidents due to increased activities,
– a standardised approach to react to fire and gas emergency situations; which we will be watching closely and addressing in 2013.
– i mprovement of the safety and reliability standard of the
shutdown system via the introduction of enhanced, up-to-date
hardware and software, thus reducing human error factors in
responding to fire and gas emergencies.

2008 2009 2010 2011 2012 LTIF
Lost time incidents 4 4 2 3 6
The Essential Read

Total hours worked 2010 1.46
(millions) 4.2 4.5 5.2 5.7 4.8 2011 1.3
Lost time incident 1.79 1.64 1.46 1.30 1.26 2012 1.26
frequency*
* The calculation is based on using the cumulative number of total hours worked
since 2000 when the records began.
Environmental protection
The key to improved environmental behaviour lies in education: in
making everyone aware of the positive actions we can all take, and
the consequences for the planet if we do not.
Talking to children – the environment’s future stewards – is an
excellent place to start. With this in mind, Dragon Oil is planning
to hold joint summer camps for young people along Turkmenistan’s
Performance
shores of the Caspian Sea. In addition, we are committing funds to
heighten awareness among the local communities at large, as well
as our own employees.
In November 2012, we were one of the sponsors of the Caspian
Ecological Forum, hosted by Turkmenistan’s Ministry of Nature
Protection. The discussions brought together diverse parties
including governmental organisations, UN bodies and the oil and
gas companies. The focus was on using modern technology and
knowledge to maintain air and sea quality; maintaining the
1.26
environment in the land-locked Caspian Sea; and, in the words of
President Berdimuhamedov of Turkmenistan, “preserving the sea’s
biodiversity and ecological balance”.
Community support 1.26 LTIF – our aim is to continue reducing the LTIF as Governance
It is a fundamental part of our ethos at Dragon Oil that we actively we expand our operations and work more hours,
contribute to the well-being, progress and cultural life of our making our operations safer.
host communities.
In 2012, our community programme manifested itself in a host of
different and important ways:
new polyclinic for Hazar. The building and related infrastructure
A
for this almost US$5mn project are now completed and we hope for
inauguration in early 2013. Once inaugurated, this state-of-the-art
clinic will provide important out-patient services for the Hazar
community and play a significant role in routine healthcare.
efurbishing Hazar’s schools. In 2012, we completely refurbished

R
three classrooms and corridors at School # 3 and two blocks,
including sanitary facilities, at Nursery # 3. Also with children
in mind, we bought New Year gifts for the Children’s Fund
of Turkmenistan.

continued
e energise local sport. Just some of our sporting projects

W ISO certification
include sponsorship of the Hazar Sport Committee; sports clubs
In 2012, we achieved our goal of being awarded the ISO 9001, ISO
in Ashgabad and Turkmenbashy; and the National Center of
14001 and ISO 18001.
Special Olympics of Turkmenistan. We regularly purchase sports
equipment and uniforms and sponsor inter-city competitions. In addition to improving organisational quality, and providing a
high-quality environment for skilled and talented employees,
e celebrate local arts. Activities include sponsoring a charitable
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these certificates will also strengthen our credentials in
concert of classical music for the Hazar community; purchasing
international business.
musical instruments for the Children’s Art school of Hazar and
sponsoring a video of classical Turkmen music. The ISO 9001 certificate was gained by devising a roadmap towards
establishing a Quality Management System (QMS) that is compliant
e give a helping hand. We are delighted to sponsor clubs for
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with ISO 9001:2008. The journey was initiated in early November
disabled people in Balkanabad and Ashgabat, and the Turkmen
2011, and required GAP Analysis, establishment of QMS
Society of Blind and Deaf People.
Documentation, Quality Assurance Training, implementation and
e provide medical support either by using the medical facilities
W evaluation, and certification and maintenance. All these stages
at our camp in Hazar or by supplying medical equipment to were successfully completed in all departments, both at
the local Hazar hospital for diagnosis and treatment of local headquarters and across the subsidiaries.
community patients.
Every part of the business has been touched by this far-reaching
initiative, and 16 employees have qualified for the role of auditors in
On a daily basis, we provide help and assistance to Hazar’s Mayor
internal quality audits. The task now is to achieve continuous
Administration and local organisations. We help develop
improvement of the QMS through internal quality audits,
infrastructure and resolve priority issues by providing materials,
surveillance, management reviews and taking firm action on any
machinery, manpower and transport. In 2012, we undertook a
issues raised by customers.
project to install or replace street lamps in the town park and in
the streets. At the same time, the Group has achieved ISO 14001 and ISO 18001
certification. A framework for conducting business in an
Further afield, Dragon Oil also completed a major project in Basra,
environmentally responsible manner was established under ISO
Iraq, to improve sanitary facilities at three girls’ schools.
14001 and a framework for providing a safe and healthy working
environment was established under ISO 18001.
Dragon Oil obtained full ISO 14001 and OHSAS 18001 Certification
for Dragon Oil, including our largest 100% subsidiary and operator
of the Cheleken Contract Area, Dragon Oil (Turkmenistan) Ltd.
Supply chain management: local content

We believe in conducting ourselves according to the highest
standards of business practice. This not only means being true
to the Dragon Oil Code of Conduct, which we initiated in 2009;
it means looking at how our business impacts the local host areas
in which we work.
In 2011, we started to encourage actively our suppliers to use locally-
sourced labour and materials. In 2012, we laid the foundation of this
strategy by endeavouring that any tender we receive for major
projects needs to comprise a minimum of 20% local content, if at
all possible.
We are also leading by example. In 2010, we allocated land in the
harbour area to contractors to allow them to construct platforms
and gathering blocks near Dragon Oil’s operations. This not only
helped us to supervise the contractors and keep to deadlines, but
also had the effect of bringing more local jobs and orders for supplies
to the area.

In 2011, the Dzheitune (Lam) Block 1 and C platforms were built in
our ship yard. In 2012, the Dzhygalybeg (Zhdanov) Block 4
gathering platform was also built there and the Dzhygalybeg
(Zhdanov) B platform is currently under construction.
The Essential Read

In 2012, we employed our own rig (Rig 40) in the Cheleken Contract
Area, and its drilling operations were mostly performed by a
local crew.
Use of local content brings benefits to everyone: our employees, our
suppliers, the local community and our host government. In the
future, we will therefore encourage contractors to use our ship yard
– indeed, we plan to develop it into a full fabrication yard with
expanded load-out capabilities, related facilities and berths.
Accountability
Across every facet of our operations and dealings, Dragon Oil
adheres to the highest principles of corporate governance as the firm
foundation of the Group’s conduct, ethics and practices. The Group
also makes sure that there are adequate and appropriate procedures to
Performance
protect the value in the Group and to create maximum transparency.
The following members of the Company’s management are
accountable for the key areas of our business. They in turn report to
the CEO who holds overall responsibility.
Human Resources: Hussain Al Alaiwy, Director of Human Resources;
SE: Adel Alnadhari, HSE Manager who reports to the Chief
H
Operating Officer;
3
Governance: Annisa Loadwick, Legal Counsel;
R isk Management: Hussain Al Ansari, Chief Operating Officer;
Investor Relations: Tarun Ohri, Director of Finance; and
One wellhead production platform and two gathering
Governance
upply Chain Management: Ahmad Assadi, Contracts and
S blocks were built in our ship yard bringing more local
Purchasing Manager. jobs and orders for suppliers to the area.

Governance
High standards of
governance and a
strong management
team help us to achieve
our business objectives.

48 Board of Directors and Senior
Management Team
52 Principal Risks
The Essential Read

57 Directors’ Report
62 Corporate Governance Statement
69 Directors’ Remuneration Report
Performance
Governance

Dragon Oil Board of Directors
Dragon Oil’s Board of Directors draws on the solid

experience of its members in the oil and gas industry,
oil services and finance to further the Group’s success.
1. Mohammed Al Ghurair Non-executive Chairman engineering from Stanford University and is a respected public
Mr Al Ghurair, 24.03.1952, is the Non-executive Chairman for the speaker on the oil and gas industry. He served as 2007 President
Group. He was appointed to the Board on 25 April 2007 and was of the International Society of Petroleum Engineers.
appointed as Chairman on 26 September 2008. He has now served
He also has a keen interest in humanitarian efforts, being a founder
on the Board for over five years. With over 30 years working in
member of the industry’s Humanitarian Support Alliance NGO
business management for a variety of companies in different
(IHSAN-H2O), which aims to encourage the formation of a
jurisdictions, Mr Al Ghurair brings invaluable experience and
global alliance committed to empowering disadvantaged
leadership in crafting the direction and strategy for an established
communities worldwide.
company such as Dragon Oil.
3. Ahmad Sharaf Non-executive Director
The Chairman has a degree in Mechanical Engineering and is a
Mr Sharaf, 16.10.1966, is the Non-executive Vice-Chairman for the
prominent executive Director in a number of leading companies in the
Group, a position which he has held since 2008. Mr Sharaf earned a
Middle East, including Dubai Aluminium and the Saudi International
B.Sc and M.Sc in Petroleum Engineering from the Colorado School
Petrochemical Company. Mr Al Ghurair is considered by the Board
of Mines and an MBA from DU.K.e University’s Fuqua School of
as a nominee of the majority shareholder, Emirates National Oil Co.
Business. Mr Sharaf brings specialist knowledge and the ability
(ENOC) L.L.C. (“ENOC”), on the Board of the Company and is also
to evaluate and critique new business venture opportunities in
a member of Dragon Oil’s Remuneration Committee.
this sector, specifically in an international context. Mr Sharaf
2. Dr Abdul Jaleel Al Khalifa Executive Director has worked in the international upstream oil and gas industry for
Dr Al Khalifa, 02.07.1957, is the sole Executive Director for the Group over 15 years.
as well as the CEO in the senior management function. He joined
Currently Mr Sharaf is the Chief Executive Officer of Dutco Energy,
Dragon Oil on 1 May 2008 in the role of CEO for the Group and was
a division of the Dutco Group, dedicated to expanding the Group’s
appointed to the Board on 26 September 2008.
interests in the oil and gas sector. In addition, Mr Sharaf continues in
Dr Al Khalifa is able to share his management and technical a number of other senior roles within Dubai, namely as Chairman of
experience that he gained from working for Saudi Aramco, where the Dubai Mercantile Exchange and as a member of the Board of
he managed a wide range of E&P departments, based in Dhahran, ENOC and ENOC’s Audit Committee. This makes Mr Sharaf a
Saudi Arabia. In addition, Dr Al Khalifa has a doctorate in petroleum nominee for the Company’s majority shareholder but allows him
1. 2. 3. 4.

to provide insight into the broader business community within the focuses on the operational and technical recommendations
UAE as well. Mr Sharaf was appointed to the Board in April 2007 and submitted for review by the Board and in particular on field
has now served more than five years as director. He serves as the development and drilling programme plans.
Chairman of the Nominations Committee.
Mr Al Muhairbi was appointed to the Board on 22 May 2007 and
Previously Mr Sharaf worked at ConocoPhillips from 1990 – 2005 has now served more than five years as director. He is currently
as well as for Dubai Holding in various leadership positions in the a member of Dragon Oil plc’s Audit and Nominations Committee
energy, health care and real estate sectors. and the Chairman of the Remuneration Committee.
4. Nigel McCue Senior Independent Non-executive Director 6. Saeed Al Mazrooei Independent Non-executive Director
Mr McCue, 12.09.1951, is the Company’s Senior Independent Mr Al Mazrooei, 24.12.1960, is an Independent Non-executive
Non-executive Director. Having been appointed to the Board on Director and has a long history within the upstream industry with
22 April 2002, he has served more than 10 years on the Board; a great emphasis on the development and production of gas assets.
nevertheless his unique in-depth understanding of the business Notably, he joined Arco International in 1985 to work on various
and its history, his willingness and ability to challenge proposals aspects of their gas business and then Mr Al Mazrooei played a
when submitted and his fair and transparent participation in central role in the development of the ‘Dolphin Project’, to transport
Board discussions have assured the Board that Mr McCue remains gas from Qatar to the UAE for power generation purposes. He
independent within the definition of the UK Corporate Governance currently holds the position of CEO for Emirates Aluminium (as
Code (the “Code”). well as a number of directorships in other Middle Eastern
companies), bringing further leadership experience to the Board.
Mr McCue is a Director of Jura Energy Corporation, a TSX-listed
company and was formerly a Director and CEO of Lamprell plc, Mr Al Mazrooei has a Master’s degree in gas engineering and
The Essential Read

which is also listed on the LSE. Mr McCue has over 37 years’ management from Salford University in the UK. He was appointed
experience in the petroleum industry, many years of which have to the Board on 22 May 2007 and has now served more than five years
been spent in senior roles at international oil and gas companies as director. He is currently the Chairman of the Audit Committee.
(including Lamprell plc, Lundin plc, Chevron Overseas Inc. and Gulf
7. Thor Kristian Haugnaess Independent Non-executive Director
Oil Corporation). The Board is pleased to take advantage of that
Mr Haugnaess, 25.05.1958, is an Independent Non-executive Director
broad experience base and knowledge of the inner workings of listed
for the Company. He has been working in the upstream oil and gas
companies for the benefit of the Group.
industry for over 25 years, predominantly on the oilfield services side
Mr McCue sits on Dragon Oil’s Audit Committee, having served on with the Schlumberger group of companies in a variety of management
it for over nine years. roles. Between 2003 and 2006, Mr Haugnaess was the President for the
Norwegian drilling contractor, Ocean Rig ASA, which was listed on the
5. Ahmad Al Muhairbi Independent Non-executive Director
Oslo Stock Exchange. This company was turned around to become a
Mr Al Muhairbi, 07.09.1959, is an Independent Non-executive
dynamic and quality-based organisation, with excellent safety and
Director and has a strong background in the operational aspects of
financial records in a short period of time. Mr Haugnaess is an
the upstream oil and gas business. Mr Al Muhairbi has been involved
Independent Non-executive Director of InterOil Exploration and
in petroleum field development and production since 1988
Performance
Production ASA listed on the Norwegian Stock Exchange.
previously with Margham Dubai Establishment and then with
Dubai Supply Authority. In December 2012, he was appointed as the Mr Haugnaess has an MSc in Petroleum Technology from the
Dubai Supreme Council of Energy “Dubai Energy Governing Body” University of Trondheim (NTNU) in Norway. He was appointed to
Secretory General. He also serves as a director on the Regulatory the Board on 20 February 2012. He is currently a member of Dragon
and Supervisory Bureau for Electricity & Water Sector for the Oil’s Audit, Remuneration and the Nominations Committees.
Emirate of Dubai. Using his comprehensive knowledge of well
technology as well as his petroleum engineering education, he
Governance
5. 6. 7.

Dragon Oil Senior Management Team
We have a strong management team of experienced and

talented professionals from all over the world.
1. Hussain Al Ansari Chief Operating Officer

Hussain has 24 years’ experience in the petroleum industry having
worked with ARCO International, ENOC, Dolphin energy and
Mubadala Petroleum Services Co. He has a Bachelor’s Degree in
Chemical Engineering from the University of California at
Santa Barbara, USA.
2. Emad Buhulaigah General Manager of Petroleum Development
Emad has over 30 years of experience in petroleum engineering,
1. 2. having worked for Gulf Oil, Saudi Aramco, Chevron and Shell. He has
a Master’s degree in petroleum engineering from the University of
Southern California, USA.
3. Tarun Ohri Director of Finance
Tarun has over 26 years’ experience in finance, accounting and audit
predominantly in oil-related industries in Qatar and the UAE. He is an
associate of the Institute of Chartered Accountants of India with
a CISA qualification.
4. Hussain Al Alaiwy Director of Human Resources
Hussain holds a Bachelor’s degree in Mechanical Engineering from the
3. 4. University of Alabama, USA. He comes to us with more than 26 years
of experience in operational, engineering and project management
from working for Saudi Aramco.
5. Mark Sawyer Business Development and New Ventures Manager
Mark has 30 years of broad international experience in the energy
sector, including responsibility for E&P business development for a
large multinational energy company. Prior to Dragon Oil, Mark was
Vice President, Business Development with Tatweer Investments
and Chief Business Development Officer for Dubai Energy.
6. Julian Hicks Company Secretary
Julian trained as a UK-qualified solicitor and has almost 20 years’
5. 6. experience in the upstream oil and gas sector, with particular exposure
to the UK, FSU and the MENA region. Julian joined Dragon Oil in 2013
and is a member of the Law Society of England & Wales and the
Association of International Petroleum Negotiators.
7. Ahmad Assadi Contracts and Purchasing Manager
Ahmad holds a Bachelor of Science degree in Mechanical Engineering
and MBA in Finance. He comes to Dragon Oil having worked for
over 25 years in commercial and logistics background within the
oil and gas industry with Abu Dhabi Gas Liquefaction Limited
(ADGAS) Abu Dhabi.
8. Faisal Al Ansari Corporate Planning Manager
7. 8.
Faisal has over 28 years of experience in reservoir engineering and
field development planning, business performance, corporate
planning, logistics and marine operations. Faisal holds a Bachelor of
Science degree in (B.Sc.) Double Major in Physics and Mathematics
from the University of Lewis and Clark College, Portland, USA.
9. Jamel Kahoul Projects Manager
Jamel has worked for over 35 years in corporate and project management
within the oil and gas industry having started as a Project Manager
with John Brown-London, then Department Manager for ZADCO-UAE,
Senior Consultant in Project Management for SITECH, Canada and Area
9. Engineering Manager with Abu Dhabi Company for onshore oil
operations prior to joining Dragon Oil.

10. Roberto Espinoza Head of Reservoir Operations Team
Roberto worked with four international E&P operators for the last 20
years and built a solid expertise in a wide variety of field assignments
in 10 different countries. Roberto is a recognised manager in
The Essential Read

Production, Reservoir and Subsurface disciplines with a focus on
reservoir development, production optimisation and asset growth.
11. Ali Al Matar Engineering Manager
Ali has worked for over 28 years in gas processing, engineering and
10. 11. project management with Saudi Aramco, including involvement in
the design, construction and commissioning of a gas processing
facility. He holds a Master’s Degree in Construction Engineering
Management and a Bachelor’s Degree in Chemical Engineering.
12. Tarek Fahmy Drilling Manager
Tarek has 35 years’ experience working with AMOCO International,
BP (ADMA OPCO), APPACHE, KOC, Weatherford and Halliburton.
He has a Bachelor of Science degree in Petroleum Engineering from
Suez Canal University, Egypt.
13. Alan McCavana Marketing Manager
Alan has over 25 years’ experience in the oil and gas industry,
Performance
12. 13.
having worked for Woodside Energy, Sakhalin Energy and Shell
in Australia and Russia. He holds an MBA from the University of
Newcastle in Australia.
14. Ali Al Hauwaj Exploration Manager
Prior to joining Dragon Oil, Ali worked for Saudi Aramco for over
30 years. In his latest position, he led Saudi Aramco’s exploration
programme, conducted hydrocarbon exploration in the Gulf area
and start-up of the Red Sea sub-salt exploration programme, as
well as Saudi Arabia’s North-western region.
15. Adel Alnadhari HSE Manager
14. 15. Adel has substantial proven expertise in upstream oil and gas
operations, mainly in the fields of Maintenance and HSE and
Quality Management. His last position prior to joining Dragon Oil
was HSE and Quality Manager at TOTAL ABK-Abu Dhabi.
Governance
16. Jasim Mohammed Head of Information Technology
Jasim holds a higher Diploma in Information System and an
Executive Master in Business Administration from Zayed
University. He has more than 16 years of experience in leading
and managing IT operations and corporate communication.
17. Rashid Redjepov Country Manager
Rashid trained as an economist and worked for over 15 years
16. 17.
in various aspects of the upstream oil and gas industry of
Turkmenistan, both in the public and the private sectors,
before being appointed as Country Manager in November 2008.
18. Eldar Kazimov Country Manager
Eldar graduated from the Polytechnic Institute of Turkmenistan and

the TISBI University of Russia with an Honours Degree in Petroleum
Engineering and Management. He had eight years’ experience in field
operations before being appointed as Country Manager at Dragon Oil
in November 2008.
19. Kheder Mekha Field Manager
18. 19. Kheder worked as the Head of the Technical Services Department
in the Alfourat Petroleum Company in Syria from 1990–2003, before
he joined Dragon Oil as a Field Manager. Kheder holds a Bachelor
degree as mechanical engineer from Syria/Aleppo University.

Principal Risks
The Board and management take steps to identify

and evaluate the inherent risks, thereby enabling
better management and mitigation of their impact
on the business.
Principal risks and uncertainties Risk management review

In 2011, the Group developed a structured Enterprise Risk The Board recognises that risk management is an ongoing process
Management (“ERM”) framework, which was approved by the and, while significant steps have been achieved in the past, it is
Board in 2012. Dragon Oil adopts a proactive approach to risk expected that the risk framework adopted in 2012 will underpin
management. The ERM consists of policies, procedures and the improved risk monitoring. The business units will report on the
Group’s organisational structure with clear roles, responsibilities risks and mitigation action plans on a quarterly basis. This will be
and accountabilities aimed at identifying, measuring, managing, reviewed annually across the Group, ultimately by the Executive
reporting and monitoring identified risks. The Group adopts risk Committee and reported to the Audit Committee. However, the
management strategies based on the nature and types of risks; embedding process will take place over a number of years and so
mainly strategic, operational, financial and compliance risks. the integration of risk management with business plans and
objectives will continue during 2013 with a view to further
The Board recognises that Dragon Oil’s business is potentially
refining the process.
exposed to many different risks but believes that there are some
business risks, which can be accepted by the Group provided that As is consistent with best practices for the industry, Dragon Oil
acceptance of such risks creates value for the Group and that the has an internal control framework and supporting policies and
risks are properly managed. The Board provides oversight of the procedures, all of which form part of its risk management strategy.
strategic direction of the business and approves the annual budget Individual managers are responsible for ensuring compliance within
and business plan. The business planning process extends over a their departments, which includes the identification, evaluation
five-year period and provides the principal parameters against and mitigation of risks within their areas of responsibility. The
which the performance of the Group is measured. These include application and consistency of these policies and procedures are
annual objectives and targets covering production, development, regularly reviewed by the Group’s Internal Audit function, and are
exploration, HSE and financial performance. Business plans are then overseen and reported to the Audit Committee, who are
approved by the Board together with risks to delivery and defined ultimately responsible for reporting on the same to the Board.
operational targets.
Key risks for the business
The Board and management take steps to identify and evaluate the
During the year we have reviewed and evaluated the risks the
inherent risks, thereby enabling better management and mitigation
Group faces. The risks are grouped into four categories: strategic,
of their impact on the business. The key stakeholders within the
operational, financial and compliance. These risks can potentially
Group – namely the Board, the senior management team and other
adversely impact our employees, operations, performance and
staff – ensure that management of risk is an integral part of our
assets. The principal risks and uncertainties, together with the
activities and implement action plans to protect the Group and its
actions in mitigation, are set out in the table below.
business interests from these inherent risks.
In addition to the business planning and budgeting process,
operational business units are expected through quarterly
accountability reviews to monitor and report on actual performance
to senior management including variances to targets; reviews
include an assessment of the risks and measures being implemented
to manage these potential risks. At the beginning of each year,
senior management can then report on the performance of the
Group against key performance objectives to the Board for the
previous year, and set the targets for the upcoming year.
Risk management, being critical to achieving the Group’s strategic
objectives and stakeholders’ expectations, is coordinated by senior
managers in the Group with the overall responsibility residing with
the Board.

Potential impact that we face Protecting the business
Strategic risks
The Essential Read

Export routes for crude oil he isolated geography of Turkmenistan
T The Group possesses considerable
coupled with regional geopolitics, particularly experience in marketing and numerous
share of production the various international sanctions against contacts within the Caspian Sea region.
Iran, means that Dragon Oil currently has It has reached an agreement for marketing
limited oil marketing routes for its crude oil. the full export entitlement oil production via
All the Group’s entitlement volumes are Baku until 31 December 2014. It is expected
currently exported out of the Caspian Sea that the realised crude oil prices under this
region to international markets via Baku, contract will be in the range of a 14-17%
Azerbaijan. Prolonged disruption or loss of discount to Brent.
this route could lead to severe economic
ragon Oil continues to seek alternative
D
consequences for Dragon Oil.
marketing opportunities that would be
The various sanctions against Iran and Iranian deployed should the current arrangements
entities passed by the United Nations, the experience interruption. Alternative options
European Union and the United States are available but sales would likely be at
Performance
intensified during 2011 and 2012. EU sanctions larger discounts than currently achieved.
prohibiting the import of Iranian crude oil into
Developments in the various sanctions
the EU were passed in January 2012.
against Iran and Iranian entities are
monitored closely, and discussed with
specialist lawyers.
Sole producing asset The Group’s revenues are dependent on the The Board has adopted a clear strategy
continued performance of its single producing for growth and regularly reviews new
asset, offshore Turkmenistan. The satisfaction investment opportunities, submitted by the
felt by shareholders and Dragon Oil staff dedicated new ventures team in line with
arising from the success of the PSA may create this strategy. Given the inherent risks of
a culture that is too risk averse in terms of such investments and that market
acquiring new assets elsewhere resulting in conditions are constantly changing, the
missed opportunities to grow or diversify the Board and management face a challenge
Governance
business and alleviate the reliance on a of adapting and reacting to new
single asset. opportunities quickly.
Country risk Changes in legal systems or regulations in any The Group has a considerable experience in
of the jurisdictions in which the Group operates conducting business in the jurisdictions in
may occur, which might have a significant, which it operates. In Turkmenistan, there
adverse impact on the Group’s operations are strong and well-established government
and in particular on the ownership and/or relationships. Further, Turkmenistan’s fiscal
operation of the PSA. Political changes in host and legal systems are stable and predictable.
countries could lead to similar consequences.
Skilled and talented Performance and future success are Competitive compensation packages for
dependent on the Group’s ability to attract, key staff, including instituting broad-based
human capital retain and motivate highly skilled and compensation initiatives and long-term
qualified personnel. Lack of availability and incentives, are offered. Regular bench-
intense competition for the skilled human marking of remuneration packages to
resources within the upstream sector and in ensure competitiveness against market
particular within Turkmenistan may prevent levels is undertaken.
this, potentially resulting in increased cost,
Training within the Group’s Centre of
challenges to delivery of growth targets and
Excellence and development of all staff and
even impact on operational safety.
in particular local nationals are a key focus.

Principal Risks
continued
Operational risks
Availability of drilling rigs Despite the ongoing efforts to acquire The Caspian Driller jack-up rig is planned for
additional jack-up and platform drilling delivery in 2013. The contract for the Iran
rigs, it is recognised that there is an overall Khazar rig has been extended until May 2015.
limitation of rig availability in the In the near term, there is a greater reliance on
Caspian Sea. platform-based rigs and recently the Group
Collectively, these factors may result in secured two additional platform-based rigs
significant impact on field development, introducing greater flexibility into the
impose higher costs and inhibit the strategy drilling programme.
to increase production, in the event of
an unexpected loss/unavailability of a
drilling rig.
Quality of contractors to A small pool of top international contractors We have seen an increased number of high
capable of completing offshore construction quality contractors tender for Dragon Oil’s
undertake projects projects and few construction yards within projects and a programme to diversify
the Caspian Sea region mean that the actively the Group’s supplier base has been
alternatives for suppliers are restricted to a successful over the last three years, with
group who are limited in terms of capability, many new companies now working for the
reliability and delivery excellence. This may Group, and this programme will continue.
result in delays to project delivery, missed
Business plans include flexibility in case
production opportunities, inefficiencies and
of delays by a contractor, enhanced by
increased HSE exposure.
the use of FEED studies and project
management consultants on key projects.
HSE hazards Health, safety and environmental risks are Extensive monitoring and review of HSE
inherently associated with oil extraction policies and procedures as well as contracts
and recovery. The Group also has to meet with specialist service providers for the
country-specific environmental standards. clean-up of oil spills have been concluded.
An oil spill in the Caspian Sea and Dragon Oil undertakes regular HSE training
inadequate crisis management could for operational staff together with annual
adversely impact production capability HSE and crisis management exercises across
and profitability. the Group.
Asset integrity Integrity of very old infrastructure, The Group has refurbished the producing
particularly in the Dzhygalybeg (Zhdanov) pre-PSA infrastructure and replaced key
field, presents significant operational, components. Additionally there are plans in
maintenance and safety challenges and place to survey and/or dismantle and
uncertainties, and increases the likelihood remove inactive old infrastructure. Going
of a catastrophic accident. Breakdown can forward, the Group has adequate resources
impair the production capability. to build new infrastructure to modern
design standards.

Finances and economics
The Essential Read

The principal financial risks facing the Group (as well as the financial policies and controls) are addressed in the Group’s consolidated
financial statements on pages 90 to 91.
Oil price volatility Oil prices have been strong over the last four The Group does not currently hedge its oil
years but have proven to be highly volatile, price exposure but does actively monitor it.
both historically and recently. Wide
fluctuations in the oil price can impact
Group’s cash flows and profitability.
Estimated reserves/resources Inherent to the oil and gas industry are the The reservoir department conducts
risks relating to the continued discovery, evaluation of considerable volumes of
and future net revenues production and processing of hydrocarbons historical and 3D seismic data on which
in economically viable quantities. Reservoirs to base our future production projections.
within the Cheleken Contract Area are The reservoir team has specialist and
technically challenging and complex, experienced reservoir engineers and, if
meaning that future production may vary needed, employs external specialists.
Performance
significantly from projections. The oil, condensate and gas reserves
and contingent resources are assessed
annually by an independent
energy consultant.
Economics under the PSA A major breach of compliance with the PSA, Dragon Oil has worked successfully under
whether caused wilfully or inadvertently, the current PSA for over 12 years in a
or due to differing interpretations of key country where fiscal and legal systems have
provisions can affect the underlying been stable and predictable. We have a
economics of an investment project and system of review and accountability
shareholder value. in place to ensure compliance with the
PSA terms under an enterprise-wide
control framework.
Gas development project Dragon Oil’s project to develop the gas from A portion of the Group’s unprocessed gas Governance
the Cheleken Contract Area is dependent is being supplied into a nearby governmental
upon many factors including construction compressor station where it is processed
of the Gas Treatment Plant (“GTP”), demand into the Turkmenistan network. There
for gas, execution of a gas sales agreement, are specific plans and approvals in place
accessibility to a gas transportation to construct the GTP to recover significant
network, and overall economic conditions. condensate volumes and continue
They affect Dragon Oil’s ability to develop discussions for the gas sales agreement
its gas reserves. with the authorities.
Cash balances Dragon Oil’s cash balances are held with A treasury policy is in place for effective
banks, both international and local, that have cash management. We regularly monitor
substantial operations in UAE. Default due to our exposure and the banks’ credit ratings
an extreme financial stress could result in to ensure that our financial assets
loss or restricted access to this asset with are spread across a large number of
major impact for Dragon Oil’s future viability. creditworthy financial institutions. Our
cash management policy has established
limits on counterparty exposure.

Principal Risks
continued
Compliance and legal risks

Approval processes, The Group relies on the approval The Group has considerable experience in
by government bodies in different operating in Turkmenistan with strong and
licences, visas jurisdictions of the appropriate licences, well-established government relationships,
permits and regulatory consents (including both at central and local level. The Group
for the PSA) as well as visas for foreign is taking additional steps to communicate
nationals to continue its operations. and engage at the highest levels to resolve
Difficulties with securing the necessary any concerns.
approvals could potentially limit the Group’s
ability to achieve production targets and/or
increase the chance of HSE non-compliance
and accidents.
Sanctions against Iran The various, differing sanctions against Iran The scope and applicability of each sanctions
and Iranian entities passed by the UN, the regime to companies in the Group are
EU, individual EU Member States and the discussed and reviewed with specialist
USA intensified during 2011 and 2012. They lawyers on a regular basis; EU sanctions
may impact on the Group’s ability to transact have resulted in some limited changes to the
with Iranian counterparties. They also Group’s business and to the way that the
restrict the ability of certain companies in Group transacts with Iranian counterparties,
the Group to transact with Iranian entities for example in relation to the leasig of the
and may also impact US and non-US Iran Khazar rig. Our lawyers are instructed
suppliers engaged in business with Dragon to maintain constant vigilance on
Oil in some respects. There may be developments and advise accordingly.
additional impact on the operations of the We maintain regular dialogue with
Group if it re-commenced the earlier swap suppliers regarding the implications of the
arrangement for export of crude oil sanctions regimes.
through Iran.
Internal controls Risk of fraud and/or breaches of internal System of risk management and internal
controls by employees may be difficult to controls are detailed under ‘Internal Control’
recognise or detect or trace, particularly if in the Corporate Governance section of this
collusion is involved. This may result in Report, on page 68.
material reputational, financial, legal,
commercial or regulatory exposures to
the Group.
On behalf of the Board

Mohammed Al Ghurair and Abdul Jaleel Al Khalifa
Directors of Dragon Oil plc
11 February 2013

Directors’ Report
The Directors present their report and the audited consolidated Results and Dividends
financial statements for the Group and audited financial statements The results of the Group for the year ended 31 December 2012 are set
for the Company for the year ended 31 December 2012. These will be out in the Group’s income statement on page 79. Profit attributable to
laid before the shareholders at the Annual General Meeting (“AGM”) equity holders of the Company was US$600 million (2011: US$648
The Essential Read

of the Company, which is scheduled to be held on 30 April 2013 in million), which has been transferred to Reserves. The Board of
London, UK. Directors of the Company has recommended a payment of a final
dividend for 2012 of 15 US cents per share, subject to shareholder
Principal business activities
approval at the AGM to be held on 30 April 2013. Along with the
The Group’s principal activity is the exploration, development and
interim dividend of 15 US cents per share (paid on 20 September
production of oil and gas in Turkmenistan, Tunisia and previously
2012) the full-year dividend amounts to 30 US cents per share
in Yemen. The Group holds a 100% interest in the Cheleken Contract
(2011: 20 US cents per share).
Area, offshore Turkmenistan. The Turkmenistan PSA was signed
with a state agency of the Government of Turkmenistan in Election of Directors
November 1999 and became effective in May 2000. The PSA has a The following individuals served as Directors during the period from
25-year term, which expires in May 2025 and Dragon Oil has an 1 January 2012 up to 31 December 2012:
exclusive right to negotiate an extension for a further period of not
less than 10 years. Director details
In relation to the Group’s minority interests in the Republic of Yemen Events during 2012
(which it acquired in December 2007), the interests in Blocks 49, R2
Performance
Mohammed Al Ghurair (Non-executive
and Block 35 were relinquished due to lack of commerciality. Director and Chairman, member of the Re-elected on
In October 2011, the Company announced that it had signed a Remuneration Committee) (UAE) 18 April 2012
farm-in agreement with a wholly owned subsidiary of Cooper Energy Ahmad Sharaf (Non-executive Director
Limited (ASX: COE) through which Dragon Oil is to earn a 55% and Vice-Chairman and Chairman of the Re-elected on
participating interest in and, in any development phase, assume Nominations Committee) (UAE) 18 April 2012
operatorship of the Bargou Exploration Permit, offshore Tunisia.
Abdul Jaleel Al Khalifa (Executive Director Re-elected on
Dragon Oil (30%) and Kuwait Energy (70% and operator) as a and CEO) (Saudi Arabia) 18 April 2012
consortium have been awarded an exploration, development and
Nigel McCue (Senior Independent Non-
production service contract for Block 9 in Iraq’s fourth bidding
executive Director, member of the Audit Re-elected on
round. The formal contract between the Iraqi Ministry of Oil and
Committee) (UK) 18 April 2012
the consortium was signed on 27 January 2013.
Ahmad Al Muhairbi (Independent
A consortium of companies comprising Dragon Oil, Kuwait Energy, Non-executive Director, Chairman of the
Turkiye Petrolleri A.O. (TPAO) and the Ghazanfar Group has been Governance
Remunerations Committee, member of the Re-elected on
selected as the winning bidder for two blocks, Sanduqli and Nominations and Audit Committees) (UAE) 18 April 2012
Mzar-i-Sharif, in the Afghan-Tajik Phase 1 Oil & Gas Tender. The
consortium has been invited to enter into negotiations with the Saeed Al Mazrooei (Independent
Non-executive Director, currently Chairman Re-elected on
Afghanistan Ministry of Mines for the exploration, development
of the Audit Committee) (UAE) 18 April 2012
and production activities in the two blocks, which are expected to
take place and conclude in 1Q 2013. The Afghanistan Ministry of Thor Haugnaess (Independent Non-executive
Mines received the consortium’s bid in November 2012. Director, member of the Audit Committee,
the Remuneration Committee and the Elected on
Information on the Group’s various subsidiaries is set out on Nominations Committee ) (Norway) 18 April 2012
page 107.
Business Review The Board regularly reviews its own performance and, if deemed
A full review of the Group’s activities during the year and recent necessary, may look to strengthen its membership by appointing
events, as well as details of the Group’s business model and its additional directors with expertise or experience, which can be of
strategy for creating value over the longer term, is contained in the value to the Company.
Chairman’s Statement on pages 22 to 23, the the Chief Executive
In accordance with paragraph B.7.1 of the Code and the Company’s
Officer’s (“CEO”) Statement on pages 24 to 27 and the Operating and
Articles of Association, all Directors of the Board will retire and,
Financial Review on pages 28 to 37. The corporate key performance
being eligible, will offer themselves for re-election at the 2013 AGM.
areas and the analysis of those indicators are set out in the table on
pages 16 to 17. Information relevant to employee and environmental
matters is set out on pages 38 to 45.

Directors’ Report
continued
Directors’ Interests The measures taken by the Directors to secure compliance with
The interests of the Directors in the share capital of the Company, all the Group’s obligation to keep proper books of account are the use
of which are beneficial, are as set out in the table on page 71. of appropriate systems, controls, processes and the employment
of competent persons. The books of account are maintained at the
Directors’ Responsibilities Statement
Group’s head office in Dubai, United Arab Emirates.
The Directors are responsible for preparing the annual report and
the financial statements in accordance with applicable law and The Directors are responsible for the maintenance and integrity
regulations. Irish company law requires the Directors to prepare of the Company’s website. Legislation in the Republic of Ireland
financial statements for each financial year. Under that law the concerning the preparation and dissemination of financial
Directors have prepared the Group and Parent Company Financial statements may differ from legislation in other jurisdictions.
Statements in accordance with International Financial Reporting
To the best of the Directors’ knowledge, the Directors are not aware
Standards (“IFRS”) as adopted by the European Union. The financial
of any significant agreements to which the company is party that
statements are required by law to give a true and fair view of the
take effect, alter or terminate upon a change of control of the
state of affairs of the Company and the Group and of the profit or
company following a bid.
loss of the Group for that period.
Directors’ statement pursuant to the Transparency Regulations
In preparing these financial statements the Directors are
Each of the Directors, whose names and biographical details are
required to:
listed on pages 48 to 49, confirms that, to the best of each of their
Select suitable accounting policies and then apply respective knowledge:
them consistently;
t he financial statements, prepared in accordance with IFRS as
Make judgments and estimates that are reasonable and prudent; adopted by the European Union, give a true and fair view of the
assets, liabilities and financial position of the Company and the
tate that the financial statements comply with IFRS as adopted
S
Group and of the profit of the Group; and
by the European Union; and
t he Directors’ Report contained in the annual report includes a
repare the financial statements on the going concern basis,
P
fair review of the development and performance of the business
unless it is inappropriate to presume that the Group will
and the position of the Company and Group, together with a
continue in business, in which case there should be supporting
description of the principal risks and uncertainties that
assumptions or qualifications as necessary.
they face.
The Directors confirm that they have complied with the above
requirements in preparing the financial statements. Going Concern Statement and Future Funding
After reviewing the Group’s plans for 2013 and for future years, the
The Directors are also required by applicable law and the Listing
Directors are confident that the Group will have adequate financial
Rules issued by the Irish Stock Exchange to prepare a Directors’
resources to continue in operational existence for the foreseeable
Report and reports relating to Directors’ remuneration and corporate
future. They have therefore continued to adopt the going concern
governance. In accordance with the Transparency (Directive
basis in preparing the financial statements.
2004/109/EC) Regulations 2007 (the “Transparency Regulations”),
the Directors are required to include a management report Auditors
containing a fair review of the business and a description of the Ernst & Young have expressed their willingness to continue in office
principal risks and uncertainties facing the Group. and are eligible for reappointment as the Group’s auditors. They will
continue in office in accordance with Section 160(2) of the
The Directors are responsible for keeping proper books of account
Companies Act, 1963 and are deemed to be reappointed as the
that disclose with reasonable accuracy at any time the financial
Group’s auditors in the absence of a resolution for their removal.
position of the Company and the Group and to enable them to ensure
A resolution to authorise the Directors to determine the auditors’
that the financial statements comply with the Irish Companies Acts
remuneration will be proposed at the 2013 AGM.
and, as regards the Group Financial Statements, Article 4 of the
International Accounting Standards (“IAS”) Regulation. They are
also responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.

Charitable and/or Political Donations Holders of Ordinary Shares are entitled:
During the year ended 31 December 2012, the Group made charitable t o receive notice of, to attend, to speak and to vote (in person or
donations in the amount of US$8,442 to Al Noor Training Centre, by proxy), at general meetings having, on a show of hands, one
US$8,170 to Rashid Paediatric Therapy Centre and US$8,014 to The vote, and, on a poll, a vote for each Ordinary Share held, and
The Essential Read

Royal Marsden Cancer Charity (2011: US$5,719 to Al Noor Training to appoint a proxy so to attend, speak and vote. The Articles of
Centre) and no political donations were made (2011: nil). Al Noor Association and the Irish Companies Acts permit the Directors
Training Centre provides training for children with special needs; it to seek information from shareholders as to the beneficial
is run under the auspices of the Ministry of Social Affairs, ownership of Ordinary Shares. Where a shareholder does not
Dubai, UAE. comply with such a notice, the right to vote the shares of that
shareholder may be restricted;
Share Capital
t o receive, 21 days at least before an AGM, a copy of the annual
Particulars of the authorised and issued share capital of the
report and financial statements presented at that general
Company are set out in Note 14 to the consolidated financial
meeting, which will be made up to a date no earlier than nine
statements on pages 98 to 99. months before the date of that general meeting;
Major Shareholdings in the Company here dividends are paid by the Company or recommended by
w
As at 11 February 2013, Dragon Oil plc had been notified of the the Board of Directors and declared by a resolution at a general
following significant shareholdings, which are in excess of 3%: meeting, to receive those dividends in cash or by distribution of
specific assets, including new shares in the Company; and
No. of
Performance
Ordinary i n a winding-up of the Company, and subject to payments of
Shares % of Share amounts due to creditors and to any holders of shares ranking
Issued Capital in priority to the Ordinary Shares, to repayment of the capital
paid up on the Ordinary Shares from a proportionate part of any
Emirates National Oil Company surplus in the Company.
(ENOC) L.L.C (held directly) 265,263,515 54.19%
Rights attaching to transferred Ordinary Shares remain with the
Baillie Gifford & Co. (held indirectly) 35,934,862 7.34%
transferor until the transferee’s name is entered on the Register of
Members of the Company.
The members of the Board including the Non-executive Directors
have developed an understanding of the views of major shareholders The instrument of appointment of a proxy must be received by the
about the Company. For details of how the Board communicates Company not less than 48 hours before the meeting or adjourned
with shareholders and obtains their feedback, please see page 67. meeting, or, in the case of a poll, not less than 48 hours before the
taking of the poll.
Supplier payment policy
All shares allotted and issued pursuant to any existing employees’
The Group’s policy in respect of its suppliers is to establish Governance
documented terms of payment when agreeing the terms and share scheme or to be allotted or issued pursuant to the Company’s
conditions of the business transaction and to abide by the terms of long-term incentive plans, are Ordinary Shares carrying the same
payment. The Group’s normal payment terms are 30 days from the rights as other Ordinary Shares and have no special rights or rights
date of receipt of invoice. The Group requires its suppliers to confirm not exercisable directly by the employees.
compliance with the provisions of its Code of Conduct as part of the Transfer of shares
contractual terms in the ordinary course. There are no restrictions on the transfer of shares in the Company
Close Company Provisions and no requirements to obtain approval of the Company, or of other
The Directors are of the opinion that Dragon Oil plc is not a holders of securities in the Company, for a transfer of shares in the
close company as defined by the Taxes Consolidation Act 1997. Company, save that:
t he Directors may decline to register a transfer of Ordinary Shares
Directors’ Report: Disclosures required by the European on which the Company has a lien or in the case of a single transfer
Communities (Takeover Bids (Directive 2004/25/EC)) of Ordinary Shares in favour of more than four persons jointly;
Regulations 2006
Particulars of the authorised and issued share capital of the t ransfers of Ordinary Shares in certificated form are transferable
subject to production of the original share certificate and the
Company are set out in Note 14 to the consolidated financial
usual form of stock transfer duly executed by the holder of the
statements on pages 98 to 99.
Ordinary Shares and stamped with the requisite stamp duty;

Directors’ Report
continued
rdinary Shares in uncertificated form are transferable in

O Amendment of Articles of Association
accordance with the rules or conditions imposed by the operator The Articles of Association may be amended by special resolution
of the relevant system, which enables title to be evidenced and of the shareholders, being a resolution proposed on not less than
transferred without a written instrument and in accordance 21 days’ notice as a special resolution and passed by more than
with the Companies Act, 1990 (Uncertificated Securities) 75% majority of those voting on the resolution.
Regulations, 1996; and
Powers of the Board of Directors
t he Articles of Association and the Irish Companies Acts permit
The Directors are responsible for the management of the business of
the Directors to seek information from shareholders as to the
the Company and may exercise all the power of the Company subject
beneficial ownership of Ordinary Shares. Where a shareholder
does not comply with such a notice, the transfer of the shares of to the provisions of the Company’s Memorandum and Articles
that shareholder may be restricted. of Association.
There are no restrictions on voting rights. Share options are The Directors’ powers to allot, issue, repurchase and reissue
personal and not assignable. Ordinary Shares are dependent on the terms of the resolutions
from time to time in force so empowering the Directors.
The Company is not aware of any arrangements between
shareholders, which may result in restrictions on the transfer Share Capital Authorities
of securities or on voting rights. By Resolution 5 passed at the Company’s 2009 AGM, the Directors
were granted authority to allot shares pre-emptively or for a
Significant shareholders consideration other than cash equivalent to one third of the then
Shareholders known or disclosed (as at the date of this Report) to total issued share capital of Dragon Oil plc. As at 11 February 2013,
the Company as holding 3% or more of the Ordinary Shares or this authority had not been exercised, save for the issue of shares
voting rights therein are set out above on page 59. No person pursuant to employee share schemes. The allotment authority will
holds securities carrying special rights with regard to control of expire on 27 May 2014 or at the conclusion of the AGM held in 2014.
the Company.
The company does not at present have an authority to issue shares
Appointment and replacement of Directors other than pre-emptively.
Directors may be appointed by the Directors or by the shareholders.
No person, other than a Director retiring at a general meeting is Purchase of Company’s Own Shares
eligible for appointment by the shareholders unless either By Resolution 9 passed at the Company’s 2012 AGM, the Directors
recommended by the Directors or, not less than seven nor more were granted authority to make market purchases of the Company’s
than 42 calendar days before the date of the general meeting, Ordinary Shares up to 10% of the issued Ordinary Shares in Dragon
written notice by a shareholder of the intention to propose the Oil plc. This authority is due to expire at the conclusion of the 2013
person for election and notice in writing signed by the person of AGM of the Company or 18 months from the passing of
his willingness to act is received by the Company. the resolution.
Under the Company’s Articles of Association, where the Directors In June 2012, the Company implemented a US$ 200 million share
resolve that it is appropriate for there to be annual re-elections of buyback programme to repurchase shares in the Company in
Directors, including for the purpose of compliance with any relevant accordance with the above-mentioned Resolution 9, applicable laws
governance code or guidelines, all Directors automatically retire at and the Listing Rules. The buyback programme commenced on
the next AGM and are eligible for election by the shareholders at that 6 June 2012 and was completed on 25 October 2012. The objective
meeting. The Directors have so resolved and all Directors retire and and purpose of the programme was to return value to the
offer themselves for re-election at the AGM. shareholders and meet all relevant obligations arising from the
Company’s various share schemes. The programme was executed
Any Director may be removed by ordinary resolution (50%+1 pursuant to certain pre-set parameters. All shares that were
majority) of the shareholders passed at a general meeting. No person re-purchased were subsequently cancelled in compliance with the
aged 75 may be appointed a director and any Director aged 75 must Irish Companies Acts.
retire at the AGM following his/her 75th birthday.
The Directors are proposing a resolution on the same terms at the
There are no agreements between the Company and its Directors 2013 AGM and will take advantage of the flexibility afforded by the
or employees providing for compensation for loss of office or resolution, if passed, as they deem appropriate. As at 11 February
employment (whether through resignation, purported redundancy 2013, Dragon Oil plc held no shares in treasury.
or otherwise) that occurs because of a takeover bid.

Important events since 31 December 2012 (d) reducing the issued share capital;
Details of the important events that have occurred since (e) a
pproving the holding of the AGM outside the State;
31 December 2012 can be found in the Operating and Financial
(f) commencing the voluntary winding up of the Company;
Review on pages 28 to 37.
The Essential Read

(g) r e-registering the Company as a company of another type;
General Meetings
(h) a
pproving a substantial property transaction between the
Matters of ordinary business
Company and a Director;
General meetings of the Company are convened in accordance with
and governed by the Articles of Association and the Irish Companies (i) approving a guarantee or security for a loan or similar transaction
Acts. The AGM has the power to consider the following matters, made by the Company to a Director or connected person of a
which are deemed to be items of ordinary business: Director; and
(a) d
eclaration of a dividend; (j) approving the draft terms of a cross-border merger.
(b) the consideration of the financial statements, balance sheets and Other matters, such as the consideration of reports and the approval
the reports of the Directors and Auditors; of share option schemes, may also be done at a general meeting as
(c) the election of Directors in the place of those retiring by a rotation items of special business.
or otherwise or ceasing to hold office; 2013 Annual General Meeting
(d) the removal and fixing of the remuneration of the Auditors; The Board uses the AGM of Dragon Oil plc for the purpose of
(e) g
enerally authorising the Directors, for a period to expire no later communicating with all its investors alike and welcomes their
Performance
than the conclusion of the next AGM of the Company, to allot participation. It is the Company’s policy that all Directors should
relevant securities, within the meaning of the 1983 Act, with a attend if possible, subject to business or personal reasons. It is also
nominal value not exceeding the authorised but unissued share the Company’s policy to involve shareholders fully in the affairs of
capital of the company; the Group at the AGM and to give them an opportunity to ask
questions about the Group’s activities and prospects. The Senior
(f) generally authorising the Directors, for a period to expire no
Independent Non-executive Director will also be available at the
later than the conclusion of the next AGM of the Company, to
AGM to meet with the shareholders.
allot equity securities within the meaning of section 23 of the
Companies (Amendment) Act 1983: Details of the resolutions to be proposed at the AGM are given in a
(i) pre-emptively; and/or letter attached to the Notice of AGM, which is published separately
(ii) other than pre-emptively, of a character and/or with a and sent to shareholders with this report or a notification of the
nominal value not exceeding such percentage as is chosen report’s availability on the Company’s website. The Directors
by the Directors; consider that all of the resolutions set out in the Notice of AGM are in
(g) g
enerally authorising the Directors, for a period to expire no later the best interests of the Company and its shareholders as a whole
than the conclusion of the next AGM of the Company, to exercise and recommend that shareholders vote in favour of each of them. Governance
the power of the Company to make market purchases of the On behalf of the Board
Company’s shares with a nominal value not exceeding 10% of
the nominal value of the shares in issue. Mohammed Al Ghurair and Abdul Jaleel Al Khalifa
Directors of Dragon Oil plc
Special business 11 February 2013
All other business transacted at an AGM and all business transacted
at an Extraordinary General Meeting are deemed to be special
business. Matters, which must be done by the Company in general
meeting pursuant to the Irish Companies Acts include the following
matters:
(a) a
mending the Memorandum and Articles of Association;
(b) changing the name of the Company;

(c) increasing the authorised share capital, consolidating or dividing
share capital into shares of larger or smaller amounts or
cancelling shares, which have not been taken by any person;

Corporate Governance
Corporate Governance Statement Application of the Code

Dragon Oil places great significance on high standards of corporate The Directors are committed to maintaining high standards of
governance as a means to emphasise the Group’s good business corporate governance and this Corporate Governance Statement
conduct and strong ethical culture. As noted by the Chairman in his describes how the Group has applied the Code in 2012. The Board
Statement on page 23, the Board recognises its role in providing considers that, except where non-compliance is explained below at
effective and clear leadership and direction on all matters relating to pages 66 to 67, the Group has complied with the provisions set out in
the business of the Group, and specifically on corporate governance. the Code throughout the last financial year under review.
This creates a robust culture of business integrity and performance,
The Board
with a view to generating value for the Company and the
Under the leadership of the Chairman, the Board approved an
shareholders, whose views must be clearly communicated to the
updated set of Matters Reserved for the Board. This includes overall
Board. The management then translates the Board’s direction into
Group strategy, rolling five-year business plans, key projects, major
actions through adequate and appropriate processes and procedures.
investment plans and an annual budget (see the Operating and
Dragon Oil currently has a primary listing on the Irish Stock Financial Review at pages 28 to 37). Save for matters reserved solely
Exchange and a premium listing on the London Stock Exchange. for consideration by the Board, the Board delegates its authority for
Its shares are traded on the Irish and London Stock Exchanges under the management of the Group’s business primarily to the CEO and
the ticker ‘DGO’ and the Company complies with its obligations certain other matters are delegated to the Audit, Remuneration and/
under the listing rules of both the Irish Stock Exchange and the UK or Nominations Committees, each of which are described in more
Listing Authority (together the “Listing Rules”) accordingly. detail below.
The Board is committed to applying the Code, which is issued by the Nevertheless, the Board meets regularly to discuss many other
Financial Reporting Council (“FRC”), which is referred to in the aspects of the Group’s business, whether that is operational and
Listing Rules and is available on the website of the FRC at financial performance against stated key performance indicators
www.frc.org.uk. In addition, as an Irish-incorporated entity, the or CSR, as well as many other topics of relevance according to the
Company is required to comply with the corporate governance requirements of the business. The Board discussed a range of topics
provisions set out in the Irish Corporate Governance Annex to the in 2012 including:
Code (“Irish Annex”). The Directors also follow the related guidance
Topics at Board meetings
and suggested best practices referred to in the Code. Where there are
Strategic issues including diversification, re-structuring,
divergences from these materials, the Board has so determined that
acquisitions, performance measures and corporate governance;
it is in the best interests of the Group to do so, whether that arises
from the need to retain flexibility in operations or from the ability perational issues including important infrastructure projects,
O
to react quickly to new developments. marketing, reservoir development and management;
Arising from the differences between the Code and the provisions inancial matters including financial statements, budgeting
F
of the earlier FRC Combined Code, the Board carried out a review of and planning;
the Group’s corporate governance practices and is during 2012
xternal issues including investor relations and Host
E
started the process of making consequent changes to the Group’s
government relations;
corporate governance structure. This reflects the fundamental
principles of the Code and an earlier commitment to refresh its ersonnel matters including executive remuneration, HR policies,
P
control framework. However, the Board believes that such changes recruitment and incentives.
must be enacted over time in the proper manner. So while a number
of the proposed changes were implemented during 2012, any further Composition, succession and development
changes will be made in 2013. Details are as set out below in this At the start of 2012, the Board discussed the composition of the
Corporate Governance Statement. Board and noted the importance of having the right balance, both in
terms of having the right skills and experience but also to encourage
openness and transparency during meetings. The Board of Dragon
Oil plc currently comprises the Non-executive Chairman, the CEO
and five Non-executive Directors and it has comprised these six
members since 1 January 2009 after the departure of the previous
Chairman, with the exception of Mr Thor Haugnaess who was
appointed to the Board on 20 February 2012. The Board has
determined that the present composition is currently sufficient for
the purposes of the Company, as it enables the Board to be nimble
and react quickly to new developments.
www.dragonoil.com/governance
Equally, the Board considers that the current number of five Mr McCue is able to draw on many years of experience at the highest
Non-executive Directors on the Board is sufficient for the purposes levels of management in a number of international oil and gas
of the Group at this time. Each Non-executive Director participates companies, including listed companies; in addition, he recognises
fully in Board discussions and attends all possible Board and/or the significance of the role and responsibility of the position of
The Essential Read

Committee meetings in order to do so; further each Non-executive Senior Independent Non-executive Director and keenly challenges
Director brings his own, distinct range of abilities and experience, proposals to the Board. The share options were granted to him in
which are considered to complement those brought by the other 2004 and did not vest until 2008. No further share options have been
Non-executive Directors. granted to Mr McCue. All outstanding share options have been
exercised by Mr McCue in 2012. The Chairman has discussed again
Since their original appointment, Mohammed Al Ghurair and
the matter of Mr McCue’s continuing position on the Board and the
Ahmad Sharaf have been and continue to be nominee Directors of
Board is very pleased to propose that Mr McCue remains on the
the majority shareholder, ENOC. Mr Al Ghurair resigned from ENOC
Board as the Senior Independent Director.
on 25 April 2011 but the Board does not consider him to be an
independent Director within the definition of the Code. ENOC did As noted above, all Directors bring differing but complementary
not provide a particular statement or explanation for the skill sets to the Board and the four Independent Non-executive
appointment of Messrs. Al Ghurair and Sharaf on their appointment Directors have a comprehensive knowledge of the Dragon Oil
in 2007. business and apply their skills to the benefit of the Group. Mr McCue
has been on the Board since 2002 and Messrs Al Muhairbi and
As highlighted in the biographical details of each of the Directors at
Al Mazrooei have been on the Board since 2008. Mr Haugnaess was
pages 48 to 49, each of the Directors brings a different set of skills
Performance
appointed to the Board of the Company on 20 February 2012. The
and experience to the Board and all have a good knowledge of the oil
Board considers all four to be independent in character and
and gas industry. Each of the Non-executive Directors, including the
judgment, having considered the criteria for assessing the
nominee Directors of the majority shareholder, has a good
independence of a Director as set out in paragraph B.1.1 of the Code.
knowledge of the oil and gas industry. The technical expertise of the
Directors in the oil and gas industry, combined with their The terms and conditions of the appointment of the Non-executive
experience, has been harnessed in the past and will continue to be Directors are available for inspection.
used in the best ways possible to address the challenges that Dragon
Chairman of the Board and Chief Executive Officer
Oil faces on a day-to-day basis. The Directors have skill sets, which
There is a documented split within the Group for the roles and
are diverse and complement each other so that issues are considered
responsibilities between the Chairman and the CEO, which are
from a range of perspectives.
summarised as per the tables below:
An area highlighted in previous years for improvement was the
The Chairman manages the Board and the strategy for the Group,
training provided by the Company to Directors. During 2011, all six
and also leads implementation of Board decisions meaning that he:
Directors (prior to Mr Haugnaess joining the Company) attended a
training course on corporate governance, which was provided by an rives the strategic leadership for the Group including vision
d Governance
external service provider. The Directors regularly review the and direction;
requirement to update and refresh their skills and knowledge. nsures that the views of key stakeholders are understood by
e
Mr Haugnaess received induction when he joined the Board in the Board;
February 2012.
s upports the CEO to communicate the Board’s views to
Based on recommendations from the Nominations Committee, the institutional shareholders and communicates the Board’s views
Board considers succession planning as part of its overall strategy to retail shareholders;
for the Group and that will be progressed as required.
nsures that the Board operates smoothly and efficiently for
e
Independent Non-executive Directors effective decision-making;
The independence of Non-executive directors is an area that has
leads the Board and Committee performance evaluation process;
been under considerable scrutiny in recent years and the Board
takes its role of determining the independence of its Non-executive orks constructively with the CEO to implement Board
w
Directors seriously. decisions and the business strategy.
While Mr McCue has served on the Board for more than 10 years, the
Board is fully satisfied that Mr McCue remains independent for the
purposes of the Code and fulfils a very valuable and important role
on the Board. He is also available to shareholders who have concerns
that cannot be resolved through discussion with the Chairman. He
previously held share options, which he exercised in April 2012 and
now holds 346,344 shares in the Company.

continued
The CEO has the Board’s delegated authority on all matters of Although the Board of the Company only met twice during 2012,
management and is accountable for the same (where they are not there were numerous Board meetings of major operating subsidiary
reserved for the Board) meaning that, among other things, he: companies. All Board meetings, whether at the Company or
subsidiary level took place in Dubai, UAE except for the AGM (which
executes the Group’s business plans and objectives;
was held in London, UK, in April 2012). Further, the Directors
stablishes organisation structure, plans and policies and
e regularly communicate outside of the formal process of Board and
effectively implements the same; Committee meetings. The Directors consider that they have
r ecommends the Group’s business plans and budgets prior to allocated sufficient time to the Company to discharge their
Board approval; responsibilities effectively and this is evident from their attendance
at, and the frequency of, the Board and Committee meetings.
monitors and appraises performance of all key personnel;
In the ordinary course, the CEO and other senior management will
r eviews operational and financial performance of the Group submit proposals and recommendations to the Board and to its
against established goals;
Committees for review and approval. Such proposals and
is primarily responsible for external relationships with recommendations are included within a formal agenda for each
host governments; scheduled Board or Committee meeting and the agenda is set by the
c ommunicates with investors, analysts, institutional Chairman or the Committee Chairman (as the case may be), in
shareholders and supports the Chairman to communicate consultation with the Company Secretary. To the extent reasonably
the Board’s views to retail shareholders. possible, agendas and materials are distributed to the Directors on a
timely basis for review in advance and to enable constructive
discussions at the relevant meeting. Formal minutes of all Board and
Meetings and attendance Committee meetings are circulated to all Directors and considered
Audit Remuneration Nominations
for approval at the next available meeting.
Board Committee(1) Committee(1) Committee(1)
External advice
Number of All Directors have access to independent professional advice at the
meetings 2 6 3 1 Group’s expense, as and when required. All Directors have access to
the advice and services of the Company Secretary, who has
Mohammed responsibility for ensuring that the Board procedures are followed
Al Ghurair 2/2 n/a(2) 3/3 1/1 and for governance matters. The appointment of the Company
Abdul Jaleel Secretary is one of the matters reserved for the Board. Ms Annisa
Al Khalifa 2/2 n/a(2) n/a(2) n/a(2) Loadwick was acting as Company Secretary since 1 October 2012,
on the resignation of Alex Ridout who advised the Board since June
Nigel McCue 2/2 5/6 1/3(4) 1/1 2006. Mr Julian Hicks was appointed as Company Secretary with
Saeed Al effect from 10 February 2013.
Mazrooei 2/2 6/6 1/3(4) n/a(2) Management working committees
Ahmad Al In order to assist and support the CEO in the implementation of
Muhairbi 2/2 6/6 3/3 1/1 the Group’s business strategy and plans, the CEO has established
a number of management working committees, notably including
Ahmad Sharaf(3) 2/2 n/a(2) 1/3(4) 1/1 the following:
Thor Haugnaess(3) 1/2 3/6 2/3(4) n/a(2)(4) (1) Executive Committee:
Notes: (a) comprises the CEO, the Chief Operating Officer (‘COO’, who
(1)
During 2012, certain Directors who were not Committee members attended has been employed with the Group since March 2011) and the
meetings of the Audit, Remuneration and/or Nominations Committees by General Manager of Petroleum Development along with five
invitation. These details have not been included in the table. other senior managers;
(2)
n/a – not applicable (where a Director is not a member of the Board or the
Committee on the relevant date that the meeting was held) as the table reflects (b) is a primary advising body enabling the CEO to make
only attendance by members. informed decisions through periodic discussion and deliberations
(3)
Mr Haugnaess was appointed to the Board in February 2012 and some meetings on critical strategic, operational and financial matters relating to
had been held prior to his appointment. management of the Group;
(4)
Changes were made to the composition of the Board Committees in April 2012.
(c) met a total of nine times in 2012 and discussed key topics
including the business plan and budgets, risk management,
insurance cover and treasury policies.

(2) Major Tender Board: Committees of the Board
(a) comprises the CEO, COO and General Manager of Petroleum The Board has established the Audit, Remuneration and Nomination
Development along with four other senior managers; Committees and all three have written terms of reference setting
(b) is responsible for approving the contract strategies and out their authority and duties. In 2012, the Board reviewed and
The Essential Read

awards of all major contracts (i.e. with a value in excess of US$3 updated the terms of reference for each Committee of the Board as
million), as well as being accountable for ensuring the part of a broader process to update the Company’s corporate
effectiveness and transparency of the Group’s procurement governance mechanisms, arising from changes in the Code. These
processes; and terms of reference for each of the Nominations, Remuneration and
Audit Committees are available on Dragon Oil’s website at
(c) met more than twice per month during 2012 and approved a
www.dragonoil.com.
number of major contract awards including among others for two
land drilling rigs, directional drilling and formation evaluation Audit Committee
services, drilling fluids contracts and completion equipment. The change in the Audit Committee’s terms of reference reflected
its increasingly important role in the assurance and oversight
Insurance cover
function within the Group. While the Audit Committee is primarily
The Group maintains such Directors’ and Officers’ Liability
responsible for the integrity of the Group’s financial statements
insurance as is appropriate in nature and level for a listed company
and for the relationship with the Group’s external auditor, the
of the type and size of the Group.
Committee also reviews and oversees the effectiveness of the
Performance Evaluation process systems for internal control, risk management and internal audit
Performance
In line with its earlier commitment and with the provisions of the and investigations. The Committee then reports to the full Board
Code, the Board appointed an independent external facilitator to on the results of its oversight function.
coordinate and manage the process for the performance evaluation
The Audit Committee currently comprises Mr Saeed Al Mazrooei
of the Board, its Committees and the individual Directors for 2011.
(Chairman), Mr Ahmad Al Muhairbi, Mr Nigel McCue and Mr Thor
The external facilitator had no other connection with the Group
Haugnaess. Mr McCue has served for more than nine years on the
other than to facilitate the performance evaluation. The objective of
Committee whereas Messrs. Al Muhairbi and Al Mazrooei have both
this performance evaluation process is to ensure that the personnel
served on it since 20 May 2007. In April 2012, Mr Haugnaess was
appointed to the Board continue to perform their duties in
appointed to the Audit Committee. The Company Secretary acts as
accordance with the highest standards. In order to meet this
secretary to the Audit Committee.
objective, the performance evaluation process was conducted using
a methodology of conducting interviews with individual directors The Board considers that each of the Committee members has the
and a separate review of collective board processes. An internal requisite skills and attributes to enable the Committee to discharge
performance evaluation of the Board will be undertaken during its responsibilities and that one member of the Audit Committee,
2013 to review the performance of the Board, its Committees and Mr McCue, has recent and relevant financial expertise.
the individual Directors for 2012. Governance
The Audit Committee met a total of six times during the year
Whilst certain recommendations were made, such as the need for (2011: four times) and attendance at the meetings was as per the
improvement in succession planning and the Board’s own structure table above. The principal topics for discussions by the Audit
and composition, the external performance evaluation process Committee include:
concluded that the Board was robust, well qualified and had a wealth
Topics at Audit Committee meetings
of operational, technical and regional experience. While the Board
E xternal audit matters including presentations and external
regularly reviews its own performance, the Board will only look to auditor independence;
strengthen its membership by appointing additional Directors with
expertise or experience, which can be of value to the Company. Financial statements and related matters;
During 2012, there was a meeting between the Chairman and the I nternal audit matters.
other Non-executive Directors without the CEO present and a Ernst & Young have unrestricted access to the Chairman of the Audit
meeting between the Senior Independent Non-executive Director Committee. Ernst & Young provided non-audit services, namely tax
and the other Directors without the Chairman present (to evaluate advice, for the Group in 2012. The audit committee is putting in place a
their respective performances). The Board has concluded that it policy for non-audit services to ensure the ongoing safeguard of auditor
operates in an open and transparent manner. objectivity and independence. The audit remuneration as disclosed in
Note 22 of the financial statements was in respect of audit of
subsidiaries, review of the Group interim financial statements and
other assurance services.

continued
Remuneration Committee B.2.1 Up until 9 April 2012, only 50% of the membership of the
Details of the composition of the Remuneration Committee, as well Nominations Committee were comprised of Independent
as a full review of the Remuneration Committee’s activities during Non-executive Directors, namely Mr Al Muhairbi and Mr McCue.
the year, are contained in the Directors’ Remuneration Report at The current Nominations Committee is comprised of Messrs Sharaf,
pages 69 to 73. Haugnaess and Al Muhairbi, the latter two being Independent
Non-executive Directors. Accordingly, the Nominations Committee
Nominations Committee
has been brought into compliance with the requirement that the
Mr Ahmad Sharaf (Chairman), Mr Ahmad Al Muhairbi, and Mr Thor
majority of the members of the nomination committee should be
Haugnaess comprise the Nominations Committee, with the
independent non-executive directors. However, the chairman of the
Company Secretary acting as secretary to the Nominations
Nominations Committee is Mr Sharaf who is a nominee Director of
Committee. Messrs. Sharaf and Al Muhairbi have served on it since
the majority shareholder.
20 May 2007. Mr Haugnaess was appointed to the Nominations
Committee on 9 April 2012. Mr Al Muhairbi and Mr Haugnaess are B.2.3 Non-executive Directors were appointed for indefinite terms
both Independent Non-executive Directors. Mr Sharaf is a nominee according to their letters of appointment. In accordance with the
Director of the majority shareholder. provisions of the Code, all Directors of the Company will be
submitted for re-election by the shareholders at the 2013 AGM. The
The Nominations Committee met once during 2012 (2011: three).
letters of appointment for Non-executive Directors include a
The Committee’s principal topic was to arrange for the appointment
three-month notice period.
of Mr Haugnaess as a new Independent Non-executive Director in
February 2012. B.4.2 The Chairman did not formally agree the individual training
needs for the Directors. Although no Directors undertook formal
The Company’s general policy for Board renewal is to implement a
training and development during 2012, it is intended that further
clear succession plan to ensure an efficient and effective transition
training and development of Directors will take place in 2013 and
in the event of an appointment of new Directors and given the
will continue over the coming years.
length of service of most of the current Directors, the Committee
will look to develop a formal succession plan during 2013 , both for B.6.1 The Board has not completed the performance evaluation
the Board and for the Committees. The Committee will continue to process for itself or the Committees or individual Directors as at 11
review prospective candidate Directors but it may or may not engage February 2013. However, the performance evaluation of the Board’s
the services of an external search agency or use open advertising, as 2012 performance will be undertaken in Q1 2013. The Board’s
it so determines to be in the best interests of the Company. performance evaluation for 2011 was completed in 2012.
Compliance with the Code D. Remuneration
The Board considers that the Group has complied with the D.1.5 The CEO has a formal contract of employment with an
provisions set out in the Code and the Irish Annex throughout indefinite term of service but with an express termination notice
the financial year under review except where the Group is not in period of three months. This is in line with normal employment
compliance as noted and explained below: contracts for the UAE where the CEO is based.
The Code D.2.1 From June 2008 to 9 April 2012, the Remuneration Committee
B. Effectiveness had a membership of two Independent Non-executive Directors and
B.1.1.1/D.1.3 Mr Nigel McCue held share options in the Company, two Directors that were nominee Directors of the majority
which were granted in 2004 and which vested in 2008. However, in shareholder. Since April 2012, the members of the Remuneration
April 2012 he exercised those share options. The Board considers Committee are Messrs Sharaf, Haugnaess and Al Muhairbi.
that Mr McCue’s independence has not been prejudiced or Messrs Haugnaess and Al Muhairbi are Independent Non-executive
compromised by the holding of share options in the Company. Directors and Mr Sharaf is a nominee Director of the majority
Mr McCue has served more than ten years on the Board of the shareholder. The Company considers that Mr Sharaf contributes
Company, having been appointed in April 2002. The Board is constructively and objectively to the deliberations of the
confident in Mr McCue’s independence and in his ability to provide Committee. Further, given the total number of Directors on the
valuable skills to the Company. As required by the Code, he will be Board, it is necessary to use all available Directors to diversify the
submitted for re-election by the shareholders at the 2013 AGM. The membership of the different Board committees.
Board considers that Mr McCue’s independence is not prejudiced or
D.2.2 The Remuneration Committee does not have delegated
compromised despite the longevity of his service. His extensive
responsibility for setting remuneration for all Executive Directors
knowledge of the Group’s business permits him to challenge
and the Chairman. Given the size of the Board, there is no added
constructively management data and assumptions.
value in such delegation. Rather, the Committee monitors the level
of remuneration for all Executive Directors and the Chairman, as
well as senior management, and recommends the same to the full
Board for approval.

E. Relations with Shareholders In 2012, the senior management (including the CEO, General
E.1.1 Most of the communications with institutional shareholders, Manager of Petroleum Development and Director of Finance)
analysts and investors is undertaken by the CEO with the support conducted both one-on-one and group meetings with institutional
of the Chairman and members of management. The CEO ensures investors in the UK, Ireland, France, Germany, and the USA, and
The Essential Read

that the views of shareholders are communicated to the wider Board attended four high-profile investor conferences in London and New
on a regular basis throughout the year. The Chairman and the Senior York. Over the course of the year, the management met over 90
Independent Non-executive Director make themselves available institutions, existing and potential shareholders, some of them on
for discussions with shareholders and retail investors as and several occasions. The senior management team make themselves
when required. available for a significant number of conference calls on a regular
basis with institutional investors around the world.
The Irish Annex
1.1-1.3, 2.1 A new Independent Non-executive Director, Thor Dragon Oil benefits from being able to call upon the services of our
Haugnaess was appointed to the Board of the Company as an joint brokers, Davy and Nomura International, which have worked
Independent Non-executive Director on 20 February 2012. The for Dragon Oil for over 14 years and 2 years respectively. Both are
Nominations Committee considers the current board size and key advisers who regularly brief senior management on
structure to be appropriate for a company of the same size and developments both at the Company level and at the wider, market
involved in the same business as the Company. The Board considers level. This joint brokership has worked well as the different
that four independent non-executive directors are sufficient, since strengths of each broker have complemented one another to expand
this number meets both the requirements of the UK Corporate the range of investors being targeted for investment into the
Performance
Governance Code and the Company’s own corporate governance Company and to gather market data.
needs. Accordingly, the Committee does not propose to identify a
The Group issues its financial and operational results, drilling
pool of candidates through a formal process as anticipated by the
updates and other news releases promptly via Regulatory News
Irish Annex.
Service, the company news service from the London Stock
3.1-3.3 The Board has not completed the performance evaluation Exchange. The news releases appear simultaneously on our website,
process for itself or the Committees or individual Directors as at www.dragonoil.com, on the Home Page and throughout the website.
12 February 2013. The Board will be conducting a self-evaluation The E-mail Alerts function within the Investor Relations section
process during the first quarter of 2013. See the response to the under the Regulatory News allows shareholders and other
Code requirements for section B.6.1 above for further details. interested parties to subscribe to news updates. The Group archives
all key information and documentation on its website with a
Related Party Transactions
dedicated Investor Centre for its shareholders.
The Group has its head office in Dubai, UAE, which it rents from
ENOC. Furthermore, the Group has availed itself of a limited number Most of the communications with shareholders is undertaken by
of services from ENOC, including internal audit. All such services the CEO with the support of the Chairman, the General Manager of
are provided on an arm’s length basis and are subject to a written Petroleum Development, the Director of Finance and the Investor Governance
contract on commercial terms. During 2012 the internal audit Relations Officer. The CEO ensures that the views of shareholders
services provided by ENOC were terminated and the Company are communicated to the wider Board on a regular basis throughout
appointed a new Head of Internal Audit to head the Group’s new the year.
Internal Audit department. Apart from the rent of the head office,
Dragon Oil holds its AGM in London and welcomes shareholder
no other services are provided by ENOC at this time.
participation. At the 2012 AGM, our Chairman, CEO and Director of
Details of the services received are set out in Note 27 of the Finance all made presentations to our investors with an increased
consolidated financial statements on page 106. level of detail regarding the operations and finances of the Group,
all of which was well received. The AGM is an opportunity for
Communication with Shareholders
individual shareholders, particularly retail investors, to put
In order to canvas the views of investors and analysts and to seek
questions directly to the Board members and the senior
their continuing support, Dragon Oil’s senior management has
management during and after the formal session. Notice of AGM is

regular meetings and conference calls with our majority shareholder
sent to shareholders at least 20 working days before the meeting.
as well as the broader investor base (both institutional and retail), as
well as analysts. In this way, we are able to address any concerns New shareholders are sent a hard copy of the Annual Report and
and to maintain our policy of transparency, continuity and timely financial statements and given an option to receive the information
dissemination of information to the market. With the aid of our joint electronically or in hard copy. The majority of the shareholders
corporate brokers and advisors, we host results meetings and receive information from the Company electronically.
simultaneous conference calls to present our financial results to the
market community with particular focus on the sell-side analysts.

continued
Internal Control Any system of internal control can provide only reasonable and not
The Directors acknowledge their responsibility for the Group’s absolute assurance that material financial irregularities will be
systems of internal control, which are designed to safeguard the detected or that the risk of failure to achieve business objectives is
assets of the Group and to ensure the reliability of financial eliminated. The Directors, having reviewed the effectiveness of the
information for both internal use and external publication and system of internal financial, operational and compliance controls
to comply with the Turnbull Committee guidance. The primary and risk management, consider that the system operated effectively
internal control procedures comprise the formal delegation of throughout the financial year and up to the date that the financial
authorities by the Board to the executive management, and statements were signed.
then a Control Framework with number of subsidiary mechanisms
Assurance
including inter alia a financial authorities manual, tendering
The Board, through the Audit Committee, obtains assurance against
procedures and various financial and operational policies
risks through audits conducted by the Internal Audit Department
and procedures.
(“IA Department”). In 2012 the Group established its own IA
The control processes are complemented by effective monitoring Department through the appointment of its Head of Internal Audit
and reporting mechanisms, not least of which are the annual and the services of the majority shareholder in relation to internal
reports to and reviews by the Audit Committee. The Directors are audit were terminated. The transition has been smooth and
responsible for the implementation and review of the Group’s system uneventful. The IA Department, in conjunction with the Audit
of internal control appropriate to the various business environments Committee, provides assurance primarily on the adequacy of the
in which it operates. The system has been designed to enable the system of internal controls in the Group. The IA Department plan
Group to identify, evaluate and manage significant risks faced governs its activities during each calendar year and must be
by the Group and includes the safeguarding of assets from approved by the Audit Committee. In addition, any of the Audit
inappropriate use or loss or fraud, the identification and Committee members or the CEO can request the IA Department
management of liabilities, the maintenance of proper records to to conduct such special assignments as they deem fit. The IA
ensure quality internal and external reporting and compliance Department reports functionally to the Audit Committee and
with the applicable laws and regulations governing its conduct administratively to the CEO.
of business.
Each year, the Audit Committee reviews and assesses the IA
The key internal control and risk management measures that Department’s annual report as part of the Group’s three-year IA
the Directors have implemented in the parent and its subsidiary Work Cycle Plan. During 2012, the IA Department was able to
undertakings in relation to the financial reporting process and undertake and complete five planned assignments in the areas of
the process for preparing the consolidated financial statements drilling, information technology, sales and marketing, contracts and
are as follows: purchasing and compliance corporate governance process review.
R isk assessment procedures; As part of the ordinary reporting cycle for the IA Department, it
Employment of competent persons; presented to the Audit Committee in December 2012 in respect of the
audit reviews that it undertook during 2012 and reported its findings
Use of an appropriate ERP system for processing transactions; as well as outstanding recommendations, which are in the process
onsideration of appropriateness of accounting policies through
C of being implemented by the management team. In turn, the Audit
the Audit Review Papers; Committee has reviewed the reports and presentations from the IA
Department and from the external auditors and has monitored the
Segregation of duties, authorisation limits and progress in implementation of the recommendations thereof.
independent review;
As part of the 2013 approved audit plan, the IA department will
Monthly control reconciliations;
conduct audit reviews on the following areas:
Management review of key judgements and estimates;
1. Oil Accounting, Production Measurement & Reporting.
Use of specialists, e.g. for valuations, as appropriate; 2. Maintenance & Repairs.
Budgetary control, variance analysis and monthly 3. Health and Safety.
performance reviews; 4. Project Management Process.
5. New Business Development.
A n internal audit function; On behalf of the Board
A properly constituted and effective Audit Committee; and Julian Hicks
Regular communication with external auditors. Company Secretary of Dragon Oil plc
11 February 2013

Directors’ Remuneration Report
The UK’s Directors’ Remuneration Report Regulations 2002 require Remuneration Committee
the auditors of a UK-incorporated quoted company to report to such Until 9 April 2012, Mr Saeed Al Mazrooei (Chairman), Mr Ahmad
company’s shareholders on part of the Directors’ Remuneration Sharaf, Mr Nigel McCue and Mr Mohammed Al Ghurair comprised
Report and to state whether, in their opinion, that part of the report the Remuneration Committee, with the Company Secretary acting
The Essential Read

has been properly prepared. This report has been prepared so as to be as secretary to the Remuneration Committee. Since 9 April 2012,
consistent with the regulations even though they do not apply to the Mr Ahmad Al Muhairbi (Chairman), Mr Mohammed Al Ghurair
Company (as the Company is Irish-incorporated). The report is and Mr Thor Haugnaess are the members of the Remuneration
therefore divided into separate sections to disclose the audited and Committee. Mr Al Muhairbi and Mr Haugnaess are both
unaudited information. Independent Non-executive Directors.
Remuneration Policy Each member of the Remuneration Committee has direct, recent
The Group’s underlying objective is to ensure that individuals are and relevant experience for the recruitment of executive managers,
appropriately rewarded relative to their responsibility, experience including specifically within the oil and gas industry, arising
and value to the Group. This objective has been and continues to be from their involvement in other companies; as such, each is able
applied as consistently and fairly as possible to all Group personnel to contribute fully and to challenge proposals submitted to
over a prolonged period of time. Only in this way will the Group be the Committee.
able to attract, retain and motivate high calibre executives and
The Remuneration Committee met three times during 2012
employees who can perform to the highest levels of expectations.
(2011: once) and as noted above at page 62, there was considerable
The recruitment market is, as always, competitive for the high discussion regarding executive remuneration at the Board level as
Performance
quality candidates and so the Group (led by the Remuneration well. This reflected the increased focus of the wider Board to link
Committee, the executive management and the Group’s HR performance-related pay to key performance indicators.
Department) has incrementally built a package of compensation
The primary responsibilities of the Remuneration Committee
and benefits, which is attractive but also flexible enough to
are to make recommendations to the Board on the following
accommodate differing experience levels of candidates, coming
subject matters:
from a variety of backgrounds and geographies. As a fundamental
principle however, from the perspective of remunerating its t he framework for and the broad remuneration policies for
executive management and other employees, the Group compares the Group;
and benchmarks itself at a high level against other mid-range
t he specific terms for the remuneration of the Chairman, CEO, the
international E&P oil and gas companies (both listed and unlisted). COO and the General Manager of Petroleum Development; and
The Remuneration Committee has clarified its role in determining roposals for incentive plans, including the review and approval
p
the remuneration packages and benefits for certain senior of the Employee Stock Purchase Plan 2011 and the grant of share
management, namely for the CEO, the COO and the General options to employees under the Group’s 2009 Share Option Scheme.
Manager of Petroleum Development. The remuneration packages Governance
and benefits for other managers and personnel are determined by Further details of the activities of the Remuneration Committee
the CEO in consultation with the HR Department. However, the may be seen in the Committee’s terms of reference.
Remuneration Committee applies a similar philosophy in The Company has fully complied with the Irish Stock Exchange’s
determining the remuneration for the senior management as is requirement in relation to the disclosure of Directors’ remuneration
applied in respect of all other employees. No Director participates contained in LR 6 of the Irish Listing Rules. No Director votes on or
in the deliberation or approval of his own remuneration package. discusses the terms of his own remuneration.
During 2012, the Group management has used the services of
several independent HR consultants, namely Mercer Human
Resources Consulting and Towers Watson (the “HR Consultants”),
to provide it with independent advice on various remuneration
matters. The HR Consultants have provided the Committee with

advice relating to the determination of remuneration packages for
the senior managers and in connection with a proposal for a new
long-term incentive plan to replace the share option schemes.
www.dragonoil.com/remuneration
Service contracts for Executive Directors Service contracts for Non-executive Directors
The Executive Director’s remuneration package comprises of three The Independent Non-executive Directors have letters of
key elements: guaranteed compensation, the annual bonus and the appointment that can be terminated by either the Director or
long-term incentives. This is in line with standards for Executive the Company on three months’ notice. There is no legally binding
Directors’ remuneration packages within the oil and gas industry; in commitment as to the term of office; however, any appointment
addition, the Committee takes into account the local remuneration or reappointment will be subject to the Company’s Articles of
practices within the UAE when setting the Executive Director’s Association that provide for re-election of directors at each
remuneration package. The package is evenly weighted between fixed year’s AGM.
pay and variable pay and, as is typical, the variable pay elements include
The remuneration of the Independent Non-executive Directors takes
a number of factors which link performance to the level of remuneration.
the form solely of fees, the level of which has been approved by the
Each year, the Board evaluates the various mechanisms for Chairman and the sole Executive Director, in consultation with key
remunerating and rewarding the Executive Director and the Executive management personnel and pursuant to advice from the
Director’s annual bonus is assessed by reference to an objective HR Consultants.
assessment of the Group’s financial and operational performance, as
Each letter of appointment and/or contract of employment sets out
well as review of the performance of the individual in question. The
certain restrictions on the ability of the Director to participate in
Remuneration Committee recognises that 2012 represented a
businesses, which would conflict with the interests of the Company
challenging year for the Group with regard to production growth and
and/or to entice or solicit from the Group any senior employees of
marketing of crude oil; the Group must reward the past performance
the Group in the twenty-four month period after cessation of the
and incentivise future performance of its sole Executive Director
Director’s appointment.
accordingly. For details on long-term incentive plans and the
methodology in allocating share options, please refer to page 73 below. Throughout 2012 none of the Directors’ share options lapsed. The
opening market price of the Ordinary Shares in Dragon Oil plc on
The Executive Director’s permanent contract of employment can be
02 January 2012 was Stg. 461p, the closing price of the Ordinary
terminated by either the Director or the Company on three months’
Shares on 31 December 2012 was Stg. 555p and the market prices in
notice. Directors are not appointed for specific terms and all Directors
the Ordinary Shares ranged between Stg. 458p and Stg. 650p during
are subject to retirement from the Board at annual general meetings.
the year.
Audited
Directors’ Remuneration
Share
options – Fees and
value of benefit
services for prior
Fees Salary Bonus Benefits provided period Total Total
2012 2012 2012 2012 2012 2012 2012 2011
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Executive Director
Abdul Jaleel Al Khalifa – 440 813 422 259 – 1,934 1,640
Non-executive Directors
Mohammed Al Ghurair 255 – – – – 11 193 193
Nigel McCue 122 – – – – 10 144 144
Ahmad Sharaf 128 – – – – 5 126 126
Ahmad Al Muhairbi 133 – – – – 10 143 143
Saeed Al Mazrooei 134 – – – – 8 140 140
Thor Kristian Haugnaess 102 – – – – – 102 –
874 440 813 422 259 44 2,852 2,386

Directors’ Interests
The interests of the Directors in the share capital of the Company, all of which are beneficial, are as set out below. The tables include all
interests up to and including 11 February 2013:
The Essential Read

As at 1 January 2012 As at 31 January 2012 As at 11 February 2013
Ordinary Share Ordinary Share Ordinary Share

shares options(1) shares options(1) shares options(1)
Executive Director
Abdul Jaleel Al Khalifa – 600,000 8,241 760,000 8,241 760,000
Directors
Nigel McCue 125,000 250,000 346,344 – 346,344 –
125,000 850,000 354,585 760,000 354,585 760,000

Company Secretary
Alex Ridout(3) 20,000 150,000 – – – –
Annisa Loadwick(3) 5,000(2) 50,000(2) 10,980 60,000 10,980 60,000
Julian Hicks(3) – – – – – –
Performance
150,000 1,050,000 365,565 820,000 365,565 820,000
(1)
he share options are options for Ordinary Shares in Dragon Oil plc, granted in accordance with the 2002 Share Option Scheme or the 2009 Share Option Scheme, as may
T
be applicable, and which options are exercisable in accordance with the applicable Scheme.
(2)
At the date of appointment.
Ms Annisa Loadwick was acting as Company Secretary from 1 October 2012, on the resignation of Alex Ridout who advised the Board since June 2006. Mr Julian Hicks
(3)
was appointed as Company Secretary with effect from 10 February 2013
Average
market
As at 1 Granted Exercised Cancelled As at 31 Exercise price at
Date of January during the during the during the December price exercise Exercisable Exercisable
grant 2012 year year year 2012 (Stg. p) date from up to
Directors
Abdul Jaleel Al Governance
Khalifa 06.04.09 360,000 – – 360,000 177.0 – 07.04.10 05.04.19
13.04.10 120,000 – – – 120,000 478.25 – 14.04.13 12.04.20
06.09.11 120,000 – – – 120,000 465.5 – 07.09.14 05.09.21
09.04.12 – 160,000 – – 160,000 608.0 – 10.04.15 08.04.22
Nigel McCue 31.12.04 250,000 – 250,000 – – 69.0 605.0 01.01.08 30.12.14
850,000 160,000 250,000 – 760,000

Company Secretary
Alex Ridout 06.04.09 50,000 – 50,000 – – 177.0 541.5 07.04.12 05.04.19
13.04.10 50,000 – – 50,000 – 478.25 – 14.04.13 12.04.20
21.04.11 50,000 – – 50,000 – 556.75 – 22.04.14 20.04.21
09.04.12 – 50,000 – 50,000 – 608.0 – 10.04.15 08.04.22

Annisa Loadwick 06.04.09 10,000 – 10,000 – – 177.0 605.25 07.04.12 05.04.19
13.04.10 20,000 – – – 20,000 478.25 – 14.04.13 12.04.20
21.04.11 20,000 – – – 20,000 556.75 – 22.04.14 20.04.21
09.04.12 – 20,000 – – 20.000 608.0 – 10.04.15 08.04.22
Julian Hicks – – – – – – – – – –
1,050,000 230,000 310,000 150,000 820,000

Remuneration Report
continued
The Chief Operating Officer (“COO”) and General Manager of Petroleum Development (“GM-PD”), employed by a subsidiary of
the Company, are identified as Persons Discharging Managerial Responsibilities and their remuneration is given below:
Share
options –
value of
Salary Bonus services Total Total
2012 2012 Benefits provided 2012 2011
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
COO
Hussain Al Ansari 307 490 306 262 1,365 1,100
GM-PD
Emad Buhulaigah 229 407 270 184 1,090 935
536 897 576 446 2,455 2,035
COO & GM-PD’s Interests

The interests of the COO & GM-PD in the share capital of the Company, all of which are beneficial, are as set out below. The tables include all
interests up to and including 11 February 2013:
As at 1 January 2012 As at 31 January 2012 As at 11 February 2013
Ordinary Share Ordinary Share Ordinary Share

shares options(1) shares options(1) shares options(1)
COO
Hussain Al Ansari – 250,000 – 350,000 – 350,000
GM-PD
Emad Buhulaigah – 300,000 – 400,000 – 400,000
550,000 – 750,000 – 750,000

(1)
he share options are options for Ordinary Shares in Dragon Oil plc, granted in accordance with the 2009 Share Option Scheme, as may be applicable, and which options
T
are exercisable in accordance with the applicable Scheme.
Average
market
As at 1 Granted Exercised Cancelled As at 31 Exercise price at Exercisable
Date January during the during the during the December price exercise Exercisable Notes
of grant 2012 year year year 2012 (Stg. p) date from up to
COO
Hussain Al Ansari 21.04.11 250,000 – – 250,000 556.75 – 06.04.11 20.04.21
09.04.12 – 100,000 – – 100,000 608.0 – 10.04.15 08.04.22
GM-PD
Emad Buhulaigah 13.04.10 200,000 – – – 200,000 478.25 – 14.04.11 12.04.20
21.04.11 100,000 – – – 100,000 556.75 – 06.04.11 20.04.21
09.04.12 – 100,000 – – 100,000 608.0 – 10.04.15 08.04.22
550,000 200,000 – – 750,000

Long-term incentive plans 2011 Employee Stock Purchase Plan
As noted above, the Board recognises that 2012 represented yet Following the approval at the 2011 AGM, the Company established
another record-breaking year for the Group and must continue to a new incentive plan called the 2011 Employee Stock Purchase Plan.
incentivise future performance of its sole Executive Director and Pursuant to the terms of the plan, all employees will be entitled to
The Essential Read

its entire management team accordingly. The Board has to consider participate in a new share incentive plan, under which a proportion
measures, which are required in order to be competitive with the of their income will be accumulated in a fund, which will make share
long-term incentive plans being offered by peer companies within subscriptions at a discount at designated times during the year.
the oil and gas sector. The Plan is structured with a view to encourage the alignment of
employee and shareholder interests and thereby to deliver value to
2009 Share Option Scheme
shareholders; it also enhances the Group’s ability to attract, retain
Share options are designed to attract, retain and provide its
and incentivise employees at all levels of the Group (not just the
Executive Directors and key employees with a long-term
management level).
performance incentive to deliver growth and shareholder value.
Share options were awarded in 2012 in accordance with, and The first ‘accumulation period’ ran from 1 October 2011 until
will be governed by, the 2009 Share Option Scheme, and under 31 March 2012 and the second from 31 March 2012 to 30 September
conditions and performance measures which included the following: 2012. The Board was pleased to note that there has been high
participation from the employees within the Dubai Headquarters.
Vesting period;
Over the coming years, there will be a greater focus on encouraging
erformance Indicators
P participation in other Group offices where such plans are less
Performance
– i ncreasing the level of average annual production, common, requiring additional education and explanation.
– achieving an enterprise-wide reserve replacement ratio,
– completing set individual performance targets or goals; Pension Scheme
The Group complies with all applicable laws and regulations relating
eneral conditions such as control of option grant flow rate
G to pensions and end of service gratuities, in the countries in which
generally and limits on participation.
it operates.
Dragon Oil plc previously awarded share options to its Directors and
By order of the Board
to its employees in accordance with the Group’s 2002 Share Option
Scheme. No further options will be granted under this scheme Ahmad Al Muhairbi
although a Director and some employees continue to hold share Chairman of the Remuneration Committee
options under this earlier scheme, and they will be governed by the 11 February 2013
terms and conditions of that scheme.
Governance

This section provides

Independent Auditor’s
Report to the Members of
Dragon Oil plc, financial
statements and notes to
the financial statements.

76 Independent Auditor’s Report to the
Members of Dragon Oil plc
78 Financial Statements
The Essential Read

84 Notes to Financial statements
108 Supplementary information – Movement in
oil, condensate and gas reserves (unaudited)
109 Five-year Financial summary
110 Shareholder information
111 Glossary/Definitions/Abbreviations
112 Advisors
Performance
Governance

Independent Auditor’s Report to the Members of Dragon Oil plc
We have audited the financial statements of Dragon Oil plc for the Opinion on financial statements
year ended 31 December 2012 which comprise the Group and Parent In our opinion:
Company Balance Sheets, the Group Income Statement, the Group
t he Group financial statements give a true and fair view, in
Statement of Comprehensive Income, the Group and Parent
accordance with IFRSs as adopted by the European Union, of the
Company Cash Flow Statements, the Group and Parent Company
state of the Group’s affairs as at 31 December 2012 and of its profit for
Statements of Changes in Equity and the related notes 1 to 30.
the year then ended;
The financial reporting framework that has been applied in their
preparation is Irish law and International Financial Reporting t he Parent Company Balance Sheet gives a true and fair view, in
Standards (IFRSs) as adopted by the European Union and, as regards accordance with IFRSs as adopted by the European Union as applied
the Parent Company financial statements, as applied in accordance in accordance with the provisions of the Companies Acts 1963 to
with the provisions of the Companies Acts 1963 to 2012. 2012, of the state of the Parent Company’s affairs as at 31 December
2012; and
This report is made solely to the Company’s members, as a body, in
accordance with section 193 of the Companies Act, 1990. Our audit t he financial statements have been properly prepared in
work has been undertaken so that we might state to the Company’s accordance with the requirements of the Companies Acts 1963 to
members those matters we are required to state to them in an 2012 and, as regards the Group financial statements, Article 4 of
auditor’s report and for no other purpose. To the fullest extent the IAS Regulation.
permitted by law, we do not accept or assume responsibility to anyone Matters on which we are required to report by the Companies
other than the Company and the Company’s members as a body, for Acts 1963 to 2012
our audit work, for this report, or for the opinions we have formed. We have obtained all the information and explanations which we
Respective responsibilities of directors and auditors consider necessary for the purposes of our audit.
As explained more fully in the Directors’ Responsibilities Statement I n our opinion proper books of account have been kept by the
the directors are responsible for the preparation of the financial Parent Company.
statements giving a true and fair view. Our responsibility is to audit
he Parent Company Balance Sheet is in agreement with the books
T
and express an opinion on the financial statements in accordance
of account.
with Irish law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing I n our opinion the information given in the Directors’ Report is
Practices Board’s Ethical Standards for Auditors. consistent with the financial statements and the description in
the Corporate Governance Statement of the main features of the
Scope of the audit of the financial statements
internal control and risk management systems in relation to the
An audit involves obtaining evidence about the amounts and
process for preparing the Group financial statements is consistent
disclosures in the financial statements sufficient to give reasonable
with the Group financial statements.
assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an he net assets of the Parent Company, as stated in the Parent
T
assessment of: whether the accounting policies are appropriate to Company Balance Sheet are more than half of the amount of its
the group’s and parent company’s circumstances and have been called-up share capital and, in our opinion, on that basis there did
consistently applied and adequately disclosed; the reasonableness not exist at 31 December 2012 a financial situation which under
of significant accounting estimates made by the directors; and the Section 40 (1) of the Companies (Amendment) Act, 1983 would
overall presentation of the financial statements. In addition, we read require the convening of an extraordinary general meeting of the
all the financial and non-financial information in the annual report Parent Company.
to identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.

Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Acts 1963 to 2012 we are required to report to
The Essential Read

you if, in our opinion, the disclosures of directors’ remuneration and
transactions specified by law are not made.
Under the Listing Rules of the Irish Stock Exchange we are required
to review:
the directors’ statement, in relation to going concern;
t he part of the Corporate Governance Statement relating to the
Company’s compliance with the nine provisions of the UK Corporate
Governance Code and the two provisions of the Irish Corporate
Governance Annex specified for our review; and
t he six specified elements of disclosures in the report to
shareholders by the Board on directors’ remuneration.
Performance
George Deegan
for and on behalf of Ernst & Young
Dublin
11 February 2013
Governance

Group balance sheet
As at 31 December
2012 2011
Note US$’000 US$’000
ASSETS
Non-current assets
Property, plant and equipment 7 1,524,157 1,353,978
Intangible asset 8 5,466 –
1,529,623 1,353,978
Current assets
Inventories 11 12,387 6,988
Trade and other receivables 12 156,858 184,581
Term deposits 13 1,866,228 1,718,271
Cash and cash equivalents 13 277,997 87,499
2,313,470 1,997,339
Total assets 3,843,093 3,351,317
EQUITY
Capital and reserves attributable to the Company’s
equity shareholders
Share capital 14 77,474 80,169
Share premium 15 233,889 231,635
Capital redemption reserve 16 80,644 77,825
Other reserve 17 8,022 5,489
Retained earnings 2,459,287 2,193,427
Total equity 2,859,316 2,588,545
LIABILITIES
Non-current liabilities
Trade and other payables 18 1,290 623
Deferred income tax liabilities 23 141,789 115,815
143,079 116,438
Current liabilities
Trade and other payables 18 566,070 402,981
Current income tax liabilities 23 274,628 243,353
840,698 646,334
Total liabilities 983,777 762,772
Total equity and liabilities 3,843,093 3,351,317
Approved by the Board on 11 February 2013
Ahmad Sharaf Saeed Al Mazrooei

Director Director
The notes on pages 84 to 107 are an integral part of these financial statements.

Group income statement
Year ended 31 December
2012 2011
Revenue 19 1,155,143 1,150,513

Cost of sales 20 (329,168) (266,539)
Gross profit 825,975 883,974
Administrative expenses 20 (35,474) (28,010)
Other income 407 241
Operating profit 790,908 856,205
Finance income 21 18,279 15,533
Profit before income tax 809,187 871,738
Income tax expense 23 (209,141) (223,322)
The Essential Read

Profit attributable to equity holders of the Company 600,046 648,416
Earnings per share attributable to equity holders of the Company 24
Basic 119.49c 125.95c
Diluted 119.26c 125.61c
Group statement of comprehensive income

Performance
2012 2011
US$’000 US$’000

Total comprehensive income for the year 600,046 648,416

Director Director
Governance

Group cash flow statement
2012 2011
Cash generated from operating activities 25 1,177,481 1,105,273

Income tax paid (151,892) (89,459)
Net cash generated from operating activities 1,025,589 1,015,814
Cash flows from investing activities
Additions to property, plant and equipment 7,18 (366,749) (406,782)
Additions to intangible assets 8 (5,466) –
Interest received on bank deposits 21 18,279 15,533
Amounts placed on term deposits (with original maturities greater than
three months) 13 (147,957) (523,123)
Net cash used in investing activities (501,893) (914,372)
Cash flows from financing activities
Proceeds from issue of share capital 14,15 2,378 1,409
Dividends paid 28 (130,618) (118,684)
Shares repurchased 14 (204,136) (38,125)
Employee share purchase plan contribution 14 (822) –
Net cash used in financing activities (333,198) (155,400)
Net increase/(decrease) in cash and cash equivalents 190,498 (53,958)
Cash and cash equivalents at beginning of year 87,499 141,457
Cash and cash equivalents at end of year 13 277,997 87,499

Company balance sheet
As at 31 December
2012 2011
ASSETS
Non-current assets
Investments in subsidiary undertakings 9a 14,921 10,998
Current assets
Loans to subsidiary undertakings 9b 1,068,640 524,831
Other receivables 12 592 506
Cash and cash equivalents 13 250,841 1,070
1,320,073 526,407
Total assets 1,334,994 537,405
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EQUITY
Capital and reserves attributable to the Company’s
equity shareholders
Share capital 14 77,474 80,169
Share premium 15 233,889 231,635
Capital redemption reserve 16 80,644 77,825
Other reserve 17 8,022 5,489
Retained earnings 447,755 59,528
Total equity 847,784 454,646
LIABILITIES
Current liabilities
Loan from a subsidiary undertaking 10a 486,957 82,361
Other payables 18 253 398
Performance
Total equity and liabilities 487,210 82,759
1,334,994 537,405

Director Director
Governance

Company cash flow statement
2012 2011
Net cash used in operating activities 25 (2,818) (3,594)

Cash flows from investing activities
Loans advanced to subsidiary undertakings 9b (543,809) (68,728)
Dividends received from a subsidiary undertaking 725,000 145,000
Net cash provided by investing activities 181,191 76,272
Cash flows from financing activities
Loan advanced by a subsidiary undertaking 10a 404,596 82,361
Proceeds from issue of share capital 14,15 2,378 1,409
Dividends paid 28 (130,618) (118,684)
Shares repurchased 14 (204,136) (38,125)
Employee share purchase plan contribution 14 (822) –
Net cash generated from/(used in) financing activities 71,398 (73,039)
Net increase/(decrease) in cash and cash equivalents 249,771 (361)
Cash and cash equivalents at beginning of year 1,070 1,431
Cash and cash equivalents at end of year 13 250,841 1,070

Statement of changes in equity
Group
Capital
Share Share redemption Other Retained
capital premium reserve reserve earnings Total
Note US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
At 1 January 2012 80,169 231,635 77,825 5,489 2,193,427 2,588,545

Total comprehensive income for the year – – – – 600,046 600,046
Shares issued during the year 14,15 124 2,254 – – – 2,378
Employee share option scheme:
– value of services provided 14 – – – 3,923 – 3,923
Transfer on exercise of share options – – – (1,390) 1,390 –
The Essential Read

Dividends 28 – – – – (130,618) (130,618)
Shares repurchased and cancelled 14,16 (2,819) – 2,819 – (204,136) (204,136)
Employee share purchase plan contribution 14 – – – – (822) (822)
Total transactions with owners (2,695) 2,254 2,819 2,533 (334,186) (329,275)
At 31 December 2012 77,474 233,889 80,644 8,022 2,459,287 2,859,316
At 1 January 2011 80,774 230,296 77,150 4,074 1,700,652 2,092,946
Dividends 28 – – – – (118,684) (118,684)
Shares repurchased and cancelled 14,16 (675) – 675 – (38,125) (38,125)
Performance
Total transactions with owners (605) 1,339 675 1,415 (155,641) (152,817)
At 31 December 2011 80,169 231,635 77,825 5,489 2,193,427 2,588,545
Company
Capital
Share Share redemption Other Retained
capital premium reserve reserve earnings Total
Note US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
At 1 January 2012 80,169 231,635 77,825 5,489 59,528 454,646

– value of services provided 14 – – – 3,923 – 3,923 Governance
Dividends 28 – – – – (130,618) (130,618)
Shares repurchased and cancelled 14,16 (2,819) – 2,819 – (204,136) (204,136)
Employee share purchase plan contribution 14 – – – – (822) (822)
Total transactions with owners (2,695) 2,254 2,819 2,533 (334,186) (329,275)
At 31 December 2012 77,474 233,889 80,644 8,022 447,755 847,784
At 1 January 2011 80,774 230,296 77,150 4,074 73,593 465,887

Dividends 28 – – – – (118,684) (118,684)
Shares repurchased and cancelled 14,16 (675) – 675 – (38,125) (38,125)
Total transactions with owners (605) 1,339 675 1,415 (155,641) (152,817)
At 31 December 2011 80,169 231,635 77,825 5,489 59,528 454,646

Notes to the financial statements
1 General information (a) New and amended standards and interpretations adopted by
Dragon Oil plc (“the Company”) and its subsidiaries (together the Group
“the Group”) are engaged in upstream oil and gas exploration, The accounting policies adopted are consistent with those of the
development and production activities primarily in Turkmenistan previous financial year, except for the following amendments to
under a Production Sharing Agreement (“PSA”) signed between IFRS effective as of 1 January 2012:
Dragon Oil (Turkmenistan) Limited and The State Agency for
I AS 12 Income Taxes (Amendment) – Deferred Taxes: Recovery
Management and Use of Hydrocarbon Resources at the President of
of Underlying Assets
Turkmenistan (“the Agency”). The production of crude oil is shared
between the Group and the Government of Turkmenistan as I FRS 1 First-Time Adoption of International Financial Reporting
determined in accordance with the fiscal terms as contained in Standards (Amendment) – Severe Hyperinflation and Removal of
the PSA. Fixed Dates for First-Time Adopters
The Company is incorporated and domiciled in Ireland and the address I FRS 7 Financial Instruments: Disclosures – Enhanced
of its registered office is given on the inside back cover. The Group Derecognition Disclosure Requirements
headquarters is based in Dubai, United Arab Emirates (“UAE”). The adoption of the standards or interpretations is described below:
The Company’s ordinary shares have a primary listing on the Irish IAS 12 Income Taxes (Amendment) – Deferred Taxes: Recovery of
Stock Exchange and a premium listing on the London Stock Exchange. Underlying Assets
These financial statements have been approved for issue by the The amendment clarified the determination of deferred tax on
Board of Directors on 11 February 2013. investment property measured at fair value and introduces a
rebuttable presumption that deferred tax on investment property
2 Summary of significant accounting policies measured using the fair value model in IAS 40 should be determined
The principal accounting policies applied in the preparation of these on the basis that its carrying amount will be recovered through sale.
financial statements are set out below. These policies have been It includes the requirement that deferred tax on non-depreciable
consistently applied to all years presented, unless otherwise stated. assets that are measured using the revaluation model in IAS 16
2.1 Basis of preparation should always be measured on a sale basis. The amendment is
The financial statements have been prepared in accordance with effective for annual periods beginning on or after 1 January 2012.
International Financial Reporting Standards (“IFRS”) as adopted by This amendment does not have any impact on the Group’s financial
the European Union (“EU”), which comprise standards and position or performance as the Group currently does not have any
interpretations approved by the International Accounting investment property or non-depreciable assets measured using the
Standards Board (“IASB”) and those parts of the Irish Companies revaluation model.
Acts, 1963 to 2012 applicable to companies reporting under IFRS and IFRS 1 First-Time Adoption of International Financial Reporting
Article 4 of the International Accounting Standards (“IAS”) Standards (Amendment) – Severe Hyperinflation and Removal of
Regulation. The financial statements have been prepared under the Fixed Dates for First-Time Adopters
historical cost convention except for the measurement at fair value The IASB provided guidance on how an entity should resume
of share options and underlift receivables/overlift payables. presenting IFRS financial statements when its functional currency
The preparation of financial statements in conformity with IFRS ceases to be subject to hyperinflation. The amendment is effective
requires the use of certain critical accounting estimates. It also for annual periods beginning on or after 1 July 2011. The amendment
requires management to exercise its judgement in the process of had no impact to the Group.
applying the Group’s accounting policies. The areas involving a IFRS 7 Financial Instruments: Disclosures – Enhanced
higher degree of judgement or complexity, or areas where Derecognition Disclosure Requirements
assumptions and estimates are significant to the financial The amendment requires additional disclosure about financial
statements are disclosed in Note 4. assets that have been transferred but not derecognised to enable
the user of the Group’s financial statements to understand the
relationship with those assets that have not been derecognised
and their associated liabilities. In addition, the amendment
requires disclosures about the entity’s continuing involvement in
derecognised assets to enable the users to evaluate the nature of,
and risks associated with, such involvement. The amendment is
effective for annual periods beginning on or after 1 July 2011. The
Group does not have any assets with these characteristics so there
has been no effect on the presentation of its financial statements.

2 Summary of significant accounting policies (continued) IFRS 1 Government Loans – Amendments to IFRS 1
2.1 Basis of preparation (continued) These amendments require first-time adopters to apply the
(b) Standards and amendments issued that are not yet effective and requirements of IAS 20 Accounting for Government Grants and
have not been early adopted by the Group Disclosure of Government Assistance, prospectively to government
The standards and interpretations that are issued, but not yet loans existing at the date of transition to IFRS. Entities may choose
effective, up to the date of issuance of the Group’s financial statements to apply the requirements of IFRS 9 (or IAS 39, as applicable) and
are disclosed below. The Group intends to adopt these standards, if IAS 20 to government loans retrospectively if the information
applicable, when they become effective, subject to EU endorsement. needed to do so had been obtained at the time of initially accounting
for that loan. The exception would give first-time adopters relief
IAS 1 Presentation of Items of Other Comprehensive Income –
from retrospective measurement of government loans with a
Amendments to IAS 1
below-market rate of interest. The amendment is effective for
The amendments to IAS 1 change the grouping of items presented in
annual periods on or after 1 January 2013. The amendment has no
other comprehensive income (OCI). Items that could be reclassified
The Essential Read

impact on the Group.
(or ‘recycled’) to profit or loss at a future point in time (for example,
actuarial gains and losses on defined benefit plans and revaluation IFRS 7 Disclosures – Offsetting Financial Assets and Financial
of land and buildings) would be presented separately from items that Liabilities – Amendments to IFRS 7
will never be reclassified (for example, net gain on hedge of net These amendments require an entity to disclose information about
investment, exchange differences on translation of foreign rights to set-off and related arrangements (e.g., collateral
operations, net movement on cash flow hedges and net loss or gain agreements). The disclosures would provide users with information
on available-for-sale financial assets). The amendment affects that is useful in evaluating the effect of netting arrangements on an
presentation only and has no impact on the Group’s financial entity’s financial position. The new disclosures are required for all
position or performance. The amendment becomes effective for recognised financial instruments that are set off in accordance with
annual periods beginning on or after 1 July 2012, and will therefore IAS 32 Financial Instruments: Presentation. The disclosures also
be applied in the Group’s first annual report after becoming apply to recognised financial instruments that are subject to an
effective. enforceable master netting arrangement or similar agreement,
irrespective of whether they are set off in accordance with IAS 32.
IAS 19 Employee Benefits (Revised)
These amendments will not impact the Group’s financial position or
The IASB has issued numerous amendments to IAS 19. These range
performance and become effective for annual periods beginning on
Performance
from fundamental changes such as removing the corridor
or after 1 January 2013.
mechanism and the concept of expected returns on plan assets to
simple clarifications and re-wording. The amendment becomes IFRS 9 Financial Instruments: Classification and Measurement
effective for annual periods beginning on or after 1 January 2013. IFRS 9, as issued, reflects the first phase of the IASB’s work on the
The amendment has no impact on the Group. replacement of IAS 39 and applies to classification and measurement
of financial assets and financial liabilities as defined in IAS 39. The
IAS 28 Investments in Associates and Joint Ventures
standard was initially effective for annual periods beginning on or
(as revised in 2011)
after 1 January 2013, but Amendments to IFRS 9 Mandatory
As a consequence of the new IFRS 11 Joint Arrangements and IFRS
Effective Date of IFRS 9 and Transition Disclosures, issued in
12 Disclosure of Interests in Other Entities, IAS 28 Investments in
December 2011, moved the mandatory effective date to 1 January
Associates has been renamed IAS 28 Investments in Associates and
2015. In subsequent phases, the IASB will address hedge accounting
Joint Ventures and describes the application of the equity method to
and impairment of financial assets. The adoption of the first phase
investments in joint ventures in addition to associates. The revised
of IFRS 9 will have an effect on the classification and measurement
standard becomes effective for annual periods beginning on or after
of the Group’s financial assets, but will potentially have no impact
1 January 2013. The amendment has no impact on the Group. Governance
on classification and measurements of financial liabilities. The
IAS 32 Offsetting Financial Assets and Financial Liabilities – Group will quantify the effect in conjunction with the other phases,
Amendments to IAS 32 when the final standard including all phases is issued.
These amendments clarify the meaning of “currently has a legally
enforceable right to set-off”. The amendments also clarify the
application of the IAS 32 offsetting criteria to settlement systems
(such as central clearing house systems) which apply gross
settlement mechanisms that are not simultaneous. The clarifying
amendments to IAS 32 are effective for the annual periods
beginning on or after 1 January 2014. The amendment has no impact
on the Group.

(continued)
2 Summary of significant accounting policies (continued) IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine
2.1 Basis of preparation (continued) This interpretation applies to waste removal (stripping) costs
(b) Standards and amendments issued that are not yet effective and incurred in surface mining activity, during the production phase
have not been early adopted by the Group (continued) of the mine. The interpretation addresses the accounting for the
benefit from the stripping activity. The interpretation is effective
IFRS 10 Consolidated Financial Statements, IAS 27 Separate for annual periods beginning on or after 1 January 2013. The new
Financial Statements interpretation will not have an impact on the Group’s financial
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate position and performance.
Financial Statements that addresses the accounting for consolidated
Annual Improvements May 2012
financial statements. It also addresses the issues raised in SIC-12
These improvements include:
Consolidation – Special Purpose Entities.
I FRS 1 First-time Adoption of International Financial Reporting
IFRS 10 establishes a single control model that applies to all entities
Standards: This improvement clarifies that an entity that stopped
including special purpose entities. The changes introduced by IFRS
applying IFRS in the past and chooses, or is required, to apply IFRS,
10 will require management to exercise significant judgement to
has the option to re-apply IFRS 1. If IFRS 1 is not re-applied, an
determine which entities are controlled and therefore are required to
entity must retrospectively restate its financial statements as if it
be consolidated by a parent, compared with the requirements that
had never stopped applying IFRS.
were in IAS 27. IFRS 10 is not expected to have any impact on the
currently held investments of the Group. This standard becomes I AS 1 Presentation of Financial Statements: This improvement
effective for annual periods beginning on or after 1 January 2013. clarifies the difference between voluntary additional comparative
information and the minimum required comparative information.
IFRS 11 Joint Arrangements Generally, the minimum required comparative information is the
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 previous period.
Jointly-controlled Entities – Non-monetary Contributions by
Venturers. IFRS 11 removes the option to account for jointly I AS 16 Property Plant and Equipment: This improvement clarifies
controlled entities (“JCEs”) using proportionate consolidation. that major spare parts and servicing equipment that meet the
Instead, JCEs that meet the definition of a joint venture must be definition of property, plant and equipment are not inventory.
accounted for using the equity method. I AS 32 Financial Instruments, Presentation: This improvement
This standard becomes effective for annual periods beginning on or clarifies that income taxes arising from distributions to equity
after 1 January 2013. The Group is currently assessing the impact that holders are accounted for in accordance with IAS 12 Income Taxes.
this standard will have on its financial position and performance. I AS 34 Interim Financial Reporting: The amendment aligns the
disclosure requirements for total segment assets with total
IFRS 12 Disclosure of Interests in Other Entities
segment liabilities in interim financial statements. This
IFRS 12 includes all of the disclosures that were previously in
clarification also ensures that interim disclosures are aligned
IAS 27 Consolidated and Separate Financial Statements related to
with annual disclosures.
consolidated financial statements, as well as all of the disclosures
that were previously included in IAS 31 Interests in Joint Ventures These improvements are effective for annual periods beginning on
and IAS 28 Investments in Associates. These disclosures relate to an or after 1 January 2013.
entity’s interests in subsidiaries, joint arrangements, associates and
structured entities. A number of new disclosures are also required. The Group expects no impact on its financial position, performance,
This standard becomes effective for annual periods beginning on or disclosures or stated accounting policies from the adoption of
after 1 January 2013. The Group is currently assessing the impact of these amendments.
this standard.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all
fair value measurements. IFRS 13 does not change when an entity is
required to use fair value, but rather provides guidance on how to
measure fair value under IFRS when fair value is required or
permitted. The Group is currently assessing the impact that this
standard will have on the financial position and performance. This
standard becomes effective for annual periods beginning on or after
1 January 2013.

2 Summary of significant accounting policies (continued) 2.5 Property, plant and equipment
2.2 Basis of consolidation (a) Development and production assets
The Group financial statements incorporate the financial statements Development and production assets represent the cost of developing
of entities controlled by the Company. Control is achieved where the the commercial reserves discovered and bringing them into
Company has the power to govern the financial and operating policies production, together with the Exploration and Evaluation (“E&E”)
of an investee entity (a subsidiary) generally accompanying a expenditures incurred in finding commercial reserves transferred
shareholding of more than one half of the voting rights. Subsidiaries from intangible E&E assets as outlined in Note 2.6.
(including special purpose entities) are fully consolidated from the
Inventory of drilling spares is classified under ‘Property, plant and
date on which control is transferred to the Company. They are
equipment’ and is not depleted until it is put to use as development
de-consolidated from the date that control ceases.
and production assets. Costs of development and production assets
Investments in subsidiaries in the Company balance sheet are also include licence acquisition costs, development drilling,
accounted at cost less provision for impairment. infrastructure projects and a proportion of directly attributable
The Essential Read

administrative and overhead costs.
All intra-group balances, transactions, unrealised gains and losses
resulting from intra-group transactions and dividends are (b) Other
eliminated in full. Accounting policies of subsidiaries are consistent Property, plant and equipment, other than development and
with those adopted by the Group. production assets, are stated at cost less accumulated depreciation.
Depreciation is provided at rates calculated to write off the cost, less
2.3 Segment reporting
estimated residual value, of each asset on a straight-line basis over
The Group is managed as a single business unit and the financial
its expected useful life of four years.
performance is reported in the internal reporting provided to the
Chief Operating Decision-maker (“CODM”). The Board of Directors 2.6 Exploration and evaluation (“E&E”) assets
(“BOD”), which is responsible for allocating resources and assessing E&E costs are initially capitalised within ‘Intangible assets’. Such
performance of the operating segment, has been identified as the E&E costs may include costs of licence acquisition, technical
CODM that makes strategic decisions. services and studies, seismic acquisition, exploration drilling and
testing. Pre-license costs incurred prior to having obtained the legal
The financial information reviewed by the CODM is based on the
rights to explore an area are expensed directly to the income
IFRS financial information for the Group.
statement as they are incurred.
Performance
2.4 Foreign currencies
Intangible E&E assets related to each exploration licence/prospect
The financial statements are presented in US Dollars (“US$”)
are not amortised and are carried forward until the existence (or
rounded to the nearest thousand, which is the Company’s functional
otherwise) of commercial reserves has been determined. If
and presentation currency. Functional currency is the currency of
commercial reserves have been discovered, the related E&E assets
the primary economic environment in which the Company operates.
are assessed for impairment and any loss is recognised in the income
The functional currency of all subsidiaries is US$.
statement. The carrying value, after any impairment loss, of the
Transactions in a foreign currency are initially recorded in the relevant E&E assets is then reclassified as development and
functional currency using the exchange rates prevailing at the date of production assets within property, plant and equipment and are
the transaction. Foreign exchange gains and losses resulting from the amortised as per the Group’s depletion policy.
settlement of such transactions and from the translations at year-end
Tangible assets acquired for use in E&E activities are classified as
exchange rates of monetary assets and liabilities denominated in
property, plant and equipment. However, to the extent that such a
foreign currencies are recognised in the income statement.
tangible asset is consumed in developing an intangible E&E asset,
Non-monetary assets and liabilities that are measured at historical the amount reflecting that consumption is recorded as part of the Governance
cost in a foreign currency are translated using the rate of exchange as cost of the intangible asset.
at the dates of the initial transactions. Non-monetary assets and
2.7 Depletion and impairment
liabilities measured at fair value in a foreign currency are translated
Depletion of development and production assets is computed using
using the rate of exchange at the date the fair value was determined.
the unit-of-production method, with reference to the ratio of the oil
Foreign exchange gains and losses are taken to the income statement.
and gas production during the period and the estimated quantities of
Gains or losses on non-monetary assets and liabilities measured at fair
commercial reserves of oil and gas taking into account development
value in a foreign currency are taken to the income statement when
expenditures necessary to bring those reserves into production. Gas
the gains or losses on the underlying item is taken to the income
reserves are converted into barrels of oil equivalent (“boe”) based on
statement. If the gain or loss on the underlying item is taken to equity
the energy conversion rate for the purposes of determining the
then the foreign currency gain or loss also goes to equity.
depletion charge. Changes in estimates of commercial reserves or
future field development costs affecting the unit-of-production
calculations for depletion are accounted for prospectively.

(continued)
2 Summary of significant accounting policies (continued) (b) Cash and cash equivalents and term deposits
2.7 Depletion and impairment (continued) Cash and cash equivalents comprise cash in hand and deposits held
with banks with an original maturity of three months or less.
Assets are reviewed for impairment whenever events or changes
Deposits with an original maturity of greater than three months
in circumstances indicate that the carrying amount may not be
but less than twelve months are classified as term deposits and
recoverable. An impairment loss is recognised for the amount by
presented separately.
which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less cost 2.8.2 Financial liabilities
to sell and its value in use. For the purposes of assessing impairment, (a) Trade payables
assets are grouped as a single cash generating unit based on Trade payables are obligations to pay for goods or services that have
economic interdependency between fields, such as common been acquired in the ordinary course of business from suppliers.
infrastructure. Any material impairment loss is recognised in the Accounts payable are classified as current liabilities if the payment
income statement as additional depletion and separately disclosed. is due within one year or less; otherwise, they are classified as
Where conditions giving rise to impairment subsequently reverse, non-current liabilities.
the effect of the impairment charge is also reversed as a credit to the
Trade payables are recognised initially at fair value and
income statement.
subsequently measured at amortised cost using the effective
Non-financial assets other than goodwill that suffered impairment interest method.
are reviewed for possible reversal of the impairment at each
2.9 Inventories
reporting date.
Inventories are stated at the lower of cost and net realisable value.
2.8 Financial assets and liabilities Cost is determined using the weighted average method and
The Group classifies its financial assets as those at fair value comprises direct purchase costs and cost of production. Full
through profit or loss and loans and receivables. The classification provision is made for obsolete supplies. Net realisable value of crude
depends on the nature and purpose for which the financial assets oil is the estimated selling price in the ordinary course of business
were acquired, and is determined at initial recognition. Financial less applicable variable selling expenses. Net realisable value for
assets are derecognised when the right to receive cash flows from inventory, other than crude oil, is determined by reference to the
the assets have expired or have been transferred and the Group has prices existing at the balance sheet date.
transferred substantially all risks and rewards of ownership.
2.10 Crude oil underlifts and overlifts
The Group classifies its financial liabilities as those at fair value Crude oil underlifts and overlifts arise on differences in quantities
through profit or loss and other financial liabilities and determines between the Group’s entitlement production and the production
the classification at initial recognition. Financial liabilities are either sold or held as inventory by the Group. Underlifts and
derecognised when the obligation under the liability is discharged overlifts of entitlement to crude oil production are measured at
or cancelled or expires. market value and recorded as a receivable and payable respectively.
In the current year, the movement within an accounting period has
2.8.1 Financial assets
been adjusted through cost of sales such that the gross profit is
(a) Trade receivables
recognised on an entitlement basis. In the prior year, the movement
Trade receivables are amounts due from customers for the sale of
of underlifts and overlifts was adjusted in revenue or cost of sales
crude oil performed in the ordinary course of business. Trade
respectively. Comparative information has not been restated on
receivables are recognised initially at fair value and subsequently
the grounds of materiality, where the underlift movement in the
measured at amortised cost less provision for impairment using the
amount of US$4.4 million was adjusted through the revenue.
effective interest method. A provision is established when there is
objective evidence that the Group will not be able to collect amounts 2.11 Share capital and share premium
due. Significant financial difficulties of the debtor, possibility that Ordinary shares issued are classified as equity and recorded at par.
the debtor will enter bankruptcy and default or delinquency in The excess of the proceeds received, over the aggregate par value
payments are considered indicators that the trade receivable is is recognised as share premium, net of incremental costs directly
impaired. The amount of the provision is the difference between the attributable to the issue of new shares.
asset’s carrying amount and the present value of estimated future
Where the Company purchases its own equity shares, the
cash flows, discounted at the original effective interest rate.
consideration paid, including any directly attributable incremental
The carrying amount of the asset is reduced through the use of an
costs (net of income taxes) is deducted from equity attributable to
allowance account, and the amount of the loss is recognised in the
the Company’s equity holders until the shares are reissued. Where
income statement. When the possibility of collection is considered
such ordinary shares are subsequently reissued, any consideration
to be remote, balances are written off against the allowance account
received, net of any directly attributable incremental transaction
for trade receivables. Subsequent recoveries of amounts previously
costs and the related income tax effects, is included in equity
written off are credited in the income statement.
attributable to the Company’s equity holders. Cancellation of
ordinary shares reduces the number of outstanding shares in issue
but not the Company’s authorised share capital.

2 Summary of significant accounting policies (continued) Under the laws of the UAE, the Group contributes a proportion of the
2.12 Taxation salary of UAE nationals towards the pension fund to the General
The tax expense for the period comprises current and deferred tax. Pension Authority, which is recorded in the income statement. End
Tax is recognised in the income statement, except to the extent that of service benefits are payable in accordance with the legislation to
it relates to items recognised in other comprehensive income or employees based in the UAE. The UAE labour laws provide for a
directly in equity, in which case, the tax is also recognised in other lumpsum payout at termination.
comprehensive income or directly in equity respectively.
2.14 Share-based payment plans
(a) Current income tax (a) Employee share option plan (“ESOP”)
The current income tax charge is calculated on the basis of the tax The Group operates an equity-settled, share-based compensation
laws enacted for the year in the countries where the Company and plan, under which the Group receives services from employees as
its subsidiaries operate and generate taxable income. Management consideration for equity instruments (options) of the Company.
periodically evaluates positions taken in tax returns with respect to The fair value of the employee services received in exchange for
The Essential Read

situations in which applicable tax regulation is subject to the grant of the options is recognised as an expense with a
interpretation. It establishes provisions where appropriate on the corresponding increase directly in equity. The total amount to be
basis of amounts expected to be paid to the tax authorities or the expensed on a straight line basis over the vesting period is
expected value (weighted average probability) approach. determined by reference to the fair value of the options granted.
Non-market vesting conditions are included in assumptions about
(b) Deferred income tax
the number of options that are expected to vest. At each balance
Deferred income tax is recognised, using the liability method, on
sheet date, the entity revises its estimates of the number of options
temporary differences arising between the tax bases of assets and
that are expected to vest. The Group recognises the impact of the
liabilities and the carrying amounts in the Group financial
revision of original estimates, if any, in the income statement, with
statements. However, deferred income tax is not recognised if it
a corresponding adjustment to equity.
arises from the initial recognition of goodwill, or from initial
recognition of an asset or liability in a transaction other than a Modification and re-pricing of share options are accounted for
business combination that at the time of the transaction affects as a modification of the original grant. The Company records the
neither accounting nor taxable profit or loss. Deferred income tax is compensation cost for cancelled awards based on their original
determined using tax rates (and laws) that have been enacted or value calculated at the grant date over the vesting period and the
Performance
substantively enacted by the balance sheet date and are expected to incremental value of the re-issued awards relative to the value of
apply when the related deferred income tax asset is realised or the the cancelled awards. The incremental fair value is the difference
deferred income tax liability is settled. between the fair value of the modified equity instrument and that
of the original equity instrument, both estimated as at the date of
Deferred income tax assets are recognised to the extent that it is
the modification.
probable that future taxable profit will be available against which
the temporary differences can be utilised. The grant by the Company of options over its equity instruments to
the employees of subsidiary undertakings in the Group is treated as
Deferred income tax is provided on temporary differences arising on
a capital contribution. The fair value of employee services received,
investments in subsidiaries and associates, except for deferred income
measured by reference to the grant date fair value, is recognised
tax liability where the timing of the reversal of the temporary
over the vesting period as an increase to investment in subsidiary
difference is controlled by the Group and it is probable that the
undertakings, with a corresponding credit to other reserve.
temporary difference will not reverse in the foreseeable future.
(b) Employee share purchase plan (“ESPP”)
Deferred income tax assets and liabilities are offset when there is a
The Group introduced an ESPP in October 2011. This plan enables
legally enforceable right to offset current tax assets against current Governance
eligible employees including Executive Directors to make
tax liabilities and when the deferred income tax assets and liabilities
contributions, through payroll deductions, toward the purchase of
relate to income taxes levied by the same tax authority on either the
the Company’s shares at a 15% discount on the market price, either
taxable entity or different taxable entities where there is an intention
at the start or the end of a six month accumulation period. Individual
to settle the balances on a net basis.
ESPP participants are restricted from contributing more than limits
2.13 End of service benefits specified in the plan. An ESPP trust has been created to warehouse
The provision for end of service benefits for all employees is made in the Company’s ordinary shares purchased, which will be
accordance with local labour legislation or the employment transferred to the participating employees at the end of the
contracts in the relevant countries of operations. accumulation period. No performance conditions are imposed in the
ESPP plan. The ESPP trust has been consolidated in the financial
Under the laws of Turkmenistan, the Group contributes under the
statements in accordance with Standing Interpretation Committee
State Plan towards social insurance in respect of local employees,
(SIC) 12 ‘Special Purpose Entities’.
which is recorded in the income statement.

(continued)
2 Summary of significant accounting policies (continued) 3 Financial risk management

2.15 Provisions 3.1 Financial risk factors
Provisions are recognised when the Group has a present legal or The Group’s activities expose it to a variety of financial risks:
constructive obligation as a result of past events and it is probable market risk, credit risk and liquidity risk which can adversely affect
that the Group would be required to settle the obligation and the the Group’s expected future cash flows or the Group’s assets and
amount has been reliably estimated. Provisions are recorded at liabilities. These risks are evaluated by management on an ongoing
management’s best estimate of expenditure required to settle the basis to assess and manage critical exposures.
obligation at the balance sheet date. Provisions are not recognised
The financial risk management programme includes the use of
for future operating losses.
derivative financial instruments to manage these underlying risks.
2.16 Revenue recognition The Group’s liquidity and market risks are managed as part of
(a) Sales of crude oil Group’s treasury activities. Treasury operations are conducted
Revenue represents sales of crude oil and related income and within a framework of established policies and guidelines.
comprises the fair value of the consideration received or receivable
(a) Market risk
for the sale of crude oil by the Group in the ordinary course of
(i) Price risk
business to customers. Revenue arising from the sale of crude oil is
Crude oil prices are subject to volatility due to market forces and a
recognised when the significant risks and rewards of ownership
significant drop in crude oil prices can impact on the Group’s cash
have passed, usually upon delivery, to the buyer and the amount of
flows, profitability and on its ability to fund its development plans
revenue can be reliably measured. Revenue excludes abandonment
and operations. Crude oil prices also impact the measurement of
and decommissioning barrels under the terms of the PSA.
underlifts and overlifts. The Group actively reviews oil price risks and
(b) Finance income uses derivative products as appropriate to manage oil price exposures.
Finance income is recognised on a time-proportion basis using the
There were no derivative financial instruments held during 2011
effective interest method.
or 2012 or at the balance sheet date.
2.17 Leases
At the balance sheet date, if the market price of crude oil had been
The determination of whether an arrangement is, or contains, a
US$10 per barrel higher/lower, the crude oil overlifts would have
lease is based on the substance of the arrangement at the inception
been higher/lower by US$1.4 million (2011: crude oil underlifts
date. Agreements under which payments are made to lessors in
would have been higher/lower by US$0.4 million).
return for the right to use an asset for a period are accounted for as
leases. Leases in which a significant portion of the risks and rewards (ii) Foreign exchange risk
of ownership are retained by the lessor are classified as operating The Group does not have significant exposure to foreign exchange
leases. Payments made under operating leases are charged to the risk and has adequate policies and controls in place to ensure that
income statement on a straight line basis over the period of the lease exposures to currencies other than the Company’s functional
or if directly attributable, capitalised as a part of development and currency are adequately managed. Generally the exposure has
production assets. been limited given that receipts and payments have mostly been
in US Dollars.
2.18 Abandonment and decommissioning costs
The PSA provides for a fixed proportion of the proceeds of the (iii) Interest rate risk
Group’s oil production to be set aside in designated bank accounts, The Group has no borrowings and hence, it is not exposed to interest
including an escrow account, to meet abandonment and rate risk.
decommissioning costs of wells, platforms and other facilities.
The Group has significant interest bearing term deposits. However,
All such costs will be met from these designated accounts.
the Group is not dependent on the interest income from such
2.19 Dividend distribution deposits for its operations.
Interim dividends are considered to be declared when approved and
During the year ended 31 December 2012, if interest rates on the
paid by the Board. In the case of final dividends, these are declared
deposits had been 0.5% higher/lower, the interest income would
when approved by the shareholders at the AGM.
have been higher/lower by US$7.5 million (2011: US$6 million).
2.20 Effective interest method
The effective interest method is a method of calculating the
amortised cost of a financial asset or liability and of allocating the
finance income or finance expense over the period to maturity or
repayment. The effective interest rate is the rate that exactly
discounts the expected future cash payments or receipts through
the expected life of the financial instrument or, when appropriate,
a shorter period, to the net carrying amount of the instrument.

3 Financial risk management (continued) The table below analyses the Group’s financial liabilities into
3.1 Financial risk factors (continued) relevant maturity groupings based on the remaining period at the
(b) Credit risk balance sheet to the contractual maturity date. The amounts
Credit risk is managed on a Group basis. Credit risk arises from cash disclosed in the table are the contractual undiscounted cash flows.
and cash equivalents, term deposits and trade and other receivables.
Carrying Contractual Less than 1 to 5
The Group places cash surplus to its immediate requirements on amount cash flows 1 year years
deposit with various local and international banks having US$’000 US$’000 US$’000 US$’000
operations in the UAE. The deposits are held with reputable
independently rated banks with a Moody’s minimum rating of 31 December 2012
‘Baa1’. The credit quality of the amounts held on deposits is set Trade and other
out in Note 10b. payables 567,360 567,360 566,070 1,290
31 December 2011
The Essential Read

Oil export routes from the Caspian Sea are limited and currently
Trade and other
all of the Group’s exports are to Baku, Azerbaijan and counterparty
payables 403,604 403,604 402,981 623
risks are minimised through crude oil sales contracts on secured
credit terms. Management does not expect any losses from
3.2 Capital risk management
non‑performance by the counterparty.
The Group defines capital as the total equity of the Group. The
The Group has one customer (2011: one customer) representing the Group’s objectives when managing capital are to provide returns
trade receivable at the year end. There have been no instances of for shareholders and benefits for stakeholders and to safeguard the
default in the past on the trade receivables from this customer and Group’s ability to continue as a going concern. The Group is not
subsequent to the year-end, all amounts have been collected in full subject to any externally-imposed capital requirements.
(Note 12).
The Group monitors the long term capital requirements of the
An amount of US$32 million (2011: US$32 million) is prepaid to a business in order to assess the need for changes to the capital
contractor towards rig rental and management charges. This structure to meet the objective and to maintain flexibility. The
amount is secured by a payment guarantee issued by an Board manages the capital structure and may vary the dividend
international bank with Moody’s ‘A2’ rating. payment to shareholders, return capital, issue new shares or
Performance
acquire new debt facilities to maintain or adjust capital structure,
(c) Liquidity risk
as appropriate.
The Group is involved in oil and gas exploration, development and
production that requires high capital expenditure for field No significant changes were made in the objectives, policies or
development. The Group closely monitors and manages its liquidity processes during the year ended 31 December 2012.
risk by forecasting the Group’s short and long term cash position on
The Group had no debt during the current and previous year and
the basis of expected cash flows taking into account volatility in oil
therefore the gearing ratio has not been calculated.
prices, delays in development projects, changes in production profile
and increases in costs. The Group seeks to ensure that it has an 3.3 Fair value estimation
adequate ongoing capacity to safeguard its ability to continue as a IFRS 7 requires disclosure of fair value measurements by level of the
going concern. following fair value measurement hierarchy:
The Group is currently financed entirely from shareholders’ equity Level 1: Q
uoted prices (unadjusted) in active markets for identical
with no debt. assets or liabilities;
Level 2: Inputs other than quoted prices included within level 1 that Governance
are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices); and
Level 3: I nputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
At 31 December 2012, the overlift payable was measured at fair
value based on quoted market price of crude oil (Level 1). The
Group did not have any other financial assets or liabilities that
are measured at fair value as at 31 December 2012.

(continued)
4 Critical accounting judgements and estimates The depletion computation assumes the continued development of
The preparation of financial statements in conformity with IFRS the field to extract the assessed oil and gas reserves and the required
requires the use of estimates and assumptions that affect the underlying capital expenditure to achieve the same. For this
reported amounts of assets and liabilities as well as contingent purpose, it assumes that a gas sales agreement will be signed and
assets and liabilities at the date of the balance sheet, and the that the PSA, which is valid up to 2025, will be extended on similar
reported amounts of revenues and expenses during a reporting terms up to 2035 under an exclusive right to negotiate for an
period. The resulting accounting estimates will, by definition, extension period of not less than ten years, provided for in the PSA.
seldom equal the related actual results.
(b) E&E assets (Note 2.6)
The critical accounting judgements and estimates used in the The application of the Group’s accounting policy for exploration and
preparation of financial statements that could result in material evaluation expenditure requires judgement to determine whether it
adjustments to the income statement and the carrying amounts is likely that future economic benefits will arise, from either
of assets and liabilities are discussed below: exploitation or sale, or whether activities have not reached a stage
which permits a reasonable assessment of the existence of reserves.
(a) Carrying value of development and production assets
In arriving at the carrying value of the Group’s development and
5 The Company income statement
production assets, significant assumptions in respect of the
In accordance with section 148(8) of the Companies Act, 1963 and
depletion charge have been made. These significant assumptions
section 7(1A) of the Companies (Amendment) Act, 1986, the
include estimates of oil and gas reserves, future oil and gas prices,
Company is availing of the exemption from presenting its individual
finalisation of the gas sales agreement and future development
income statement to the annual general meeting and from filing it
costs including the cost of drilling, infrastructure facilities and
with the Companies Registration Office. The Company’s profit for
other capital and operating costs.
the financial year determined in accordance with IFRS is
The Group revised its estimated long-term view of oil prices from US$722.4 million (2011: profit of US$141.6 million).
US$75 per barrel to US$80 per barrel from 1 January 2012 and from
US$80 per barrel to US$85 per barrel from 1 August 2012. The effect 6 Segment information
of an upward revision in the estimated long-term oil price is to lower The Group is managed as a single business unit and its development
the level of reserves attributable to the Group and to increase the and production assets are located in Turkmenistan in the Caspian
depletion charge per barrel. region. The Group headquarters is based in Dubai, where a
significant portion of cash at bank and term deposits of the Group
The Group’s estimated long-term view of netback prices for gas is
are held.
US$3.5 per Mscf, based on the current outlook.
The exploration and evaluation assets represent the Group’s interest
If the estimate of the long-term oil price had been US$20 per barrel
in certain exploration blocks in Tunisia.
higher and the netback price of gas had been US$2 per Mscf higher at
US$5.50 from 1 January 2012, the reserves attributable to the Group Revenue includes an amount of US$1,155 million
would decrease, with a consequent increase in the depletion charge (2011: US$1,132.7 million) arising from the sale of crude oil to one
of US$11.2 million for the year. customer through Azerbaijan (2011: one customer). In 2011 the
Group sold US$13.1 million of crude oil to an independent third party
If the estimate of the long-term oil price had been US$20 per barrel
that has an Iranian swap agreement and recognised US$4.4 million
lower and the netback price of gas had been US$2 per Mscf lower at
from the underlift of entitlement to crude oil produced. In 2012
US$1.50 from 1 January 2012, the reserves attributable to the Group
US$0.1 million (2011: US$0.3 million) was recognised from
would increase, with a consequent decrease in the depletion charge
other sales.
of US$22.2 million for the year.
If the gas sales were delayed to 2017, the depletion charge would
increase by US$5.7 million.

7 Property, plant and equipment
Development and
production assets Other Total
US$’000 US$’000 US$’000
Cost
At 1 January 2011 1,959,139 1,999 1,961,138
Additions for the year 350,877 89 350,966
Drilling supplies 32,070 – 32,070
At 31 December 2011 2,342,086 2,088 2,344,174
Additions for the year 381,438 375 381,813
At 31 December 2012 2,723,524 2,463 2,725,987
The Essential Read

Depletion and depreciation
At 1 January 2011 782,935 1,842 784,777
Charge for the year 205,330 89 205,419
At 31 December 2011 988,265 1,931 990,196
Charge for the year 211,531 103 211,634
At 31 December 2012 1,199,796 2,034 1,201,830
Net book amount
At 31 December 2012 1,523,728 429 1,524,157
At 31 December 2011 1,353,821 157 1,353,978
The recoverability of amounts recorded as development and production assets is dependent upon the satisfactory development of the field
and extraction of the oil and gas reserves in Turkmenistan as well as the signing of the gas sales agreement.
Performance
Inventory of drilling supplies is included under ‘Property, plant and equipment’. This inventory is not depleted until it is put to use as
development and production assets.
8 Intangible assets
Exploration and evaluation assets
US$’000
At 1 January 2012 –
Additions for the year 5,466
At 31 December 2012 5,466
At 31 December 2011 –
The intangible assets include exploration and evaluation assets representing the Group’s interest in certain exploration blocks in Tunisia.
Governance

(continued)
9 Investments in and loans to subsidiary undertakings

Company
(a) Investments in subsidiary undertakings
US$’000
Cost
At 1 January 2011 31,325
Fair value of share options granted to employees of a subsidiary undertaking 2,583
At 31 December 2011 33,908
Fair value of share options granted to employees of a subsidiary undertaking 3,923
At 31 December 2012 37,831
Provision for impairment
At 1 January 2011 and 31 December 2011 and 2012 22,910
Net book amount
At 31 December 2012 14,921
At 31 December 2011 10,998
(b) Loans to subsidiary undertakings

US$’000
Cost
At 1 January 2011 461,673
Advanced during the year, net 68,728
At 31 December 2011 530,401
Advanced during the year, net 543,829
At 31 December 2012 1,074,230
Provision for impairment
At 1 January 2011 and 31 December 2011 and 2012 5,590
Net book amount
At 31 December 2012 1,068,640
At 31 December 2011 524,831
The loans to subsidiary undertakings are non-interest bearing and are repayable on demand.

10a Financial instruments by category
Group
The accounting policies for financial instruments have been applied to the line items below:
2011
2012 US$’000
US$’000 (restated)
Assets as per balance sheet

Loans and receivables
Trade and other receivables excluding prepayments and advances to suppliers 113,585 139,460
Term deposits 1,866,228 1,718,271
Cash and cash equivalents 277,997 87,499
The Essential Read

2,257,810 1,945,230
Fair value through profit or loss
Crude oil underlift receivable – 4,445
Liabilities as per balance sheet
Liabilities at amortised cost
Trade and other payables 553,443 403,604
Fair value through profit or loss
Crude oil overlift payable 13,917 –
Company
Assets as per balance sheet
Loans and receivables
Loans to subsidiary undertakings 1,068,640 524,831
Other receivables 592 506
Performance
1,320,073 526,407
Liabilities as per balance sheet
Liabilities at amortised cost
Loan from a subsidiary undertaking 486,957 82,361
Other payables 253 398
487,210 82,759
The loans to the Company from subsidiary undertakings are non-interest bearing and are repayable on demand.
Comparative information presented above has been amended to accord to the current year presentation.
Governance

(continued)
10b Credit quality of financial assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings
(if available) or to historical information about counterparties default rates.
Trade receivables that are fully performing are due from an existing customer, for whom no credit rating is available. This customer
has no history of defaults. Further details are provided in Note 12.
The majority of the cash at bank and term deposits are held with counterparties with Moody’s credit ratings, as set out below:
2012 2011
US$’000 US$’000
Aa2 – 40,350
Aa3 196,281 206,406
A1 618,172 516,176
A2 583,353 –
A3 – 979,776
Baa1 742,230 61,535
Non-rated 4,170 1,509
Cash at bank and term deposits 2,144,206 1,805,752
Cash in hand 19 18
Cash and cash equivalents and term deposits 2,144,225 1,805,770
The movement of the balances between the credit ratings is a result of the ratings of the banks by Moody’s at the balance sheet date.
Cash and cash equivalents of the Company are held with a bank with Moody’s credit rating of A1 and A2 (2011: Aa3 and A1).
11 Inventories
2012 2011
US$’000 US$’000
Crude oil 975 788

Other supplies 12,639 7,335
13,614 8,123
Provision for obsolete inventories (1,227) (1,135)
12,387 6,988
The cost of crude oil recognised as an expense and included in cost of sales amounted to US$309.8 million (2011: US$265 million).

12 Trade and other receivables
Group Company
2012 2011 2012 2011

US$’000 US$’000 US$’000 US$’000
Trade receivable 112,344 138,416 – –

Crude oil underlift receivable – 4,445 – –
Other receivables 1,157 983 531 456
Receivable from a related party 84 61 61 50
Prepayments and advances to suppliers 43,273 40,676 – –
156,858 184,581 592 506
The Essential Read

The carrying value of the trade and other receivables approximate their fair values.
The classification of trade receivables of the Group is as follows:
Group Company
2012 2011 2012 2011

US$’000 US$’000 US$’000 US$’000
Fully performing 112,344 138,416 – –
At 31 December 2012, the Group faced a concentration of credit risk with one (2011: one) customer accounting for 100% (2011: 100%)
of the trade receivables at that date. This customer, a state-owned oil and gas corporation, has an established record of promptly
settling its financial commitments to the Group. At 31 December 2012, the Group had letters of credit amounting to US$112.3 million
(2011: US$138.4 million) as collateral against the trade receivable.
The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting
date is the carrying value less collateral security of receivables mentioned above.
Performance
13 Cash and bank balances
Group Company
2012 2011 2012 2011

US$’000 US$’000 US$’000 US$’000
Cash at bank and in hand 277,997 42,424 250,841 1,070

Deposits with an original maturity of three
months or less – 45,075 – –
Cash and cash equivalents 277,997 87,499 250,841 1,070
Term deposits with an original maturity of over
3 months 1,866,228 1,718,271 – –
2,144,225 1,805,770 250,841 1,070
Governance
Group
Cash and bank balances include an amount of US$407.7 million (2011: US$279 million) held on deposit for abandonment and
decommissioning activities. The related liability is shown under trade and other payables (Note 18).
Amounts held on deposit with an original maturity of three months or less earned interest during the year at rates between 0.18% and
2.45% (2011: 0.14% and 1.68%) per annum.
Term deposits with original maturities of over three months earned interest during the year at rates between 0.22% and 2.75%
(2011: 0.22% and 3.25%) per annum.
Deposits and other balances are held with fifteen banks (2011: twelve). Details of deposits and other balances with banks under common
control of the Government of Dubai are disclosed in Note 27(a).
The maximum exposure to credit risk at the reporting date is the carrying value of cash and cash equivalents and term deposits mentioned
above. The carrying value of cash and cash equivalents and term deposits approximate their fair value.
Company
Balances are held with two banks (2011: two).

(continued)
14 Share capital
Number of shares Ordinary shares
(’000) US$’000
At 1 January 2011 515,628 80,774

Issue of shares:
– Share option scheme (i) 490 70
Shares repurchased and cancelled (Note 16) (5,000) (675)
At 31 December 2011 511,118 80,169
Issue of shares:
– Share option scheme (i) 955 124
Shares repurchased and cancelled (Note 16) (22,611) (2,819)
At 31 December 2012 489,462 77,474
The total authorised number of ordinary shares is 700 million shares (2011: 700 million shares) with a par value of €0.10 per share
(2011: €0.10 per share). All issued shares are fully paid. During 2012, the Company repurchased and cancelled 22.6 million shares
(2011: 5 million shares) for an aggregate consideration of US$204.1 million (2011: US$38.1 million) including transaction costs of
US$4.1 million (2011: US$0.5 million).
(i) Share option scheme
Share options are granted to directors and to selected employees of a subsidiary company under the 2002 and 2009 Share Option Schemes.
Share options granted under the 2002 Share Option Scheme were conditional upon the completion of continuing service with the Group for
a specified period. Share options granted under the 2009 Share Option Scheme were conditional upon the completion of continuing service
and fulfilment of certain non-market performance conditions. The exercise price of the share options is in accordance with the approved
Share Option Scheme. The details of the options granted are given below.
Options
Date of grant (’000) Vesting conditions
Grants in 2004 31-Dec-04 3,160 Vested

Grants in 2006 14-Dec-06 1,840 Vested
4-Apr-08 540 Cancelled/Forfeited
4-Apr-08 460 Cancelled/Forfeited
Grants in 2008 1,000
6-Apr-09 100 Vested
6-Apr-09 400 Vested
6-Apr-09 1,210 Vested
Reissue 1 6-Apr-09 153 Vested
Reissue 2 6-Apr-09 180 Vested
13-Apr-10 840 14-Apr-13
13-Apr-10 650 1/3 annually
21-Apr-11 790 22-Apr-14
06-Sep-11 120 05-Sep-14
09-Apr-12 1,250 10-Apr-15
The re-issued options in 2009 were granted after the cancellation of 666,665 options and are treated as a modification of the original awards
granted on 4 April 2008. The weighted average incremental value of the modified options was nil per option (2011: £0.61 per option).

Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2012 2011
Weighted average Weighted average

exercise price Options exercise price Options
£ (’000) £ (’000)
Outstanding at 1 January 3.8585 4,770 2.8220 3,745

Granted 6.0800 1,990 5.5042 1,730
Forfeited 5.4755 (413) 3.8076 (215)
Exercised 1.5689 (955) 1.7687 (490)
Outstanding at 31 December 4.9600 5,392 3.8585 4,770
The Essential Read

Exercisable at 31 December 3.1973 1,487 2.0085 1,322
The significant inputs to the Black Scholes option pricing model are:
2012 2011
Grant date: Grant date: Grant date:

09 Apr 12 06 Sep 11 21 Apr 11
Share price at grant date £6.08 £4.65 £5.66

Exercise price £6.08 £4.655 £5.5675
Expected volatility 50% 53% 44% to 55%
Expected risk free rate per annum 0.41% to 0.89% 1.27% 1.36% to 2.26%
Interval in years for measurement of volatility 2.5, 3.5 and 4.5 4.5 2.5, 3.5 and 4.5
Dividend yield per annum 1.8% 1.6% 1.6%
The expected volatility estimates used in the valuation have been calculated based on the historical volatilities of the Company’s share
Performance
price over various historical periods, weighing the historical volatility over periods commensurate with the expected term of the options.
The weighted average fair value of options granted during the year determined using the Black Scholes option pricing model was £1.33 per
option (2011: £1.35).
The weighted average share price at the dates of exercise for the options exercised during the year was £6.0746 (2011: £5.4432).
Share options outstanding at the year end have the following expiry dates and exercise prices:
Options
Exercise price 2012 2011

Expiry date £ ’000 ’000
30 December 2014 0.6900 – 285

13 December 2016 1.7084 80 320
05 April 2019 1.7700 767 1,153
11 April 2020 4.7825 1,145 1,322 Governance
20 April 2021 5.5675 1,420 1,570
05 September 2021 4.6550 120 120
08 April 2022 6.0800 1,860 –
5,392 4,770
During the year, a total fair value charge for the ESOP and ESPP of US$3.9 million (2011: US$2.6 million) was recorded in staff costs
(Note 22(b)) and a corresponding amount recorded in the other reserve (Note 17). Included in the total fair value charge is an incremental
fair value charge of nil (2011: US$0.01 million) in respect of the modified share options.
(ii) Employee share purchase plan
The ESPP is an all-employee plan which enables eligible employees including Executive Directors to save out of salary up to a prescribed
limit for each accumulation period. Under the plan, employees are granted the Company’s shares at a 15% discount on the market price,
either at the start or the end of a six month accumulation period. The contribution made by the Group representing the 15% discount is
US$0.8 million (2011: nil).
The Group recognised a total charge of US$0.5 million (2011: US$0.1 million) for the ESPP.

(continued)
15 Share premium
2012 2011
US$’000 US$’000
At 1 January 231,635 230,296

Premium on shares issued during the year 2,254 1,339
At 31 December 233,889 231,635
16 Capital redemption reserve

The capital redemption reserve arises from a reorganisation of the Company’s share capital in 2002. During 2012, 22.6 million shares
(2011: 5 million shares) at nominal value of US$2.8 million (2011: US$0.7 million) were repurchased and cancelled. The nominal value
was transferred to the capital redemption reserve account. This reserve is non-distributable.
17 Other reserve
Other reserve comprises amounts expensed in the income statement in connection with awards made under the Company’s share option
schemes less any exercises or lapses of such awards.
18 Trade and other payables

Group Company
2012 2011 2012 2011

US$’000 US$’000 US$’000 US$’000
Trade payables 48,979 47,640 – –

Accruals 65,480 46,448 245 309
Crude oil overlift payable 13,917 – – –
Abandonment and decommissioning liability 438,465 308,806 – –
Other creditors 519 710 8 89
567,360 403,604 253 398
Less: Non-current portion 1,290 623 – –
566,070 402,981 253 398
Trade payables and accruals include amounts of US$40.4 million (2011: US$45.1 million) and US$44.8 million (2011: US$25 million)
respectively, relating to additions to property, plant and equipment – development and production assets. The abandonment and
decommissioning liability represents amounts relating to the sale of crude oil to cover abandonment and decommissioning liabilities
under the terms of the PSA.
The carrying value of trade and other payables approximate their fair values.
19 Revenue
2012 2011
US$’000 US$’000
Sales of crude oil 1,155,143 1,146,068

Crude oil underlifts (Note 2.10) – 4,445
1,155,143 1,150,513
20 Cost of sales and administrative expenses
2012 2011
US$’000 US$’000
Cost of sales 329,168 266,539

Administrative expenses 35,474 28,010
364,642 294,549
Analysed as follows:
Depletion and depreciation (Note 7) 211,634 205,419
Field operating costs 57,727 44,415
Field staff costs 41,375 28,742
Other staff costs 20,443 14,562
The Essential Read

Crude oil marketing costs 305 665
Net foreign exchange (gain)/losses (1,898) 342
Crude oil underlifts (Note 2.10) 4,445 –
Crude oil overlifts 13,917 (12,680)
Other administrative costs 16,694 13,084
364,642 294,549
21 Finance income
2012 2011
US$’000 US$’000
Interest on bank deposits 18,279 15,533
Performance
22 Profit before income tax
(a) Included in profit before income tax are the following:
2012 2011
US$’000 US$’000
Staff costs (Note 22(b)) 61,818 43,304

Depletion and depreciation (Note 7) 211,634 205,419
Operating lease expenses 1,262 1,337
Auditors’ remuneration – Group
– Statutory audit of Group accounts 182 197
– Other assurance services 160 186
– Tax advisory services 47 –
389 383
Auditors’ remuneration – Company
– Statutory audit of parent individual accounts 10 10 Governance
– Tax advisory services 47 –
57 10
(b) Staff costs

2012 2011
US$’000 US$’000
Wages and salaries 66,702 50,995

Social security costs 4,953 3,899
End of service benefits 1,310 634
Employee share options – value of services provided (Note 14) 3,923 2,583
76,888 58,111
Less : Capitalised as part of development and production assets (15,070) (14,807)
61,818 43,304
Comparative information presented above has been amended to accord to the current year presentation.
(continued)
22 Profit before income tax (continued)

(b) Staff costs (continued)
2012 2011
Number Number
Average monthly number of persons employed by the Group during the year:
Petroleum operations 1,121 1,024
Finance, administration and others 247 199
1,368 1,223
(c) Directors’ emoluments (included in staff costs)
2012 2011
US$’000 US$’000
Fees for services as directors 918 746

Other emoluments 1,934 1,640
2,852 2,386
Details of the directors’ remuneration are disclosed in the directors’ remuneration report on pages 69 to 73.
23 Current and deferred income tax
2012 2011
US$’000 US$’000
Analysis of income tax expense:

Current tax
– Amounts relating to current year 183,167 190,738
Net deferred tax 25,974 32,584
209,141 223,322
The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the tax rate applicable to profits
in the primary jurisdiction in which the Group operates.
2012 2011
US$’000 US$’000

Tax calculated at domestic tax rates applicable to profits in the
primary jurisdiction 202,297 217,935
Tax effect of expenses not deductible 8,298 6,116
Effect of different tax rates in countries in which the Group operates (4,639) (4,047)
Others 3,185 3,318
209,141 223,322
Analysis of the net deferred tax liability:
Deferred tax liability to be settled after more than 12 months 145,268 114,704
Deferred tax liability to be settled within 12 months – 1,111
Deferred tax asset to be recovered within 12 months (3,479) –
141,789 115,815
The effective tax rate was 25.85% (2011: 25.62%).

At the year end, current income tax of US$274.6 million (2011: US$243.4 million) was payable.
Deferred income tax assets and liabilities are offset since they relate to income taxes levied by the same taxation authority. The movement
in deferred income tax liabilities and assets during the year is as follows:
Production and
development
asset depletion Crude oil underlifts Total
Deferred tax liabilities US$’000 US$’000 US$’000
At 1 January 2011 86,402 – 86,402

Charged to the income statement 28,302 1,111 29,413
At 31 December 2011 114,704 1,111 115,815
Charged/(credited) to the income statement 30,564 (1,111) 29,453
At 31 December 2012 145,268 – 145,268
The Essential Read

Crude oil overlifts Others Total
Deferred tax assets US$’000 US$’000 US$’000
At 1 January 2011 3,171 – 3,171

Charged to the income statement (3,171) – (3,171)
At 31 December 2011 – – –
Credited to the income statement 3,479 – 3,479
At 31 December 2012 3,479 – 3,479
The Group has unutilised tax losses carried forward at 31 December 2012 from two entities amounting to US$61.5 million
(2011: US$58.5 million). There is no time limit on the carry forward of such losses. A deferred income tax asset has not been recognised
as the Group does not expect that future taxable profits will be available from these entities to utilise these losses.
Performance
During 2008, the effective tax rate applicable to the Group’s operations in Turkmenistan was increased by 5% to 25% by the Hydrocarbon
Resources Law of 2008. The Group has continued to apply this rate in determining its tax liabilities as at 31 December 2012. The Group is
in discussions with the authorities in Turkmenistan about the applicability of this rate to periods prior to 2008, but it does not believe that
these prior periods are affected by this increase. A provision has been made in respect of the additional tax that could become payable if
the increased tax rate were applied to prior periods based on the expected value (weighted average probability) approach.
Governance
(continued)
24 Earnings per share

2012 2011
US$’000 US$’000
Number ’000 Number ’000
Weighted average number of shares:

Basic 502,181 514,815
Assumed conversion of potential dilutive share options 1,008 1,388
Diluted 503,189 516,203
Earnings per share attributable to equity holders of the Company:
Basic 119.49c 125.95c
Diluted 119.26c 125.61c
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number
of ordinary shares in issue during the year.
For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of all potential
dilutive options over ordinary shares.
25 Cash generated from/(used in) operating activities

2012 2011
Notes US$’000 US$’000
Group
Adjustments for:
– Depletion and depreciation 7 211,634 205,419
– Crude oil underlifts 12,20 4,445 (4,445)
– Crude oil overlifts 18,20 13,917 (12,680)
– Employee share options – value of services provided 14,22(b) 3,923 2,583
– Interest on bank deposits 21 (18,279) (15,533)
Operating cash flow before changes in working capital 1,024,827 1,047,082
Changes in working capital:
– Inventories 11 (5,399) 7,977
– Trade and other receivables 12 23,278 (81,863)
– Trade and other payables 18 134,775 132,077
Cash generated from operating activities 1,177,481 1,105,273
Company
Adjustments for:
– Dividend income from a subsidiary undertaking (725,000) (145,000)
Operating cash flow before changes in working capital (2,587) (3,424)
Changes in working capital:
– Other receivables 12 (86) (139)
– Other payables 18 (145) (31)
Cash used in operating activities (2,818) (3,594)
26 Commitments and contingent items
(a) Capital commitments
The capital commitments at the year end were as follows:
Group Company
2012 2011 2012 2011

US$’000 US$’000 US$’000 US$’000
Contracted for but not yet incurred 674,445 655,315 – –
(b) Other financial commitments

The Group’s commitments under non-cancellable property operating leases were as follows:
2012 2011
The Essential Read

US$’000 US$’000
Due within one year 172 166

Due between two to five years 142 303
314 469
(c) Letters of credit

The following commitments were outstanding as at 31 December 2012:
Letters of credit of US$16.5 million were in issue at 31 December 2012 (2011: US$20.4 million) towards the supply of equipment and services.
At 31 December 2012, the Company had a continuing guarantee for US$30 million (2011: US$30 million) for undrawn trade finance
facilities of subsidiary undertakings.
(d) Taxation
At 31 December 2012, there was a contingent liability with respect to taxation. Details of the contingent liability are outlined in Note 23.
Performance
(e) Others
The Group’s operations in Turkmenistan, conducted through Dragon Oil (Turkmenistan) Ltd., are undertaken in accordance with the terms
of the PSA, which became effective on 1 May 2000 between Dragon Oil (Turkmenistan) Ltd. and the Government of Turkmenistan. The
agreement determines the rights and obligations of Dragon Oil (Turkmenistan) Ltd, inter alia, to carry out development activities through
work plans and annual budgets. It also grants various tax, currency control and related concessions. However, there are no financial
commitments, other than those disclosed above, arising from the terms of the PSA.
However, the Group’s operations in Turkmenistan are ultimately subject to the political, socio-economic and legal uncertainties arising
from the Turkmenistan political and legal systems.
Governance
(continued)
27 Related party transactions

(a) The Company’s largest shareholder is Emirates National Oil Company Limited (ENOC) LLC (“ENOC”). At the year-end, two members
of the Board, Mr. Ahmad Sharaf (appointed 25 April 2007) and Mr Mohammed Al Ghurair (appointed 25 April 2007) are nominees of ENOC.
(i) The following transactions are with ENOC and its subsidiaries:
2012 2011
US$’000 US$’000
Trading transactions:
Sale of services 518 282
Purchase of services 2,187 1,443
Year end balances
Receivables 84 61
Payables 8 379
(ii) The following transactions are with financial institutions under common control and associates:
2012 2011
US$’000 US$’000
Other transactions:
Finance income 6,068 8,119
Year end balances
Term deposits 330,730 651,102
Abandonment and decommissioning funds 407,718 278,957
Related party transactions of the Company mainly relates to loans to/from subsidiary undertakings which are disclosed under Note 9(b)
and Note 10(a).
(b) Key management compensation
2012 2011
US$’000 US$’000
Non-executive directors fees 918 746

Salaries and short-term benefits 5,236 4,791
Short-term benefits 6,154 5,537
End of service benefits 117 138
Share-based payments 1,194 1,096
7,465 6,771
Key management includes non-executive directors and members of the Executive Committee.
28 Dividends paid
2012 2011
US$’000 US$’000
Declared and paid during the year:

Dividends on ordinary shares:
Final dividend for 2011: US cents 11 per share (2010: Final dividend of US cents 14 per share) 56,231 72,242
Interim dividend for 2012: US cents 15 per share (2011: Interim dividend of US cents 9 per share) 74,387 46,442
130,618 118,684
29 Group companies
The Essential Read

The Company is a subsidiary of ENOC, a company incorporated in the United Arab Emirates. ENOC is ultimately a wholly owned entity of
the Government of Dubai.
Principal Group investments
The Company holds 100% of the equity capital of the following companies unless otherwise stated. Investments, which are not significant,
are not included in this list.
Issued and
Country of incorporation or fully paid
Name registration and operation Principal activity share capital
Dragon Oil (Turkmenistan) Ltd** Bermuda & Oil and gas production 80,000 ordinary
Chancery Hall Turkmenistan shares of US$1 each
52 Reid Street
Hamilton, HM12
Bermuda
D&M Drilling Ltd.** Jersey Drilling operations 9 ordinary
Performance
22 Grenville Street shares of £1 each
St Helier, Jersey
Channel Islands
Dragon Oil (Holdings) Ltd.* Malta Investment holding 2,000 ordinary
4, V. Dimech Street company shares of £1 each
Floriana, FRN 1504
Malta
Dragon Resources England Oil and gas production 8,434,317 ordinary
(Holdings) plc* related activities shares of £1 each
17 Old Park Lane
London W1K 1QT
England
* Held by the Company Governance

** Held by a subsidiary undertaking of the Company
30 Subsequent events
(i) At a meeting held on 10 February 2013, the board of directors of the Company have proposed a final dividend of USc15 per share
(2011: USc11 per share) be paid to the shareholders in respect of the full year 2012. The total dividend to be paid is US$73.4 million
(2011: US$56.2 million). In accordance with the accounting policy under IFRS set out in note 2.19, this dividend has not been included as
a liability in these financial statements. The proposed final dividend is subject to approval by shareholders at the Annual General Meeting.
(ii) Subsequent to the year end, the Group, within a consortium, signed an exploration, development and production service contract for
Block 9 in Iraq. Under the approved contract, the Group has commitments of US$35 million for its share of the signature bonus and the
minimum work and expenditure obligation.
(iii) Subsequent to the year end, the Group signed an agreement with the existing customer for the sale of all its export volumes until
31 December 2014.
Supplementary information
Supplementary information – Movement in oil, condensate and gas reserves (unaudited)

PROVED AND PROBABLE COMMERCIAL RESERVES (unaudited)
Commercial reserves
Turkmenistan
Working interest Entitlement
2012 2011 2012 2011
Oil and Total Total Oil and Total Total

condensate Gas petroleum petroleum condensate Gas petroleum petroleum
mmbbl bscf mmboe mmboe mmbbl bscf mmboe mmboe
As at 1 January 658 1,496 907 899 314 593 413 415

Revisions 44 (35) 38 30 6 (34) – 10
Production (25) – (25) (22) (12) – (12) (12)
As at 31 December 677 1,461 920 907 308 559 401 413
Notes:
1. Dragon has a 100% working interest in the Cheleken Contract Area in Turkmenistan.
2. Commercial reserves are estimated quantities of proven and probable oil and gas reserves that available data demonstrates, with a specified degree of certainty, to be
recoverable in future from known reservoirs that are considered commercially producible. The working interest of the proved and probable commercial reserves are based
on a reserves report produced by an independent engineer. Reserves estimates are reviewed by the independent engineer based on significant new data or a material
change with a review of the field undertaken generally every year. The Group’s entitlement to the proved and probable commercial reserves are derived based on the terms
of the PSA and certain assumptions made by the management in respect of estimates of oil and gas reserves, future oil and gas prices, future development costs including
the cost of drilling, infrastructure facilities, signing of the gas sales agreement and other capital and operating costs.
3. Based on the results of the recent assessment by an independent energy consultant, the Group has upgraded its reserves to a net 677 million barrels of oil and condensate
at the year-end and 1.5 TCF of gas reserves corresponding to 250 million boe. Recognition of gas reserves is based on a plan for development, a reasonable expectation of a
market for the expected sales quantities of gas, availability of infrastructure in place or planned to be installed.
4. Revision in the oil and condensate reserves is attributed to the drilling results and production performance of wells in the Dzheitune (Lam) area. Revision in entitlement
barrels of oil and condensate is attributable to the change in cost estimates and long-term price assumptions in accordance with the fiscal terms of the PSA. The revision in
the oil and condensate reserves during the year includes a volume of 21 million barrels of condensate reserves to be recovered from the gas stream.
The Group provides for depletion of tangible fixed assets on a net entitlements basis using proven and probable commercial oil and gas
reserves, which reflects the terms of the PSA.
Five-year financial summary
2012 2011 2010 2009 2008

US$’000 US$’000 US$’000 US$’000 US$’000
Group income statement

Revenue 1,155,143 1,150,513 780,409 623,480 706,118
Cost of sales (329,168) (266,539) (264,683) (282,277) (193,220)
Gross profit 825,975 883,974 515,726 341,203 512,898
Administrative expenses, net of other income (35,067) (27,769) (28,003) (26,758) (18,138)
Other losses – – – – (20,748)
Operating profit 790,908 856,205 487,723 314,445 474,012
Net finance income 18,279 15,533 26,952 30,553 25,050
Profit before income tax 809,187 871,738 514,675 344,998 499,062
Income tax expense (209,141) (223,322) (128,592) (85,971) (130,020)
The Essential Read

Profit after tax 600,046 648,416 386,083 259,027 369,042
Earning per share (us cents)
Basic 119.49 125.95 74.94 50.30 71.81
Diluted 119.26 125.61 74.69 50.20 71.58
Group balance sheet
Non-current assets 1,529,623 1,353,978 1,176,361 909,364 777,499
Net current assets 1,472,772 1,351,005 999,816 882,922 748,526
Non-current liabilities 143,079 116,438 (83,231) (89,063) (83,677)
Equity attributable to the Company’s equity shareholders 2,859,316 2,588,545 2,092,946 1,703,223 1,442,348
Note:
Prior year information has not been amended to take account of the current year change in accounting policy with regards to underlifts and overlifts.
Performance
Governance
Shareholder information
Dividends facility in CREST to make currency elections. Currency elections

The Board of Directors of Dragon Oil recommends the payment of a must be made in respect of entire holdings and partial elections are
final dividend of 15 US cents per share. Together with the interim not permitted.
dividend of 15 US cents, the total dividend for the year ended
Dividends can be paid directly into a UK bank account to
31 December 2012 is 30 US cents. The final dividend of 15 US cents is
shareholders who elect for their dividend to be paid in pounds
subject to shareholder approval at the Annual General Meeting to be
sterling and to an Irish bank account where shareholders elect to
held in London, UK on 30 April 2013. If approved, the final dividend
receive their dividend in euro. A dividend reinvestment plan is not
of 15 US cents is expected to be paid on 3 May 2013 to shareholders
available under the Company’s dividend policy.
on the register as of 5 April 2013.
Irish DWT must be deducted from all dividends paid by an Irish
The dividend is declared in US dollars, the Group’s functional
resident company, unless a shareholder is entitled to an exemption
currency. The exchange rate for the pound sterling or euro amounts
and has submitted a properly completed exemption form to the
payable will be determined by reference to the exchange rates
Company’s Registrar, (by post) Capita Registrars, PO Box 7117,
applicable to the US dollar on the closest practicable date to the
Dublin 2, Ireland (or by hand) Capita Registrars, 2 Grand Canal
dividend payment date. The new shareholders, who bought Dragon
Square, Dublin 2, Ireland, by the dividend record date. DWT is
Oil shares in the last 12 months, will receive instructions regarding
deducted at the standard rate of Income Tax (currently 20%).
currency elections, dividend withholding tax (“DWT”) and bank
Non-resident shareholders and certain Irish companies, trusts,
mandate forms in the post. These forms are also available on the
pension schemes, investment undertakings and charities may be
Group’s corporate website, www.dragonoil.com.
entitled to claim exemption from DWT. Copies of forms applicable
The closing date for receipt of currency elections is 5 April 2013. to all exemption types may be obtained online from Irish Revenue
By default shareholders (other than shareholders holding their (www.revenue.ie/en/tax/dwt/forms/index.html).
shares within CREST) with registered addresses in the UK will be
Individuals who are resident in Ireland for tax purposes are not
paid their dividends in pounds sterling. Those with registered
generally entitled to an exemption from Irish DWT.
addresses in European countries, which have adopted the euro, will
be paid in euro. Shareholders with registered addresses in all other
countries will be paid in US dollars. Shareholders may, however,
elect to be paid their dividends in a currency other than their default
currency, and will have a choice of US dollars, euro or pounds
sterling provided such election is received by our registrars by the
record date for the dividend. As the above arrangements can be
inflexible for institutional shareholders, where shares are held in
CREST, dividends are automatically paid in US dollars unless a
currency election has been made. CREST members should use the
Glossary/Definitions/Abbreviations
2C ERP Overlifts and underlifts

Proved and probable contingent Enterprise Resource Planning Crude oil overlifts and underlifts arise on
gas resources differences in quantities between the
EU Group’s entitlement production and the
AGM European Union production either sold or held as inventory
Annual General Meeting
FEED Pigging
Assessment of reserves Front End Engineering Design Pigging in the context of pipelines refers to
Reserves certification based on a seismic the practice of using pipeline inspection
survey conducted by an independent FSU
gauges or ‘pigs’ to perform various
reserves auditor Former Soviet Union
maintenance operations on a pipeline
GBP (such as cleaning and inspection). This is
boe
The Essential Read

Pound Sterling done without stopping the flow of oil in
barrels of oil equivalent
the pipeline
bn GBp
Pence Platform
billion
Large structure used to house employees
bopd GM-PD and machinery needed to drill wells in a
barrels of oil per day General Manager of Petroleum Development reservoir to extract oil and gas for
transportation to shore
CEO GTP
Chief Executive Officer Gas Treatment Plant Probable reserves (2P)
Reserves based on median estimates, and
Combined Code HR claim a 50% confidence level of recovery
The Combined Code on Corporate Human Resources
Governance issued by the Financial PSA
HSE Production Sharing Agreement is a
Reporting Council
Health, Safety and Environment contractual arrangement for exploration,
Performance
COO development and production of hydrocarbon
IAS resources in the Cheleken Contract Area
Chief Operating Officer
International Accounting Standards
CPF TCF
IA Department Trillion Cubic Feet
Central Processing Facility
Internal Audit Department
CSR UAE
IFRS United Arab Emirates
International Financial
Dragon Oil/the Group Reporting Standards UK
Dragon Oil plc and its various subsidiary The United Kingdom of Great Britain
km and Northern Ireland
companies
kilometre
Dual completion US cents
KPI United States Cents
Two pay zones in the same well that produce
Key Performance Indicators Governance
independent flow paths in the same well
US$
DWT LSE United States Dollars
Dividend Withholding Tax London Stock Exchange
Workover
E&P LTIF Well intervention involving invasive
Exploration and Production Lost time incident frequency techniques, such as wireline, coiled tubing
or snubbing
ENOC Listing Rules
Emirates National Oil Company Limited The listing rules of the Irish Stock Exchange
(ENOC) L.L.C. and the UK Listing Authority
EPIC MENA
Engineering, procurement, installation Middle East and North Africa
and commissioning
mmscfd or mmscf/day
EPS million standard cubic feet per day
Earnings per share
mn
million
Advisors
Financial Communications Consultant Solicitors

Citigate Dewe & Rogerson Mason Hayes & Curran
3 London Wall Buildings South Bank House
London EC2M 5SY Barrow Street
UK Dublin 4
Ireland
Joint Corporate Broker
Davy Bankers
Davy House Standard Chartered Bank
49 Dawson St Al Mankhool Road
Dublin 2 Bur Dubai
Ireland PO Box 999
Dubai
Joint Corporate Broker
UAE
Nomura International plc
1 Angel Lane Emirates NBD PJSC
London EC4R 3AB Baniyas Road, Deira
UK PO Box 777
Dubai
Auditors
UAE
Ernst & Young
Ernst & Young Building
Harcourt Centre
Harcourt Street
Dublin 2
Ireland
Registrars
Capita Registrars (Ireland) Limited
2 Grand Canal Square
Dublin 2
Ireland
Company registration number:

35228
More online
Visit our corporate website at
www.dragonoil.com
The Essential Read

For the second year in a row, revenues exceeded
US$1 billion due to strong oil prices and solid
production growth. The Group’s cash generating
abilities remained strong: we generated US$1bn
from operations during the year.
Our performance
Production challenges in early 2012 were
successfully dealt with allowing us to close the
year with the average December gross production
of 73,500 bopd. We also entered two countries
winning in bidding rounds for exploration assets.
Governance
We welcomed a new Independent Non-executive
Board member and a Company Secretary to our team.
Read more on pages 49 and 50
This section provides Independent Auditor’s
Report to the Members of Dragon Oil plc, financial
statements and notes to the financial statements.
Designed and produced by MerchantCantos
Read more on page 76 www.merchantcantos.com
Printed by CPi Colour.
CPi Colour are ISO14001 certified, CarbonNeutral®,
Alcohol Free and FSC® and PEFC Chain of Custody certified.
The inks used are vegetable oil based.
Registered office
Continuing to

Dragon Oil plc
6th floor, South Bank House
meet our targets

Barrow Street
Dublin 4
Ireland
Tel: +353 1 614 5247
Fax: +353 1 614 5001
www.dragonoil.com
Company registration number: 35228
Group headquarters
Dragon Oil
ENOC House II
3rd Floor
Right Wing
Sheikh Rashid Road
P.O. Box 34666
Dubai, UAE
Tel: +971 4 305 3600
Fax: +971 4 335 6954
London office:
St Andrew’s Building
17 Old Park Lane
London
W1K 1QT
United Kingdom
Tel: +44 20 7647 7800
Fax: +44 20 7629 5543
Ashgabat office:
Ata Govshudov Street 9/1
Ashgabat
Turkmenistan
Tel: +993 1293 5333
Fax: +993 1293 6377

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Registered office

Dragon Oil plc Annual Report 2012

meet our targets

Company registration number: 35228

The Essential Read

The Essential Read

04 Highlights of 2012 48 Board of Directors and Senior Management Team

20 Performance 74 Financial statements

22 Chairman’s Statement 76  Independent Auditor’s Report to the

24  Chief Executive Officer’s Statement Members of Dragon Oil plc

www.dragonoil.com Annual Report and Accounts 2012 Dragon Oil plc 01

02 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

The Essential Read

www.dragonoil.com Annual Report and Accounts 2012 Dragon Oil plc 03

For 2012, we reported robust financial and operational

Summary Operational highlights

04 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

The Essential Read

to return value to shareholders

www.dragonoil.com Annual Report and Accounts 2012 Dragon Oil plc 05

In 2012, we advanced on the diversification front

January — March 2012 April — June 2012

The Board of Iraq

The management Share buyback

06 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

Drilling on track Afghanistan

The Essential Read

Drilling rig Drilling rigs

Read more on page 32 the Cheleken Contract Area, Turkmenistan.

BARGOU EXPLORATION PERMIT

www.dragonoil.com Annual Report and Accounts 2012 Dragon Oil plc 07

Dragon Oil’s principal producing asset is the Cheleken

Europe CENTRAL ASIA

BLACK SEA uzbekistan

ALGERIA LYBIA EGYPT PAKISTAN

The Group’s headquarters are located in Dubai,

by the Government of Dubai, owns approximately

08 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

The Essential Read

oil and gas fields, Dzheitune (Lam) and Dzhygalybeg Cheleken

Read more on page 28

Block 9 is located in the Basra province, onshore Iraq,

contractor share, while Dragon Oil has 30%.

www.dragonoil.com Annual Report and Accounts 2012 Dragon Oil plc 09

How it happens in the

working in Turkmenistan and a majority of whom

Dzheitune (LAM) Field

10 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

The Essential Read

Caspian Sea tank farm

Dzheitune (LAM) Field Dzhygalybeg (Zhdanov) Field

+77 new wells +1 new block

Our business model is to create value across selected areas

Achieving our goals

Creating and Creating and

Read more on page 36

ER Read more on page 28

12 Dragon Oil plc Annual Report and Accounts 2012 www.dragonoil.com

22 Chairman’s Statement 76 Independent Auditor’s Report to the

24 Chief Executive Officer’s Statement Members of Dragon Oil plc

ompetitive bidding process for

Our Mission 1. Continued development

inimise flaring and progress gas

Actively pursue the diversification strategy e added an exploration asset in Iraq

Tunisia – the Bargou Exploration Permit TURKMENISTAN

fghanistan – Sanduqli and Mzar-i-Sharif blocks