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Annual Review 2017

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    Ali Rashid Al-Jarwan

    Managing Director, Exploration & Production and CEO of Dragon oil

    Technology and innovation are seen as essential enablers to unlock the company’s potential and to improve Dragon Oil capabilities.

  • ‘People First’ is the watchword for Dragon Oil, a value that is vigorously promoted throughout the various locations where it operates, along with a commitment to ensuring a high level of ethical conduct, fairness, and attractive career development opportunities for all employees.

  • In similar industry-leading vein, Dragon Oil regards health, safety, environmental, and quality concerns as top priorities to ensure no harm to people, assets, or the surrounding environment, seeking continuous improvement in performance indicators.

    Technology and innovation are seen as essential enablers to unlock the company’s potential and to improve Dragon Oil capabilities, to manage old and new challenges, and become resilient in the market conditions with prices fluctuating.

  • To capture opportunities of a technical, operational and business nature, Dragon Oil values the agility to adapt and change, always striving to improve every aspect of its activities though visible leadership and integrated teams.

    The oil and gas industry has to adapt to the low crude oil price environment. Dragon Oil’s focus is therefore on aligning and adapting strategic directions to today’s circumstances of competitiveness, resilience, and harnessing innovation. The constant goal must be to continue running a safe and sustainable operation, focusing on cost discipline to maximise effective financial management.

Since 2000, Dragon has been the operator with 100 percent interest in the producing block in the Cheleken Contract Area in the eastern section of the Caspian Sea. The area covers about 950 km² and comprises two offshore oil and gas fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov). These areas are being developed under a production-sharing agreement.

Recent developments

During 2017, Dragon Oil entered into marketing arrangements to export its entitlement production through various Caspian routes at a discount to Brent until the end of 2018.

The company completed 17 development and appraisal wells in the Dzheitune (Lam) and Dzhygalybeg (Zhdanov) fields during 2017. Four drilling rigs were deployed, including three jack-up rigs and one platform-based rig. The average gross field production was around 84,000 barrels per day, lower than the previous year due to challenges faced in the field.

Major infrastructure projects completed during the year included a crude oil tank-farm terminal, which quadrupled storage capacity to about 1.6 million barrels, upgrade of the Lam E offshore drilling platform berths to increase load-out capacity, and a new valve and electrical workshop.

To monetise gas reserves and utilise resources optimally, plans include a gas development infrastructure including the Gas Treatment Plant project, which will produce export-quality gas and condensate. The construction contract is expected to be awarded in 2018. The processing capacity of the plant is expected to be 220 mmscfd of gas, which, according to our current estimates, should allow us in the future to strip around 3,000 barrels of oil per day of condensate and produce dry gas.

Dragon Oil continues with abandonment and decommissioning work in the first phase of its strategy for decommissioning wells and facilities in the Cheleken Contract Area. During 2017, Dragon Oil removed six derricks in the Dzhygalybeg (Zhdanov) field and scrap from the six platform decks.

During Q1-2018, Dragon Oil plugged one well from Dzhygalybeg (Zhdanov) field and planned to plug three more non-producing wells. Scrap removal from old platforms continues during 2018.

Reserves and resources

Turkmenistan

Based on the results of the recent assessment by an independent energy consultant, the 2017 year-end oil and condensate 2P reserves were 586 million barrels (31 December 2016: 617m), after having allowed for the 2017 production of 31 million barrels. The oil and condensate contingent resources (2C) remain unchanged at 174 million barrels. Necessary offshore and onshore infrastructure are planned to allow the conversion of the contingent resources into reserves in the future.

Gas 2P reserves are 1.2 TCF (31 December 2016: 1.2) and gas contingent resources 1.5 TCF (31 December 2016: 1.5).

Three key objectives to securing growth in Turkmenistan are:

  • Extension of the Cheleken Block production-sharing agreement (initial period expiring 2025) up to 2040 to allow launch of a major programme for secondary and tertiary recovery with potential for 860 million barrels of oil.

  • Development of Cheleken Block Gas monetisation agreement for gas reserves and resources, increasing oil production levels through condensate recovery with potential for 400 MMscfd gas and 24 MBD condensate.

  • Possibility of granting Dragon Oil new onshore concessions and production-sharing agreements to operate the development of North Koturdepe and obtain a new Onshore Block E&P licence.

Iraq

The exploration, development and production service contract for Block 9 became effective in 2013 and the project is currently in the second exploration period that expires in February 2020. Oil was discovered in 2014 by the Faihaa-1 exploration wells in Mishrif (21 API) at 2,700 m and Yamama (35-45 API) at 4,000 m. Four subsequent successful appraisal and development wells have been drilled and an Extended Well Test (EWT) implemented since Q4 2015, producing oil from the Yamama reservoir. Currently four wells are produced, gas is flared, and oil is tracked to the Nahr Umr depot, 55 km away from the Faihaa field. To date over 10 MMBO has been produced. Reserves and Contingent Resources attributable to Dragon Oil have been assessed by an independent auditor (GCA) and as of year-end 2016 they stood at:

2P = 44.5 MMBO and 21.8 BCFG

2C = 426.9 MMBO and 366 BCFG

Algeria

The Tinrhert Nord and M’sari Akabli exploration blocks were awarded to a joint venture made by Dragon Oil and Enel in February 2015. Enel withdraw from the blocks in 2017 and as a result Dragon Oil is operator of both blocks with 49 percent equity (51 percent is held by State Oil Company Sonatrach). These blocks are currently in the second exploration phase that expires in February 2020. Both blocks contain undeveloped gas discoveries. Further to detailed subsurface work done by Dragon Oil, Contingent Resources attributable to Dragon Oil have been assessed by an independent auditor (GCA) in 2015 and stand at:

Tinrhert Nord (Dragon Oil 49 percent): 2C = 810 BCFG and 43 MMBL

M’sari Akabli (Dragon Oil 49 percent): 2C = 1,816 BCFG

Exploration

  • Country and blocks
  • Iraq Block 9
  • Algeria Tinrhert Nord Perimeter
  • Algeria Msari Akabli Perimeter
  • Egypt East Zeit Bay
  • Afghanistan Sanduqli
  • Afghanistan Mazar-i-Sharif
  • Tunisia
  • Working interest
  • KEC (operator): 60%, Dragon Oil: 30%, * EGPC: 10% *disputed by DO
  • Dragon Oil (operator): 49% Sonatrach: 51% (carried interest during exploration phase)
  • Dragon Oil (operator): 49% Sonatrach: 51% (carried interest during exploration phase)
  • Dragon Oil (operator): 100%
  • Dragon Oil (operator): 40% TPAL: 40% Ghazanfar: 20%
  • TPAL (operator): 40% Dragon Oil: (40%) Ghazanfar: (20%)
  • Dragon Oil: 100%
  • Activity in 2017
  • Production from Faihaa-1, Faihaa-2 and Faihaa-3 wells using temporary processing facilities. Average production for 2017 was 16,830 bopd. The well Faihaa-4 has been completed as Yamama ‘A’ producer, testing 7,024 bopd of 35 API.
  • Completed 1,223 km2 2D seismic acquisition in Q3, 2017 and spudded first well in December 2017. Enel has exited the block, increasing Dragon Oil equity to 49% with Sonatrach’s interest being carried during exploration period.
  • 700 km2 2D seismic acquisition & processing planned in Q1, 2018 and currently the first well location pad is being prepared. Enel has exited the block, increasing Dragon Oil equity to 49% and making Dragon Oil the operator, with Sonatrach’s interest being carried during exploration period.
  • 2D and 3D data reprocessing on existing seismic data for pre-stack depth migration, using advanced technologies to improve the quality of analysis and interpretation of the data, was completed in 2017. The 2D seismic acquisition scope of work is currently ongoing and the 120 km 2D programme and well site survey have been re-tendered.
  • Data analysis of gravity and magnetic survey completed. Seismic acquisition activity is on hold pending outcome of discussion with Ministry of Mines & Petroleum. 
  • Data analysis of gravity and magnetic survey completed. Seismic acquisition activity is planned based on outcome of discussion with Ministry of Mines & Petroleum.
  • 3D seismic acquisition and interpretation completed. The Hammamet West #3 abandonment was completed in Q1, 2017. Geotechnical and geophysical site survey for Houta-1 well is in progress and is expected to be completed by Q2, 2018.