Chairman's Statement

Dragon Oil has enjoyed another successful year and I would like to congratulate our employees on their contribution and excellent performance. Standards in Health, Safety and Environment (“HSE”) and Corporate Social Responsibility (“CSR”) have risen across the Group, a great achievement in a challenging business environment.

In September 2008, we reported, with regret, that Hussain M. Sultan had resigned as Executive Chairman of Dragon Oil having been instrumental in the development of the Group since the Emirates National Oil Co. Ltd. (ENOC) L.L.C. (“ENOC”) took a majority share in the Group in 1998. Following Mr Sultan’s resignation, I assumed the position of Non-Executive Chairman and Abdul Jaleel Al Khalifa joined the Board as an Executive Director. I am impressed by the motivation, professionalism and dedication demonstrated by the management team as they continue to take Dragon Oil on to its next level of growth and development.

During 2008, the oil and gas industry experienced significant volatility in oil prices with crude reaching close to US$150 per barrel in July 2008 before decreasing to below US$40 per barrel in December 2008. Due to its strong balance sheet, Dragon Oil is well placed to operate in the current market conditions and continue to fund its ongoing development programme.

Dragon Oil’s relations with the Government of Turkmenistan and the State Agency for the Management and Use of Hydrocarbon Resources remain strong, and I was honoured to meet with His Excellency, the President of Turkmenistan, last year.

Corporate governance

Corporate governance continues to play a crucial part in delivering good results, and the Board remains committed to ensuring maximum transparency within the Group. A whistle-blowing policy was implemented in 2008 to encourage open communication amongst its employees and, in addition, there has been a greater role of the Audit Committee in overseeing Dragon Oil’s operations based on inputs from internal and external auditors. The Board also took note of shareholder feedback, regarding its governance disclosures, and incorporated a greater level of clarity into this year’s annual Directors’ Report.

The identification of possible irregularities in the Marketing and Contracts Departments following an internal audit review posed a challenge to Dragon Oil in early 2009. The Board sought immediate advice from the Group’s lawyers and sponsors and has acted, and will continue to act, upon the information available to ensure that the matter is dealt with swiftly and that procurement policies and procedures continue to operate effectively. 

Safety and training

Once again we have improved our general health and safety levels with the recorded Lost Time Incident Frequency Rate decreasing to 1.79 in 2008 from 2.02 in 2007. This is primarily attributable to a strengthened Health and Safety team and ongoing improvement of the HSE facilities and processes.

We have plans to expand the staff training programme, upgrade the facilities even further and introduce a Centre of Excellence based in Dragon Oil’s facility in Turkmenistan. In addition, HSE manpower will be increased with emphasis on training and recruiting local people to these roles.

Taking care of our community

I am proud to report that in 2008 we formed a CSR team, whose responsibilities included planning, managing and monitoring all of Dragon Oil’s ongoing and future CSR activities. As a result, the Group was involved, during the year, in a number of socially responsible initiatives, which reflect Dragon Oil’s belief that it is our duty and responsibility to take care of the community in which we operate.

Key projects included the upgrade and refurbishment of the Hazar Town Hospital’s Intensive Care Unit (“ICU”) in Turkmenistan. Work commenced in 2008 and is expected to continue into 2009. Furthermore, we are committed to providing the necessary medical equipment to the new ICU once it has been completed.

In addition to a number of smaller environmental and educational projects that we are undertaking, we have recently awarded a contract to build a desalination plant in Hazar, which we hope to complete by the end of 2009. Environmental surveys and an impact assessment for the project have been completed.

Looking to the future

I am, therefore, delighted that, as well as improving its performance financially and operationally, Dragon Oil has also raised the standards of its HSE, CSR and Corporate Governance practices.

Dragon Oil does not plan to declare a dividend presently; however, the Board will continue to review the dividend policy alongside other capital requirements of the Group.

Our overall objective is to create long-term shareholder value. I believe that, with a debtfree balance sheet and strong cash flow from our Turkmenistan asset, we are well placed to achieve our objectives. We also have excellent opportunities to grow organically and we will continue our search for attractive diversification investments. I, therefore, look forward to working with Dragon Oil as it seeks a new level of success in 2009.

MOHAMMED AL GHURAIR
Non-Executive Chairman