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Tue 23 Feb 2010 11:58 AM

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Dragon Oil plans to invest $870m on projects to 2012

Company also reports 30% net income loss on lower oil prices and higher costs.

Dragon Oil Plc, the London-listed explorer focusing on projects in Turkmenistan, plans to invest as much as $870 million on oil and gas projects through 2012 to boost production.

The company targets annual output growth of 10 percent to 15 percent between 2010 and 2012, the Dubai-based company said in a statement on Tuesday. It plans to spend $250 million on oil infrastructure to raise production by 15 percent this year.

Dragon this month hired Saipem SpA, the Italian oilfield- services company, to design a gas treatment plant in Turkmenistan which will “enable production of high quality treated sales gas.” Discussions are continuing with the Turkmen government over pricing.

Dragon has been seeking projects in the Middle East, North Africa and Central Asia to expand outside of Turkmenistan, using part of the $1.1 billion in cash it had as of December 31. Shareholders in December rejected a takeover bid from Dubai state-owned Emirates National Oil Co, which already holds 51.5 percent of the explorer.

The company plans to complete an oil and gas trunk pipeline from fields in the Caspian Sea’s Cheleken area to onshore units in the second half, it said. The central processing facility expansion will also be completed during the second half of 2010. The gas plant will allow Dragon take advantage of 3.1 trillion cubic feet of gas resources, it said.

Dragon plans to drill 11 wells this year, up from 8 last year, after missing a 15 percent production growth target last year. Output rose 9 percent to an average 44,765 barrels a day in 2009 and reached 50,000 barrels of oil a day at the turn of the year.

Dragon Tuesday said net income fell 30 percent to $259 million last year on lower oil prices and higher costs. It spent $317 million on infrastructure and drilling last year.

The company experienced delays in plans to double capacity at its onshore processing facility in Turkmenistan to 100,000 barrels of oil equivalent a day in early 2010, enabling it to end flaring, or the burning off of gas.

In December, Dragon awarded a two-year contract to Naftna Industrija Srbije, a unit of Russia’s OAO Gazprom Neft, for the lease of a rig in the Cheleken area.

In January, the explorer awarded a contract to Yantai Raffles Shipyard Ltd., China’s biggest oil-rig builder, for lease of a new rig to operate in the same area from the fourth quarter of 2011.

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