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Dragon Oil profit rises 35 per cent

“There are other routes we can use. Unless the conflict spreads to other regions it won’t affect our production targets,” Executive Chairman Hussain M. Sultan told Reuters.

The group said it was “on course” to achieve its drilling targets and deliver “significant” production growth for 2008 although financial performance may be hurt by a retreat in oil from peaks this year at over $140 a barrel.

Dragon Oil’s main producing oil assets are in the Cheleken Contract Area in the eastern Caspian Sea.

Its London-listed shares, which touched an 8-month low at 269 pence on Tuesday, rose 9.6 per cent to 342p by 0802GMT. Revenues for the six months to end-June jumped by 63 per cent to $374 million, while average gross production increased by 36 per cent to 38,482 barrels of oil equivalent (bopd) of which 20,062 bopd was attributable to the company.

Net cash generated from the group’s activities jumped by 87 per cent to $231 million, while basis earnings per share rose 34 per cent to 32.54 cents.

Sultan said the company continued to make good progress towards achieving its targets. The group has drilled six wells to date and another two wells are scheduled for completion in the second half of 2008.

“We are confident that the group will deliver on its promises for 2008 and will continue to execute its projects in Turkmenistan in such a way as to progress our development plan and achieve a continuous improvement in its results,” he said in a statement.

The group is targeting a 25 per cent increase in average production to 40,000 bopd for 2008 and a similar increase to 50,000 bopd for 2009.

Dragon Oil, which markets around 80 per cent of its crude oil through Neka in Iran, said only about 20 per cent of production was being shipped through the Baku pipeline in Azerbaijan, which is the main area affected by the Russia/Georgia conflict.

Sultan said the sharp rise in first-half operating profit reflected a combination of increased production and the oil price rise, but said the high prices seen earlier this year were "not sustainable.”

“I believe a price of around $100 a barrel is about right,” he said in a telephone interview.

“If it settles at around this level, I believe it could remain here for the rest of the year.”