Dragon Oil negotiating new oil agreement with Iranian Naftiran

Source: Dragon Oil

Since the commencement of the PSA, Dragon Oil has been marketing the majority of its entitlement barrels through a crude oil swap agreement with a subsidiary of the National Iranian Oil Company, Naftiran Company Limited. In 2009, Dragon Oil sold approximately 90% (2008: 80%) of its entitlement barrels through this marketing route. The term of the swap agreement was for 10 years and it has recently expired.

To gain further access to international markets and maintain flexibility in operations, Dragon Oil has historically maintained alternative routes for its crude oil. Accordingly, in 2009 Dragon Oil exported 10% (2008: 20%) via Baku, Azerbaijan despite achieving lower realized prices as compared to sales via Iran.

Dragon Oil is currently negotiating with Naftiran Company Limited in relation to a new swap agreement or extending the term of the existing swap agreement. As there is no certainty at this time with regard to the outcome of these negotiations, Dragon Oil is making interim arrangements to market additional quantities of crude oil through the western route via Baku, Azerbaijan.

Dragon Oil is satisfied that there is sufficient capacity in its existing and other marketing routes to satisfy current production.

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