Dragon Oil issued the following trading and operational update for the year ended 31 December 2008. All information referred to in this update is unaudited and subject to further review. Dragon Oil expects to publish its 2008 preliminary financial results on 4 March 2009.

Abdul Jaleel Al Khalifa, CEO, commented, “Dragon Oil has continued to deliver good growth, with a 28% increase in average daily production for the full year period compared with 2007. Although the industry is presently contending with a lower oil price than experienced recently, we are confident that our forward thinking, proactive nature and strong cashflows will stand us in good stead, enabling Dragon Oil to mitigate the impact. Furthermore the Company continues to enjoy a good working relationship with the Government of Turkmenistan. Our commitment to commercialising the Cheleken gas resources and diversifying the asset portfolio remain key components of our strategy to deliver long-term sustainable growth and returns for our shareholders.”

Gross production during the year reflected a 28% increase over the previous year. Total 2008 gross field production from the Cheleken Contract Area was 15 million barrels of oil with an average daily gross production rate of 40,992 bopd. This compares to 11.7 million barrels of oil in 2007 and an average daily gross production rate of 31,997 bopd. Dragon Oil's entitlement barrels are dependent amongst other factors on operating and development expenditures and realised crude oil prices. As a result of the fiscal terms of the Production Sharing Agreement, Dragon Oil’s entitlement barrels in the current period were about 58% (2007: 68%) of the gross field production.

Dragon Oil sold 7.5 million barrels (2007: 8.7 million barrels) of oil in 2008 and held a crude oil inventory of 0.7 million barrels at year end (2007: 0.2 million bbls). The quantity sold during the year is lower due to change in the lifting positions and inventory movement. At the year end, Dragon Oil was in an underlift position of approximately 0.3 million barrels that resulted in an increase in revenue by approximately US$13 million. The average realised price in 2008 was approximately US$90.8 per barrel (2007: US$70.9 per barrel). The realised oil prices achieved a discount of about 6% to Brent during the year.

The Company continues to market approximately 80% of its crude oil through Neka in Iran as it offers the higher netback as compared to the western route. Dragon Oil moves approximately 20% of its crude through Baku, Azerbaijan, in order to maintain marketing flexibility. The marketing team continues to assess the possibility of opening additional routes through Makhachkala in Russia and the BTC pipeline initiating at Baku, Azerbaijan.

Nine development wells were completed during 2008, four from Dzheitune (Lam) 22 platform (L22/124, 126, 128 and 130) using the CIS Rig 1, four from Dzheitune (Lam) A platform (LA/125, 127, 129 and 131) using the Iran Khazar and one from Dzheitune (Lam) 21 Platform (L21/132) also using the Iran Khazar.

The depths of the nine wells vary between 3,000m and 4,135m. Excepting L21/132 which was completed as a single string completion, the other eight wells were completed as dual completions. Initial tested rates from the nine wells vary between 916 BOPD (L21/132) to 4682 BOPD (LA/131).

Further perforations were added to three wells in the fourth quarter of 2008 resulting in an incremental production of approximately 2,000 bopd.

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