Dragon Oil, through its wholly owned subsidiary Dragon Oil (Turkmenistan) Ltd, is the operator of the Cheleken Contract Area under a Production Sharing Agreement (PSA), which was signed in November 1999 and became effective in May 2000.
The PSA is between the State Agency for the Management and Use of Hydrocarbon Resources at the President of Turkmenistan (the “State Agency”) and Dragon Oil (Turkmenistan) Ltd. The State Agency is the primary Turkmenistan Governmental authority responsible for overseeing and approving matters relating to the PSA. Dragon Oil was granted a production licence for the exploration and development of the oil and gas resources in the Cheleken Contract Area for a term of 25 years, effective 1 May 2000. The Company, during the term of the PSA, has the exclusive right to negotiate with the State Agency for the extension of the base term of the production licence for a period of not less than 10 years.
Pursuant to the PSA, Dragon Oil has the right to explore for and the obligation to develop oil and gas resources in the Cheleken Contract Area. Dragon Oil is obliged to provide the capital and expertise, subject to prescribed rights of cost recovery. Under the PSA terms, the oil and gas recovered is shared between the parties by reference to the level of production at a given time.