So the takeover attempts by majority shareholder Emirates National Oil Company (ENOC) of Dragon Oil has come up short… for now. Despite the emirate struggled to contain a debt crisis, it pursued an offer of 455p only to be rebuffed, as shareholder approval came in below the required 75% mark.
ENOC’s offer price of 455p was at a 34.6% premium to the closing price of 338p on 3 June 2009, the trading day prior to the announcement by Dragon Oil that it had received an approach in relation to a possible offer. Although the Independent Committee of Dragon Oil accepted the advice from Davy Corporate Finance and from HSBC which considered ENOC’s offer as fair and reasonable, it is not difficult to see why it has been rejected.
When the oil price is high, Dragon generates a huge operating cash flow. During the full year 2008, the company generated US$579 million. After expenditures on property, plant and equipment, the company generated US$291 million in cash and finished the year with cash and term deposits of US$875.8 million.
A lower oil price in 2009 slashed operating cash flow to US$119 million. However, the company ended the year in a very strong financial position with short term deposits falling only to US$875.5 million.
For the benefit of new Members, Dragon has one key asset. Starting from 1 May 2000, the company has 25-year Production Sharing Agreement with the Government of Turkmenistan to explore for oil and gas in the Caspian Sea. In 1H09 the company was producing from 58 active wells from 12 platforms with average production of 42,808 bopd or around 738 bopd per well. Going into 2010 there will be 60 active wells.
The focus of Dragon’s attention, the Dzheitune and Dzhygalybeg fields had 2P reserves of 645 million barrels of oil in mid-2008. However, there is also a contingent gas resource estimated at 3.2 trillion cubic feet which provides an avenue for growth which the company has started to pursue. In energy equivalent terms the contingent reserves of gas are equal to around 530 million barrels of oil.
Dragon is moving apace to grow production. The Dzheitune (Lam B) platform has been completed and 8 wells will be drilled from it. The Astra jack-up rig will spud two wells during its 6-month contract period. A 2-year contract has been awarded to Naftna Industrija Srbije (NIS) Naftagas to use a…
