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Yet another hammering...

Sunday, Nov 16 2008 by
  • Independent oil development and production company headquartered in Dubai. Majority owned by the Emirates National Oil Company (ENOC), owned by the Government of Dubai.
  • The company's main producing asset is in the Chelken area of the Caspian Sea off the coast of Turkmenistan.
  • A production sharing agreement was signed with a state agency of the Government of Turkmenistan in May 2000 (the “PSA”). The PSA has a 25-year term which expires in May 2025 with an exclusive right on the part of Dragon Oil (Turkmenistan) Limited to negotiate an extension for a further period of not less than 10 years.
  • Share price is down by about 80% since July. Based on what I have read, there seem to be 2 factors at work:

i) The decline in the oil price - so much for Goldman's claim that oil is going to $250!

ii) The fact that its options for pipeline routes out of the Caspian Sea are pretty screwed up. According to this article (http://tinyurl.com/6jy3xe), It either depends heavily on the Iranian port of Neka or there's a pipeline starting on the Azerbaijan coast on the other side of the Caspian Sea but that goes through George which isn't feeling too stable right now.

Over the medium term. though, this looks like it should recover... Anything else at work here that I am missing?

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Dragon Oil PLC is an Ireland-based company that, together with its subsidiaries, is engaged in upstream oil and gas exploration, development and production activities primarily in Turkmenistan. The Company’s production and exploration sites are located in Tunisia, Iraq, Turkmenistan and Afghanistan. The Company’s principal producing asset is the Cheleken Contract Area, which comprises two offshore oil and gas fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov), in water depths of between eight and 42 meters. The Company’s Bargou Exploration Permit is located in the Gulf of Hammamet in the Mediterranean Sea, offshore Tunisia. Its exploration in Iraq is Block 9, which is located in the Basra province, onshore Iraq. Emirates National Oil Company Limited (ENOC) L.L.C., a company ultimately owned by the Government of Dubai, owns approximately 54% of the Company’s ordinary share capital. more »

Share Price (LSE)
563p
Change
-4.5  -0.8%
P/E (fwd)
7.7
Yield (fwd)
4.0
Mkt Cap (£m)
2,790



  Is Dragon Oil fundamentally strong or weak? Find out More »


33 Posts on this Thread show/hide all

ManSiarad 3rd Jun '09 14 of 33
3

Drilling Update

http://www.investegate.co.uk/Article.aspx?id=200906031202292906T

Dzheitune (Lam) 28/134 well on production with an initial combined tested rate of 3,554 barrels of oil per day ('bopd')...

The Iran Khazar jack-up rig has now skidded to spud the Dzheitune (Lam) 28/136 development well. The platform-based Rig 40 is currently drilling the Dzheitune (Lam) 13/135 development well.

So two lots of news to await.

Dr Abdul Jaleel Al Khalifa, Chief Executive Officer, commented: 


'I am pleased to announce the successful completion and initial testing of the Dzheitune (Lam) 28/134 development well using the Iran Khazar jack-up rig. While the current production rate is approximately 43,500 bopd due to the slow start to the drilling programme this year; we, nevertheless, remain focussed on meeting our annual production growth forecast for 2009.' 

 

Man Siarad

PS:

Murakami - perhaps time to change the thread title and make it a simple Dragon one?

 

 

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moniclub 4th Jun '09 15 of 33
1

Approach!

"The Board of Dragon Oil plc, an international oil and gas exploration and production company, announces that it has received an approach in relation to a possible offer for the Company (the 'Approach'). The Approach is of a preliminary nature and there can be no certainty etc etc"

http://www.investegate.co.uk/Article.aspx?id=200906041604394051T

M.

 

 

 

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emptyend 4th Jun '09 16 of 33
1

...shares up 17% heading into the close.....

Feels like it is now "open season" in the E&P sector  ;-)

ee

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djpreston 4th Jun '09 17 of 33
2
Its turning into m&a city out there. Very pleasing but could have been better as I was planning to put another chunk of cash in there tomorrow!! Got to be a mop up of the outstanding shares surely?? A hostile can't go with the blocking holding. Most likely a cash payment, which means all the more cash to be reinvested in a (rapidly) shrinking mid cap e&p pool. Perhaps some will finally start to look at the other obvious m&a play that has underperformed in the rally and has a very nice asset position!! SIA for those who can't guess.
Fund Management: European Wealth
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madmix 4th Jun '09 18 of 33
1

Hi Guys,

Always difficult to call these situations (in respect of buying/selling on bid approach announcements). Having seen preliminary approaches for Soco (October 2008) and Heritage (September 2008) come to nothing, I generally tend to think that top-slicing is prudent (though this of course depends very much on the size of ones holding). As such I sold one-third of my shares this afternoon at £4.

However, I have a feeling that times are changing. Approaches made last year, when the oil price and stock markets were falling, were more likely to have been of a speculative nature IMHO. With the oil market now firming and confidence returning, bidders will have to be more serious if they want to acquire strategic assets. Fortunately I still hold a fair few Heritage shares (Mr. Sod hasn't visited this week), so it will be interesting to see how that situation pans out following their approach yesterday.

As you suggest Darron, the size of the ENOC holding would certainly point to the likelihood of this being a serious bid.

So on reflection I'm now thinking that I'd want to buy back the stock I sold if they dip much below £4 in the coming days.

Soco's day will come, I've no doubt.

Cheers,

Chris

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emptyend 4th Jun '09 19 of 33
1

In reply to madmix (post #18)

Having seen preliminary approaches for Soco (October 2008) and Heritage (September 2008) come to nothing....Soco's day will come, I've no doubt.

Just on that point it isn't correct to simply say that the SOCO approach has "come to nothing". It would be correct to say that "it hasn't come to anything....yet"!


However, I have a feeling that times are changing. Approaches made last year, when the oil price and stock markets were falling, were more likely to have been of a speculative nature IMHO. With the oil market now firming and confidence returning, bidders will have to be more serious if they want to acquire strategic assets.

This is a key point I think. The sentiment change re the oil price (and perhaps the economy) should be very much focussing the minds of those who are potential buyers - because if they don't get a move on then targets will escape them and prices will rise! Currently many stocks remain vulnerable to bids in the vicinity of their old highs ....DGO being a good case in point.

ee

 

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YTHANEIDER 4th Jun '09 20 of 33
2

My first post on this board

An astonishing couple of days with DGO and HOIL

I bought into Dragon in recent months at 177p and 242p, having dithered for ages and think I will ride this one up

At the same time I bought into Heritage ...341 and 394 so I guess I'll ride that one for a while yet too ... intrigued by the reverse takeover that has been initiated. As indicated on the "other" board, I've started to wonder whether Vanco might be a suitable partner, bearing in mind its until now independence, plus heafty commitment to Africa. Not at all sure how that might square with Iraq though

And, as ee knows, I made a dreadful mistake by getting out of Tullow briefly last year, so guess I'm a happy bunny with that stock too

Just wish Encore would get a move on and that I can at least brek even before contemplating the next move there

By the way ee, I had luch just a couple of doors away from you guys on Monday ... just one of those things

Ythaneider

 

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moniclub 4th Jun '09 21 of 33
2

Brief Reuters report quotes "sources" as fingering ENOC

"LONDON, June 4 (Reuters) - Oil and gas explorer Dragon Oil (DGO.L) has received a takeover approach from 52 percent stakeholder the Emirates National Oil Company (ENOC), sources familiar with the matter said on Thursday...."

M.

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doverbeach 5th Jun '09 22 of 33
1

ENOC confirms it has made the offer http://www.investegate.co.uk/Article.aspx?id=200906050700104203T

it is currently considering an offer price that would represent a modest premium to Dragon Oil plc's closing share price as of 3 June 2009

share price on 3rd June was c 3.40p

db

 

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YTHANEIDER 5th Jun '09 23 of 33
1

Basically this is a done deal and the chances of getting even 400p a share appear to be not that great

In which cae ENOC has procured itself a bargain

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emptyend 5th Jun '09 24 of 33
2

In reply to YTHANEIDER (post #23)

Basically this is a done deal and the chances of getting even 400p a share appear to be not that great

In which case ENOC has procured itself a bargain

This is one reason why I was never greatly attracted to DGO. The likelihood of ENOC taking out the minorities was always very high - and the chance of a big bid premium was accordingly quite low (unless ENOC turned seller).

I'd think that the "modest premium" is almost certain to mean an exit price of 400p (17.6% premium) - and I'd doubt that the non-execs would be strong enough to negotiate for much more.

ee

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Gradders73 5th Jun '09 25 of 33
1

When you've got more than 50% of the outstanding shares, you can pretty much do as you like....

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YTHANEIDER 5th Jun '09 26 of 33
1

Yup!

But its still been worthwhile

Next thing is to work out which E&P stock/stox might be a worthwhile target!

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ManSiarad 7th Jun '09 27 of 33
5

Hi all,

coming to this after 3 days in the Far East so missed the excitement of the announcement.  ENOC beat me to my planned top-up, too.

A few thoughts from a UAE/Dubai perspective.

1. If DGO becomes wholly ENOC-owned (i.e. Dubai Government), then it's simpler for government weight to be brought to bear in terms of facilitiating diversification, whether in Turkmenistan (new acreage or gas deals) or elsewhere.

2. ENOC has been losing money on its downstream operations in the UAE, since pump prices are controlled for petrol, if not diesel, and they've had to buy their supplies on the open market.. i have no idea of their current cash balances, but I wouldn't be surprised, in the least, to see the company raise some funds - either via government or through its own bond issuing programme. I wonder, just wonder, whether a convertible deal might be worked out with Abu Dhabi? the chairman of IPIC, which has just done so well out of selling its stake in Barclays, has excellent relations with Dubai (he's the ruler of Dubai's son-in-law,amongst other things - a profile in Satuirday's Financial Times, if anyone wants to look it up), while there's been talk about more Abu Dhabi investment in Dubai. That might well lead to a restructuring of the whole internal UAE downstream industry, at least in terms of fuel distribution. ADNOC is the largest pump operator, and has its own refineries (and has announced plans for more), while IPIC is also building a refinery. That's not of much interest in terms of suggesting companies PIs can buy, though. However,

3. I think some further diversification of DGO interests/ acreage just HAS to happen. They've flagged it up often enough. Much easier once it becomes effectively an NOC. In pure political terms, I wouldn't be surprised to see some interest in the Caspian or in East Africa, and, with a decent amount of production to provide cash-flow, then an acquisition of undeveloped acreage - or even completely unexplored acreage - shouldn't be ruled out.

So, Ythaneider (post#26) - which companies?

Well, i don't know the Caspian scene well, but one or two small firms operating in East Africa DO come to mind.

All FWIW, IMHO, of course (and no ramps intended)

Man Siarad

 

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oilretire 7th Jun '09 28 of 33
2

http://www.7days.ae/storydetails.php?id=79120&page=local%20news&title=ENOC%20accused%20of%20undervaluing%20Dragon%20Oil

Hedge fund managers dream.......

“It sounds like an opportunistic bid from an insider,” one hedge fund manager said, adding a “fair price” for Dragon’s London-listed shares would be £7-8, although he expected a bid to come in the £5-6 region.

And Goodbody a little too optimistic perhaps......

A rival bid is seen as unlikely, given ENOC’s 52 per cent stake but analysts said a small premium to the Wednesday close would undervalue Dragon. “We believe any offer should reflect our total net asset value valuation of 516 pence per share as a base case,” Gerry Hennigan, oil analyst at Goodbody, said.

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warren12 9th Jun '09 29 of 33
2

Hi all,

my own view is that ENOC will let the situation simmer for a little while before offering a little over 400p, I doubt it's enough for the majority of long term private investors but for those such as myself who bought in not so long ago it isn't a bad return.

If this is the situation I think ENOC have played the situation pretty well, by stating in the RNS that they are offering "a modest premium" to the share price i think a lot of people are now worried at not even getting 400p, anything in the region of 400p will be viewed by some as a bit of a result imv!

As has been mentioned the fact that ENOC have always had a controlling interest has always been one of the two downsides to holding shares in Dragon with a lack of national diversification being the other. I suppose the bucket loads of oil and stonking great cash pile made up for this though!!

I would love to see an alternative bidder arise but does seem unlikely with the bidders holding such a huge chunk of the company,

whatever happens I will be buying mickinvest a pint for all the work he has done on the company which has enabled me to pocket a few quid over the years,

cheers

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massive 16th Jul '09 30 of 33
3

Just been reading this article about DGO hope you enjoy http://www.proactiveinvestors.co.uk/companies/news/6645/dragon-oil-enter-the-dragon-6645.html

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emptyend 17th Jul '09 31 of 33
2

In reply to massive (post #30)

I see they suggest:

ENOC’s interest in more than understandable and we will continue to monitor developments closely.  Given the years of astute strategy, sound financial footing and solid asset base, we will expect any offer to be represent a ‘significant’ premium rather than ‘moderate’ one as has been intimated.

Why should anyone expect a "significant" premium from a party that already is in control with 52%? Of course ENOC might want a bigger premium if a 3rd party came along - but that's not what the article is suggesting.

ee

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tiswas 17th Jul '09 32 of 33

I know the words "modest premium" are in themselves open to debate but have ENOC dug themselves a hole in that they can not now offer anything that is not regarded as a modest premium even if the DGO board asked for more? Or are they not subject to any takeover rules as not listed here?

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nigelpm 17th Jul '09 33 of 33

My understanding is that ENOC haven't made a definitive offer so they aren't bound by any rules as such.

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