Tuesday, September 16, 2014

Dragon Oil could look for acquisitions up to US$5bn, says Fox Davies

Wednesday, February 13th, 2013

Cash rich Dragon Oil (LON:DGO) could “easily” seek acquisitions up to US$5billion, reckons Fox Davies.

The broker’s comments come after the oil producer revealed it ended 2012 in rude financial health.

The company had more than US$2.1bn on the balance sheet, allowing it pay a 15 cents final dividend and maintain its US$200mln share buyback programme.

Revenues for the year were little changed at US$1.16bn, while profits were down 7% at US$600mln as the group incurred higher field operating costs and depletion charges.

However, at this stage in its development, production from its fields in the Caspian Sea is the key performance indicator for Dragon.

Output rose by 10% in 2012 to 67,600 barrels a day and hit 73,500 barrels in December.

Fox Davies says today’s full year results show the extent to which the company’s investment plans have delivered growth, cash flow and added to the balance sheet.

The question now is what will it do with its resources, it says. Dragon said in today’s statement that it will “actively pursue a diversification strategy”.

Fox Davies suggests Bowleven, with which the firm had been in offer talks last year, could be back in the frame, but so too could any company, it notes.

“Given that the company has cash, the potential for debt and raise further finance through equity, especially as a 51% shareholder is ENOC, we believe that the company could easily seek acquisitions up to US$5bn, should it so desire,” says the broker.

In a conference call, chief executive Abdul Jaleel Al Khalifa said: “We have always said that we wanted a sizeable asset over 50 million barrels or so of P2 [proved + probable] reserves.

“We’ve looked at oil, we’ve looked at gas, we’ve looked at onshore, we’ve looked at shallow offshore.

“We’ve stayed away from deep offshore unless we are partnering with an active offshore deep-water player, which is not the case now.”

Geographically, Al Khalifa said the firm was not looking at Europe, North America, Russia and the Ukraine .

“We’ve always said we’re open to central Asia, Middle East, North Africa, West Africa and South East Asia and if anything happens to develop in Latin America, which is quite attractive, it will be considered,” he added.

Last year’s performance from Dragon was achieved against a backdrop of production problems encountered in the second quarter of 2012, which were quickly resolved.

Al Khalifa told investors: “The plan is to be at 100,000 barrels in 2015.”

To that end the firm completed 15 new wells last year, at the very upper end of forecasts and plans to complete 13 to 15 wells and two work-overs in 2013.

A further 20 wells per year are planned for 2014 and 2015.

Dragon’s principal producing assets are in the Cheleken Contract Area, in the eastern section of the Caspian Sea, off the coat of Turkmenistan. Its focus is on the re-development of two producing fields: Dzheitune (Lam) and Dzhygalybeg (Zhdanov).

Separately, the firm also said today it had successfully completed testing of the Dzheitune (Lam) 28/178 development well, which was completed as a single producer.

The well tested at an initial production rate of 1,653 barrels of oil per day.

In a note, broker Oriel said Dragon’s cash generating abilities remained strong and puts an ‘add’ rating on the shares.

Shares rose 1.72% today, to stand at 592.5p each.

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