February 12, 2013 5:10 pm

Dragon Oil forecasts 10% production rise

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Dragon Oil crude oil storage facilities

Dragon Oil, the cash-rich explorer with production assets off Turkmenistan, has predicted another jump in production in the coming year in fields in the Caspian Sea as it continues to set its sights on developing assets in previously war-torn countries.

The FTSE 250 constituent, based in Dubai and quoted in both Dublin and London, lifted production 10 per cent to an average of 67,600 barrels of oil a day in 2012.

Abdul Jaleel Al Khalifa, Dragon’s chief executive, said further investment in its fields in Turkmenistan should see average production rise by a further 10 per cent or more this year following the drilling of 15 wells aimed at countering depletion of existing reservoirs.

The company, majority owned by Dubai’s state-controlled Emirates National Oil Company, maintained revenues at $1.15bn from output largely exported through Baku, Azerbaijan.

But higher operating costs, combined with a small fall in its share of output entitlement under the terms of its production sharing agreement with Turkmenistan’s government, led to annual pre-tax profits falling from $872m to $809m.

Nevertheless Dragon finished the year with net cash of $1.73bn, up more than $200m on the year. Strong cash flows allowed the company to continue building cash reserves despite $200m spent on share buyback programme between June and October and dividend payouts totalling £131m.

The company lifted its full-year dividend payout from 20c to 30c for the year, payable from earnings per share that slipped from 124.61c to 119.26c.

The launch of the share buyback and continued cash accumulation follows Dragon’s abortive approach for Edinburgh-based Bowleven last year and its plan to develop large gasfields off Cameroon.

Dragon Oil share performance

But despite Dragon’s failure to make significant acquisitions during the year, Mr Al Khalifa said the company remained committed to diversifying its interests beyond Turkmenistan.

Dragon formally signed a contract with the Iraqi government last month aimed at lifting output from a block near Basra. The contract, which involves the removal of mines that remain on the Block 9 licence following the Gulf wars, will see a consortium of Dragon and leading partner Kuwait Energy paid a fee of $6.24 a barrel for raised production in area.

Dragon is also part of a consortium planning to explore for oil and gas in the Afghan-Tajik basin of northern Afghanistan. The consortium expected to complete negotiations with the Afghanistan Ministry of Mines in the first half of the year.

Mr Al Khalifa said the company was still actively looking for potential acquisition targets in Africa and Asia while its strong cash position left it open to increase dividends, launch further share buybacks or make one-off special dividend payments.

“We have a strategy where options are left to the board to do one of them or all of them,” he added.

Shares in Dragon, up 13 per cent on the year, rose 2 per cent to 594p on Tuesday. That compares with the 568p average price at which 22.6m shares were cancelled through its share buyback scheme.

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