Dragon Oil, a Dubai-based oil and gas exploration and production company, said it plans to spend substantially less on capital expenditure in the coming year in the expectation of substantially lower revenue.
In a trading statement ahead of its full year results, due out on February 17, the company said that it plans capital expenditure of between US$500 million and $600m in the coming year, compared with about $677m last year. The spending will be mainly concentrated on its Cheleken project in Turkmenistan, from which the company derives most of its revenue. The figure excludes other spending on exploration prospects that include blocks in Iraq and Algeria.
Dragon, which is 54 per cent owned by the Dubai Government via Enoc's shareholding, last month abandoned an agreed £491.5m (Dh2.74 billion) takeover bid for Dublin-based Petroceltic, a deal that was aimed at helping Dragon Oil diversify its oil and gas interests away from Turkmenistan.
The company, whose shares are listed on the London and Irish stock exchanges, said the collapse in oil prices at the end of last year and the prospect that lower oil prices would persist meant that the rationale for the deal was no longer valid.
Dragon Oil yesterday said that total revenue for 2014 is expected to be about $1.1bn, up slightly from $1bn the year before. That is substantially below analysts’ expectation for revenue topping $1.2bn.
Last year’s revenue was based on North Sea Brent prices at an average of $99 a barrel, whereas this year Brent is at about $45 a barrel and not expected to recover any time soon.
Dragon hopes to make up some lost ground with higher production: its outlook for 2015 is to boost production by 10 per cent and end the year producing at 100,000 barrels per day at Cheleken and keep pumping at that level for at least five years beyond.
Last year, the company increased production by 6.8 per cent to an average of 78,790 barrels per day, with output reaching 92,008 bpd at the end of the year.
Dragon’s chief executive, Abdul Jaleel Al Khalifa, said that the company was disappointed at the failed takeover bid, but that diversification efforts continue.
“We decided against [the Petroceltic] transaction as the oil price plummeted,” Mr Al Khalifa said. “We will continue to search for the right fit value-creative development asset … We continue to look for development or production assets as well as exploration opportunities in Africa, the Middle East and parts of Asia.”
After plunging in December when the Petroceltic deal was abandoned, Dragon’s shares have recovered substantially even while others in the sector have remained under pressure.
Its shares had fallen from 615 pence to about 530 pence from September to December last year as oil prices fell, but the shares then sank to 460 pence after the deal was scuppered. Since then they have recovered and were at 516 pence in afternoon trading in London, down 0.50 pence from the previous close.
amcauley@thenational.ae
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