Enoc in talks to purchase rest of Dragon Oil shares

Emirates National Oil Company may try to buy the rest of the stock in Dragon Oil, an exploration company of which it is the majority shareholder.

The takeover bid may show Enoc's desire for energy assets that became more affordable with low oil prices.

Emirates National Oil Company (Enoc), a Dubai Government-owned energy company, said yesterday it may try to buy the rest of the stock in Dragon Oil, an exploration company of which it is the majority shareholder. Enoc "is contemplating making an offer to acquire all of the outstanding shares of Dragon," it said in a statement. Should Enoc try to buy the remainder of the shares, which are listed in London and Dublin, it said it would offer "a modest premium" to Dragon's closing price on June 3, when shares in the company closed in London at 338p, valuing it at £1.73 billion (Dh10.3bn). They jumped 19 per cent on Thursday to 402.5p following agency reports about a possible deal with Enoc.
Enoc already owns 52 per cent of Dragon, an exploring company that operates mainly in Turkmenistan. "We see Dragon Oil as an excellent acquisition target due to its strong fundamentals," Pavel Sorokin, an analyst at UniCredit, wrote yesterday in a research note. "Dragon Oil has production growth potential of around 15 per cent year on year, major untapped gas reserves that Turkmenistan is keen on developing, and an excellent management team."
The takeover bid may also signal Enoc's desire to capitalise on a number of energy-industry assets that have grown more affordable as crude oil prices have more than halved since reaching highs of $147 a barrel last summer. Share prices have also declined, making acquisition deals involving listed companies in the energy sector all the more attractive. Many companies in the industry have already siezed on these trends, moving to grow profits and expand quickly through acquisitions.
Premier Oil, a British firm, bought Oilexco North Sea for $505m (Dh1,855m) last month, for example, according to Bloomberg. And on Thursday, Heritage Oil, another British exploration company, said it was in talks that could result in a merger. If Enoc does produce a bid, it remains unclear how the investors owning the remaining 48 per cent of the company might respond. Enoc's offer of only a small premium to the share price of Dragon "sounds like an opportunistic bid from an insider," one hedge fund manager told Reuters yesterday, adding that a fair price for the company would be something more than double its closing price on Wednesday.
Dragon has also been talked about as a takeover target in the past, although none of the efforts to wrest full control had yet succeeded. Royal Dutch Shell, BP and PT Medco Energi all tried to buy stakes in Dragon in the late 1990s, according to Bloomberg, and Lukoil, a large Russian firm, failed in its attempt to take over the company in 2005. Meanwhile, Dragon is embarking on expansion plans of its own, looking to buy up cheap assets across Asia, the Middle East, North Africa and the North Sea, its chief executive, Abdul al Khalifa, said in March.
This news comes as Dragon books strong profits and ramps up output at its fields in Turkmenistan. It booked $369m in profits last year, a 21 per cent rise on the year before, thanks to increased output. Output grew by 19 per cent in the first quarter of this year, and the company continues to invest heavily in exploration and infrastructure. Dragon spent $81m in the first quarter on drilling and infrastructure, and had $833m in cash on its books with no debt as of March 31, according to Bloomberg.
* With agencies [e-mail]