Enoc urges Dragon Oil to reign in output

Emirates National Oil Company, or Enoc, the largest shareholder of oil producer Dragon Oil, urged the explorer to end dividend payments and reduce output to stem mounting spending.
Enoc, which owns 54 per cent of Dragon Oil, said it expected Dragon Oil, which produces oil from Turkmenistan, to face operational challenges in meeting its long-term target production of 100,000 barrels of oil per day.
Saif Al Falasi, Group Chief Executive of Enoc, said there is a need to refocus the Turkmenistan operations of the explorer and ensure field life sustainability.
"My initial view is that Dragon Oil should target a more sustainable and de-risked Turkmenistan production profile of c. 90,000 barrels per day over the near term in lieu of its stated target of 100,000 barrels per day," he said in a statement.
"As we see it, there are operating challenges associated with sustaining production at Dragon Oil's forecast levels. Mitigating these operating issues will likely require additional investments. That's why I don't see a need for Dragon Oil to maintain a dividend profile in the near term. These are difficult decisions for any publicly listed company and we see this as another reason for delisting Dragon Oil," Al Falasi said.
"I personally have great respect for the Board and Management of Dragon Oil, who have done an excellent job of taking the company to where it is today, but I now want to enable Dragon Oil to draw upon Enoc's financial and operating strength to overcome these challenges," he said.
Al Falasi pointed out that on a standalone basis, Dragon Oil has stated that it has a budget of up to $700 million for capital expenditure in 2015. "Mitigating operating issues to sustain a de-risked production profile will likely require additional investments. That's why - whether or not Dragon Oil is delisted - I don't see a need to maintain a dividend profile in the near term. These are difficult considerations for any publicly listed company and we see this as another reason for delisting Dragon Oil."
Enoc  recently offered 750 pence a share for the rest of Dragon Oil's share with a view to taking the business private. Baillie Gifford & Co, the second-biggest holder with 7.2 per cent, said last month that Enoc's bid was too low.
Dragon Oil  increased its production output in the first half of 2015 to 92,060 barrels (bpd) from 73,440 for the corresponding period last year, the company has said in a statement recently.
Average gross production for June 2015 was 98,890 bpd with a gross production rate of 100,658 achieved on June 9.
Capital expenditure on infrastructure, drilling and exploration assets amounted to $313 million for the first half of 2015, in line with the same period last year.
The group's cash balance (net of abandonment and decommissioning funds) as of June 30, 2015 was $1.856 million.
Chief executive Dr Abdul Jaleel Al Khalifa said at the beginning of June 2015 the company achieved a production level of 100,658 bpd. "It is a milestone for Dragon Oil and a testament to the hard work and dedication of our talented people.
"We are aiming to maintain the average daily gross production at around 100,000 bpd for the remainder of the year and sustaining this plateau thereafter for a minimum of five years."
- issacjohn@khaleejtimes.com

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