Emirates National Oil Company (ENOC), a wholly owned entity of the Dubai government, will buy out Dragon Oil for $3.7 billion. Neither company has confirmed the announcement but several news outlets are reporting an agreement has been reached.
ENOC already owns 54% of Dragon and will acquire the remaining interest for 750 pence per share – a premium of 47% and placing the overall value of the company at $5.8 billion. This is the third reported offer this year and beats previous bids of 735 and 650 pence per share in May and March, respectively. A buyout offer of 455 pence per share was offered five years ago, reports The International Business Times.
Dragon Oil’s production is sourced mainly from Turkmenistan and the company reported average production of 79 MOBPD in 2014. Current production is reported at 100 MBOPD and is sustainable for the next five years, said company management. Exploration projects in Iraq, Algeria, the Gulf of Suez and the Philippines are also in its portfolio.
“We believe that Dragon Oil has now achieved as much as is possible through its existing upstream strategy,” said Saif al-Falasi, Chief Executive Officer of ENOC, in an interview with The Telegraph. “Moreover, with production close to plateau at its sole producing asset and with an uncertain market backdrop, this offer provides Dragon Oil’s minority shareholders certainty and a clear opportunity to realize significant cash today.”
The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, is in an enviable position amongst its peers. The country has the largest sovereign wealth fund in the world and its breakeven price of $73 is the third lowest in the group.
The country just purchased 14 additional rigs (12 from a Chinese company) to satisfy “expansion plans and increased customer demand,” particularly in Asia, the target of 96% of its exports. UAE’s current production levels of about 3,000 MBOPD are at 20-year highs and are forecasted to increase to 3,400 MBOPD by year-end 2017. The UAE and other Gulf Coast countries like Saudi Arabia, Kuwait and Iraq are leading the charge in growing OPEC’s production on a year-over-year basis, brushing off requests from other members to curtail volumes.