Dragon Oil's profits plummet 37% to $105m on falling oil prices

PROFITS PLUMMETED 37 per cent at Dublin-based oil and gas exploration company Dragon Oil in the first half of the year, reflecting a steep fall in oil prices.

Although production levels rose by 11 per cent during the first six months of the year, profits fell from $166.9 million (€118.5 million) to $105 million. Revenues contracted by 29 per cent to $263.5 million, from $373.5 million in the same period a year earlier.

In addition, progress on a number of Dragon Oil’s infrastructure projects was slower than expected due to “delays in project execution”. However, the company maintained a healthy cash balance of $875.4 million, and achieved considerable cost savings during the period.

“With the slowdown in the broader economy, we have been able to drive cost optimisation by renegotiating contracts and retendering certain projects,” said chief executive Dr Abdul Jaleel Al Khalifa.

Four new wells have been completed so far this year and the company plans to bring four more on stream by the end of the year. Production growth for the year is expected to fall short of its target of 15 per cent, but the company believes it will hit its longer-term goal of an average of 15 per cent annual production growth for the period 2009 to 2011.

The company provided little clarity on the state of play of negotiations with Dubai’s state-owned Emirates National Oil Company (Enoc), which made a preliminary approach in June in relation to a possible offer for the company.

Dragon Oil said yesterday it had formed an independent committee to evaluate an offer “should one be forthcoming”, and said that a further announcement would be made “as appropriate”. Plans to restructure Dragon Oil, which involved incorporating a new holding company in Bermuda, have been put on hold until there is more certainty on the takeover bid.

Although analysts viewed the results as broadly positive, the stock tumbled 3.5 per cent to €3.88 on the Dublin market yesterday. However, brokers felt that this was a function of the weak market, rather than a reaction to the results. Dragon Oil’s operations are primarily located in Turkmenistan in the Caspian region.