Tullow could be next target for Dragon Oil

Irish exploration group Tullow Oil could be Dragon Oil's next takeover target, given the former's decline in value as a result of the rout in oil prices.

In a note today, UK corporate finance boutique SP Angel, speculated that with a valuation of about $5 billion, the decline in value of Tullow “has put it in the sphere of Dragons interest and ability to fund, especially as the range and number of assets within Tullow’s portfolio would enable a number of further transactions, either to reduce debt or gain further strategic interests elsewhere”.

As a result of falling oil prices, Tullow wrote off about € 2 billion against exploration work and the value of some of its assets in 2014, and job losses have been mooted.

Pointing out that Dragon’s operations are still cash generative, albeit at a lower level, and it has about $2bn sitting on the balance sheet, “at no time has it been more opportune to go on a spending spree with its available financial resources” SP Angel said, adding that it expects such a deal from Dragon, and it’s “ now a question of when and where”.

International oil and gas exploration, development and production companyDragon Oil last month dropped its $800m takeover bid for Petroceltic, on the back of falling oil prices.

This morning it updated the Dublin and London listed updating investors, announcing that it will cut its capital expenditure (capex) forecast for 2015 by as much as 26 per cent, but is still targeting 100,000 barrels per day by the end of 2015.

Its capex for 2015 will be in the range of $500mn to $600mn on drilling and infrastructure in the Cheleken Contract Area and excluding the cost of the Gas Treatment Plant. This compares with a spend of $677m in 2014.

Dragon Oil said it completed 14 development and appraisal wells in 2014 and commenced drilling in the Dzhygalybeg (Zhdanov) field. However, while it grew average gross production in the Cheleken Contract Area by 6.8 per cent, it was slower than hoped, Dr Abdul Jaleel Al Khalifa, CEO, said, although drilling accelerated in the second half.

“In December, we reached an agreement with two buyers to export our entitlement share of the crude oil production using two routes. We achieved diversification in export routes and negotiated a better price for our crude,” Mr Al Khalifa said.

On the exploration front, Dragon Oil reported "excellent results" in Block 9 in Iraq: together with its partner, Kuwait Energy, it made two oil reservoir discoveries in both targeted formations.