Elliott Advisors says Enoc’s offer undervalues Dragon Oil

Elliott Advisors, whose clients own 3.3 per cent of Dublin-listed Dragon Oil, has become the latest shareholder to publicly stat that the recent buyout offer for the company by the Emirates National Oil Company (Enoc) substantially undervalues the producer.

Baillie Gifford, which holds about 7.1 per cent in Dragon Oil, and Setanta Asset Management, which owns about 3.1 per cent, have also previously said Enoc's offer undervalues the company.

Enoc, which owns 53.9 per cent of Dragon, agreed last month to buy the stock in the group it doesn't already own for 750 pence a share, valuing the group at about £3.7 billion (€5.1bn).The firm is expected to delist from the Dublin and London markets if the deal goes ahead.

Dragon's principal producing asset is in the Cheleken Contract Area, in the eastern section of the Caspian Sea, offshore Turkmenistan.

In a statement issued on Friday, Elliot said Dragon could increase oil production “meaningfully in excess” of the company’s target of 100,000 barrels of oil per day as well as to monetise the Cheleken Contract Area’s considerable gas reserves over the medium term.

"Elliott sees scope for the discount to Brent at which Cheleken Contract Area output is sold by Dragon Oil to narrow significantly over the coming years. Elliott views Dragon Oil as being very well placed to secure an extension of the current Cheleken Contract Area PSA beyond its original expiry on favourable terms and believes that the value of Dragon Oil's 30 per cent working interest in Block 9 in Iraq is likely to become significantly clearer over the coming 12 months," it added.

The statement comes a day after Enoc said it would no longer back payment of dividends to shareholders. Enoc said on Thursday it expected there to be operational challenges in Dragon’s plan to produce 100,000 barrels of oil per day for the next five years that would lead to the need for additional investment above Dragon’s budget of up to $700 million for capital expenditure for 2015.

The group has said that if it succeesd with its bid to acquire Dragon, it would set sustainable and de-risked operating targets, targeting a near term production profile of about 90,000 barrels per day.

Commenting on Elliot’s statement, an Enoc spokesman said:

“We, like all shareholders, must base our valuation on information provided by Dragon Oil and its technical team. They know more about the assets and their potential than those citing unsubstantiated speculation.”

“The technical team of Dragon Oil have clearly stated that production will plateau for the next 5 years. We are surprised that a few financial investors claim to know more about the assets than the people that operate them on a daily basis.”

Shares in Dragon Oil closed up nearly 1 per cent at €10.38 on Thursday.