Emirates National Oil Co, Dubai’s government-owned refiner, plans to pursue its $1.8 billion takeover of Dragon Oil Plc, even as the emirate is dealing with its debt.
The refiner “remains a committed long-term majority shareholder” in the oil explorer and won’t sell any shares until at least December 31, 2011, ENOC said in a statement on Wednesday.
ENOC is seeking assets abroad to expand into oil and natural-gas production, which made up about 5.5 percent of Dubai’s $62bn economy in 2007. Gaining the Dragon assets would help the refiner tap deposits in Turkmenistan and give it a platform for expansion to meet rising demand at home.
The sheikhdom may face tighter capital after saying on November 25 that state-run Dubai World would seek a standstill agreement with creditors and an extension of loan maturities. The announcement led to the biggest declines in Asian shares in three months last week and Europe’s worst rout since April.
“‘Dubai Inc.’ is short of cash, and has wider key strategic commitments beyond the acquisition of Dragon,” Peter Hutton, an analyst at NCB Stockbrokers Ltd. in London said in a November 26 note to investors. “ENOC’s borrowing costs are likely to go up in the reaction on local rates on the debt market and may put further pressure on their ability to execute the deal.”
The bid by Emirates National of 455 pence a share for the 48.5 percent of Dragon Oil it doesn’t already own is “fair,” ENOC Group CEO Saeed Khoory said on November 23.
Dragon’s main assets include two oil and gas fields in the Cheleken contract area of the Caspian Sea, off the coast of Turkmenistan. Average daily production in the third quarter increased 9 percent from a year earlier to 46,060 barrels of oil a day, with about 54 percent attributable to Dragon.
Dragon dropped 8.5 pence, or 2.1 percent, to 395 pence at 9:22 am in London. The stock has more than doubled this year, valuing the explorer at 2.03 billion pounds.
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