Minority shareholders hit back at Enoc in battle for Dragon Oil

The battle for Dragon Oil intensified yesterday as some of the company’s largest minority shareholders hit back at the majority owner, Emirates National Oil Company, which is trying to take Dragon private via a buyout offer.

Enoc made an offer of 750 pence for Dublin and London-listed Dragon Oil last month, the second attempt in six years by the Dubai-based national oil company to buy out the 46 per cent of the Dragon Oil it does not already own.

The previous attempt was blocked by some of the same investors that are pushing back against the most recent offer. The war of words has also intensified as the July 30 deadline for Enoc’s latest offer approaches.

Baillie Gifford, an Edinburgh-based fund manager that owns a little more than 7 per cent of Dragon Oil, has led the effort to force a higher offer from Enoc.

Last month, it set out an argument that Dragon Oil’s main asset – an oil and gasfield in offshore Turkmenistan called Cheleken – has the potential to be one of the fastest-growing fields in the world and double output from about 100,000 barrels of oil equivalent per day currently over the next decade.

A new large minority shareholder came forward in the past few days to back Baillie Gifford’s stance.

Elliott Advisors, a UK unit of the New York-based hedge fund group run by billionaire Paul Singer, said yesterday that its stake stood at more than 5 per cent, up from 3.3 per cent on Friday, making it now Dragon Oil’s second-largest minority ­shareholder.

The main point of contention for the two sides is the potential for Cheleken.

Elliott Advisors said Enoc’s offer “substantially undervalues Dragon Oil” which has “the opportunity to grow oil production meaningfully in excess of management’s guidance of 100,000 bpd over the near term” and to make additional margin on both its oil and gas output.

All of the large minority shareholders have argued, essentially, that Enoc is deliberately understating Dragon Oil’s potential.

Last Thursday, Enoc hit back with a statement saying that, whatever the buyout outcome, it would seek to cut production at Cheleken by 10 per cent because of “operational challenges”, look for higher capital investment in the coming year (using up additional Dragon Oil cash), and suspend dividend payments.

“Enoc would appear to be making a thinly veiled threat to minority holders,” said Gerry Hennigan, an analyst who covers Dragon Oil for Goodbody Stockbrokers in Dublin.

Richard Doyle, a fund manager at Dublin-based Setanta Management, which owns more than 3 per cent of Dragon Oil and is its third-largest shareholder, also reacted to comments by an Enoc spokesman that questioned the authority of “financial investors” to speak authoritatively about the Cheleken field’s prospects.

“We are unsurprised by the content of Enoc’s statement,” Mr Doyle said yesterday. “We do not think that the 90,000 bpd profile is reflective of the Cheleken field’s potential, and we note that Enoc refers to this as a ‘near-term’ target and that it is an ‘initial’ view, very much allowing for the possibility of materially higher production in the following years.”

Mr Hennigan, who says he has covered Dragon Oil for 10 years, reckons the long-term minority investors are familiar enough with the company to comment knowledgeably about its prospects.

“The stand-off between Enoc and the minority shareholders reflects the fact that many of those minorities who held the shares at the time of the previous attempt to acquire Dragon Oil by Enoc have a good understanding of how value has been created in the past, and a reasonable expectation that further value will accrue in the future.”

With the emergence of Elliott Advisors as a significant minority shareholder, the total of those who have publicly opposed the offer now represent a stake of nearly 16 per cent.

A majority of the 46 per cent minority shareholding – more than 23 per cent – is required to either block the delisting of the stock or to take it private.”

A source close to Enoc noted that Elliott Advisors’ stake in Dragon Oil had been accumulated at prices between 720 pence and 725 pence, which left room for a good short-term return if they were to sell out at the offer price.


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Anthony McAuley

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