Irish-listed exploration firm Dragon Oil’s largest shareholder has said it will no longer back payment of dividends to shareholders.
Emirates National Oil 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.
The deal values Dragon at about £3.7 billion (€5.1bn) and the firm is expected to delist from the Dublin and London markets if it 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 Thursday, Enoc said whether or not Dragon is delisted, it no longer sees the need to maintain a dividend profile.
The company also said 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. These challenges include pressure decline, increase in gas & water production, wax deposition, sand production and cease to flow wells.
Enoc said the operating issues would like lead to a need for additional investment above Dragon’s budget of up to $700 million for capital expenditure for 2015.
It said that if it was to succeed with its bid to acquire the firm, it would set sustainable and de-risked operating targets for Dragon Oil, targeting a near term production profile of about 90,000 barrels per day.
"As majority shareholders in Dragon Oil we believe there is a need to refocus the Turkmenistan operations and ensure field life sustainability. My initial view is that Dragon Oil should target a more sustainable and de-risked Turkmenistan production profile of 90,000 barrels per day over the near term in lieu of its stated target of 100,000 barrels per day," said Enoc chief executive Saif Al Falasi.
“As we see it, there are operating challenges associated with sustaining production at Dragon Oil’s forecast levels. Mitigating these operating issues will likely require additional investments. That’s why I don’t see a need for Dragon Oil to maintain a dividend profile in the near term. These are difficult decisions for any publicly listed company and we see this as another reason for delisting Dragon Oil,” he added.
Other major shareholders in Dragon, such as Baillie Gifford and Setanta Asset Management, have said that Enoc's offer is insufficient.
Baillie Gifford, whose clients own more than 7 per cent of Dragon, said last month the buyout offer “materially undervalues” Dragon’s growth potential.
The group called for the addition of a “contingent payment note” for minority shareholders that would provide an annual payout based upon the performance of Dragon’s prime asset in Turkmenistan.
