Bloomberg News

Dragon Oil Sees Delay in Turkmen Gas Deal on Weaker Demand

January 23, 2012

(Updates with closing share price in seventh paragraph.)

Jan. 23 (Bloomberg) -- Dragon Oil Plc, a U.K. explorer focusing on Turkmenistan, said it expects a delay in reaching a natural-gas sales agreement with the Central Asian state because demand for the fuel has weakened.

“The market for Turkmen gas is not improving,” Chief Executive Officer Abdul Jaleel Al Khalifa said today by phone, declining to estimate a timeframe for an accord. “We continue to talk to them, we continue to monitor the market and assess the situation, but have nothing firm right now.”

Dragon is seeking agreement on gas sales terms with the government in Turkmenistan, where it has 3 trillion cubic feet of resources, to add to revenue that rose to a record last year. The Dubai-based company pumps out gas in conjunction with crude oil in the country, which already produces its own fuel and has held off striking an accord while demand remains muted.

Dragon plans to build a gas-treatment plant in the Caspian Sea state, allowing it to strip liquids from the fuel before selling it or burning it off. The company has reduced gas burning, a process known as flaring, by injecting the fuel into the Turkmen pipeline network, Al Khalifa said.

In the absence of a sales agreement, such injections into the grid mean Dragon is effectively giving the gas away. The company plans to award contracts to build the treatment facility this year, and extract liquids from 2014.

Production Target

Dragon raised output 30 percent to about 61,500 barrels of oil a day last year and targets a 15 percent gain in 2012, it said today in a statement. The company may increase output guidance in the second half, depending on the availability of rigs and drilling results, Al Khalifa said. The explorer expects to operate three or four rigs in the Caspian Sea this year.

Dragon rose 2.6 percent to 513 pence in London, the highest price in two months. The shares are up 12 percent since the start of the year.

The company, which had $1.5 billion in cash at the end of last year, is examining plans to join other exploration projects in Central Asia, as well as in Iraq and Africa. It expects to revise investment plans this year as it commits to new projects in Turkmenistan, it said.

--Editors: Amanda Jordan, Stephen Cunningham.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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