Baillie Gifford, an Edinburgh-based fund manager that holds the largest minority stake in Dragon Oil, is trying to rally other minority shareholders to fight for a better buyout offer from Emirates National Oil Company (Enoc).
Enoc, which already owns 54 per cent of Dragon Oil, last week formally launched a 750 pence-per-share tender offer for the remaining 46 per cent, an offer that will close on July 30 under the rules of the Irish Stock Exchange, where Dragon Oil is listed.
Enoc needs a majority of the minority shareholders – just more than 23 per cent – to vote in favour of its offer to be able to delist the shares and take the company private.
Enoc failed in its first attempt to buy out minority shareholders six years ago.
Saif Al Falasi, the chief executive of Enoc, said that “now is the right time for [the company] to take a more active role” in the management of Dragon Oil.
He added that the offer represented “an excellent opportunity for minority investors in Dragon Oil to realise a healthy return”.
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Saif Al Falasi comment
■ Enoc acquisition plan will help Dragon Oil to grow
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Writing in an article for The National, Mr Al Falasi said: "I believe the time is right for Enoc to convert a long-term investment into an integrated operating subsidiary that is suitably enabled to grow."
Baillie Gifford, which owns 7.2 per cent of Dragon Oil, responded to the official offer saying that other minority shareholders should join it in holding out for a “contingent payment note” from Enoc, which would give them a guarantee of further payment if Dragon Oil’s production increases substantially over the next few years.
Richard Sneller, the head of emerging markets at the Scottish-based fund manager, said: “Dragon Oil owns a valuable growth asset that we believe has the potential to see production rise materially over the next decade.”
Dragon Oil’s main asset is the Cheleken Contract Area, off the coast of Turkmenistan’s Caspian Sea, where it is the operator and developer of two oil and gasfields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov).
Cheleken reached production of 100,000 barrels of oil equivalent production in June, and Dragon Oil has said it should plateau at that level for the next year or so.
Baillie Gifford, however, argues that Cheleken has the potential to double production over the next decade and that a contingency payment note should give minority shareholders the right to a payment of 50 pence per share for each incremental 20,000 barrels of oil equivalent per day (boepd) Cheleken produces above the 100,000 boepd level.
“Our base-case scenario sees 125,000 boepd of production from the Lam field, 30,000 boepd from the Zhdanov field ... and 25,000 boepd from the East Cheleken extension [an extension of a producing field in an adjacent licence block],” Baillie Gifford has claimed. “Under this base case scenario, shareholders would be eligible to receive further payments amounting to a total £2 per share over the coming years.”
Mr Sneller said: “We have endeavoured and failed to engage Enoc in discussions about the inclusion of a contingent payment note [but] the contingent payment note is simple, fair and aligned with the interests of both minority shareholders and Enoc.”
He added: “We encourage shareholders to consider the potential scale of the reserves on the Cheleken licence block before making their own determination whether or not to accept the current offer. Our proposal would provide shareholders with the right to participate in future production growth.”
Setanta Asset Management and Franklin Resources, the next two largest minority shareholders with around 3 per cent each, declined to comment.
On Thursday, when the offer was made, one small minority shareholder voiced support. Henry Dixon, a fund manager at GLG, part of Man Group, which owns about 1 million Dragon Oil shares, or about 0.21 per cent of the company, said 750p per share represented “fair value”.
amcauley@thenational.ae
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