Dragon Oil could be looking to use its sizable cash reserves for an acquisition.
Dragon set to breathe fire into operations
Dragon Oil, an exploration firm majority-owned by Emirates National Oil Company, is sitting on a pile of cash and a portion of Turkmenistan's huge natural gas reserves.
Both positions could provide a boost to company profits.
Turkmenistan, the former Soviet country that is home to the world's fourth-largest natural gas reserves, is expected to rely more on independent producers such as Dragon to meet commercial obligations in the near future. The country has had to re-think its export agreements after its route through neighbouring Iran was phased out last year.
The company, which is based in Dubai and traded on the Irish and London stock exchanges, also has no debt and US$1.34 billion of cash to spend.
Analysts at Nomura say this could transform Dragon Oil's business. At present the company is considered as having a "single-asset" because its main activity is to produce oil and associated gas in Turkmenistan.
But Nomura says the company is weighing potential acquisitions in Africa and the Caspian Sea, and may deploy up to $500 million.
"With Dragon Oil's management links to some of its target areas, leveraging relationships to enter new provinces may provide suitable opportunities," Scott Darling, a Nomura analyst, wrote in a note to investors.
Nomura initiated the company with a "buy" rating at the end of March, with a 755 pence share price target.
The company said first-quarter profits rose 21 per cent over the same period last year after the company cleared production bottlenecks.
In the first three months of this year, the company installed a wider pipeline and drilled three new wells in Turkmenistan, allowing it to increase its average daily production to 57,800 barrels from 47,600 in the same period last year.
Dragon has also differentiated itself from peers by issuing a dividend for the first time ever in the first quarter. Many UK companies tend to invest capital back into the business rather than distribute cash to shareholders, Mr Darling wrote.
Shares in the company yesterday gained 2.6 per cent to 539.5 pence in afternoon trade on the London Stock Exchange. They have climbed more than 5 per cent in two days.