Dragon eyes Bowleven

Dragon's revenues surged on the back of a step-up in the Caspian Sea drilling programme, where 13 wells were completed during the year against an original target of 11. The two additional wells, together with improvements in optimisation rates, fed through to a 30 per cent annual rise in Dragon's gross output to 61,500 barrels of oil per day (bopd). Moreover, profits surged on the back of a 40 per cent rise in realised crude oil prices – development expenditure fell, too. Although as Dragon's share of production – called entitlement production – falls when development spend drops and oil prices rise, the group's entitlement production dropped from 61 per cent to 53 per cent.

Still, Dragon's growing cash pile could help support $1bn (£629m) in planned capital expenditure between 2012 and 2015. It also leaves Dragon well placed to win a bid for Bowleven if a deal is formally tabled. Combining the pair does seem to have merit. To begin with, Dragon – controlled by Dubai's state-owned Emirates NOC – has been looking to diversify its interests beyond the Caspian Sea, but has so far merely managed a farm-in agreement for an offshore Tunisian exploration block. Bowleven also needs cash to fund the development of its interests in Cameroon and Gabon. Dragon's expertise in shallow-water drilling also looks useful given the nature of Bowleven's assets.

Dragon achieved a reserve replacement ratio of 183 per cent in 2011, too, in addition to bumping up its contingent reserves by another 88m barrels. Accordingly, management is confident of achieving 10-15 per cent annual production growth towards a plateau rate of 100,000 bopd by 2015.

Broker Goodbody anticipates 2012 EPS of 135¢ (125¢ in 2011).