DRAGON Oil is raising £65 million through a rights issue to fund drilling and development in its oil field in the Caspian Sea, to appraise a gas discovery in Thailand and to look for new licences.

The company reported a pre-tax loss of $414,000 (£276,000) for 1996, down from the previous year's loss of $1,514,000 (£1,009,300). The outcome was helped by an exceptional gain of $1,764,000 - relating to a reorganisation or creditor repayments - exchange rate gains of $1,578,000 and higher interest income.

Turnover was up from $4,304,000 to $10,439,000. But the results were hit by a $3,200,000 charge because the company wrote off most of its interests in western Europe.

Dragon Oil has received irrevocable commitments and underwriting arrangements are in place for the three for five rights issue at 2p sterling per share.

Mr Arifin Panigor, who owns 46 per cent of Dragon, has undertaken to subscribe in full for his £30 million rights entitlement.

The company's second largest shareholder, Philippine's listed investment company Sinophil, which has an 18.6 per cent stake is taking up its £12 million entitlement.

Mr Panigor said the new funding will allow the company to move on to the next phase of its appraisal and development of its Caspian Sea field, to appraise its discovery off Thailand and to look for new licence and producing interests.

With the company's existing net cash resources of $20 million and the new funds of £65 million ($106 million), Dragon plans to increase its output in the Caspian Sea from the current level of 6,200 barrels per day to 75,000 per day within the next five years, according to finance director, Mr Graeme Thomson.

Mr Thomson said the company was prepared to "gear-up" - borrow funds - to invest on producing prospects.