Dragon Oil has settled the dispute with Larmag Energy Partners (LEP), its partner in LEA, a Dutch company which operates a joint venture oil well in the Turkmenistan part of the Caspian Sea. This follows the agreement by Dragon to increase its stake in LEA to 100 per cent after the $28 million purchase of the outstanding 25 per cent from LEP. The purchase increases Dragon's estimated proven and probable reserves to over 250 million barrels of oil equivalent. The dispute between Dragon and LEP has been simmering for some time.
LEP had not met its share of cash calls and its representatives had voted against the joint venture budget, according to the Dragon listing particulars issued in June. Dragon then exercised its entitlement to dilute LEP's interest in LEA bringing its share in LEA up to 75 per cent.
Since June LEA has continued to not pay its share of the joint venture cash calls while Dragon advanced further funds. The total balance, according to Dragon, due to it by LEA, was some $54 million by the end of September this year. This led to the conversion of advances into shares in LEA.
Dragon said the acquisition of the shares in LEA "resolves all outstanding disputes between the parties". Dragon yesterday confirmed its proposal to take full control of LEA, which operates a 50/50 joint venture with the Turkmenistan government in the Caspian. The stake has been purchased at a "knockdown price", Dragon's finance director, Mr Graeme Thomson, told The Irish Times. He noted that Davy Stockbrokers had valued the 25 per cent interest at $75 million. Asked why Dragon would not now sell 100 per cent of LEA for $300 million - the effective value of LEA following the valuation - and make a substantial capital gain, he said the Davy valuation does not include a valuation for the gas which is "more than the oil". There are "lots of ways to add value to this block". The purchase will have to be approved by Dragon shareholders at an extraordinary general meeting because LEP is controlled by a former director of Dragon who resigned last May. SOL and Sinophil, which own 64.6 per cent of Dragon's equity between them, have given irrevocable undertakings to vote in favour.
The consideration which is being paid in cash will hardly make a dent in Dragon's cash hoard.
