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Dragon Oil plc

M&A back on the agenda for Dragon Oil, broker says

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M&A is back on the agenda for Dragon Oil (LON:DGO), which yesterday revealed its cash position had grown to US$2.4bn by the end of the first half.

Dragon announced it was increasing its dividend in Tuesday’s half yearly result statement, while reporting an 11% rise in revenues and a 25% increase in gross profit.

And although the emphasis remains upon the ongoing development drilling in the Caspian Sea, where Dragon expects to be producing 87,000 to 90,000 barrels per day by year’s end, conversations between management and analysts confirmed the group still has ambitions for acquisitions.

Andrew McGeary, analyst at Northland Capital, in a note said: “An informative call in which management defended its significant cash balance.

“There is a strong balance sheet and management stated it has been considering acquisitions in the $1bn+ realm that would utilise significant additional funds (c.$500m) for capex.”

Dragon will alternatively look to redistribute cash back to investors via special dividends if a suitable deal doesn’t materialise, according to McGeary.

Net cash from operating activities increased to US$364.4mln, and the company ended the period with US$2.4bn of cash and equivalents.

The interim dividend is being increased 33% to 20 cents per share.

Chief executive Dr Abdul Jaleel Al Khalifa said: “The board continues to focus on the diversification opportunities for the group, ongoing capital requirements for all our assets and a strong balance sheet."

Separately, Dragon revealed progress with drilling operations in Iraq, one of its newer projects as part of a diversification programme, where a well has reached its first of two targets and work continues towards the second.

The company said testing would be carried out in the second half, depending upon the well’s findings.

Quick facts: Dragon Oil plc

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