Business | Oil & Gas
Dragon Oil pledges no more hedging
Petroleum producer's income soars 34% to touch $167m in first-half.
- Bloomberg
- Published: 23:51 August 22, 2008
London: Dragon Oil Plc, the Dubai-based petroleum producer with operations in Turkmenis-tan, will abandon hedging on the price of crude because prices will probably stay high, its chairman said.
"We have no plans for hedging at all, so this will be the last year of hedging for us," Chairman Hussain M. Sultan said in an interview in London.
"We were trying to protect a minimum, but when you try and protect a minimum you lose also the upside of it, so we said "no more'. I have never won" on hedging, Sultan said.
Oil will eventually settle near $100 a barrel, Sultan said. "As long as the demand continues as it is that is a fair price for both the consumer as well as the producer," he said.
People who expect oil to trade at $40 "must be naive," Sultan said. "Eventually the $100 price is the price that everybody will be happy with."
Emirates National Oil Co., wholly owned by the government of Dubai, has a 52 per cent stake in Dragon Oil.
Releasing its first-half results Thursday, Dragon Oil said its profit gained 34 per cent as crude prices rose to a record.
Result
Net income advanced to $167 million, or 32.3 cents a share, from $124 million, or 24.3 cents, a year earlier, Dragon said yesterday in a statement distributed by the Regulatory News Service.
That missed analyst estimates of $182 million at Goodbody Stockbrokers and beat estimates of $165 million at Renaissance Capital.
Oil producers have benefited from rising prices for crude, which climbed above $140 a barrel for the first time in June after almost doubling from a year earlier.
"Dragon Oil has performed strongly both operationally and financially," Sultan said. "Dragon Oil will achieve both its drilling and its production targets."
Dragon rose as much as 25.5 pence, or 8.2 per cent, to 337.5 pence in London trading, which would be its highest close since July 18, and traded 6.7 per cent up at 333 pence at 8:43am local time. It has a market value of £1.70 billion ($3.2 billion).
The company, which aims to produce 40,000 barrels a day by the end of the year, said it achieved a peak production rate of 43,227 barrels a day in June.
Sales rose 63 per cent to $373.5 million, while average gross production advanced 36 per cent to 38,482 barrels of oil a day, according to the statement. Dragon booked a one-time expense of $91 million on a hedge, which capped its oil sale price at $102 a barrel.
Crude oil futures on the New York Mercantile Exchange, which averaged $72.36 a barrel last year, rallied to a record $147.27 a barrel on July 11, then slid to below $112 a week ago. The October contract traded at $120.21 at 12:37pm London time Thursday.
Dragon Oil shares traded at 335 pence in London, up 7 per cent.
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