Bottlenecks limit growth for Dragon Oil

Increase in oil and gas output this year cut to 5 per cent.

Output at Dragon Oil, the Central Asian energy company that is majority-owned by the Dubai Government, will grow this year by only half the rate forecast at the end of the second quarter, the company warned yesterday.

"Infrastructure bottlenecks" would limit output growth from fields in Turkmenistan to 5 per cent this year, Dragon said in an unaudited third-quarter production update. The company, which produced an average of more than 46,000 barrels per day of oil and gas in the third quarter, had previously forecast growth of 10 to 15 per cent.

On the news, Dragon's stock fell almost 3 per cent to 447.5 pence.

The bottlenecks, linked to delays in the completion of pipeline infrastructure and a gas processing plant, would mostly be resolved by the year's end, said Abdul Jaleel al Khalifa, the chief executive of Dragon.

"While this result is below our initial expectations, we are confident of resolving many of these issues with completion of the substantial infrastructure upgrade," he said.

Dragon has previously warned about logistical hurdles that have slowed both construction and export of its oil. The majority of output is sent by tanker across the Caspian Sea to Azerbaijan, where it is pumped by pipeline to market. A secondary route, through Iran, has been closed to the company since a swap agreement with Iran expired in July. The company did not disclose an earnings estimate, but said it had dedicated US$146 million (Dh536.2m) on capital expenditure in the third quarter, with the majority going to infrastructure investment and the drilling of up to 11 wells.

Overall cash reserves increased by $112m.

The pipeline, known as a "trunk-line", along with two wellhead platforms and an offshore gas processing plant, would support the drilling of another 11 new wells next year.

"This substantial upgrade to our infrastructure base alongside a number of other ongoing projects should resolve many of the issues that constrained production growth this year and provide a firm foundation for driving production growth in the years ahead," Dragon said.