(07/11/12) Big Chance for Dubai Oil Stock

Big Chance for Dubai Oil Stock

07/11/2012 8:15 am EST•2 min read •Tickers: DGO, XOM

The second major oil auction in Afghanistan is now official, and a small Dubai energy services firm is in the fray with big boys, reports April Yee of The National.

The Afghan ministry of mines has qualified eight companies, including ExxonMobil (XOM) and Kuwait Energy, to bid in its second-ever oil auction.

Dragon Oil (London: DGO), 51% owned by the Dubai Government’s Emirates National Oil Company, sees the northern Afghan blocks as "promising", said Emad Buhulaigah, the firms general manager of petroleum development.

"All exploration has some element of risk, but then some places from a geological standpoint has potential for having traps and accumulations of hydrocarbons. That area has the potential," he said.

Shares of Dragon Oil have risen from 568 to 570 pence on the London Stock Exchange, where the company is listed, since the Afghan ministry made its list of bidders public last Wednesday.

Until recently, Dragon Oil had operated only in Yemen and Turkmenistan’s portion of the Caspian Sea, the company’s prize asset. But in October, the Dubai company expanded its range of operations, with an offshore block in post-revolution Tunisia. Afghanistan represents its second step out of its core operating areas.

International investors are treating Afghanistan—also endowed with gas, copper, and gold—cautiously. With a fledging extractive industry that awarded its first oil contract in December to China National Petroleum Corporation, Afghanistan must convince potential foreign partners that it can offer security after decades of war and that there will be a way to get the oil out.

Infrastructure remains undeveloped and mining companies have run into disputes over land. American and other NATO forces plan to withdraw from the country by the end of 2014.

"The Afghan government has a lot of work to do in convincing investors that their investment will be rewarded," said Claudine Fry, an analyst for Control Risks, a security consultancy. "The Afghan government is working very hard to appeal to investors."