The deepening global recession is pounding energy companies, as oil prices continue on a downward slope. While the world's largest companies are slowing their spending, a number of smaller companies are actually prospering. One of the most prosperous smaller concerns, Dragon Oil, is finding its wealth in one of the most unlikely of energy "new frontiers" -- Turkmenistan's offshore Caspian waters.

Since the December 2006 death of "President for life" Saparmurat Niyazov, self-styled "Turkmenbashi" ("father of the Turkmen"), energy companies from across the world have been flying into Ashgabat hoping to secure a deal to develop the country's vast natural gas reserves, estimated to be the world's third largest.

Niyazov's quixotic and dictatorial control of the country largely precluded foreign investment, but his successor, Gurbanguly Berdimuhamedov, has opened his country's natural gas reserves to the possibility of foreign investment, sparking off a feeding frenzy from Washington to Moscow to Beijing.

Dragon Oil has remained outside the fray by concentrating on two problematic areas largely overlooked by its bigger competitors -- oil and Turkmenistan's offshore waters. In stark contrast to its giant competitors, Dragon Oil adopted the "small is beautiful" approach in its dealings with the mercurial Niyazov, and in 1993 Dragon Oil received a 367-square-mile concession in Turkmenistan's Caspian waters under a joint venture agreement.

In November 1999 Dragon Oil signed a 25-year production-sharing agreement to develop the concession's Cheleken field, in depths ranging from 26 to 140 feet. The PSA stipulated the eventual production of 600 million barrels of oil over the life of the PSA. Under the terms of the PSA, Dragon Oil delivered equipment to modernize existing wells and announced plans to rebuild 12 Caspian platforms as well as pipelines to connect the fields to onshore oil refining and storage facilities, along with building storage capacity for 375,000 barrels of oil.

Cheleken and Zhdanov, later renamed Dzheihun and Dzhigalybek, respectively, were the largest fields in the contract territory. While they had been discovered and lightly developed during the Soviet era, they were nevertheless regarded as largely tapped out.

As at the time Turkmenistan had no significant offshore capacity, Dragon Oil's venture was regarded as risky in the extreme, as oil was selling for around $20 a barrel. Logistical problems meant that it was only in June 2001 that Dragon Oil completed drilling its first 12,000-foot test well in its Dzheihun field. The following year Dragon Oil boosted oil production, drilling four new wells and raising output from 6,000 to 15,000 barrels per day.

Investors remained nervous, and in February 2002 the company's shares plummeted 20 percent after management announced it was planning to invest an additional $45 million on top of the $73 million it had already spent on developing its Dzheihun concession.

Defying the naysayers, Dragon Oil methodically pressed forward and in January 2003 brought its fifth well in the Dzheihun field online, which produced 9,000 bpd. A decade after signing its joint venture, the company's faith was now rewarded, as analysts predicted that over the next several years oil extraction at Dragon's Turkmen Caspian concessions would increase more than 1,000 percent as new oil fields came online.

From 2000 to 2003 Dragon Oil grew 160 percent. Steadily increasing production, Dragon's oil output surged from 13,300 bpd in 2004 to 19,400 bpd in 2005, resulting in net profits that more than doubled in 2005 to $106.4 million, as the company announced it would invest an additional $100 million to develop its concession; of the 211 test wells that the company drilled, more than 30 were producing.

In 2006 Dragon Oil's net profit increased 41 percent to $180.47 million, as the company announced ambitious plans for a 2007-2008 program for Dzheihun involving drilling 25 new production wells. By October 2006 Dragon had increased its average daily oil production from Dzheihun to 39,650 bpd. Two months later Niyazov died, and suddenly the world's energy firms were tripping over themselves to penetrate the Caspian's last great untapped frontier.

As for the analysts' predictions, they may have been far too modest, as on Feb. 10 Dragon Oil announced that its Dzheihun concession contains proved and probable reserves of 645 million barrels of oil and condensate. For Dragon Oil, the icing on the cake was that a full-field remapping also determined that the company's concessions contained a bonus 3.2 trillion cubic feet of natural gas reserves.

Dragon Oil CEO Abdul Jaleel al-Khalifa coyly noted, "The result confirms our previous interpretation of the field, and we can now continue to proceed confidently with the field development plan."

In January Dragon Oil announced it had $867 million in cash on hand to fund additional investments and possible acquisitions this year.

And where is that oil going? Defying Washington's prerogatives -- and threats of sanctions -- beginning in 1998 the company developed and began marketing its oil production through a crude oil swap agreement with the National Iranian Oil Co.

Sometimes small really is beautiful, unless Dragon Oil decides to develop its 3.2 trillion cubic feet of natural gas reserves as well. In the meantime, all the major oil companies can do is stand on the sidelines, drool, and fire their naysayers.