LONDON (Reuters) - Dragon Oil posted a 21 percent increase in annual profit on Friday and announced plans to create a Bermuda-incorporated holding company under a corporate restructuring.

Under the proposal, the holding company will own 100 percent of Dragon Oil Ltd. and the group plans to list the limited company on the main market of the London Stock Exchange. It told Reuters the move will allow it to benefit from tax efficiencies.

The oil and gas exploration and production company also said annual profit rose to $369 million, from $304 million, as revenue grew 18 percent to $706 million, helped by higher oil prices.

"A sound set of preliminary results," said Ambrian Capital, adding it continues to favour Dragon Oil as one of its highest-conviction growth opportunities.

By 9.33am GMT, Dragon Oil shares were up seven percent at 201 pence.

Average daily production rose to 40,992 barrels of oil per day (bopd) from 31,997 bopd in 2007. The company has targeted annual output growth of up to 15 percent on average in 2009 to 2011.

Chief executive Abdul Jaleel Al Khalifa told Reuters the 2009 production target will depend on the availability of drill rigs in the Caspian Sea. He said he would not expect more than 15 percent output growth this year.

The company, which operates oilfields in the Cheleken Contract Area offshore Turkmenistan, said the contract for one of its two drill rigs is due to expire in May and that it is in talks regarding an extension.

It has also tendered for a third rig, which it hopes will arrive in the second quarter, and is talking about taking on a fourth rig, which could arrive towards the end of the year.

Dragon plans to spend $700 million to $800 million on infrastructure in 2009-11, including $300 million in 2009.

The group previously said it anticipates spending $600 million this year on infrastructure and drilling, up from $287 million in 2008.

"Drilling expenditure in 2009 could be anywhere between $200-$300 million depending on the availability of rigs," Mr. Al Khalifa said.

It aims to complete eight wells in 2009, taking the total for 2009-11 up to 35 development wells.

Dragon is looking at securing assets in the Middle East, North Africa and Central Asia regions to take advantage of depressed valuations.

"We are hoping that we can secure something this year or next year," Mr. Al Khalifa said.

The group ended the year with a cash balance of $876 million, up 60 percent from 2007.

Dragon could not say when it expects a probe into possible irregularities in procurement procedures to be completed.

On February 26, it said an investigation would be carried out into improper conduct by certain former senior managers. Early findings, announced this week, said the matter will have no material impact on its financial position.

"There is no change in our financial position," Mr. Al Khalifa said.

On the outlook for oil prices, Dragon expects prices to trade around $45 to $55 a barrel. Crude oil prices fell below $54 on Friday.

The company does not hedge any of its production.