CAIRN Energy chairman Sir Bill Gammell today vowed to continue with the Edinburgh-based oil explorer’s drilling campaign off the coast of Greenland despite unsuccessful wells pushing it down to a $1.1 billion (£694 million) operating loss.
Chairman and founder Sir Bill Gammell yesterday vowed to continue with the firm’s drilling plans off the coast of Greenland despite booking $942m-worth of costs relating to failed exploration wells.
Those costs pushed the Edinburgh-based group to the hefty operating loss, based on its continuing operations, according to full-year results.
But the sale of a 40 per cent stake in its Indian subsidiary to FTSE 100 mining giant Vedanta Resources allowed Cairn to post a record profit after tax of $4.6bn and to return about $3.5bn in cash to shareholders.
In January, Norwegian energy company StatOil endorsed Cairn’s drilling strategy in Greenland by buying a stake in its Pitu exploration block.
Gammell said: “Whilst we have to date not established commercial quantities of hydrocarbon, we remain convinced that all of the ingredients for success in Greenland are present and we are delighted to welcome Statoil as a partner in the Pitu block.”
Chief executive Simon Thomson remained tight-lipped over which assets were on the company’s takeover radar and refused to comment on mounting speculation that the firm may buy a stake in a controversial well off the Falkland Islands, despite industry sources linking Cairn with such a move.
Thomson told The Scotsman: “We will look at the financial, geographical and technical risks when we assess opportunities. By the end of this year, we will have a totally different set of assets than when we had at the start.
“We already have licences off the coast of Spain and we want more there. We also have licences off the French coast, we’re negotiating for extensions in Albania and we’re bidding in the Cypriot and Lebanese licensing rounds. We’re also negotiating with the government in Nepal over work plans.”
Thomson – who took over the post of chief executive from Gammell in July – said Cairn had finished three of the four tasks set out at the start of the year, by completing the sale of a controlling stake in Cairn India to Vedanta, returning cash to shareholders and bringing in a partner in Greenland.
He said the fourth task – buying assets that would generate cash to fund its exploration programme – was at an advanced stage.
Nathan Piper, an analyst at RBC Capital Markets, said Cairn’s results showed there are “deals still to be done”, with $1.2bn in cash left over from the Vedanta deal and a 22 per cent stake in Cairn India worth $2.9bn.
Sanjeev Bahl, an analyst at Numis Securities, upgraded Cairn from “add” to “buy” and noted: “Cairn’s outlook statement suggests management is unlikely to destroy significant value, as the market value appears to suggest, through further Greenland exploration and/or an acquisition.
“We give management the benefit of the doubt and believe further Greenland farm-outs will reduce high risk/reward exploration capital exposure and the acquisition of cashflow/discovered resource could be value accretive.”
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