Oil and gas explorer Cairn Energy has again raised its estimate of how much crude could be contained in its field off the west coast of Africa.
The Edinburgh-based firm said the “2C” best estimate of contingent resources at the “world-class” SNE discovery, about 60 miles offshore Senegal, now stands at 473 million barrels – some 23 per cent higher than previous estimates.
It’s a material field in world terms, at just shy of 500 million barrelsSimon Thomson
Chief executive Simon Thomson said: “Drilling is scheduled to re-commence in Senegal shortly, benefiting from lower costs across the sector. The programme contains options for multiple wells and in addition to ongoing appraisal of the SNE field, the joint venture continues to assess optimal locations for further exploration drilling on the acreage.”
Thomson told The Scotsman: “Senegal is a pretty positive story of increased resources, reduced costs – which are improving the economics – and near-term activity. Our drilling programme will probably re-commence at the turn of the year with multiple well options, accessing further upside potential for us. It’s a material field in world terms, at just shy of 500 million barrels at the 2C level and oil in place of more than 2.7 billion barrels.”
Cairn, as operator, has a 40 per cent stake in three blocks offshore Senegal, with Woodside Petroleum holding 35 per cent, FAR 15 per cent and Petrosen, the national oil company of Senegal, 10 per cent.
Thomson added: “It’s easy to forget that it’s only 18 months since the original discovery. We’ve made a lot of progress in a relatively short space of time, and the potential has surprised us to the positive. When we went in, we saw a field of about 185 million barrels, and we’re now well in excess of that.”
His comments came as Cairn, which is also targeting first oil from the Kraken and Catcher fields in the North Sea next year, reported a narrower loss of $38 million (£29m) for the six months to the end of June – down from $230m a year earlier, when its bottom line was hit by a $168m writedown on the value of its 10 per cent stake in former subsidiary Cairn India Limited (CIL), which it cannot sell amid an ongoing dispute with the Indian tax authorities.
“International arbitration proceedings have commenced in respect of Cairn’s claim under the UK-India Bilateral Investment Treaty,” Cairn told investors.
“Cairn is seeking restitution for losses resulting from the attachment of its shares in CIL and failure to treat Cairn and its investments fairly and equitably.”
Its shareholding in the business was valued at $1 billion at the end of 2013, but has since slumped in value to $383m.
The group has asked an arbitration panel in The Hague to either order India to “withdraw its unlawful tax demand and compensate Cairn for the harm suffered by the seizure of the CIL shares, being not less than $1.1bn (plus costs); or, if the tax demand remains in place, compensate Cairn for the quantum of the tax assessment and the harm suffered by the seizure of the CIL shares, being together not less than $5.6bn (plus costs).”
Thomson said: “This was a big hit to us early in 2014 when that resource was frozen, because we were going to sell the shares and use the proceeds for our forward plans. We’re now in a position where we can meet all of our commitments and pursue our strategic goals without access to that money.
“We remain very confident of our legal position and the outcome of this arbitration. We’ve submitted our statement of claim – India now needs to respond, and in an ideal world there will be hearings in the first half of next year and we’ll get to a final decision next year that is not appealable. That will be the final outcome and we’re confident of that outcome. We see it as money to come back to us in due course, but prudently we’re not relying on it in relation to our forward commitments.”
Cairn ended the first half with net cash of $414m, an undrawn reserves-based lending facility and debt availability to fund UK development assets expected to reach $260m by next year.