Cairn Energy buoyed by Senegal oil discovery

Chief executive Simon Thomson, right, spoke of substantial oil bearing interval. Picture: Complimentary

It represents the first significant find for the company since it started investing the proceeds from the sale of its Indian interests in finding new prospects.

Group shares jumped by more than 10 per cent on the news, although profit-taking later in the day saw them end up 3.6p, or 2 per cent, at 183.5p.

Cairn, which has suffered a number of setbacks in its exploration programme in recent years, has a 40 per cent stake in three blocks offshore of Senegal, in West Africa, where an exploration well has discovered oil. Initial gross estimates for the well range from 250 million to 2.5 billion barrels.

Cairn’s chief executive Simon Thomson said: “We have encountered a very substantial oil bearing interval which may have significant potential as a standalone discovery. Furthermore, this result materially upgrades the prospectivity of the block with a proven petroleum system and a number of deep-fan and shelf prospects established.”

Thomson said Cairn and its joint venture partners in Senegal – ConocoPhillips, FAR and Petrosen – were planning follow-up activity next year.

“Cairn looks forward to working with the government of Senegal and our partners to realise the full potential from this large acreage position,” added Thomson.

Analysts reacted positively to the news. Nathan Piper of RBC Capital Markets, which has a 230p price target on the shares, described it as a “very positive drilling result” and said the gross recoverable reserves could add around 91p a share to his current 259p valuation of Cairn’s net assets.

Although SP Angel Corporate Finance stressed more testing will be required before it can be deemed commercially viable, the broker said the “balance of probability is skewed towards commerciality, which will be boosted by any further discoveries”.

SP Angel said: “These results mark the first significant exploration success for the company since it restarted its exploration programme following the receipt of the Cairn India money. While this will be welcome, the wider question turns to the reproducibility of the results, and whether this is the start of a run of success, such as was experienced by Tullow and more recently Amerisur.

“Is it back in the groove? It’s too early to say, but the fact that in a short space of time the portfolio has achieved greater balance, and the exploration successes are starting to come in, that could well be the case.”

In August, Cairn said it was planning to cut jobs to keep costs under control after telling investors it wants to reduce exposure to controversial drilling activity in the Arctic. The explorer estimates there could be more than three billion barrels of oil waiting to be found off Greenland, where its activities have been criticised by environmental campaigners, but earlier this year it decided to focus on its ambitious programme off the west coast of Africa.

At the time, Cairn announced a sharp drop in losses after tax to $62m (£37.3m) for the six months to the end of June, down from $219m a year ago.

l Accord Energy Solutions, the Aberdeen-based specialist in services to measure oil and gas production, has hit a £6m turnover target a year ahead of schedule. The employee-owed company was founded in 2010 and now has more than 40 staff. It works with a range of companies including oil majors based in the UK, Europe and further afield. Clients include BP, Eon, Exxon Mobil, Maersk and Shell.

• Keep up to date with all aspects of Scottish life with The Scotsman iPhone app, completely free to download and use.