Cairn focus on Atlantic drilling with Senegal deal
The Edinburgh-based firm said it had taken a 65 per cent interest in three exploration blocks off the coast of the West African country, in return for operating the rigs and meeting almost three quarters of the costs.
It is also hoping to make valuable discoveries as it sinks between two and four wells in the waters off Morocco and will return to its vast licence area around Greenland in 2014.
The update comes as Cairn reported a much reduced operating loss of $247.3 million (£163m) for last year, down from $1.1 billion in 2011 when it funded a vast exploration programme in Greenland single-handedly.
Chief executive Simon Thomson said that performance had reflected Cairn’s status as a much larger company before it sold its majority stake in Cairn India and returned $3.5bn to shareholders, and it now plans to spend a more modest $300m a year on exploration.
He said: “We’ve built a balanced business and have an exciting portfolio of potentially transformational operated exploration. That’s a multi-well, multi-year campaign that will kick off this Autumn in Morocco.”
He said the group remained “totally committed” to Greenland, and was hammering out the terms of its next move with partner Statoil.
The joint venture will probably target the Pitu block, where detailed early stage work has resulted in upgraded estimates of the oil available.
Following the sale of two further tranches of its Indian holding last year, Cairn has enough cash to fund its ambitious exploration programmes until North Sea interests it acquired last year start producing in 2016-17.
Thomson said management was “comfortable” with the balanced portfolio it had created over the last year, although it may add further exploration licences. “Our aim is to have a self-funding platform but to remain exploration led,” he said.
The firm is targeting 3.5 billion barrels of oil across its three areas of the Atlantic, which Thomson said were all frontier areas with attractive fiscal terms and the ability to create substantial value.
“We’ve established big acreage positions so that we have follow on potential in the event of success,” he added.
A recent report in the Indian media suggested that Cairn India was considering a $2.6bn bid for its former parent, which alarmed some British investors who consider the Scottish firm to be undervalued.
Yesterday Thomson said that he sees further “upside” in Cairn India, and although Cairn will sell its final 10 per cent stake “at some point, at the moment we are happy holders”.
Analysts were divided on the merits of Cairn’s re-invention of itself as an Atlantic explorer. Jerry Ho, at Investec, downgraded the group to “hold” on a reduced target price of 310p, saying there was little to boost the shares in the near-term.
But Sanjeev Bahl, at Numis, issued a “buy” note saying Cairn’s activities in Morocco and Senegal had the potential to add more than 10 per cent to its book value.