Cairn focused on Senegal, Greenland plans on ice

Oil and gas explorer Cairn Energy today said it was focused on exploiting its “significant discoveries” off the coast of west Africa as it ruled out any further drilling in the Arctic unless it can bring in additional partners.

Simon Thomson, right, said Cairn was in a good position to take advantage of lower oil prices

The Edinburgh-based company has a 40 per cent stake in three blocks off Senegal and is planning to submit further exploration and appraisal plans to the government in May, with a drilling programme due to start by the end of this year.

Chief executive Simon Thomson told The Scotsman that Cairn – which is locked in a dispute with India’s tax authorities – was in a “good position” to take advantage of the lower oil prices, which have pushed down rig and other services costs, as it gears up activity in the so-called Atlantic Margin.

Thomson was speaking after Cairn announced that losses after tax had fallen sharply to $381 million (£253m) for 2014, down from $556m a year earlier.

He said: “We took early action last year given the challenges of the oil price and the Indian tax issue to ensure we had sufficient financial flexibility to continue delivering our strategy. By the end of the year we’d effected a 40 per cent headcount reduction while retaining core competencies and completed the disposal of a 10 per cent interest in the Catcher development in the North Sea to reduce our forward capital expenditure by $380m.”

Following the job cuts, the explorer has about 130 staff, including more than 100 in Edinburgh.

Thomson said: “Those actions, which were pretty proactive on our part, resulted in us remaining strong coming into this year and able to exploit the significant discoveries we encountered in Senegal. We can now look forward with strength – our development expenses are covered, our exploration expenses are covered and we indeed we are looking at a fairly expansive exploration programme in Senegal, with three firm and three optional wells.

“We’re in a good position to take advantage of lower costs, as rig and services costs have declined markedly so it’s a good time to be going out and exploring.”

Cairn estimates there could be more than three billion barrels of oil waiting to be found off the coast of Greenland, where its activities have been criticised by environmental campaigners, but is seeking to reduce its interests in the Arctic.

The company holds an 87.5 per cent stake in the Pitu block in Baffin Bay and has taken a $22.7m impairment because it has “no firm plans for future exploration activity” in the region.

Thomson said: “What we’re going to do is focus on where we’ve encountered significant value – and that’s Senegal. We’ve been pretty clear that we’re not going to drill in Greenland at current equity levels as the capital exposure would be too large for a company of our size. We still have the acreage so let’s see what happens in the future, but in the meantime our job is to follow up on the significant Senegalese success.”

The firm ended the first half with net cash of $869m, while its 10 per cent stake in former subsidiary Cairn India was valued at $703bn, but it is unable to sell its holding amid an ongoing tax dispute with Indian authorities.

“Because there’s uncertainty around that timing, we’ve been focused on rebuilding our finances quickly and the company can move forward without a Cairn India resolution,” Thomson said.

“Obviously we’re focused on getting a resolution but the Indian authorities are waiting for an answer from the tax office. We’re in a strong position from our point of view that we’ve been fully compliant and that’s been rigorously tested by our legal teams. We are strong without India.”