Cairn raises estimate of Skarfjell reserves

CAIRN Energy have celebrated a successful test well in the Norwegian North Sea, which showed the prospect contains more oil than previously thought.

The Skarfjell appraisal well sheds light on one of the largest discoveries in the Norwegian sector in recent years, which will now be developed into a producing field. Edinburgh-based Cairn, which has a 20 per cent stake in Skarfjell, now thinks it contains between 74 million and 235 million barrels. The figures have been revised up from a previous estimate of 60 million to 160 million.

Chief executive Simon Thomson said: “Skarfjell is one of the largest discoveries in the Norwegian sector of the North Sea in recent years.

“The combination of very good reservoir and large volumes will allow this discovery to be progressed towards development, with a number of commercially attractive options possible including a standalone facility or a hub development incorporating surrounding undeveloped discoveries.”

The Skarfjell oil field was discovered in April 2012. The test well is being operated by Wintershall Norge, which has a 35 per cent stake in the field.

Jefferies analyst Laura Loppacher said that although development plans were yet to be agreed, Skarfjell could start producing oil commercially by about 2018. “Cairn’s North Sea strategy is to add lower-risk incremental volume and value through exploration and use these assets to generate cash flow to support its higher-impact, transformative exploration programme” she said. “We believe this result highlights the value of this strategy.”

She said the test added about 8p to her “risked” valuation of Cairn.

In recent weeks Cairn has been valued on the Stock Exchange at less than the total of its cash and investments, as investors ponder its plans to spend £300 million a year on exploration, mostly in the vast and undeveloped Atlantic margin.

The firm still holds a valuable minority stake in offshoot Cairn India, which yesterday announced its 26th oil discovery in Rajasthan.

The company, now controlled by miner Vedanta Resources, said it had found a ten metre oil column in the Dharvi Dungar Formation in the Raageshwari-Tukaram area, where previous discoveries have been made in the shallower Thumbli sands. It is still evaluating its test to work out how much oil is in the discovery.

Interim chief executive P Elango said: “We are delighted with the 26th discovery in the block. This reaffirms our belief that an aggressive exploration drilling programme will help harness the full potential of the Barmer Basin in Rajasthan.

“This is a step closer towards reserve accretion through exploration led growth.”