Norwegian North Sea oil find gives Cairn Energy shares a welcome boost

Cairn Energy shares rose after Agora struck oil off Norwegian coast
Cairn Energy shares rose after Agora struck oil off Norwegian coast
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SHARES in oil and gas explorer Cairn Energy received a boost after the firm unveiled some rare good news about an oil discovery in the Norwegian sector of the North Sea.

Agora Oil & Gas, which the Edinburgh-based Cairn is in the process of buying, announced it had made a “promising” light oil discovery on the Skarfjell Prospect.

It estimated the find to have between 60 million and 160 million barrels of recoverable oil, and said that the find was “likely to be commercial”, adding that a new 3D seismic acquisition programme over the discovery was already under way.

Stavanger-based Agora has a 20 per cent stake in the field, along with its operator Wintershall Norge, Bayerngas Norge AS and Edison International Norway Branch. The announcement comes less than a fortnight after Cairn announced its $450 million (£283.9m) deal to buy Agora. Shares in Cairn rose 2.19 per cent to 327p.

There have been suggestions the Edinburgh firm paid a high price for Agora, but analysts at Mirabaud said the oil find underlines the merits of the acquisition.

Analysts at Morgan Stanley added: “With around $1 billion of cash post the Agora transaction plus the $2.8bn Cairn India stake, Cairn is very well funded to pursue new venture opportunities, which Agora, due to its cash constraints, could not pursue, plus other new ventures elsewhere in Europe.”

Many believe that Cairn needed “new strings on its bow” since chief executive Simon Thomson took over as chief executive, replacing Sir Bill Gammell.

After the firm sold a controlling stake in the massive Indian oil business it founded to Vedanta Resources for $5.5bn, which saw the firm return $3.5bn to shareholders, investors and watchers have been waiting for it come up with the next big thing. The size of the deal saw the company fall out of the FTSE 100 index of the UK’s biggest companies.

Its share price was also battered by a flow of bad news from Greenland, where it plugged all eight of its initial exploratory offshore wells after spending $1.2bn in 2010 and 2011.

And while Cairn has always insisted that exploring its licences in the iceberg-prone waters off Greenland was “not about finding a needle in a haystack, but about finding the haystack”, it signed a deal with Norwegian giant Statoil in January to help develop its vast blocks there.

Last month, Gammell maintained that “all of the ingredients for success” were present in Greenland and that this year it would continue explorations along with Statoil.

The company is also preparing a bid to explore the gas-rich areas off Lebanon, where interest in the eastern Mediterranean has grown since two natural gas fields were discovered off the coast. Estimates value reserves there at tens of billions of dollars.

But last week it was announced that Lebanon would delay tenders for offshore exploratory drilling until the mid-year. Cairn is one of several explorers to have expressed interest in drilling in the region, and has set up a local partnership with CCC, one of the largest construction contractors in the Middle East.

Agora said the Norwegian well revealed “very good quality” upper Jurassic reservoir sandstone containing light oil.

Meanwhile, Agora also said it had abandoned a different well, the Cladhan South exploration in the UK Northern North Sea.

Svein Ilebekk, chief executive of Agora said: “We are very pleased to make such a promising discovery with our first well in the Norwegian sector.

“The combination of good reservoir properties, long oil column and large in-place volumes makes us confident in the commerciality of Skarfjell and we see good potential for the appraisal campaign to prove further upside volumes beyond the current range indicated by this well.”

He added: “Cairn’s size and strength will help us support the development and production of Skarfjell, should that ultimately prove to be the most attractive way of realising value from this discovery.”

The completion of the Agora acquisition is subject to approval from the relevant regulatory authorities in the UK and Norway.