Cairn Energy shares fall on Canaccord downgrade

Cairn Energy was on Tuesday downgraded by Canaccord Genuity to a ‘hold’ rating from ‘buy’ and its target price cut to 220p from 240p.

The downgrade follows news that Woodside Petroleum has agreed to pay $430m for ConocoPhillips’ 35% stake in Senegal offshore oil joint venture, SNE, operated by Cairn Energy.

Woodside is paying $12.3m per percentage of working interest, which implies a cash valuation of $491m for Cairn's 40% holding in the assets covering three blocks offshore Senegal.

“That is substantially below our previous net present value estimate at $65 per barrel of light crude Brent of $747m,” said Canaccord analyst Charlie Sharp.

“The lower price may be through a combination of assumption of a higher discount rate, lower oil price, higher development risk assessment and/or capital expenditure. As the new potential development operator, there will be considerable focus on Woodside, and it is to be hoped that lessons have been learnt from the disappointing history of the Chinguetti field offshore Mauretania.”

The analyst added that the negative impact of the valuation is tempered by the recent strong market performance of Cairn India, which is still 9.7% owned by Cairn Energy.

However, Canaccord said it “cannot be sure how the recent Cairn India share price rally will hold up” so reduced its rating to ‘hold’.

Shares fell 2.55% to 195.20p at 0917 BST.