Macquarie raises target price on Cairn Energy, upgrades to 'outperform'

Analysts at Macquarie revised their target price on shares of Cairn Energy higher in anticipation of progress in Senegal and the start of cash flow generation in the North Sea.

The Australian broker said it was hopeful that full data from an interference test at its Senegal operations would yield an uplift to the estimated recoverable resource volumes, adding 9.0p to its valuation of the shares.

"The current 470 mmboe 2C resource estimate assumes a lower level of recoverability in these reservoirs, which could be increased if waterflooding could be used in a higher proportion than currently being modelled," analysts Kate Sloan, Iain Reid and Giaccomo Romeo said in a research note sent to clients.

Those results were expected to be announced alongside the company's interims in August.

In parallel, Kraken was expected to come onstream over the next six weeks and to reach plateau over the following few months (15,000 barrels of oil per day), while first oil at Catcher (10,000 b/d to Cairn) was targeted for December 2017.

Regarding Catcher, Macquarie believed the first half of 2018 was a more likely date, although short delays wouldn't hurt the investment case.

Combined, the broker believed those two projects would generate operating cash flows of $280.0m in 2019 rising to $345.0m in 2020 on the assumption of Brent oil prices of $56 and $70, respectively.

Together with the impact from a decrease in SNE risking (now 75% instead of 60%) which added 21.0p to its target price and another 6.0p for Skarfjell, Macquarie lifted its target price on the stock from 246.0p to 270.0p.

Its recommendation on the stock was upgraded to 'outperform'.