Cairn Energy narrows loss as development continues

Cairn Energy posted its half-year results to 30 June on Tuesday, reporting $414m group net cash at period end, and Norwegian tax receivable of $45m.

Its total loss after tax for the period was $38m, narrowing significantly from $230m in the first half of last year.

The FTSE 250 firm’s reserves-based lending bank facility remains undrawn, and its debt availability to fund UK development assets was said to be increasing with project progress.

It said availability is expected to reach $260m by 2017, with an additional $175m available in the form of letters of credit.

Cairn’s forecast net capital expenditure for the Catcher and Kraken development projects is $315m from H2 2016 to expected free cash flow by year end 2017, the board confirmed.

It also reported envisaged future exploration and appraisal expenditure across the portfolio is $135m, of which $55m is current committed activity, with the balance principally relating to expected additional drilling activity in Senegal.

Cairn is currently unable to access the value of its 10% residual shareholding in Cairn India Limited, valued at $383m at 30 June 2016, or accrued dividend payments of $50m, it said.

As a result, international arbitration proceedings have commenced in respect of Cairn's claim under the UK-India Bilateral Investment Treaty.

Cairn is seeking restitution for losses resulting from the attachment of its shares in CIL and the alleged failure to treat Cairn and its investments fairly and equitably.

On the exploration front in Senegal, Cairn has drilled six wells in two years - two basin-opening discoveries and four successful appraisal wells.

Upgraded, independently verified current best estimates for gross oil in place on the SNE field was now more than 2.7 billion barrels, the board said, and Cairn estimated further Senegal exploration potential of 500 million barrels of gross mean risked resource.

Its joint venture was planning a third phase drilling programme commencing in Q4 2016 and Q1 2017, with further evaluation of the SNE discovery.

Cairn has issued a rig tender for the next phase of appraisal and exploration, which it said will benefit from the current lower cost environment.

Conceptual development planning was underway to include range of potential options including phased development to capture a potentially large resource base.

At Kraken, Cairn said development remained on schedule with first oil anticipated in H1 2017.

The latest gross capital expenditure estimate is $300m, or more than 10% lower than the sanction estimate, the board confirmed.

In H1, the company acquired an additional 4.5% in the development bringing Cairn's total working interest to 29.5%.

Catcher, where Cairn has a 20% working interest, is targeting first oil in H2 2017 with the FPSO hull now in Singapore, and further cost reductions secured.

The latest gross capex estimate wa now 20% lower than at sanction for Catcher.

Skarfjell, where Cairn’s working interest also totals 20%, saw its joint venture working towards concept selection for field development, with a decision expected Q4 2016.

“Successful appraisal of the world-class SNE discovery in Senegal has significantly increased 2C oil resources to 473 million barrels with associated 2C oil in place in excess of 2.7 billion barrels,” said chief executive Simon Thomson.

“Drilling is scheduled to re-commence in Senegal shortly, benefiting from lower costs across the sector.

“The programme contains options for multiple wells and in addition to ongoing appraisal of the SNE field, the joint venture continues to assess optimal locations for further exploration drilling on the acreage,” he explained.

Thomson said Cairn's exploration and appraisal focus in Senegal is balanced with development assets in the UK, with first oil targeted from both Kraken and Catcher during 2017.

“In the meantime Cairn remains fully-funded in respect of all of its capital commitments.”