CAIRN Energy is moving into Senegal as part of its strategy to balance frontier exploration with less risky activity in the North Sea.

The Edinburgh-based oil and gas firm has agreed to acquire a 65% stake in three blocks off the West African country in exchange for funding a well and paying $10 million (£7m) associated costs.

The deal with Australia's FAR will give Cairn exposure to an area where little drilling has been done but which directors believe contains the ingredients for success.

Cairn said the acreage contains a number of drillable prospects.

It will be added to a portfolio of interests in underexplored areas in which Cairn believes it may replicate the success it enjoyed in India.

Cairn announced it cut operating losses to $247m last year from $1.1bn in the preceding year, after putting drilling activity off Greenland on hold. It has spent around $1.2bn drilling off the country without making a commercial find.

But directors remain excited about the potential of Greenland. The company is targeting a well on the Pitu block next year.

"It's not just Cairn, there's a number of other companies spending serious dollars pursuing the same thing," chief executive Simon Thomson told The Herald.

He believes the company has put itself into position to deliver value for shareholders after a busy year reshaping its portfolio.

"We are confident that we have built a balanced portfolio," said Mr Thomson, who succeeded founder Sir Bill Gammell as chief executive in July 2011.

After selling a controlling stake in Cairn India to Vedanta Resources for $5.4bn in 2011, the company returned $3.5bn to shareholders. It used some of the proceeds to build a big position in the North Sea through the acquisition of Agora and Nautical Petroleum for around $1bn in total.

The acquisitions gave Cairn stakes in giant finds including Catcher and Kraken, which it expects will generate plenty of cash to fund future exploration when they come onstream in coming years.

Mr Thomson played down the prospect of further big acquisitions.

"I was at pains (when talking to analysts) to remove the uncertainty that we were going to do some major move or acquisition."

But Cairn may add further exploration interests.

Directors believe the additions made in recent months have real potential.

Cairn plans to start a multi-well drilling programme in the autumn that will target prospects it estimates may contain 3.5 billion barrels oil.

This will include up to four wells off Morocco in 2013/14. The company acquired Moroccan acreage through the Nautical deal and a farm-out.

It expects to drill one or more wells off Senegal in 2013/14.

Cairn will decide later this year whether to seek clearance to drill a well off Greenland next year.

The company also has interests off Spain, Malta and Albania.

Asked about recent reports in India that Vedanta Resources was being encouraged to bid for Cairn Energy, Mr Thomson said: "I have been at Cairn for 17 years and I don't think a year has gone by when there haven't been rumours. We just have to keep our heads down and get on with the business."

He added: "We shrunk Cairn for a purpose: To give shareholders maximum gearing to exploration success."

Cairn retains a 10% stake in Cairn India, valued at around $1.1bn. It had $1.6bn cash at December 31.

No big finds have been made offshore Senegal, described in the CIA Factbook as one of the most stable democracies in Africa.

Mr Thomson said Cairn Energy had made rigorous risk analyses before deciding to invest in Senegal and Morocco.

Analysts at Jefferies told clients: "With a strong portfolio of development assets, growing suite of exploration acreage and strong balance sheet, we continue to see Cairn as having greater upside than is reflected in the current share price."

But analysts at Investec wrote: "While Cairn remains well-funded, we see limited material catalysts in the near-term."

Shares closed down 4%, or 10.8p, at 278.4p.