CAIRN Energy has underlined the value of the giant new North Sea oil fields it has stakes in at the start of a year that could feature momentous developments for the firm in other countries.
Edinburgh-based Cairn said the Kraken and Catcher developments which came onstream last year off Scotland are ramping up to plateau production putting them on course to develop “significant cash flows” for it to invest.
Cairn is in line to generate hundreds of millions of dollars from sales of output from the fields annually.
The funds will give Cairn valuable fire power which it could use to bring the giant discoveries it has made off Senegal into production.
Cairn expects to decide this year whether to sanction the huge investment that would be required to develop the SNE find off the country.
The cash from the North Sea also eases the funding challenges posed by the long-running tax dispute in India, which Cairn hopes will reach a conclusion in August.
The company has more than $1 billion (£0.7bn) riding on the outcome of the case. It concerns events leading up to the flotation of Cairn’s former subsidiary in India in 2007.
Noting the potential for Kraken and Catcher to generate cash, analysts at Citigroup said Cairn’s robust balance sheet helped the company stand out from sector peers.
Many firms have faced pressure on their finances following the sharp fall in the crude price since 2014.
Cairn has also been able to draw on resources amassed following its success in India, where the firm made bumper finds under its founder Sir Bill Gammell.
“Cairn provides a strong balance sheet, near term UK asset cash flows, further upside potential from offshore Senegal and the possibility to unlock value from India,” the Citigroup analysts wrote.
In an operational update published yesterday, Cairn said it expects North Sea production to average up to 20,000 barrels oil daily this year and noted the potential to increase output.
The company reckons it could produce 10,000 barrels oil daily from the Skarfjell field in the Norwegian North Sea, which it may bring onstream in 2021.
Chief executive Simon Thomson said Cairn expects to sanction the Skarfjell development in the first half.
He also underlined Cairn’s faith in the exploration potential of the waters off the UK and Norway, noting: “This year, we will begin a sustained drilling campaign in the UK and Norway where Cairn has built an extensive portfolio.”
Cairn told analysts recently it planned to drill two UK wells targeting prospects containing 190 million barrels oil equivalent.It made multiple applications for exploration licences in the latest UK round.
Cairn’s experience of developing Kraken off Shetland and Catcher east of Aberdeen, with partners, was good.
The projects are expected to come in 25 per cent and 30 per cent under budget respectively. The costs of support services have tumbled amid cuts in investment by many firms since 2014.
The 2018/19 drilling effort may include 10 or more wells off Norway, which offers generous tax breaks.
Cairn aims to have a plan to develop the SNE find off Senegal with partners approved this year. SNE is estimated to hold 560 million barrels. The hope is to produce first oil in the 2021 to 2023 window.
It plans to start drilling off Mexico next year.
Cairn expects the arbitration panel considering the Indian tax case to reach a decision in August.
The firm has been prevented from selling its remaining $1.1bn stake in its former subsidiary in India and from receiving $0.1bn dividends pending the outcome. Cairn insists it has paid all tax due.
It has hedges in place to sell 2m barrels oil this year, less than a third of its expected North Sea output, for an average of at least $58.4 per barrel.
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