CAIRN Energy has slashed the valuation of a flagship field off Shetland by $166m but said its enthusiasm for investing in the wider North Sea remains undiminished.

Read more: Giant Shetland field poses challenge for oil firms

The write down resulted in losses increasing at Edinburgh-based Cairn last year although the firm enjoyed a big boost to income on the back of growing North Sea production.

It came after Cairn cut its estimates of the amount of commercial reserves in the Kraken field East of Shetland by around 20 per cent, 6.8m barrels, following setbacks.

The move could cause alarm in the North Sea oil industry, which received a boost from the start-up of the Kraken field in 2017 amid the fallout from the crude price plunge.

Read more: Oil and gas firms use winnings from North Sea bets to fund expansion overseas

Kraken is the kind of heavy oil field that could have been considered too challenging for development in the past.

However, Cairn’s chief executive Simon Thomson said the problems would not make Cairn less likely to make further investments off Shetland and in the wider North Sea area.The company has built a big North Sea position through acquisitions since he took charge in 2011.

Read more: Cairn makes £414m bid for Nautical Petroleum

“We’ve got a big programme in the North Sea this year and we remain very interested in assessing, whether it’s exploration opportunities, appraisal or even potentially further development opportunities,” he said.

Mr Thomson highlighted the value of the company’s North Sea production base, which he noted generated enough cash to fund an active drilling programme focused on relatively under-explored areas around the world.

The production shortfall at Kraken had been more than offset by the better than expected performance of the Catcher field east of Aberdeen, which Cairn brought into production with partners in December 2017.

Cairn’s partner in Kraken, EnQuest said it does not expect to recognise any impairment charge related to Kraken in its 2018 results.It said: “EnQuest and Cairn utilise different technical approaches to Kraken production forecasting in preparing their reserve profiles.”

However, with shares in Cairn and EnQuest falling four per cent and 14% respectively yesterday investors may have decided to err on the side of caution.

Cairn shares fell by 11% on Monday after the firm revealed it had suffered a setback in its efforts to get $1.4 billion compensation from the Indian government in respect of a long-running tax dispute in the country.

Read more: Cairn Energy shares plunge after setback in $1.4bn Indian tax dispute

Cairn said then that an arbitration panel that is considering the case, which dates back to 2014, may not deliver a decision until late this year. In January Cairn had expected a judgement in the near term.

Mr Thomson said yesterday: “We remain very confident of the merits of our position. We look forward to the award and to resolution and we look forward to then moving forward with our plans for further cash returns to shareholders.”

Cairn’s operating losses increased to $182m in 2018 from $105m but the company made good progress reckons Mr Cairn.

Revenues increased to $410m from $33m reflecting full year contributions from Kraken and Catcher.

The company is on track with preparations to start production in 2022 from the bumper SNE find it made off Senegal in 2014. It expects to start production from the Nova field in the Norwegian North Sea in 2021.

Cairn made bumper finds in India under founder Sir Bill Gammell. It has been prevented from selling its remaining interests in India pending resolution of the tax dispute.

The company recorded $1.06bn non-cash charges related to the dispute last year, pushing it to a net loss of $1.27bn. Shares in the firm closed down 7p at 167.7p.