By Mark Williamson

CAIRN Energy is bailing out of Norway after suffering drilling reverses but has highlighted the importance of its UK North Sea operations.

Edinburgh-based Cairn has agreed to sell its Norwegian subsidiary to local player Solveig Gas for a headline $100 million (£78m) in a deal that will free up significant resources to invest in other areas.

The sale of the business will also relieve Cairn of $100m spending commitments in respect of the portfolio it amassed off Norway.

Chief executive Simon Thomson said: “This is a further attractive transaction for Cairn shareholders in line with our consistent strategy to realise value and redeploy capital within our portfolio.”

He added: “We continue to have a material business in the UK North Sea where production performance of the Kraken and Catcher assets remains strong.”

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The comments highlight the significance of Cairn’s UK production assets, from which the company earns huge amounts of cash that it can invest in other projects.

The money received from the Norwegian sale will supplement the income generated in the UK as Cairn prepares to face big bills in coming months.

Cairn is developing the bumper SNE find it made off Senegal under Mr Thomson’s plan to combine exploration in what are classed as frontier areas with lower risk activity in the North Sea.

The company is waiting to hear the outcome of a long-running tax case in India, which has tied up capital and management time.

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While Cairn suffered a setback with the Chimera well East of Shetland in October, it is thought the company has no plans to curtail exploration activity in the UK North Sea.

Mr Thomson has highlighted the potential to make big finds off the UK.

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All three wells drilled by Cairn off Norway this year were dry.

The company may still be pleased with the return achieved on the investment it has made in Norway, which offers generous tax breaks for exploration.

Cairn said the business it is selling to private equity-owned Solveig had net assets of around $80m at September 30.

In August Cairn sold half its interest in the Nova development in the Norwegian North Sea to One-Dyas Norge AS for an initial $59.5m.

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Cairn acquired an interest in Nova, formerly called Skarfjell, through the £280m takeover of Agora Oil & Gas in April 2012, two weeks before the field was disovered.

The Agora deal left Cairn with a 15 per cent stake in the 100 million barrel Catcher field east of Aberdeen, which it brought into production with Premier Oil in 2017.

Analysts at Citi investment bank welcomed the Norwegian disposal, noting: ”Following a mixed exploration track record in Norway, we see this as a positive step with Cairn able to focus on unlocking value from the core parts of its portfolio (Senegal and UK).”

They highlighted the potential for Cairn to increase estimates of the size of the reserves held in Catcher and the Kraken heavy oil field East of Shetland.

JP Morgan Cazenove analysts said the deal would put Cain in a stronger position ahead of it making a final investment decision (FID) to approve the development of the SNE find.Cairn said in September the partners in the field were moving towards FID in the second half of this year and targeting first oil in 2022.

The company is seeking $1.4 billion compensation from the Indian government in respect of the tax case, which dates from 2014. Cairn said last month that the international tribunal considering the case is expected to deliver a judgement in summer 2020. It insists it has paid all taxes due in India.