CAIRN Energy’s plan to develop a bumper find it made in West Africa has hit a potential snag amid the fallout from the crude price plunge.
In January Edinburgh-based Cairn approved a plan to develop the Sangomar find off Senegal with partners.
However, one of the partners, FAR, is facing funding challenges following the fall in commodity prices that was triggered by the spread of the coronavirus around the world.
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The Australian company told investors in April that it had put its stake in Sangomar up for sale noting the oil price collapse had adversely impacted its financing plans for the field development.
On Wednesday, FAR said its subsidiary in Senegal has not paid the most recent development cash call in respect of Sangomar. The subsidiary has been notified that it is in default of its financial obligations to the joint venture that was formed to develop Sangomar.
The subsidiary has six months to fulfil its obligations or its stake in Sangomar could be forfeit.
Cairn Energy could then be left with an increased holding in the field but be required to shoulder a bigger share of the related project costs.
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David Round, an oil and gas analyst at BMO Capital Markets, said the economics of Sangomar still stood up with Brent crude trading at around $40 per barrel. But he noted: "The last thing Cairn needs right now is a higher capex burden that would come with FAR's defaulting stake, particularly as we still await clarity on Cairn's own funding situation."
Developments on Sangomar highlight the scale of the challenges that could face oil and gas firms that want to develop fields amid current market conditions.
Sangomar was the biggest oil find made anywhere in the world in 2014.
Cairn declined to comment yesterday.
However, the Australian company that is leading work on Sagmomar, Woodside, has underlined its confidence that first oil will be achieved as planned in 2023.
Woodside said on Tuesday: “We are working with project contractors, the Government of the Republic of Senegal and our joint venture partners to optimise near-term spend while protecting the overall value of the investment and deliver first oil in 2023.”
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