CAIRN Energy chief executive Simon Thomson has underlined the company’s appetite for acquisitions in areas such as the North Sea noting the downturn triggered by the coronavirus crisis has created the opportunity to buy assets at attractive prices.
Mr Thomson reckons Cairn is in a strong position to capitalise on the upheaval that is underway in the sector after building up significant cash reserves helped by its North Sea production.
READ MORE: Scale of North Sea challenge underlined by ratings agency
The company saw revenues fall in the first half but still managed to generate plenty of cash from its North Sea operations.
Cairn highlighted a strong performance from the Kraken field East of Shetland and the Catcher development off Aberdeen in its interim results.
Mr Thomson noted that Cairn sees significant potential to make further discoveries in the area of the Kraken field.
This forms part of a North Sea business that could be scaled up.
“We’ve got an established position there; we’ve got a team working on it so there are some obvious synergies,” said Mr Thomson regarding the potential appeal of North Sea acquisitions.
He said Cairn expects North Sea assets to come on to the market at what the company regards as an attractive point in the cycle to access “accretive portfolio additions” around the world.
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Mr Thomson noted: “We are seeing multiple packages coming to the market as majors in particular divest.”
Cairn would be interested in buying assets that could provide a long term boost to production.
The company has used cash generated in the North Sea to support exploration activity in a range of relatively under-explored areas around the world.
In July the company agreed a $400 million deal to sell acreage off Senegal containing a big find that it made.
Cairn cut the valuation of its Senegal assets in by around $200m in its interim results to reflect the impact of the deal. However, Mr Thomson noted the sale would allow it to raise cash and avoid having to make the hefty capital investment required to develop the Sangomar find.
Cain expects to pay $250m of the sale proceeds out to shareholders.
READ MORE: Edinburgh oil firm faces fresh complication in $1.4bn Indian tax saga
The company has indicated it could pay out much bigger sums if it wins a long-running legal battle with the Indian government over a tax case, which is nearing a conclusion.
Cairn is seeking more than $1.4 billion compensation from the Indian government and insists it has paid all taxes due in the country. An international arbitration panel that is considering the matter is expected to deliver its decision after the end of the summer. Mr Thomson has indicated the company could pay a significant share of any compensation it gets to shareholders.
Cairn recorded an accounting loss of $323m in the first half, following the plunge in oil and gas prices during the period, compared with a $67m profit last time.
However, Mr Thomson said the company was well positioned, with $84m cash and no debt at June 30, and limited capital spending commitments.
The first half loss was stated after a $207m provision in respect of Cairn’s Senegal assets. Cairn recorded a $33m impairment charge in respect of Kraken to reflect changes in its short-term oil price assumption.
Mr Thomson said the company’s belief in Kraken is undiminished. It thinks there may be more than 100m additional barrels to be found in the Western Flank area.
However, Cairn seems to be cooling on the Agar/Plantain find East of Shetland, which lies on acreage it bought in to in 2018. The company said this is no longer expected to proceed to development. Mr Thomson said: “Thus far we have not seen sufficient commerciality to proceed”.
READ MORE: Shetland discovery provides boost for North Sea oil industry
He noted that Cairn is investing in early stage projects that will help assess the potential to use carbon, capture and storage technology in the North Sea.
“Oil and gas will have a role to play in the energy transition and we will be part of that,” said Mr Thomson.
Cairn generated $172m oil sales revenues in the first half, all in the North Sea, against $255m last time.
It received an average $40.21 for its oil compared with $67.84 in the same period of 2019.
The company’s average production costs fell to $16.29 per barrel from $16.78/bbl.
It cut planned capital expenditure for the year to $135m from $215m in response to the fall in commodity prices, partly by deferring some work on North Sea assets.
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