CAIRN Energy is selling its North Sea production assets for $460 million (£330m) as it shifts investment to Egypt amid the wait for the Indian Government to pay $1.2 billion damages awarded to the firm.
The Edinburgh-based oil and gas firm has clinched a deal to sell its stakes in the giant Catcher and Kraken fields off Scotland to a business focused on the North Sea, as the shake-up in the area triggered by the coronavirus crisis continues.
A range of firms have sold North Sea assets in response to the ensuing downturn.
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Cairn could use some of the capital raised from the deal with Waldorf Production to fund the planned acquisition of oil giant Shell’s production business onshore Egypt, with a local partner. Cairn's share of the cost will be $323m.
Chief executive Simon Thomson noted the acquisition would result in Cairn securing a big increase in production and reserves. The company expects to be able to generate plenty of cash from the Egyptian portfolio well into the next decade.
Regarding the sale of its interests in Kraken and Catcher, Mr Thomson said: “It’s the right time for us to dispose of these assets; it doesn’t diminish our enthusiasm for the North Sea in any way.”
Mr Thomson noted that Kraken and Catcher have both passed peak production.
He said: “The divestment of our UK producing assets as they move into decline phase, will further strengthen our ability to pursue Cairn’s strategic goals and position the company robustly for the decade ahead.”
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Cairn is still engaged in exploration work in the North Sea. It plans to drill two wells with Shell on acreage close to existing production facilities. The company is also engaged in early-stage work in the East Orkney basin, which Mr Thomson described as frontier activity.
The deal with Waldorf has been agreed as Cairn faces frustration in its attempt to bring an end to the tax dispute in India that has dogged the company for seven years.
In December an international arbitration tribunal awarded Cairn $1.2bn damages plus interest and costs, which Cairn reckons totalled a further $0.5bn by the end of 2020. The Government of India has not handed over the money due.
“We are pursuing all avenues to protect our shareholders’ rights to the value of the award,” said Mr Thomson, who visited Delhi last month.
He said talks with the Indian government are continuing. Cairn will consider enforcement or other measures to allow it to get the money due if talks do not produce the desired result.
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Mr Thomson has said Cairn could pay out a significant share of any proceeds received from the Indian government to investors. He noted yesterday that the company is not dependent on getting any money under the settlement to be able to deliver on its strategy.
Cairn recently paid out $250m to shareholders following the sale last year of its interests off Senegal for $400m. These included a stake in the Sangomar field, which Cairn discovered.
Cairn made bumper finds in India under its founder Sir Bill Gammell. The dispute with the country’s government started in 2014. It concerns events leading up to the flotation of the firm’s former subsidiary, Cairn India, in 2007.
Cairn bought into Catcher and Kraken and helped fund the development of both under Mr Thomson’s plan to combine relatively low risk activity in the North Sea with potentially transformational exploration work elsewhere.
Mr Thomson noted the potential to make finds on the Western Desert acreage in Egypt that Cairn has agreed to acquire from Shell, with Cheiron Petroleum. Cairn acquired exploration acreage off Israel last year. It also has interests in the Americas and West Africa.
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Cairn generated $324m sales revenue in the North Sea last year, compared with $502m in 2019.
It made a bottom-line loss of $394m after tax, against $94m profit last time. The company recorded a $237m loss on the Senegal deal.
Cairn had $570m cash at the year end, before paying the $250m in respect of the Senegal sale.
Waldorf Production was founded in 2019 by Erik Brodahl and Jon Skabo, who are veterans of the Norwegian oil and gas and private equity industries. Waldorf bought Endeavour Energy UK that year in a deal that gave it stakes in four fields.
Subject to approval by Cairn shareholders, it will acquire a 20% stake in Catcher and 29.5% interest in Kraken. The purchase cost may increase dependent on oil prices and the production performance of the fields.
On Monday private equity-funded NEO Energy said it was buying North Sea-focused Zennor Petroleum for up to $625m.
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Zennor won backing from the Kerogen Capital private equity business during the last downturn.
NEO agreed last month to buy the bulk of US giant ExxonMobil’s North Sea business, for around $1bn. It bought a big North Sea portfolio from Total last year.
Cairn Energy shares closed down 3%, 5.9p, at 192.8p.
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