The two fields establish a new cash generating base for the group, yielding 25,000 barrels of oil per day in due course, though the financial results statement released today remains firmly focused on new field development projects.
Cairn said it expects the 20%-owned Nova (Skarfell) project in the Norwegian North Sea will be sanctioned for development shortly, allowing for its ‘first oil’ by 2021. The field will deliver a gross plateau rate of 50,000 bopd.
Significantly, it highlighted that the high profile project offshore Senegal is now targeting first oil sometime between 2021 and 2023.
Brokers keep with Cairn
“Cairn has established a balanced E&P business with plateau production from their UK North Sea fields expected H1/18,” said Nathan Piper, analyst at RBC Capital.
“Senegal progresses toward submission/approval of exploitation plan H2/18 and the arbitration timing is reconfirmed with final hearing in August and a ruling Q4/18, could be a $1.3bn award.
“Cash flows provide the financial strength for significant shareholder returns on conclusion of the arbitration or Senegal farm down.”
RBC has an ‘overweight’ rating for Cairn, with a 300p price target suggesting almost 50% upside to the current price of 203.4p.
Elsewhere, UBS analyst Amy Wong highlighted that Cairn’s main ‘2018 markers’ were reiterated in the results statement and suggested that the recent outperformance in the share price may be pared as no new information emerged.
Particularly significant, according to UBS, was that the SNE project’s first oil target was maintained along with the anticipated schedule for the India tax arbitration to conclude in August.
Strong and balanced business
"With first oil production from its North Sea developments, Cairn continues to deliver a strong and balanced business with a growing production base supporting further development and a multi-well exploration programme offering significant growth potential,” said chief executive Simon Thomson.
“The SNE field in Senegal is now fully-appraised and the Joint Venture is targeting Government approval of the Exploitation Plan by the end of this year.
“The company continues to maintain balance sheet strength and financial flexibility as we focus on creating, adding and realising value for shareholders from a portfolio of attractive exploration, development and production assets."
Catcher and Kraken completed in 2017
Catcher came online in December, whereas Kraken began in June. The financial results, for the twelve months ended December 31, included just US$19.9mln of oil sales.
The continuing ramp up to plateau will see cash generation increase, in future results. Together the two North Sea fields are due to give Cairn net production of around 25,000 bopd (it has 20% of Catcher which is due to yield 60,000 bopd, and 29.5% of Kraken which will have 50,000 bopd).
Senegal advancing towards development
In Senegal, where it has the most material opportunity (owning 40% of three offshore block) the company is advancing drilling and pre-development operations.
Last year, Cairn successfully completed five wells on the SNE discoveries. The project has already passed the threshold for a development concept, with a 100,000 bopd first phase envisaged, with an initial 25 well field addressing some 240mln barrels of crude resources.
Cairn is expecting its joint venture will complete an evaluation report in the first half of this year, before starting front end engineering design (FEED) work during the second half along with the submission of a exploitation plan to the authorities (also before the end of 2018).
Cairn reported a US$6.6mln gross profit for the year, on total revenues of US$33.3mln.
It report a net profit of US$263.1mln, due to the inclusion of value relating to the Cairn India/Vedanta asset though it is tied up in what has been a protracted tax dispute and arbitration. The company said it retains a high level of confidence in its case, and noted that the process is at an advanced stage.
At the end of December, Cairn had US$86mln of cash and had US$200mln available under its reserves based lending facility (the peak undrawn availability is expected at around US$350-400mln).