SHARES in Cairn Energy were boosted after the oil and gas company slashed operating costs by reducing its stake in a lucrative development off Norway.
Edinburgh-based Cairn offloaded 10 per cent of its interest in the Nova development, located in the Norwegian North Sea, to ONE-Dyas Norge AS for an initial $59.5 million (£48.8m).
The farm-out agreement leaves Cairn with a non-operated 10% interest in the Nova area, which is operated by Wintershall, while cutting its capital expenditure in the field. It said costs will reduce by $110m to the end of 2021.
READ MORE: Edinburgh oil and gas firm Cairn bids for exploration licences off Israel
Nova is forecast to deliver 50,000 barrels of oil per day (bopd) at its peak, with Cairn’s net production share now reduced to 5,000 bopd. First oil remains on course to be achieved in 2021.
Analysts at Numis said the deal “clearly improves the liquidity position of the business by reducing forward capex and providing a cash injection.”
And the analyst added that it augurs well for Cairn’s bumper find off Senegal, where the firm is look to begin production in 2022. Numis said: “We have previously forecast Cairn is well funded for its existing share of the Senegal (SNE) development project through to the end of next year, before the capex ramp-up starts to exert pressure on the balance sheet. This transaction provides management with further headroom to decide the best time/price to monetise a stake in SNE.”
READ MORE: Cairn Energy suffers drilling setback
Based on Cairn’s most recent annual report, published on March 12, the gross value of the assets being transferred to ONE-Dyas was $62.5m, while the net value was $28.5m.
The decision by Cairn to cash in on part of its interest in Nova may be seen as a boost to the firm after it experienced some disappointment with the drill bit off Norway.
On Monday the firm said no traces of petroleum were found during drilling on a wildcat well in a licence area where Cairn holds a 40% stake. The well, part of a licence including the Godalen prospect, was located around 13 kilometres north-east of the Norne field and 200km west of Sandnessjoen. The Norwegian Petroleum Directorate said the well was dry.
That disappointment came after the directorate announced the same conclusion following drilling on a wildcat well in the Lynghaug prospect in July. The Lynghaug well was the first Cairn has directed off Norway as the operator in charge of the exercise, with the well also the first to have been drilled on the Norwegian Sea licence concerned. Cairn also took part in a well drilled by Equinor off Norwway earlier this year which was also dry.
READ MORE: Edinburgh oil firm highlights profitability of North Sea production
While those results were disappointing, Cairn has scheduled a further drilling campaign for the UK and Norwegian North Sea next year.
The company, which inherited its interest in Nova with the acquisition of Norway’s Agora Oil and Gas AG in 2012, said it would use the proceeds from yesterday’s deal to fund group exploration and development activities.
Last month it revealed it had applied for oil and gas exploration licences off Israel after falling short in a bid for a portfolio containing significant interests in the Mediterranean. The Israeli energy ministry said Cairn had bid for acreage as part of a drive to encourage international firms to help the country make the most of its resources.
The company’s main interests in the UK North Sea are the giant Catcher and Kraken fields. Both projects achieved first oil in 2017. Cairn holds a 20% stake in Catcher and 29.5% in Kraken, both non-operated basis. In March Cairn slashed the valuation of the Kraken field east of Shetland by $166m, after cutting its estimates of reserves. However it signalled the shortfall would be offset by the Catcher field east of Aberdeen.
Shares in Cairn closed up 2% at 149p.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules here