Cairn Energy (LON:CNE) said drilling on a three-well programme off the coast of Senegal will begin in the fourth quarter as it unveiled widening losses for the first half.
The company, which is embroiled in litigation with the Indian authorities over a US$1.6bn tax bill, also said it would “strongly contest” a draft assessment order and added that it has begun international arbitration proceedings.
While the interims revealed the explorer sank to a loss of US$230mln in the six months to June (compared with a US$62mln deficit a year earlier), they also revealed Cairn is on a sound financial footing with US$725mln on the balance sheet.
This means the firm holds more than half its current market capitalisation in cash.
The oil price does have some bearing on large explorers such as Cairn – evidenced by the fact the shares have fallen 14% in the past year; however, they are really made or broken by their ability to find oil.
That’s why Senegal, which could be host to as much as a billion barrels of crude, is crucial to its future plans.
Analysts from the top rated research team at Deutsche Bank said success in West Africa could be transformational.
And they point out that while the three appraisal wells are in deep water, the targets aren’t technically that difficult to drill.
Work tapping the resource will be preceded by a 3D seismic survey of the target area, Cairn told investors.
Chief executive Simon Thomson added: “Our aim is to maximise the value of our Senegal asset within a balanced, well-funded company.
“Cairn is well placed to take advantage of this exciting opportunity as we build on the success of last year's discoveries."
Separately, the company confirmed the net development capex required for the Catcher and Kraken projects, nearer to home in the North Sea, remains unchanged.
The net cost to Cairn will be US$615mln from second half of this year to expected free cash flow by year-end 2017.
It has a reserve-based lending facility of US$575mln to supplement the cash it has.