Cairn Energy PLC’s (LON:CNE) Indian tax dispute continued to distract from its growing North Sea oil business, as the London-listed group was forced to report a US$500mln loss for the first half of 2018.
It is locked in a prolonged international arbitration process on a tax dispute tied to now disposed assets, though with final hearings taking place last month, the process is now closer to a conclusion.
India has continued to enforce retrospective tax claims against Cairn, with the country's Income Tax Department forcing the sale of shares in Vedanta held by Cairn, seizing proceeds, and, also, seizing dividends due from the company’s shareholding in Vedanta.
READ: UBS fancies Cairn Energy as Catcher performance promises upgrade
Altogether, the IITD instructed the sale of a 3% shareholding in Vedanta during the year to date.
In its accounts Cairn marked a US$230mln loss for the ‘de-recognition of financial assets’ and a US$319mln loss against the fair value of its financial assets - if not for US$102.4mln of tax credits (tied to Norwegian exploration) the interim losses would’ve been steeper still.
Cairn told investors it “remains confident of its legal position” and highlighted that the UK-India Bilateral Investment Treaty “affords strong provisions to enforce a successful award”.
In London, Cairn Energy shares were down 8p or 3.45% at 224.3p though in early deals had changed hands as low as 214p.
North Sea ramp-up and production
Cairn’s management would, no doubt, have preferred the focus to have been on the group’s expansion in the North Sea, albeit the respective ramp-ups of the Catcher and Kraken oil fields could have arguably gone better.
Catcher, 20% owned by Cairn, averaged 27,000 barrels of oil equivalent per day during the first half with output constrained by commissioning operations. By August, however, the field was producing at a rate of 60,000 boepd.
The 29.5% owned Kraken field, meanwhile, averaged 30,700 bopd in the first half with rates dampened by ‘planned and unplanned’ downtime. Cairn said the field was producing between 35,000 and 40,000 bopd (gross) in August.
Combined production net to Cairn averaged 14,400 boepd in the first half while a comparative figure presented just for June came in at 19,700 boepd.
It recorded US$172mln of oil sales and, as the field ramp up work continued, it had cash outflows of US$86mln in the first half at the Kraken, Catcher, Senegal and Nova developments (a further US$124mln is anticipated in the second half).
It also reported some US$48mln of outflow in connection with exploration, with US$74mln forecast in the second half (these figures are net of the Norwegian tax rebates).
Cairn ended June with a US$75mln cash balance.
Chief executive boasts of “strong progress”
Cairn boss Simon Thomson, in his statement, highlighted what he described as the group’s “strong progress across its balanced portfolio.”
“Cash flow from the North Sea is now established and development projects in Senegal and Norway are well advanced to support the production base over the long term.
“We are also delighted to have enhanced our exploration portfolio with potentially high impact opportunities across frontier and emerging basins. This additional acreage supplements our existing active programmes in the UK, Norway and Mexico.
“This continued strategic delivery, together with our strong balance sheet, ensures Cairn remains well-positioned to access material value growth potential."
Looking ahead, the company is positioned to advance its major discoveries offshore Senegal towards key development milestones.
In the first half, Cairn submitted a project evaluation report which envisaged a multi-phase development around a 500mln barrel oil resource, which could yield some 100,000 bopd of gross production.
Engineering design operations are underway and will input into a Development and Exploitation Plan, due for submission later this year before the project reaches an anticipated final investment decision in 2019.
Cairn, in the meantime, said it is progressing details work on project financing.