Cairn Energy PLC (LON:CNE) is promising a big year of exploration, targeting a billion barrels of potential resources across projects in the UK, Norway and Mexico.
The company, which is paying for drilling from its production cash flow, said as many as seven new exploration wells are planned in 2019.
It started earlier this month with the spudding of the Equinor-operated Presto well in the Norwegian North Sea, which is 30% owned by Cairn.
Presto is the first of four planned North Sea wells. It will be followed in the third quarter by the drilling of the Lynghaug well, 50% owned by Cairn, and the company’s first operated well in Norwegian waters.
READ: Cairn Energy reveals delay to India arbitration result
It will be followed up by the Godalen and Chimera wells, 40% and 60% owned respectively, both of which are planned for the fourth quarter.
The first of four planned Mexico wells is due to be drilled in the third quarter, presently potential well locations are being surveyed ahead of the campaign.
Cairn highlighted that 500mln barrels worth of exploration targets will be drilled across the Norwegian and UK North Sea, while a further 500mln worth of prospects will be tested by Mexican drilling.
Exploration work is being advanced in parallel with field development operations to grow production, though the new fields in Senegal and Norway aren’t projected to reach ‘first oil’ until 2022 and 2021 respectively.
In terms of its production outlook, Cairn estimates it will produce 19,000 to 20,000 net barrels of oil per day, at a low average production cost of around US$20 per barrel.
Financial results for 2018
Tuesday’s financial results statement confirmed net production averaged 17,500 barrels oil equivalent per day in 2018. It generated some US$396mln from oil and gas sales, with the average price coming in at US$68 per barrel.
That resulted in a net cash flow inflow of US$229mln, the company said, meanwhile the capital expenditure outflow was reported at around US$252mln.
An impairment against the Kraken field, following a downgrade of the reserves downgrade, meant the company reported a US$182mln net loss for the financial year, meanwhile, a write-down related to the value of its investments in Cairn India saw the company’s net loss reported at US$1.1bn.
Cairn reported that 6.8mln barrels of reserves were cut-off via the Kraken downgrade, though at group level those barrels were offset by the addition of 15.2mln barrels as a result of the Nova field development being sanctioned in Norway.
Quizzically, however, Kraken’s operator EnQuest plc (LON:ENQ) separately issued a statement disputing Cairn’s view of the field’s reserves – telling its investors that the EnQuest estimate of reserves remains “materially unchanged”.
Cairn ended December with US$66mln of cash and it had some US$85mln drawn on its US$575mln reserves based lending financing facility.
Promise of multiple value catalysts
Simon Thomson, Cairn chief executive, pointed to this year’s high impact exploration plans as he highlighted upside possibilities for the company.
“With active development projects within the portfolio, we look forward to additional sustained production and cash flow generation over the long term,” Thomson said.
“Cairn offers shareholders multiple catalysts for value creation. Our financial flexibility and continued focus on capital discipline ensure that the company remains strongly positioned to deliver an active programme."
Possible Cairn India settlement delayed
Yesterday, Cairn got out of the way the news that it expects the long-running arbitration process against the Indian authorities to be more protracted than originally anticipated and is unlikely to be concluded before late 2019.
In a statement that the international arbitration panel – which finished the main court hearings in August – had in December advised that due to the number of procedural matters before it since the hearings it was not in a position at that time to give guidance on the expected timing of a decision.
Following subsequent correspondence, Cairn said: “the panel has now responded that although it remains mindful of Cairn's need for a swift decision, given its workload and the number of matters before it, it is still unable to provide specific guidance on timing.
“As a result of this, Cairn expects that the timetable for issuing the award will be more protracted than originally anticipated and is unlikely to be before late 2019.”
Cairn is claiming US$1.5mln in compensation to reinstate the company to the position it would have been in but for the actions of the IITD.